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1985 Supreme(Mad) 511
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RAMASWAMI & THE HONOURABLE MR. JUSTICE BHASKARAN
Commissioner of Income Tax - Appellant
Versus
Madras Motor and General Insurance Company Limited - Respondent
Case No : TC No. 1422 of 1977
Decided On : 16 December 1985
The benefit under section 80K should be granted with reference to the gross dividend income without deducting proportionate management expenses.
Headnote:
INCOME TAX - Section 80K - Interpretation - Whether benefit under section 80K should be granted with reference to the gross dividend income without deducting proportionate management expenses - Held, yes.
Fact of the Case:
The assessee, a general insurance company, claimed relief under sections 80K and 80M of the Income-tax Act, 1961, for the assessment year 1969-70. The Income-tax Officer rejected the claim, but the Appellate Assistant Commissioner and the Tribunal allowed the relief. The Revenue referred the question of whether the benefit under sections 80K and 80M should be granted with reference to the gross dividend income without deducting proportionate management expenses to the High Court.
Finding of the Court:
The High Court held that the benefit under section 80K should be granted with reference to the gross dividend income without deducting proportionate management expenses. The court relied on the decisions of various High Courts, which had held that the words "any income by way of dividends paid or deemed to be paid" in section 80K meant the gross dividend income and not the net dividend income.
Issues: Whether the benefit under section 80K should be granted with reference to the gross dividend income without deducting proportionate management expenses.
Ratio Decidendi: The court held that the benefit under section 80K should be granted with reference to the gross dividend income without deducting proportionate management expenses. The court relied on the decisions of various High Courts, which had held that the words "any income by way of dividends paid or deemed to be paid" in section 80K meant the gross dividend income and not the net dividend income.
Final Decision: The court answered the question in the affirmative and in favor of the assessee.
V. RAMASWAMI J.
The following three questions have been referred at the instance of the Revenue
"1. Whether) on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the benefit under sections 80K and 80M should be granted with reference to the gross dividend income without deducting proportionate management expenses?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the addition of Rs. 7, 02, 054 representing the appreciation in the value of share investments held by the assessee, made by the Income-tax Officer under the second part of rule 5(b) of Schedule I to the Income-tax Act, 1961 ?
3. Whether the interpretation given by the Tribunal to rule 5(b) of Schedule I to the Income-tax Act is valid and justified?" *
The second and third questions are covered by the decision in CIT v. Motor & General Insurance Co. Ltd. and in the light of that judgment, we have to answer these questions in the affirmative and against the Revenue, and it is answered accordingly
Therefore, there is no need to set out the facts relating to the same
So far as the first question is concerned, we need notice only a few facts. The assessee is a general insurance company. In respect of the assessment year 1969-70, it claimed relief both under sections 80K and 80M of the Income-tax Act, 1961. The Income-tax Officer rejected the claim. However, on appeal, the Appellate Assistant Commissioner, following the Tribunal's order in respect of the same assessee for the assessment years 1963-64 and 1964-65, held that the assessee would be entitled to the rebate on the entire dividend income and not merely the net dividend income as computed under the provisions of the Act. This view was accepted by the Tribunal on further appeal. It may be mentioned, by the time the Tribunal took up the matter for consideration, the decision in CIT v. Madras Motor & General Insurance Co. Ltd. relating to the same assessee in respect of the assessment years 1963-64 and 1964-65 was available and, following that judgment, confirmed the view of the Appellate Assistant Commissioner. At the instance of the Revenue, the above question has been referredThough the question referred covers both the sections, it is necessary to deal with section 80K of the Act separately. So far as section 80M is concerned, it is now covered by the decision of the Supreme Court in Distributors (Baroda) P. Ltd. v. Union of India and in view of that judgment, we have to hold that the Appellate Tribunal was not correct in holding that the benefit under section 80M should be granted on the gross dividend income without deducting the proportionate management expenses. Accordingly the question relating to section 80M is answered in favour of the Department. The difficulty arises only in respect of the benefit under section 80K
We may now refer to the decisions rendered with reference to the provisions in section 80K. This court dealt with the scope of this provision in Madras Auto Service v. ITO. This court was of the view that the deduction admissible under section 80K was in respect of the entire dividend received by the assessee from the new industrial undertaking and not in respect of the dividend income minus deductions allowable under the provisions of the Income-tax Act, 1961, in computing the total income. In coming to this conclusion, this court had relied on the earlier decision in CIT v. Madras Motor & General Insurance Co. Ltd. which related, as already stated, to the assessment years 1963-64 and 1964-65 with reference to rebate under section 99(1)(iv) of the Income-tax Act, 1961. This was on the basis that the ratio of the judgment given with reference to section 99(1)(iv) would be equally applicable in construing the provisions of section 80K of the Income-tax Act. This court noted that there were no restrictive words similar to "net dividend" in section 80A and that, therefore, the rebate coul
