TaxTMI 
TaxTMI 
2004 (10) TMI 47
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...., on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of the lower authorities and holding that the expenditure at 10 paise per Rs. 100 of the dividend income be taken for deduction under section 80M?" The facts in so far as they are relevant for answering the aforesaid question need to be taken note of from the statement of case drawn by the Tribunal while referring the question to this court. The issue relates to the assessment years 1985-86 and 1986-87. The assessee is a bank and is declared to be a company for the purpose of the Income-tax Act by the Central Board of Direct Taxes (the CBDT). The assessee also, in addition to their banking business derives income from dividend, i.e., income....
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....pinion of the Commissioner of Income-tax (Appeals), the Assessing Officer should take 10 paise per Rs. 100 as an expenditure incurred and accordingly, calculate the deduction under section 80M. The assessee felt aggrieved by this finding relating to expenditure, filed further appeal to the Tribunal (the ITAT). By order dated August 5,1997 (annexure C) the Tribunal upheld the finding and dismissed the appeal. The assessee, therefore, prayed for making a reference to this court under section 256(1) of the Act on the question proposed. The Tribunal by order dated July 2, 1998, passed in R.A. Nos. 161/162/Ind/1997 acceded to the request made by an assessee and accordingly, made the reference to this court to answer the question, referred supra.....
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....tion and hence, the Assessing Officer ought not have taken 10 paise as an expenditure said to have been incurred for earning Rs. 100 by way of dividend and then deducted the same out of Rs. 100 for computing the total income under section 80M. Learned counsel placed reliance on the decisions reported in CIT v. National and Grindlays Bank Ltd. [1993] 202 ITR 559 (Cal), CIT v. Enemour Investments Ltd. [1994] 72 Taxman 370 (Cal) and CIT v. United Collieries Ltd. [1993] 203 ITR 857 (Cal). In reply, learned counsel for the Revenue placed reliance on the decision reported in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) and contended that the issue sought to be urged by the assessee and referred by the Tribun....
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....) "with reference to the full amount of dividends received from a domestic company and not with reference to the dividend income as computed in accordance with the provisions of the Act, i.e., after making the deductions provided under the Act". It is this view of the Supreme Court rendered in what is known as Cloth Traders' case [1979] 118 ITR 243 that led Parliament to enact a new section 80AA with its retrospective operation. Obviously, section 80AA was enacted to overcome the interpretation made by the Supreme Court of section 80M. It is this introduction of section 80AA which gave rise to another round of litigation on the scope and ambit of section 80M read with section 80AA ibid in the case of Distributors (Baroda) [1985] 155 ITR 120....
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....n accordance with the provisions of the Act for the purpose of granting benefit under section 80M. Section 56 of the Act deals with the income from other sources which includes income from dividend, i.e., section 56(2)(i). Whereas, section 57 deals with deduction. Sub-section (1) provides as to how and in what manner, the deduction in the case of dividends or interest on securities is to be made. A careful perusal of section 80M as interpreted by the Supreme Court in Distributors' case [1985] 155 ITR 120 read with section 57 would only suggest that while giving benefit under section 80M, the gross income of dividend cannot be taken into account but an income calculated after making deduction as per the provisions of the Act (section 57) h....
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....R 857 (Cal) and lastly CIT v. Enemour Investments Ltd. [1994] 72 Taxman 370 (Cal). In all the three cases, their Lordships of the Calcutta High Court have taken a consistent view that we have taken. It has been held that: "In our view, only the actual expenditure incurred by the assessee in earning the dividend income shall be deducted from the gross dividend income. There is no scope for any estimate of expenditure being made and no notional expenditure can be allocated also for the purpose of earning income unless the facts of a particular case warrant such allocation. In that view of the matter, we are of the view that only the actual expenses should be taken into account in reducing the dividend income and not any notional expenditure....