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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
WRIT PETITION NO.200 OF 2010
Godrej Agrovet Limited ..Petitioner.
Vs.
The Deputy Commissioner of Income Tax, 10(2),
Mumbai and another ..Respondents.
....
Mr. Percy J. Pardiwala, Senior Advocate with Mr. Jitendra Jain i/b Mr. Atul K.
Jasani for the Petitioner.
Mr. J.S. Saluja for the Respondents.
....
ig CORAM : DR. D.Y.CHANDRACHUD &
J.P. DEVADHAR, JJ.
11th February, 2010.
ORAL JUDGMENT (Per Dr. D.Y. Chandrachud, J.):
1. Rule, made returnable forthwith. By consent of the learned counsel
and at their request the matter is taken up for hearing and final disposal.
2. The assessee in the present case challenges the reopening of
assessment for Assessment Year 2003-04 in pursuance of a notice dated 28 th
March, 2008 issued by the Deputy Commissioner of Income Tax, 10(2) Mumbai.
The controversy in the petition under Article 226 falls in a narrow compass.
During the course of Assessment Year 2003-04, Section 80-M of the Income Tax
Act, 1961 was on the statute book and read thus :
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“80M. Deduction in respect of certain inter-corporate dividends. – (1)
Where the gross total income of a domestic company, in any previousyear, includes any income by way of dividends from another domestic
company, there shall, in accordance with and subject to the provisions
of this section, be allowed, in computing the total income of suchdomestic company, a deduction of an amount equal to so much of the
amount of income by way of dividends from another domestic
company as does not exceed the amount of dividend distributed by
the first-mentioned domestic company on or before the due date.
(2) Where any deduction, in respect of the amount of dividend
distributed by the domestic company, has been allowed under sub-
section (1) in any previous year, no deduction shall be allowed in
respect of such amount in any other previous year.
Explanation – For the purposes of this section, the expression “due
date” means the date for furnishing the return of income under sub-
section (1) of section 139.”
3. For the purposes of these proceedings it is an admitted position
before the Court that the assessee received a dividend income of Rs.5,59,02,672/-
The dividend income which was received by the assessee company was in respect
of the holdings of the assessee in other corporate entities. The assessee also
declared and distributed an interim dividend on 26th March, 2003 in the amount
of Rs.4.48 Crores and a final dividend on 26th June, 2003 in the amount of Rs.
1.13 Crores. The assessee filed a return of income on 27 th November, 2003
declaring an income of Rs.1.61 Crores. In the computation of total income
annexed to the return, the assessee disclosed the dividend of Rs.5.59 Crores under
the head of income from other sources. In annexure 1.3 to the return, the details
of the dividend received were provided. Against the income the assessee claimed
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a deduction of Rs.5.59 Crores under Section 80-M in respect of the dividend
declared and distributed. The return was accompanied by the audited accounts
for the year ending 31st March, 2003 and the tax audit report. The First
Respondent issued a notice on 5th October, 2005 under Section 142(1) to which a
questionnaire was annexed seeking details of documents and explanations
including in relation to the details of expenses relating to the earning of dividend.
The Petitioner submitted a reply on 6th October, 2005 in justification.
4.
On 20th February, 2006 an order of assessment was passed under
Section 143(3) by which the total income of the assessee was determined at Rs.
2.77 Crores and the assessee was allowed a deduction to the extent of Rs.5.31
Crores under Section 80-M. Of the total dividend received in the amount of Rs.
5.59 Crores, the assessing officer made a disallowance of Rs.27.95 lacs, thus
confining the deduction to an amount of Rs.5.31 Crores as noted above. The
assessee filed an appeal before the CIT(A). The CIT(A) by an order dated 3rd
November, 2006 restricted the disallowance of expenditure incurred for earning
dividend income upto 2% of the dividend income. Both the assessee and the
revenue carried the decision of the CIT(A), in appeal to the ITAT. In the
meantime, the First Respondent passed an order on 17th October, 2008 to give
effect to the order of the CIT(A) by which the disallowance under Section 80-M
was restricted to Rs.11.18 lacs as against the original disallowance of Rs.27.95
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lacs. The ITAT by its order dated 10 th September, 2009 deleted the disallowance
made with regard to the deduction claimed by the Petitioner under Section 80-M
of the Act. Consequently, the Petitioner was held to be entitled to a deduction
without any disallowance as had been made in the order of the CIT(A).
