Court clarifies dividend income relief calculations favoring taxpayer for one year; split decision for others

The Tribunal upheld the Commissioner of Income Tax's order, allowing relief under section 85A based on gross dividend income for the assessment year 1967-68, and relief under section 80M based on net dividend income without deductions for the assessment years 1968-69 and 1969-70. The Supreme Court clarified that relief should be computed on gross dividend income, leading to a split decision in favor of the assessee for 1967-68 and in favor of the Revenue for 1968-69 and 1969-70.

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Issues:
Interpretation of relief under section 85A and section 80M for different assessment years.

Analysis:
The case involves the interpretation of relief under section 85A and section 80M for the assessment years 1967-68, 1968-69, and 1969-70. The Tribunal upheld the order of the Commissioner of Income Tax, which allowed relief only on the net dividend income after deducting interest on borrowings for investments in shares. The Tribunal relied on a decision of the Gujarat High Court, which was later reversed by the Supreme Court in a similar case. Following the Supreme Court decision, the Legislature introduced section 80AA with retrospective effect from April 1, 1968, to rectify the interpretation issue. The Supreme Court clarified that relief under section 85A and section 80M should be computed based on gross dividend income, not the net income after deductions. Section 80AA specifically mandates computation based on the income by way of dividends as per the provisions of the Income Tax Act. For the assessment year 1967-68, the relief under section 85A is granted based on gross dividend income, as per the Supreme Court decision. However, for the assessment years 1968-69 and 1969-70, relief under section 80M is to be computed on net dividend income without deductions under Chapter VI-A of the Act. Therefore, the question is answered in favor of the assessee for 1967-68 and in favor of the Revenue for 1968-69 and 1969-70. No costs are awarded in this reference.

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