Appeal dismissed on deduction of gross dividend & affirmed deduction for Marketing Division profits.

The appeal challenging the deduction of gross dividend under Section 80-M for the assessment year 2003-04 was dismissed. The Tribunal upheld the allowance of deduction on a gross basis as the respondent had invested using its own funds, differentiating the case from Distributors (Baroda) P. Ltd. where borrowed money was involved. Additionally, the Tribunal affirmed the deduction for profits of the Marketing Division under Section 80IB, following precedent that marketing activities are considered part of an industrial undertaking. The appeal was dismissed without costs awarded.

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Issues:
1. Deduction of gross dividend under Section 80-M
2. Deduction for profits of the Marketing Division under Section 80IB

Analysis:

Issue 1: Deduction of gross dividend under Section 80-M

The appeal by the revenue challenged the order passed by the Income Tax Appellate Tribunal (the Tribunal) regarding the deduction of gross dividend under Section 80-M for the assessment year 2003-04. The Assessing Officer disallowed the claim for deduction under Section 80-M on a net basis, citing the Supreme Court judgment in Distributors (Baroda) P. Ltd. v/s Union of India, which held that only net dividend is deductible. The Commissioner of Income Tax (Appeals) upheld this decision, emphasizing the lack of proof that interest-bearing funds were not invested in shares for earning dividend income. However, the Tribunal noted that the respondent received dividends from various companies, with significant investments made from its own funds. The Tribunal relied on the principle that if an assessee has sufficient interest-free funds available, a presumption arises that investments were made from such funds. As the revenue contended that deductions should be allowed only on a net basis, the Tribunal differentiated the facts from Distributors (Baroda) P. Ltd., where interest was paid on borrowed money for investments. In this case, the respondent had its own funds for investments, justifying the allowance of deduction on a gross basis under Section 80-M. The Tribunal's decision, based on factual findings, was upheld as not perverse or arbitrary, thus not necessitating consideration as a substantial question of law.

Issue 2: Deduction for profits of the Marketing Division under Section 80IB

The Tribunal upheld the respondent's claim for deduction under Section 80I by following its decision in Hindustan Petroleum Corpn. Ltd., which held that profits and gains from industrial undertakings include activities like manufacturing, processing, and marketing. This interpretation was consistent with previous decisions of the Court, affirming that marketing activities fall under the purview of an industrial undertaking. As the revenue did not challenge the applicability of the previous decision to the current case, the Tribunal's order was deemed appropriate, and the issue did not raise a substantial question of law for consideration.

In conclusion, the appeal was dismissed, and no costs were awarded.

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