5. On 28th March, 2008 a notice was issued to the Petitioner under
Section 148 in which the assessing officer furnished the following reasons for his
belief that the income of the Petitioner chargeable to tax for Assessment Year
2003-04 has escaped assessment within the meaning of Section 147. The assessee
having raised objections, the assessing officer by an order dated 16th December,
2009 rejected the objections inter alia with the following observations:
“The contention of the assessee that notice had been issued on a mere
change of opinion is not correct. The issues involved as mentioned inthe recorded reasons is that, the assessee claimed deduction u/s.80M
of the Act in respect of dividend distributed by the assessee company,wherein the assessee failed to pay additional income-tax as per
provisions of section 115-O within the stipulated time. Since the
assessee has not complied the provisions of section 115-O of the Act,
then the deduction u/s.80M is not allowable to the assessee.”
6. Counsel appearing on behalf of the assessee has challenged the notice
under Section 148 on the following grounds :
Firstly, it was urged that the assessing officer has no reason to believe that
income had escaped assessment. Under Section 80-M the assessee was
entitled, in the computation of its total income to a deduction of an amount
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5equal to the income received by way of dividends subject to a ceiling of the
actual amount of dividend distributed by the assessee on or before the due
date. The due date under the explanation to Section 80-M will be the date for
furnishing the return of income under Section 139(1) and would be 30 th
November, 2003. On the admitted facts, it was submitted that the assessee
had distributed both the interim and final dividend before 30th November,
2003, the interim dividend having been distributed on 26th March, 2003 and
the final dividend on 26th June, 2003. On this basis, it was urged that no
prudent person could have a reason to believe that the income of the assessee
had escaped assessment. Secondly, it was submitted that the order of the
assessing officer reopening the assessment constitutes an interference with the
order of the CIT(A) and the ITAT by which the assessee was held entitled to a
deduction in respect of the income received by way of dividend. Thirdly, it was
submitted that the original order of assessment was in conformity with the
decisions of the Tribunal in the case of Silvassa Industries1 and in the case of
Kaikobad Byramjee & Sons2 dated 7th October, 2004. Learned counsel
submitted that these decisions were followed and affirmed by the Tribunal on
18th July, 2007 in its decision in the case of Castle Investment and Industries
Pvt. Limited v. ITO3. Consequently, the order of assessment was consistent
with the law laid down by the Tribunal which had not been reversed or set
1 Silvassa Industries Pvt. Ltd. v. DCIT as per ITA No.462/M/02 decided on 10th May, 2002.
2 ITO v. M/s. Kaikobad Byramjee & Sons Agency Pvt. Ltd. (ITA No.4102/Mum/2001).
3 ITA 1713/Mum/2006.
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aside. In the circumstances, it was submitted that the assessee was entitled to
a deduction under Section 80-M for Assessment Year 2003-04 but this would
be restricted to the amount of the dividend declared upto the due date of the
filing of the return.
7. Counsel appearing on behalf of the revenue on the other hand
submitted that the assessee had distributed dividend after the due date of 1 st
April, 2003 under Section 115-O and was, therefore, liable to pay additional tax
under that provision. In the circumstances, the reopening of the assessment was
valid and there was reason to believe that the income of the assessee for
Assessment Year 2003-04 had escaped assessment.
8. Section 80-M was part of the Income Tax Act 1961 during the course
of Assessment Year 2003-04. Section 80-M applies where the gross total income
of a domestic company includes any income by way of dividend from another
domestic company during the previous year. In such a case, in computing the
total income of the domestic company which is in receipt of dividend from
another company, a deduction is allowable of an amount equal to the income
received by way of dividend. However, Section 80-M imposed a ceiling on the
extent of deduction that can be claimed by stipulating that this should not exceed
the amount of dividend distributed by the company on or before the due date.
