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Commissioner of Income-tax, Tamilnadu - I Vs. Late Rani Meyyammai Achi and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 985 and 1186 of 1977 (Reference Nos. 679 and 816 of 1977)
Judge
Reported in[1984]146ITR121(Mad)
ActsIncome Tax Act, 1961 - Sections 80A, 80A(2), 80K, 80L, 80M and 99(1)
AppellantCommissioner of Income-tax, Tamilnadu - I
RespondentLate Rani Meyyammai Achi and anr.
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateS.V. Subramaniam, Adv.
Cases ReferredCloth Traders (P.) Ltd. v. Addl.
Excerpt:
.....head 'dividend' and 'interest' is negative figure - in case there is factual existence of dividend income assessee would be entitled to relief under sections 80k and 80m on net dividend - dividend income does not cease to be dividend income because for purpose of computation of income it should be treated as gross total income. - - 80l, observed that the requirement of the above section was that the income by way of dividend from any indian company or interest from banks or financial corporations should have been included in the gross total income and that the said requirement was satisfied in the instant case since the dividend income of rs. 80m merely prescribe a condition for the applicability of the section, namely, that the gross total income must include the category of income..........from dividends. in making the assessment for the assessment year 1972-73 the ito computed the gross dividend received by the assessee during the relevant previous year on the shares held by him in the various companies as rs. 9,950 and interest received by him as rs. 6,304. the assessee claimed deduction of rs. 21,101 as interest paid on moneys borrowed for being invested in shares from and out of which the aforesaid dividends and interest income were received, and that was allowed. the assessee also claimed deduction of rs. 3,000 allowable u/s. 80l of the i.t. act, 1961. the ito, however, rejected the said claim on the ground that the net income by way of dividends and interest was a minus figure, and, therefore, there was no room for any allowance being given for a sum of rs......
Judgment:

Ramanujam, J.

1. Since the questions referred in both the cases are the same, they are disposed of together. Having regard to the fact that the facts which gave rise to the question of law referred are substantially the same, it is enough if the facts in T. C. No. 1186 of 1977 are given.

2. The assessee in that case is an individual deriving income from various sources including income from dividends. In making the assessment for the assessment year 1972-73 the ITO computed the gross dividend received by the assessee during the relevant previous year on the shares held by him in the various companies as Rs. 9,950 and interest received by him as Rs. 6,304. The assessee claimed deduction of Rs. 21,101 as interest paid on moneys borrowed for being invested in shares from and out of which the aforesaid dividends and interest income were received, and that was allowed. The assessee also claimed deduction of Rs. 3,000 allowable u/s. 80L of the I.T. Act, 1961. The ITO, however, rejected the said claim on the ground that the net income by way of dividends and interest was a minus figure, and, therefore, there was no room for any allowance being given for a sum of Rs. 3,000 u/s. 80L of the Act.

3. The disallowance of the claim u/s. 80L was questioned by the assessee by filing an appeal before the AAC. The AAC, however, allowed the appeal holding that the assessee was entitled to the allowance of Rs. 3,000 u/s. 80L of the Act.

4. Thereupon, the Revenue preferred an appeal to the Income-tax Appellate Tribunal contending that the assessee was not entitled to deduction u/s. 80L as there was no net dividend income as determined by the ITO. The Tribunal, after setting our the relevant provisions of s. 80L, observed that the requirement of the above section was that the income by way of dividend from any Indian company or interest from banks or financial corporations should have been included in the gross total income and that the said requirement was satisfied in the instant case since the dividend income of Rs. 9,950 and the interest income of Rs. 6,304 was included in the assessment. The Tribunal, in taking that view, followed a decision of this court in CIT. v. Madras Motor & General Insurance Co. Ltd. : [1975]99ITR243(Mad) and also another decision of this court in Madras Auto Service v. ITO : [1975]101ITR589(Mad) , touching the point. Ultimately the Tribunal held that the assessee was entitled to the deduction of Rs. 3,000 u/s. 80L of the Act for the assessment year in question. Aggrieved against the decision of the Tribunal, the Revenue sought and obtained a reference to this court on the following question of law :

'Whether, on the facts and in the circumstances of the case, the assessee is entitled to the deduction under section 80L of the Income-tax Act, 1961, for the assessment year 1972-73 even though the net income assessed under the head 'Dividend' and 'Interest' is a negative figure ?'

