Back
SUPREME COURT OF INDIA
P.N. BHAGWATI, D.A. DESAI AND A.D. KOSHAL, JJ.
M/s. Cloth Traders (P.) Ltd., Appellant
Versus
Addl. Commr. of Income-tax Gujarat I, Respondent.
Civil Appeals Nos. 117-118 of 1975 and Tax References Nos. 2, 6-9, 16 and 18 of 1975, D/- 4-5-1979.
Income-tax Act, 1961 – Sections 85, 80, 257, 99, 56 – Dividend – Group of appeals and Reference raises a short question of construction of Ss. 85A and 80M of the Income-tax Act, 1961 – Question is whether on a true interpretation of these sections, rebate of income-tax is admissible on the actual amount of dividend received by an assessee, being a company, from an Indian company, or it is confined only to the dividend income as computed in accordance with the provisions of the Act, that is, after making the deductions specified in Section 57 including deduction of the interest paid on borrowings for making the investments. – Gujarat High Court has taken a view against the assessee while a different view has been taken by the Bombay, Madras and Calcutta High Courts. – Appeals are preferred by the assessee, namely, Cloth Traders (P). Ltd., againsst the judgement of the Gujarat High Court and they relate to the assessment years 1965-66 and 1966-67 when S. 85A was in force. – Reference before court have been made directly by the Tribunal under S. 257 of the Act in view of the conflict of opinion amongst the High Courts. – Out of these References, three are at instance of the assessees, namely, C. V. Mehta (P.) Ltd., M/s. Distributors (Baroda) Pvt. Ltd., and H. K. (Investment) Co. Pvt. Ltd. and one is at instance of the Commissioner of Income-tax, Gujarat. – They relate to different assessment years; assessment year 1969-70 in case of C. V. Mehta (P.) Ltd. and Distributors (Baroda) Pvt. Ltd., and assessment years 1965-66 to 1969-70 in case of H. K. (Investment) Co. Pvt. Ltd. – Interpretation of both Ss. 85A and 80M is involved in these References since S. 85A with some minor alterations made in it from time to time was in force during the assessment years 1965-66 to 1967-68 and S. 80M followed upon it with effect from the commencement of the assessment year 1968-69 as part of Chapter VIA. – Though the language of Ss. 85A and 80M is almost identical, there are some verbal dissimilarities, but as we shall presently point out, they do not make any difference in interpretation so far as the present question is concerned. – Held, Legislature did not choose to make any amendment in the language of Section 80M, sub-section (1) with a view to setting at naught this judicial interpretation. – If the legislature was of the view that the deduction should not be in respect of the full amount of dividends received from a domestic company but it should only be in respect of the amount of dividends computed after deducting allowable expenditure, court have no doubt that the legislature would have amended Section 80M, sub-section (1) and made its intention quite clear. – Legislature in fact amended Section 80M several times in respect of other matters subsequent to the decision of the Bombay High Court in the New Great Insurance Companys case and the decision of the Madras High Court in the Madras Auto Services case, but is did not choose to amend the language employed in Section 80M, sub-section (1) for the purpose of overriding the interpretation placed by the courts. – This would seem to indicate legislative recognition of the interpretation placed by the courts on Section 85A and Section 80M and it is a circumstances, though not of much weight which lends support to the view we are taking in regard to the interpretation of Section 80M – Court may also in this connection refer to Section 80K read with Rule 20, Section 80MM, Section 80N and Section 80-O which occur in the same group of sections as Section 80-M. – These sections use the same legislative formula as Section 80-M and open with the identical words "where the gross total income on an assessee....includes and income.....". – It appears on a plain reading of these sections that the deduction admissible is in respect of the whole of the income received by the assessee and not in respect of the income computed after making the deductions provided under the Act. – Vide Madras Auto Service case (supra) and Addl. Commr. of Income-tax v. Isthmian India Maritime Pvt. Ltd. We derive considerable support for court view from the analogy of these sections. – Order Accordingly
Judgment
BHAGWATI, J.:- This group of appeals and Reference raises a short question of construction of Ss. 85A and 80M of the Income-tax Act, 1961 (hereinafter referred to as the present Act). The question is whether on a true interpretation of these sections, rebate of income-tax is admissible on the actual amount of dividend received by an assessee, being a company, from an Indian company, or it is confined only to the dividend income as computed in accordance with the provisions of the Act, that is, after making the deductions specified in Section 57 including deduction of the interest paid on borrowings for making the investments. The Gujarat High Court has taken a view against the assessee while a different view has been taken by the Bombay, Madras and Calcutta High Courts. The appeals are preferred by the assessee, namely, Cloth Traders (P). Ltd., againsst the judgement of the Gujarat High Court and they relate to the assessment years 1965-66 and 1966-67 when S. 85A was in force. The Reference before us have been made directly by the Tribunal under S. 257 of the Act in view of the conflict of opinion amongst the High Courts. Out of these References, three are at instance of the assessees, namely, C. V. Mehta (P.) Ltd., M/s. Distributors (Baroda) Pvt. Ltd., and H. K. (Investment) Co. Pvt. Ltd. and one is at instance of the Commissioner of Income-tax, Gujarat. They relate to different assessment years; assessment year 1969-70 in case of C. V. Mehta (P.) Ltd. and Distributors (Baroda) Pvt. Ltd., and assessment years 1965-66 to 1969-70 in case of H. K. (Investment) Co. Pvt. Ltd. The interpretation of both Ss. 85A and 80M is involved in these References since S. 85A with some minor alterations made in it from time to time was in force during the assessment years 1965-66 to 1967-68 and S. 80M followed upon it with effect from the commencement of the assessment year 1968-69 as part of Chapter VIA. Though the language of Ss. 85A and 80M is almost identical, there are some verbal dissimilarities, but as we shall presently point out, they do not make any difference in interpretation so far as the present question is concerned.
2. We are concerned in these appeals and References only with the interpretation of Ss. 85A and 80M, but in order to arrive at the true interpretation of these sections, it is necessary to refer briefly to the history of the legislation enacted in these sections, since these sections were not written by the Legislature on a clean slate, nor were they the outcome of any new or innovative exercise of legislative judgement, but they were preceded by similar provisions granting rebate of super tax or income-tax on inter-corporate dividends and these provisions as interpreted by the courts throw light on the true meaning and content of Sections 85A and 80M.
3. The earliest provision granting exemption of super tax in respect of inter-corporate dividends was made as far back as 9th December, 1933 in a Notification issued by the Governor General in Council and it provided as follows:
"The Governor General in Council is pleased to exempt from super tax-
(i) so much of the income of any investment trust company as is derived from dividend paid by any other company which has paid or will pay super tax in respect of the profits out of which such dividends are paid."
This provision came up for consideration before a Division Bench of the High Court of Bombay in Commr. of Income-tax v. Industrial Investment Trust Co. Ltd., (1968) 67 ITR 436 and the question was whether the dividend income exempted from super tax was the entire income by way of dividend received by an investment trust company or the dividend income as computed in accordance with the provisions of the Act, that is, after deducting the expenses incurred in earning it. The High Court of Bombay held that the "dividend income which was exempted under the notification would be the dividend income received by the assessee and not the said income less any further amou
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
