Domestic company definition allowed section 80M deduction on dividend received from the Unit Trust of India.

Section 32(3) of the Unit Trust of India Act, 1963 deems the Unit Trust of India to be a company for the purposes of the Income-tax Act, 1961 and treats distributions to unit holders as dividend income. On that construction, the definition of "domestic company" in section 80B(2) was read as extending to an Indian company, with the limiting words relied on by the revenue applying only to the second limb concerning other companies. As a result, dividend received from the Unit Trust of India was treated as eligible for deduction under section 80M and was not excluded from that relief.

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Issues: Whether dividend received from the Unit Trust of India qualified for deduction under section 80M of the Income-tax Act, 1961, on the footing that the Unit Trust of India was a domestic company.

Analysis: Section 32(3) of the Unit Trust of India Act, 1963 deems the trust to be a company for the purposes of the Income-tax Act, 1961 and treats distributions to unit holders as dividend income. The definition of domestic company in section 80B(2) was read as covering an Indian company, and the limiting words relied upon by the revenue were held to relate to the second limb concerning any other company. On that construction, the Unit Trust of India fell within the first part of the definition and the dividend received from it could not be excluded from deduction under section 80M.

Conclusion: The assessee was entitled to deduction under section 80M on dividend income received from the Unit Trust of India.

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