Commissioner of Income Tax vs Industrial Finance Corporation of India

B.N. Kirpal, J.—This judgment will dispose of Income Tax References Nos. 235 of 1975, 236 of 1975 and 260 of 1978, which pertain to the assessment years 1968-69, 1969-70 and 1970-71.

The Income Tax Appellate Tribunal has stated the case and referred questions of law u/s 256(1) to this court at the instance of the Commissioner of Income Tax. The assessed is a statutory corporation set up under the Industrial Finance Corporation Act for the purpose of making medium and long-term credits easily available to industrial concerns of India, particularly in circumstances where normal banking facility is inadequate and recourse to method of capital issue is impracticable. The main source of the assessed''s income is interest on loans granted to industrial concerns in India. It also earns dividend, commission, interest and commitment charges on unutilised loans.

For the years in question, the assessed claimed before the Income Tax Officer relief u/s 80M of its inter-corporate dividend income and also reliefs under Sections 80L and 80K of the Income Tax Act, 1961. The Income Tax Officer allowed relief u/s 80M only with reference to the net dividend income. In respect of the assessment year 1969-70, the Income Tax Officer allowed the assessed relief as it was claimed under Sections 80K and 80L. In respect of the other assessment years, relief u/s 80M as well as under Sections 80K and 80L were denied by the Income Tax Officer.

Appeals were filed to the Appellate Assistant Commissioner by the assessed. The Appellate Assistant Commissioner directed the Income Tax Officer to allow relief u/s 80M with reference to the gross dividend income and he also held that reliefs under Sections 80K and 80L could also be available to the assessed. The Revenue came up in appeal to the Tribunal. The Tribunal did not accept the contention of the Revenue and dismissed the appeal. Thereafter, on an application being made u/s 256(1), the Tribunal has referred the following questions of law to this court :

" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that relief u/s 80M should be worked out in relation to the gross amount of the intercorporate dividend income of the assessed and that similarly reliefs under Sections 80K and 80L should also be worked out in relation to such gross amount of dividend income and not with reference to the net amount of such dividend income, i.e., after deduction of the expenses relatable thereto u/s 57 of the Act of 1961, for the assessment year 1969-70 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the relief u/s 80M should be worked out in relation to the gross amount of intercorporate dividend income of the assessed and not with reference to the net amount of such dividend income, i.e., after deduction of the expenses relatable thereto u/s 57 of the Act of 1961, for the assessment years 1970-71 and 1972-73 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the relief u/s 80M should be worked out in relation to the gross amount of intercorporate dividend and similarly relief under Sections 80K and 80L also worked out in relation to the gross amounts of dividend, and not the net amount of such dividend after deducting the expenses relatable thereto u/s 57 of the Income Tax Act, 1961 ? "

In respect of the assessment years 1968-69 and 1971-72, three other questions of law were also referred at the instance of the assessed. We are informed by Mr. Vaish that those questions have been decided and that the present reference is concerned only with the question with regard to the relief to be granted under Sections 80M, 80K and 80L. Similarly, in respect of the assessment years 1971-72 and 1972-73, the aforesaid question with regard to Section 80M has already been decided in favor of the Revenue by this court by following a decision of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others,

From the aforesaid, it follows that it is only in respect of the three assessment years, namely, 1968-69, 1969-70 and 1971-72 that the questions of relief which can be granted under Sections 80K, 80L and 80M have to be decided. It is not disputed that, as regards the deduction u/s 80M is concerned, the matter stands concluded by the above-mentioned judgment of the Supreme Court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others,

As regards Sections 80K and 80L are concerned, the two provisions are pari materia. Mr. Vaish contends that the decision of the Supreme Court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, should have no application with regard to the allowability of the deduction under Sections 80K and 80L as the language of the two provisions was materially different. He further submits that the Madras High Court in COMMISSIONER OF Income Tax Vs. MADRAS MOTOR AND GENERAL INSURANCE CO. LTD., has come to the conclusion that the aforesaid Supreme Court decision in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, was not applicable and, on a correct interpretation of Section 80K, the assessed was entitled to the benefit under that section on the gross dividend income without deducting the proportionate management expenses. Mr. Vaish reiterates the arguments of the assessed which found favor with the Madras High Court. The difficulty in the way of the assessed is that the Supreme Court has, in the case of Commissioner of Income Tax, Bombay Vs. P.K. Jhaveri, applied the ratio of the decision in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, to the provisions of Section 80K. The Supreme Court has held that the deduction u/s 80K was allowable to the assessed only on the amount after deduction of the interest paid on moneys borrowed specifically for investment in the shares and deduction was not allowable on the gross amount received. Mr. Vaish, however, submits that the Supreme Court did not have, in Commissioner of Income Tax, Bombay Vs. P.K. Jhaveri, , the benefit of argument on behalf of the assessed. He vehemently contends that the notice of the Supreme Court was not drawn to the distinction in the language between Sections 80M and 80K. He further submits that the scheme of Section 80K is radically different from that of Section 80M and Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, was not concerned with Section 80K and that that decision had to be confined only to the provisions of Section 80M.

In our opinion, it is not open to Mr. Vaish to contend before us that we should not apply or follow the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. P.K. Jhaveri, The Supreme Court has very clearly held that its decision in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, is applicable to Section 80K and, that Therefore, it is not open to us to go into those aspects which are now sought to be argued by Mr. Vaish. It would, Therefore, follow that, u/s 80K, deduction on gross amount received cannot be allowed and for the same reason, u/s 80L as well, deduction on the gross amount cannot be allowed. The result of this is that, in view of the decisions of the Supreme Court in Distributors (Baroda) Pvt. Ltd. Vs. Union of India (UOI) and Others, and Commissioner of Income Tax, Bombay Vs. P.K. Jhaveri, , the questions of law are answered in the negative and in favor of the Revenue.

It is contended by Mr. Vaish that the Income Tax Appellate Tribunal, while disposing of the appeals, had allowed deduction on the gross amount of dividend. In view of the decision now given, the Income Tax Appellate Tribunal will have to determine the deduction allowable under Sections 80M, 80L and 80K because gross deduction is not to be allowed. As a consequence of this decision, when the Income Tax Appellate Tribunal disposes of the case in accordance with the provisions of Section 260(1), they will have to specify the actual amount of deduction available to the assessed under Sections 80M, 80K and 80L.

There will be no order as to costs.