5. T.C. No. 985 of 1977, involving almost similar facts, arises out of the order of the Tribunal which followed its earlier decision which is the subject-matter in T.C. No. 1186 of 1977.

6. The decision in CIT v. Madras Motor & General Insurance Co. Ltd. : [1975]99ITR243(Mad) and the decision in Madras Auto Service v. ITO : [1975]101ITR589(Mad) followed by the Tribunal by these cases have been referred to with approval by the Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : [1979]118ITR243(SC) . In CIT v. Madras Motor & General Insurance Co. Ltd. : [1975]99ITR243(Mad) , the question arose as to whether a rebate in respect of corporation tax should be restricted to the dividend received by the assessee less the proportionate management expenses or on the gross amount of dividend under the provisions of the Finance Act, 1963, Part II, Para. D. After considering the relevant provisions, this court held that if there is factual existence of the dividend income, the assessee would be entitled to a rebate on the dividend income under the provisions of the Finance Act and the dividend income does not cease to be dividend income because, for the purpose of computation of income, it should be treated as the gross total income. In Madras Auto Service v. ITO : [1975]101ITR589(Mad) , the question arose as to whether the assessee is entitled to the relief under ss. 80K and 80M on the net dividend and this court held, following CIT v. Madras Motor & General Insurance Co. Ltd. : [1975]99ITR243(Mad) , that the relief under s. 99(1)(iv) granting exemption from super-tax would be available on the gross dividend income and not on the net dividend income in view of the language used in that section.

7. The Supreme Court in Cloth Traders (P.) Ltd. v. Addl. CIT : [1979]118ITR243(SC) ,consturing the scope f s. 99(1)(iv) of the I.T. Act, 1961, and also s. 85A, came to the conclusion that the expression, 'any dividend from an Indian company' cannot mean dividend from an Indian company minus any expenses incurred in earning it or less any deduction allowable under the Act and, therefore, if the particular item of income, namely, dividend from an Indian company, is included in the total income, what is exempted is divided from Indian companies which can only mean the full amount of dividends received from an Indian company. The Supreme Court, however, in dealing with the scope of s. 80M held that the deduction permitted under that section is to be caluclated 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, that the words 'where the gross income of an assessee.... includes any income by way of dividend from a domestic company' in s. 80M merely prescribe a condition for the applicability of the section, namely, that the gross total income must include the category of income described by the words 'income by way of dividends from a domestic company ', that if the gross total income includes this particular category of income, whatever be the quantum of the income included, the condition would be satisfied and the assessee would be eligible for deduction of the whole or 60 per cent. of 'such income', as the case may be, and that the possibility that the income by way of dividends may exceed the quantum of such income included in the gross total income is taken care of by s. 80A(2), which provides that the aggregate amount of the deduction shall not in any case exceed the gross the total income. The Supreme Court had also referred to the decisions of the Bombay High Court in CIT v. Industrial Investment Trust Co. Ltd. : [1968]67ITR436(Bom) and CIT v. New Great Insurance Co. Ltd. : [1973]90ITR348(Bom) , and also the decision of the Calcutta High Court in CIT v. Darbhanga Marketing Co. Ltd. : [1971]80ITR72(Cal) , as having taken the same view as the Madras High Court. The Supreme Court has referred to the fact that all the three High Court, namely, Bombay, Calcutta and Madras, have taken a uniform view that the entire amount of dividends received from the Indian companies by the assessee was exempt from super-tax and that exemption was not limited to the dividend income only in accordance with the provisions of the Act and forming part of the total income. Having regard to the view taken by the Supreme Court in the above case, which has approved the uniform view taken by the three High Courts of Madras, Bombay and Calcutta, the decision of the Tribunal which is in accord with the decisions of this court in CIT v. Madras & General Insurance Co. Ltd. : [1975]99ITR243(Mad) and Madras Auto Service v. ITO : [1975]101ITR589(Mad) , has to be held to have correctly interpreted the provisions of s. 80L of the Act.

8. The question referred in both the cases is answered in the affirmative and against the Revenue. There will be no order as to costs.


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