Relief under Section 80m of the Income-tax Act, 1961, is allowable only on the net dividend after taking into account the expenditure incurred for earning the dividend.

AJIT K. SENGUPTA, J.

( 1 ) THIS reference under Section 256 (2) of the Income-tax Act, 1961, relates to the assessment years 1982-83 and 1983-84. The facts are that the assessee-company disclosed dividend income of Rs. 42,680 and Rs. 47,680, respectively, for the two years under reference. The Income-tax Officer computed proportionate expenses for earning such dividend at Rs. 8,099 and Rs. 15,250, respectively, and deducted these amounts from the gross dividend of Rs. 42,680 and Rs. 47,680, respectively, computing the net income from dividend at Rs. 34,581 and Rs. 32,420, respectively, for the assessment years 1982-83 and 1983-84. Thereafter, he allowed deduction under Section 80m of the Income-tax Act, 1961,. on such net income from dividend for both the years under reference.

( 2 ) ON appeal by the assessee, the Commissioner of Income-tax (Appeals) observed that there was no fresh investment during the assessment years in shares wherefrom any dividend has been earned. Hence the expenses other than those admitted by the assessee as having been incurred for earning dividend should not be deducted in order to compute relief under Section 80m. In other words, the relief should not be reduced by the amount of estimated expenses by the Income-tax Officer as for earning of the dividend income for the assessment years 1982-83 and 1983-84. The Commissioner of Income-tax (Appeals) decided the issue in favour of the assessee.

( 3 ) ON appeal by the Department, the Tribunal observed that it is a well-settled principle now that deduction under Section 80m of the Income-tax Act, 1961, requires to be allowed on the gross dividend instead of deducting the allocation of expenses incurred in earning the dividend income. Thus, the Tribunal dismissed both the appeals preferred by the Department.

( 4 ) ON these facts, the following question of law has been referred to this court :"whether the Tribunal had any material wherefrom it can be justified that it is now a well-settled principle that deduction under Section 80m requires to be allowed on the gross dividend without deducting the allocation of expenses incurred in earning such dividend income "

( 5 ) THE contention of Dr. Pal, appearing for the assessee is that, in this case, it has been found on facts that no expenditure was incurred for earning the dividend and accordingly the question of dividend being reduced by any expenditure does not and cannot arise at all and, accordingly, whatever is the gross dividend should also be the net dividend on the facts of this case.

( 6 ) MR. Bagchi, on the other hand, appearing for the Revenue, has drawn our attention to the observation of the Tribunal on the basis whereof the question has been referred to this court. The observation is as follows :"the Revenue has also raised a common additional ground for both the years under appeal, Which is indicated as ground No. 3. It is a well-settled principle now that deduction under Section 80m requires to be allowed on the gross dividend instead of deducting the allocation of expenses incurred in earning the dividend income. "

( 7 ) IN our view, the approach of the Tribunal is erroneous. The relief under Section 80m is allowable only on the net dividend which is arrived at after taking into account the expenditure, if any, incurred for the purpose of earning such dividend. Where there is no such expenditure, the gross dividend will be the net dividend and no problem will be posed in determining the issue. In this case, the Income-tax Officer, in his assessment, has estimated the proportionate expenses in earning the dividend. No fresh investment has been made during the assessment years under reference in shares wherefrom any dividend has been earned. In those circumstances, the Commissioner of Income-tax (Appeals) was of the view that the expenses other than whatever were admitted by the appellant as having been incurred for the earning of the dividend income for both the assessment years should not be

Click Here to Read the rest of this document