TaxTMI 
TaxTMI 
TaxTMI 
2009 (10) TMI 578
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....spective of the fact whether it is assessed as business income or other sources income. 4. In the result, the miscellaneous petition filed by the assessee stands allowed." Therefore, the order stands recalled for the purpose of determining the question whether the deduction under s. 80M of the IT Act is available in respect of dividend income and whether the same should be allowed on gross basis or net basis. 2. Before us, the learned Departmental Representative referred to the assessment order for the asst. yr. 1994-95 and pointed out that the assessee had conceded before the AO for restriction and, therefore, the assessee cannot be said to be aggrieved by the order of the assessment order (sic-AO) and accordingly, should not have filed any appeal and the CIT(A) also should not have adjudicated the appeal. In this regard he relied on the decision of the Hon'ble jurisdictional High Court in the case of Ramanlal Kamdar vs. CIT 1976 CTR (Mad) 185 : (1977) 108 ITR 73 (Mad). He also submitted that the deduction under s. 80M should only be allowed on net basis and in this regard he relied on the decision of the Hon'ble Supreme Court in the case of Motilal Pesticides (I) (P) Ltd. vs. ....
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....end after apportioning the interest expenses and management expenses. The assessee's representative by letter dt. 20th Feb., 2001 has relied upon various decisions of the Tribunal and High Court in support of his argument. The assessee's representative has also cited the decision of the Calcutta High Court in the case of CIT vs. United Collieries Ltd. (1993) 203 ITR 857 (Cal) wherein it has been held that only actual expenditure for earning the income and not notional expenditure should be deducted for the purposes of s. 80M. He also relied on the decision of the Supreme Court in the case of Rajasthan State Warehousing Corporation vs. CIT (2000) 159 CTR (SC) 132 : (2000) 242 ITR 450 (SC). The various decisions and arguments have been considered very carefully. The contention put forth by the assessee is not acceptable. In the following cases, it has been held that proportionate management expenses has to be deducted from dividend income and only the balance of the dividend income is eligible for deduction under s. 80M of the IT Act: (i) CIT vs. Madras Motor & General Insurance Co. Ltd. (1986) 51 CTR (Mad) 71 : (1986) 159 ITR 601 (Mad); (ii) CIT vs. United India Fire & General In....
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....n this count. Accordingly we uphold the same." Thus, it is clear that the Tribunal has held that the income from dividend should be treated as business income. 6. Now, the question is when dividend income is treated as business income, whether the same is eligible for deduction under s. 80M of the Act and the further question would be whether s. 80M deduction should be granted on gross or net dividend. The Hon'ble Bombay High Court in the case of CIT vs. Emrald Co. Ltd. has held that: "The assessee is a trader dealing specifically in shares and his business is trading in shares. His income, therefore, from trading in shares is required to be assessed under the head. 'Business' and since the shares have been purchased ou1 of borrowed funds, the interest on such borrowings is allowable under s. 36(1)(iii) as it is incurred for the purpose of his business. Since the assessee is a trader, though dividend is separately assessable under s. 56, it does not cease to be a business income. Business income is broken up under the different heads only for the purpose of computing total income, but the income does not cease to be income of the business. Therefore, in the case of dealer in sha....
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....The extent of benefit allowed by Parliament for dividend income is an amount which is required to be calculated with reference to the net dividend. The Act prescribes the amounts which are deductible from the gross dividend to arrive at the figure of net dividend. That computation has necessarily to be done before determining the amount on which deduction under s. 80M of the IT Act, 1961, can be allowed. The computation insofar as dividends are concerned is to be made under s. 57. Sec. 57, cl. (i), requires that in the case of dividends or interest on securities any reasonable sum paid by way of commission or remuneration of a banker or any other person for the purpose of realizing the dividend, interest on behalf of the assessee should be deducted. Where moneys are borrowed for investment in shares, to the extent the interest charged is capable of being regarded as expenditure laid out or expended wholly and exclusively for the purpose of making or earning dividend income, the interest so paid is liable to be deducted under s. 57(iii) before computing the benefit under s. 80M. It is not possible to hold that an assessee has, by reason of being a dealer in shares, an option not av....
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....ad) 71 : (1986) 159 ITR 601 (Mad) has held as under: "Held, that (1) in view of the decision of the Supreme Court in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC), the Tribunal was not correct in holding that the benefit under s. 80M should be granted on the gross dividend income without deducting the proportionate management expenses." 7.5 Similarly, the Hon'ble Madras High Court in the case of CIT vs. V. Ramakrishna & Sons (1989) 76 CTR (Mad) 158 : (1989) 179 ITR 638 (Mad), while considering Distributors (Baroda) (P) Ltd. vs. Union of India has opined as under: "The condition that must be fulfilled in order to attract the applicability of s. 80M of the IT Act, 1961, is that the gross total income of the assessee must include income by way of dividend from a domestic company; the income by way of dividends from a domestic company included in the gross total income would be income computed in accordance with the provisions of the Act, i.e., after deducting the interest on monies borrowed for earning such income. Therefore, the deduction under s. 80M should be allowed on the net dividend after deduction of the interest on the c....
