Section 80M deduction must be computed on net dividend under retrospective section 80AA, not gross dividend received.

Deduction under section 80M of the Income-tax Act, 1961 had to be computed on the net dividend as computed under the Act, not on the gross dividend received from domestic companies. Section 80AA, inserted retrospectively from 1 April 1968 by the Finance (No. 2) Act, 1980, clarified that the deduction under section 80M was linked to dividend income as computed in accordance with the Act. Section 44 of the Finance (No. 2) Act, 1980 was held inapplicable on the facts. The question was answered in the negative in favour of the Revenue.

---

---

Issues: Whether deduction under section 80M of the Income-tax Act, 1961, was to be allowed on the gross amount of dividend received from domestic companies or on the net dividend in view of section 80AA inserted retrospectively.

Analysis: The reference arose under section 256(1) of the Income-tax Act, 1961. The Tribunal had allowed relief under section 80M on the gross dividend, but during the relevant period section 80AA was inserted by the Finance (No. 2) Act, 1980 with retrospective effect from 1 April 1968. That provision required the deduction under section 80M to be computed with reference to the income by way of dividends as computed in accordance with the Act, and not with reference to the gross amount of such dividends. Section 44 of the Finance (No. 2) Act, 1980 was found inapplicable to the facts.

Conclusion: The deduction under section 80M had to be computed on the net dividend and not on the gross dividend, and the question was answered in the negative in favour of the Revenue.

---