Dividend deduction under section 80-L(i) applies to gross dividend income, not net income after interest expenditure.

Section 80-L(i) was interpreted to allow deduction on dividend income from Indian companies as received, rather than on a reduced figure after deducting interest expenditure incurred to earn that dividend. The governing principle was that "income by way of dividends" refers to the gross dividend amount included in the total income, not the net amount after set-off of related ? No-use English: after set-off of related interest expenditure. On that basis, the deduction was available on the full dividend income, without reduction for interest costs.

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Issues: Whether deduction under section 80-L(i) of the Income-tax Act, 1961, in respect of dividends from Indian companies is to be computed on the gross dividend income or only on the net amount after reducing interest expenditure incurred for earning the dividends.

Analysis: The language of section 80-L(i), like the language considered in relation to analogous dividend-exemption provisions, refers to "income by way of dividends" from Indian companies. The governing principle applied was that such provision contemplates the dividend received as such and not the dividend amount after deduction of expenditure incurred for earning it. On that approach, the relevant income included in the gross total income was the full dividend amount and not nil after set-off of interest expenditure.

Conclusion: The assessee was entitled to deduction under section 80-L(i) on the full dividend income of Rs. 2,457, without reducing it by the interest expenditure.

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