Commissioner of Income Tax vs Rani Mayyammai Achi By Executor, Sri Vaidyasubramaniya Iyer

Ramanujam, J.—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 TC No. 1186 of 1977 are given. 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 a 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 income tax Act, 1961 ("the Act"). 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.

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.

Thereupon the revenue preferred an appeal to the 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 out the relevant provisions of section 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 Commissioner of Income Tax Vs. Madras Motor and General Insurance Co. Ltd., and also another decision of this Court in Madras Auto Service

v. ITO [1915] 301 ITR 589 touching the point, Ultimately, the Tribunal held that the assessee was entitled to the deduction of Rs. 3,000 u/s 80L 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 u/s SOL of the income tax Act, 1961, for the assessment year 1972-73 even though the net income assessed under the heads "dividend" and "interest" is a negative figure ?

TC 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 TC No. 1186 of 1977.

The decision in Madras Motor & General Insurance Co. Ltd.'s case (supra) and the decision in Madras Auto Service's case (supra) followed by the Tribunal by these cases have been refer red to with approval by the Supreme Court in Cloth Traders (P) Ltd. Vs. Additional Commissioner of Income Tax , Gujarat-I, . In Madras Motor & General Insurance Co. Ltd.'s case (supra), 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's case (supra), the question arose as to whether the assessee is entitled to the relief under sections 80K and 80M of the Act on the net dividend and this Court held, following Madras Motor & General Insurance Co. Ltd.'s case (supra), that the relief u/s 99(1)(iv) of the Act, 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.

The Supreme Court in Cloth Traders (P.) Ltd.'s case (supra) construing the scope of section 99(1)(iv) and also section 85A of the Act, 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 dividend 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 section 80M held that the deduction permitted under that section is to be calculated 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 dividends from a domestic company" in section 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", and 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 percent 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 section 80A(2) of the Act which provides that the aggregate amount of the deduction shall not, in any case, exceed the gross total income. The Supreme Court had also referred to the decisions of the Bombay High Court in Commissioner of Income Tax, Bombay City II Vs. Industrial Investment Trust Co. Ltd., and Commissioner of Income Tax Vs. New Great Insurance Co. Ltd., and also the decision of the Calcutta High Court in Commissioner of Income Tax Vs. Darbhanga Marketing Co. Ltd., as having taken the same view as the Madras High Court. The Supreme Court has referred to the fact that all the three High Courts, namely, the 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 the Madras, Bombay and Calcutta, the decision of the Tribunal which is in accord with the decisions of this Court in Madras Motor & General Insurance Co. Ltd. (supra) and Madras Auto Service (supra) has to be held to have correctly interpreted the provisions in section 80L. The question referred in both the cases is answered in the affirmative and against the revenue. There will be no order as to costs.