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

Section 80AA governed the computation of the section 80M deduction and required it to be based on dividend income as computed under the Income-tax Act, rather than on gross dividend receipts. Because section 80AA was inserted with retrospective effect from 1 April 1968, the deduction for the years in question had to be calculated on net dividend income determined under sections 56 and 57. The result was that section 80M relief was unavailable on the gross dividend amount and was restricted to the computed net dividend income.

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Issues: Whether deduction under section 80M of the Income-tax Act, 1961, was to be computed on the net dividend income determined under sections 56 and 57 or on the gross dividend income, in view of section 80AA of the Income-tax Act, 1961.

Analysis: Section 80AA, inserted by the Finance (No. 2) Act, 1980 with retrospective effect from 1 April 1968, governed the computation of the deduction and required it to be worked out on the dividend income as computed under the Act, not on the gross dividend. The reference question was therefore answered by applying the retrospective statutory provision to the assessment years in question.

Conclusion: The deduction under section 80M was not allowable on the gross dividend but only on the net dividend income computed under sections 56 and 57, and the answer was in favour of the Revenue.

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