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High Court Of Calcutta
Dipak Kumar Sen, Ajit K. Sengupta
COMMISSIONER OF INCOME-TAX - Appellant
Versus
INDIAN IRON AND STEEL CO.LTD. - Respondent
Income-Tax Reference 129 Of 1976
Decided On : 04/22/1985
INCOME TAX - Deduction - Dividend Income - Intercorporate Dividend - Section 80m - Whether the assessee company was entitled to deduction under Section 80m of the Income-tax Act, 1961, in respect of the dividend income received through the trust.
Fact of the Case:
The assessee company received dividend income through a trust which held shares of the assessee company. The ITO included the dividend income in the assessee's assessment and allowed deduction under Section 80m. The Additional CIT, however, held that the deduction was not allowable as the assessee company was not the registered shareholder of the shares. The Tribunal held that the assessee company was entitled to the deduction irrespective of whether it was the registered shareholder of the shares.
Finding of the Court:
The court held that the assessee company was entitled to the deduction under Section 80m of the Income-tax Act, 1961, in respect of the dividend income received through the trust. The court held that Section 80m does not postulate that in order to become entitled to the deduction under the said section in respect of income by way of dividends earned from the shares, the assessee company must be the registered holder of the shares in respect of which income by way of dividend is earned.
Issues: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the income received by the assessee through the trust was an income by way of dividend within the meaning of Section 80m of the Income-tax Act, 1961? 2. Without prejudice to question No. 1, whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 80m of the Income-tax Act, 1961, the assessee was entitled to the deduction under the said section in respect of the income received through the trust?
Ratio Decidendi: The court held that the condition precedent for granting exemption under Section 80m is that there should be income by way of dividends from a domestic company. This has been satisfied in this case. The dividend income has been included and assessed. If the dividend income realised through the trust is assessed, the deduction under Section 80m in computing the total income cannot be denied to the assessee. The assessee company is, therefore, entitled to the benefit of the deduction under Section 80m irrespective of the fact whether the assessee company receives the dividend income through the trust or otherwise.
Final Decision: The court answered both the questions in the reference in the affirmative and in favour of the assessee.
( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the following two questions of law have been referred to this court for the assessment years 1967-68 and 1968-69 :" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the income received by the assessee through the trust was an income by way of dividend within the meaning of Section 80m of the Income-tax Act, 1961 ? "
( 2 ) WITHOUT prejudice to question No. 1, whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 80m of the Income-tax Act, 1961, the assessee was entitled to the deduction under the said section in respect of the income received through the trust ? " 2. The facts which are admitted and/or found by the Tribunal are stated hereinafter.
( 3 ) IN the assessment for the assessment year 1967-68, a sum of Rs. 28,53,698 by way of gross dividend from a trust was included. From the gross dividend of Rs. 28,63,820, expenses of Rs. 10,122 were deducted and the balance was included. Thereafter, by an order under Section 155 of the Act in respect of the same assessment year, the ITO included the amount of dividend from the trust of Rs. 28,53,698 and the benefit of tax deducted at source of Rs. 6,04,771 was allowed. In neither of the two orders was there any discussion regarding the deduction under Section 80m. For the assessment year 1968-69, the trust dividend of Rs. 28,63,820 was considered and after deducting a sum of Rs. 10,004 on account of expenses, the balance of Rs. 28,53,816 was included in the total income. The benefit of tax deducted at source for Rs. 6,30,040 was allowed. The ITO also granted deduction under Section 80m with reference to the dividend income. By an order under Section 155 (5) of the Act, later on, for the same assessment year, the ITO did not disturb either the inclusion of the said dividend income or the deduction under Section 80m.
( 4 ) THE Additional CIT considered the aforesaid two assessment orders as framed by the ITO to be erroneous and prejudicial to the interests of the Revenue in view of the grant of deduction under Section 80m of the Act with reference to the dividend income received through the trust and initiated proceedings under Section 263 (1) of the Act. In accordance with the provisions of the said Sub-section, an opportunity of being heard was given to the assessee company. The Additional Commissioner's proposal under Section 263 (1) was objected to on the ground that the assessee company was the real owner of the shares through the trust which was holding the shares of the assessee company itself and, hence, the dividend income in respect of those shares received by the assessee company through the trust would fall for consideration under Section 80m.
( 5 ) THE Additional CIT referred to the orders of the Appellate Tribunal for the assessment years 1959-60 and 1960-61 (under the I. T. Act) and for the assessment year 1963-64, under the Super (Profits) Tax Act. When the Tribunal found that the amounts of dividend included in the said assessment years were the dividends declared by the assessee company in favour of the trust which passed on the same to the assessee company, the assessee company raised an objection to the inclusion of such dividends from the trust in its assessments. This was turned down by the Appellate Tribunal with the observation that even if the amounts received were not dividends, they were income and taxable.
( 6 ) ACCORDING to the Additional CIT, the claim for benefit under Section 80m could not be accepted as the trust did not show that the assessee was the owner of the shares. He found that the owner of the shares was the trust and the assessee company was only entitled to the profits of the trust as a beneficiary. With these observations, he held that it was not proper for the ITO to allow deduction under Section 80m to the assessee company in the instant
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