Dr. T. Ramadas M. Pai vs Commissioner of Income Tax (No. 2)

Venkataramaiah, J.—The two questions referred to us u/s 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), are:

"(1) Whether, on the facts and in the circumstances of the case, the income from share and house properties was rightly assessed in the status of individual ?

(2) Whether, on the-facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee is entitled to relief u/s 80L in respect of the gross dividend income ?" The first question is referred to us at the instance of the assessee and the second at the instance of the department.

Re: question No. (1):

The assessment year in question is 1970-71. The order of Tribunal was passed on December 20, 1974, rejecting the contention of the assessee that income from share in business and from certain properties should be assessed as income of the HUF of which he was a member. In I.T.R.C. No. 70 of 1973 (T. Ramdas M. Pai v. CIT (No. 1)--See page 815 supra) relating to the assessment year 1969-70, this court by its judgment dated June 2, 1975, held that the income from the said share in business and the properties should be assessed as income of the HUF and not as income of the assessee as an individual. The answer given in that reference covers question No. 1. Accordingly, we answer this question in the negative and in favour of the assessee.

Re: question No. (2):

Certain facts have to be stated in order to appreciate the contention urged in connection with the second question which arises out of the assessment of the assessee as an individual. The assessee had realised during the relevant period, dividends amounting to Rs. 4,576 from certain Indian companies. In order to earn that income, he had borrowed money and he had to pay interest on the borrowed money amounting to Rs. 6,082 during that period. In addition to the abovesaid income by way of dividends from Indian companies, he had also realised during that period an income of Rs. 2,010 from other sources chargeable to tax as per Section 56 of the Act. The assessee claimed relief u/s 80L of the Act to the extent of Rs. 3,000 as he had realised, as mentioned earlier, dividends amounting to Rs. 4,576 from Indian companies. The ITO did not grant the relief u/s 80L of the Act while he allowed the expenditure of Rs. 6,082 u/s 57(iii) of the Act. The AAC affirmed the order of the ITO. The Tribunal, however, allowed the appeal of the assessee and granted relief u/s 80L also.

It is contended by Sri S. R. Rajasekharamurthy, learned counsel for the department, that since the deduction u/s 57(iii) of the Act was in excess of the gross dividends, the assessee was not entitled to any relief u/s 80L also as, according to him, such relief could be granted when the gross dividends exceeded the deduction allowable u/s 57(iii) of the Act and only in respect of such excess subject to the limit mentioned in Section 80L. It was argued by him that since, in the instant case, the expenditure allowed u/s 57(iii) exceeded the total dividends realised and that there was loss of Rs. 1,506 on that account, it was not open to the assessee to claim any relief. We do not think that the submission made on behalf of the revenue is sound. S. 80L of the Act provides that where the gross total income of an assessee, being an individual, a HUF or an AOP includes income by way of dividends from any Indian company, there shall, in accordance with and subject to the provisions of the said section, be allowed in computing the total income of the assessee, a deduction to the extent of Rs. 3,000 when such income exceeds Rs. 3,000 and, when it is less than Rs. 3,000, to the extent of the whole of such income. It is obvious that in this case the gross total income of the assessee includes income by way of dividends from Indian companies and that it exceeds Rs. 3,000. We are of the view that this fact itself is sufficient for claiming relief u/s 80L since we find that there is no further qualification incorporated in that section or in any other provision of the Act to claim the relief. The amount of expenditure allowable u/s 57(iii) cannot be taken into consideration in this connection as it is nowhere provided that for purposes of granting relief u/s 80L the net realisation by way of dividend, after deducting expenditure u/s 57(iii), should be taken into consideration. The expression "dividends" in Clause (iv) of Sub-section (1) of Section 80L cannot be read as "net dividends". We do not find any error in the finding of the Tribunal on this question. This view of ours receives support from the decision of the High Court of Bombay in Commissioner of Income Tax Bombay City-III, Bombay Vs. B.M. Crover,

It was next argued by Sri Rajasekharamurthy relying upon Sub-section (2) of Section 80A of the Act that the aggregate amount of deduction under Chap. VI-A in which Section 80L appears, could not in any case exceed the gross total income of the assessee. No such contingency arises here because the gross total income of the assessee as defined in Section 80B(5) is in excess of the deduction claimed u/s 80L of the Act.

We, therefore, answer the second question in the affirmative and in favour of the assessee. No costs.