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....gnore it either in initiating a proceeding or deciding on the rights involved in such proceedings. The launching of proceeding contrary to the law laid down by the High Court would be invalid and proceedings themselves would be without jurisdiction (East India Commercial Co. Ltd. vs. Collector of Customs AIR 1962 SC 1893). Not to follow the decision of the High Court within that jurisdiction would tantamount to committing contempt of that Court [Siemens India Ltd. & Anr. vs. K. Subramanian, ITO & Anr. (1983) 34 CTR (Bom) 23 : (1983) 143 ITR 120 (Bom)]. In order to give a word of caution, while applying the precedent, the Hon'ble Supreme Court in the case of State Financial Corpn. vs. Jagdamba Oil Mills AIR 2002 SC 834 has opined in para 19 as under: "Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed." 8.1.1 And further in para 21 the Hon'ble Supreme Court observed as under: "Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision ....
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.... partnership with private enterprise either in joint sector or associate sector or escort sector. The assessee incurs expenditure on projects and when a particular project becomes viable the expenditure incurred on such project is converted into shares. After successful take-off of the project the assessee disinvests its holding in that project by sale of shares in that company. It also advances loans to its subsidiaries and other companies. In the process of carrying out this activity, the company earns interest and dividend. In fact, its major income is by way of interest and dividend. The remaining income may be by profit on sale of investments and miscellaneous income. All these incomes are credited to the P&L a/c. In its return of income, the assessee claimed deduction under s. 80M of the IT Act, 1961 (the Act) on the gross amount of dividend earned by it. The AO was of the view that deduction under s. 80M can be granted only on the net dividend income in view of s. 80AA of the Act. In order to arrive at net dividend income, he apportioned the expenditure between the dividend income and other income and accordingly granted the deduction. 3. The CIT(A) took note of the orders ....
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....as very meagre as compared to the funds deployed in various investments in the shares of other companies. He took us through the schedule of investments in support of this contention. The learned Departmental Representative also referred to note 1 (a) in which it is mentioned that as company holds investments as development organisation on long-term basis, no provision is made for depreciation in the value of investments. His emphasis was on the fact that the investments were held for a long-term and therefore they were necessarily held to earn dividend income. Finally, submitting that the order of learned JM was quite a detailed order, the view expressed therein should be upheld. 5. The contention of the learned counsel was that the question was not whether deduction should be on gross dividend or not on gross dividend. According to him the question is whether the deduction should be on gross dividend or on what amount of dividend should the deduction be granted. It was argued that the only activity of the assessee was development of industries and there was no indivisible activity of investing in shares. In earlier years no such disallowance was made and having assessed dividend....
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....whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from that head is deductible; and (iii) in computing 'profits and gains of business or profession' when an assessee is carrying on business in various ventures and some among them yield taxable income and the others do not, the question of allowability of the expenditure under s. 37 of the Act will depend on: (a) fulfilment of requirements of that provision noted above; and (b) on the fact whether all the ventures carried on by him constituted one indivisible business or not; if they do, the entire expenditure will be a permissible deduction but if they do not, the principle of apportionment of the expenditure will apply because there will be no nexus between the expenditure attributable to the venture not forming an integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee." In short, the underlying principle laid down is that if different activities carried out by a person constitute indivisible business, then the apportionment of expenditure between taxable income and non-taxable income cannot be made. T....
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.... promote industries. Secondly, even if for the sake of argument the submission of the learned Departmental Representative that the investment is on long-term basis, is accepted, the Department has not made any bifurcation of the shares held by the assessee in the projects promoted by it and in the companies encouraged by it by subscribing to its shares. As a matter of fact, it will not be possible to make such bifurcation. These facts go to prove that the various activities carried out by the assessee constitute one single indivisible business which is of promoting industries in the State and therefore, the dividend income earned in the process assumes the character of a business income. In fact, the AO has assessed it as business income not only in this year but in all the earlier years as well. If it is an indivisible business, then there is no question of apportioning any expenditure to the dividend income which is subject to deduction under s. 80M of the Act. 8. In the case of CIT vs. Chemical Holdings Ltd. (2001) 169 CTR (Mad) 339 : (2001) 249 ITR 540 (Mad), though the facts are not very clear, it appears that the dividend income in the said case was assessed as income from o....