1992 (4) TMI 18 - HC - Income Tax

s.80M relief only on net dividend after proven actual expenses; no notional allocation without factual basis allowed

HC held that deduction under s.80M is admissible only on net dividend income, i.e., gross intercorporate dividend reduced by actual expenditure incurred ... Deduction u/s 80M - Intercorporate Dividends - Special Deduction - Whether, the deduction u/s 80M should be allowed on the gross dividend income without deducting the allocation of expenses incurred in earning such dividend income ? - HELD THAT:- The relief under section 80M is allowable only on the net dividend which is arrived at after taking into account the expenditure, if any, incurred for the purpose of earning such dividend. Where there is no such expenditure, the gross dividend will be the net dividend and no problem will be posed in determining the issue. In this case, the Income-tax Officer, in his assessment, has estimated the proportionate expenses in earning the dividend. No fresh investment has been made during the assessment years under reference in shares wherefrom any dividend has been earned. In our view, only the actual expenditure incurred by the assessee in earning the dividend income shall be deducted from the gross dividend income. There is no scope for any estimate of expenditure being made and no notional expenditure can be allocated also for the purpose of earning income unless the facts of a particular case warrant such allocation. The actual expenses should be taken into account in reducing the dividend income and not any notional expenditure as has been done in the instant case. We, therefore, decline to answer the question. The Tribunal will find out the expenditure, if any, actually incurred in earning the dividend and, to that extent, the dividend income should be reduced and relief under section 80M should be allowed on that. Issues Involved: The judgment pertains to the interpretation of deduction under section 80M of the Income-tax Act, 1961, specifically regarding the treatment of expenses incurred in earning dividend income.Assessment Years 1982-83 and 1983-84: The assessee disclosed dividend income for the two years under reference, and the Income-tax Officer computed proportionate expenses for earning such dividend and deducted these amounts from the gross dividend to arrive at the net income from dividend for each year.Commissioner of Income-tax (Appeals) Decision: The Commissioner observed that no fresh investment was made in shares during the assessment years, and expenses other than those admitted by the assessee should not be deducted to compute relief under section 80M. The Commissioner decided in favor of the assessee.Tribunal's Decision: The Tribunal held that deduction under section 80M should be allowed on the gross dividend without deducting the allocation of expenses incurred in earning the dividend income, dismissing the appeals by the Department.Question of Law Referred to High Court: The High Court was asked to determine whether deduction under section 80M should be allowed on the gross dividend without deducting the allocation of expenses incurred in earning such dividend income, based on the Tribunal's observation.High Court's Analysis and Decision: The High Court found the Tribunal's approach erroneous, stating that relief under section 80M should be based on the net dividend after accounting for any expenditure incurred in earning the dividend. The Court emphasized that only actual expenses should be considered, rejecting the notion of estimating or allocating notional expenditure. The Court declined to answer the question directly, directing the Tribunal to determine the actual expenditure incurred by the assessee for earning the dividend income and adjust the relief under section 80M accordingly.Conclusion: The High Court emphasized the importance of considering actual expenses incurred in earning dividend income for the purpose of calculating relief under section 80M, rejecting the notion of estimating or allocating notional expenditure. The Court directed the Tribunal to adjust the relief based on the actual expenditure incurred by the assessee.