TaxTMI 
TaxTMI 
2003 (11) TMI 10
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....otal income of Rs. 2,01,98,450. The Assessing Officer completed the assessment under section 144 of the Act by order dated February 20, 1992, and determined the total income at Rs. 3,00,00,000. The aforesaid determination was assailed in an appeal and the appellate authority set aside the order passed by the Assessing Officer. Thereafter, the assessment was made under section 143(3) read with section 250 of the Act and the Assessing Officer determined the total income as Rs. 2,49,89,070. It is pertinent to mention here that the income-tax return for the assessment year 1991-92 was filed on December 31, 1991 disclosing the total income of Rs. 1,45,20,208. The assessment in question was completed under section 143(3) of the Act vide order dated March 31,1994, determining the total income at Rs. 2,49,89,070. In respect of the assessment year 1989-90, the assessee had claimed deduction under section 80M of the Act at the rate of 60 per cent. of the gross dividend of Rs. 32,96,000 amounting to Rs. 19,77,600. Separate deduction at the rate of 40 per cent, of gross profit was also claimed under section 36(1)(viii) of the Act. Similarly deductions were claimed in respect of the assessment ....
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....able under section 80M of the Act. To buttress his submission he has placed reliance on the decision rendered in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 (SC). Mr. G. N. Purohit, learned counsel for the assessee, has commended us to the concept of total income as provided under the Act and submitted that the computation made by the Tribunal is absolutely flawless and the reasons given by the Tribunal are covered by the decisions rendered in the cases of CIT v. M. P. Audyogik Vikas Nigam Ltd. (No. 1) [1989] 178 ITR 177 (MP); CIT v. Himachal Pradesh Financial Corporation [1998] 232 ITR 138 (HP) and CIT v. General Insurance Corporation of India (No. 1) [2002] 254 ITR 203 (Bom). To appreciate the controversy it is apposite to refer to section 36(1)(viii). The said provision reads as under:- "36.(1)(viii) in respect of any special reserve created and maintained by a financial corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India or by a public company formed and registered in India with the main object of carrying on the business of providi....
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....eduction of an amount equal to so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first-mentioned domestic company on or before the due date. (2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year. Explanation.- For the purposes of this section, the expression 'due date' means the date for furnishing the return of income under subsection (1) of section 139." It is also condign to refer to section 80B(5) which reads as under: "80B.(5) 'gross total income' means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter;" As has been indicated earlier the main thrust of the matter is whether both the provisions, namely, section 36(1)(viii) and section 80M, should be treated to be independent. In this context we may profitably refer to Circular No. 58 issued on April 15, 1971 (see [1971] 80 ITR (St.) 200), clarifying section 80M of the....
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..... 2 is concerned the Assessing Officer has held that while deductions under section 80M, expenses incurred on account of salary paid to staff, stamp duty, transfer fee and safe custody charges are relatable to earning of dividend. We do not find any merit. The above expenses on account of salary paid to staff are not directly relatable to earning of dividend. So also payment of stamp duty, transfer fees and safe custody are not relatable to earning of dividend. They may be relatable to acquisition of share but not to dividend being earned." At this juncture it is worthwhile to refer to the decision rendered in the case of CIT v. Bhoruka Investments (P) Ltd. [1992] 198 ITR 734 (Cal) wherein it has been held as under: "Where a part of the dividend income is utilised for setting off loss under any other head, relief under section 80M of the Income-tax Act, 1961, is to be allowed on the dividend income before such set off subject to the overall limit imposed by section 80A(2) of the Income-tax Act, 1961. The relief under section 80M has to be computed on the dividend income included in the assessment but while allowing relief, the relevant consideration is what is the total incom....
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....alising the dividend income." In this context it is appropriate to refer to the decision rendered in the case of M. P. Audyogik Vikas Nigam Ltd. (No. 1) [1989] 178 ITR 177 wherein the Division Bench of this court expressed the view as under: "Having heard learned counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and against the Revenue. Clause (viii) of section 36(1) of the Act provides for deduction on the basis of total income computed before making any deduction under Chapter VI-A of the Act. Total income as defined by section 2(45) of the Act means the total amount of income referred to in section 5, computed in the manner laid down in the Act. Chapter III of the Act refers to income which do not form part of total income. Chapter VI-A provides for certain deductions which are required to be made in computing total income. However, section 36(1)(viii) of the Act provides that deduction admissible under that provision has to be calculated on the basis of total income computed before making any deduction under Chapter VI-A of the Act. In view of this provision, it would not be permissible for the assessing author....
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....ds. As held by the Bombay High Court in the case of Maganlal Chhaganlal (P.) Ltd. [1999] 236 ITR 456, in order to compute deduction under section 80M, one has to compute the amount of dividend in accordance with the Act after deducting interest on monies borrowed for earning such income. The point to be noted is that deductions contemplated by section 80M referred to actual expenditure whereas, deductions contemplated by section 20(1) are estimated proportionate expenses and interest. Therefore, one cannot import deductions from interest on securities in the case of a banking company under section 20(1) into the deductions contemplated by section 80M. In the case of CIT v. United Collieries Ltd. [1993] 203 ITR 857 the Calcutta High Court has held that the special deduction under section 80M is allowable on the net dividend which is arrived at after taking into account actual expenditure incurred by the assessee in earning the dividend income and that there was no scope for any estimate of expenditure being made and there was no scope for allocation of notional expenditure unless the facts of a particular case so warranted. In our view, section 20(1) contains a rule of proportionali....