1973 (6) TMI 7 - HC - Income Tax

High Court: Relief on dividends for agricultural income-tax assessed companies recalculated under Income-tax Act

The High Court of Kerala ruled in favor of the assessee in a case involving the interpretation of provisions under sections 80M and 235 of the Income-tax ... Determining the relief admissible under section 235 - Whether relief under section 80M should be considered - held that the deduction under section 80M should not be considered - Therefore, the assessee is entitled to relief calculated on the entire dividend attributable to the profits of the company assessed to agricultural income-tax and not merely to 40% on that portion Issues:Interpretation of provisions under section 80M and section 235 of the Income-tax Act in relation to the deduction and relief on dividends paid by companies assessed to agricultural income-tax.Analysis:The judgment delivered by the High Court of Kerala involved multiple references made by the Income-tax Appellate Tribunal concerning the assessments of various assessees for different assessment years. The central issue revolved around the computation of relief on dividends paid to the assessees by other companies under sections 80M and 235 of the Income-tax Act. Section 80M mandates a deduction of 60% of such dividends in computing the total income of the assessees. On the other hand, section 235 provides relief to shareholders in respect of dividends paid by companies assessed to agricultural income-tax. The contention arose regarding the calculation of the relief under section 235, with the authorities granting relief only on 40% of the dividends, contrary to the assessees' claim for relief on the total dividend amount attributable to agricultural profits.The court referred to the Supreme Court decision in Mrs. Bacha F. Guzdar v. Commissioner of Income-tax, which established that dividends declared by companies assessed to agricultural income-tax are chargeable to income tax under the Income-tax Act. To address double taxation, section 49B of the Indian Income-tax Act, 1922, was amended in 1959, and subsequently re-enacted as section 235 in the present Act. However, amendments introduced through sections 85A and 80M altered the calculation methodology for relief on dividends paid by domestic companies. Section 80M mandated a deduction of 60% of dividends in computing total income, leading to a dispute on the application of relief under section 235.The court analyzed the language of section 235(b)(ii) and emphasized that the relief calculation should be based on the entire dividend attributable to the profits of the company assessed to agricultural income-tax, irrespective of the deduction under section 80M. The court highlighted that the legislative intent behind section 235 did not change with the introduction of section 80M, and the relief entitlement should be determined based on the total dividend paid to the shareholder. Therefore, the court upheld the Appellate Tribunal's decision, ruling in favor of the assessee and against the revenue authorities.In conclusion, the court answered the questions referred in the affirmative, directing that a copy of the judgment be forwarded to the Appellate Tribunal in each case. The parties were instructed to bear their own costs in all the references, affirming the entitlement of the assessee to relief calculated on the entire dividend attributable to agricultural profits, as per the provisions of section 235 of the Income-tax Act.