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The due date under the explanation is the date for the furnishing of the return
of income under sub section (1) of Section 139.
9. In the present case the admitted facts are that (i) The assessee
company had received a dividend of Rs.5.59 Crores during Assessment Year
2003-04 which was declared in the computation of total income; (ii) The assessee
had distributed an interim dividend of Rs.4.48 Crores on 26th March, 2003 and an
amount of Rs.1.13 Crores on 26th June, 2003 so as to make a total amount of Rs.
5.61 Crores approximately; (iii) The due date for the furnishing of the return of
income under sub section (1) of Section 139 was 30th November, 2003; (iv) The
claim for deduction under Section 80-M was restricted to the amount of dividend
distributed by the assessee before the due date and (iv) In appeals leading to the
Tribunal from the order of assessment the disallowance made by the assessing
officer in respect of the expenditure incurred in earning the dividend had been
deleted by the Tribunal and the assessee was held to be entitled to a full
deduction under Section 80-M, restricted to the amount of the dividend
distributed. The issue before the CIT(A) and the Tribunal related only to the
extent of the disallowance of expenditure.
10. On these facts as they stand, it is impossible to contend that the
assessee was not entitled to a deduction under Section 80-M. Significantly, the
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view of the assessing officer was consistent with the decision of the Tribunal in
the case of Castle Investment (supra). The judgment in Castle Investment
insofar as is material held that Section 115-O(5) does not in any way restrict the
allowability of the claim under Section 80-M. Under Section 80-M what is
claimed as a deduction is the dividend received by the company. Dividends
declared, distributed or paid are not claimed as a deduction under Section 80-M
though they constitute an out flow of funds from the company. Section 80-M
imposes a monetary restriction on the amount that may be claimed by way of a
deduction by providing that the amount of claim cannot exceed the dividend
distributed by the assessee by the due date. Though the judgment of the Tribunal
in Castle Investment was dated 18th July, 2007 (the order of assessment being
dated 28th February, 2006) it is necessary to note that the decision followed the
earlier decision of the Tribunal dated 10th May, 2002 in the case of Silvassa
Industries and the decision dated 7th October, 2004 in M/s. Kaikobad Byramjee
(supra). The decision of the Tribunal in Castle Investment (supra) was affirmed
by a Division Bench of this Court on 22nd July, 2008 in ITA 1557 of 2007.
11. The provisions of Section 147 of the Act empower the assessing officer
to reopen an assessment or issue a notice for reassessment provided that he has
reason to believe that income has escaped assessment. In a judgment of a
Division Bench of this Court in German Remedies v. Deputy Commissioner of
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Income Tax4 delivered by one of us, Shri Justice J.P. Devadhar, this Court held
that though the power to reopen a concluded assessment under Section 147 is
wide, the power cannot be exercised mechanically or arbitrarily. This Court held
that even after the introduction of the concept of deemed escapement of income
by explanation 2 to Section 147 with effect from 1st April, 1989 the belief that
income had escaped assessment must be a prudent belief and not a mere change
of opinion. This Court held that an assessment order passed after detailed
discussion cannot be reopened within a period of four years from the end of the
relevant assessment year unless the assessing officer has reason to believe that
due to some inherent defect in the assessment the income chargeable to tax has
been under assessed or assessed to a lower rate or excessive relief is granted or
excessive loss or depreciation allowance or any other allowance under the Act has
been computed. In the subsequent judgment of the Supreme Court in CIT v.
Kelvinator of India Ltd.5 the Supreme Court has held that wide as the power
under Section 147 is after 1st April, 1989 a mere change of opinion cannot justify
the reopening of an assessment and there must be tangible material before the
assessing officer before he proceeds to exercise his powers under Section 147. In
the judgment of this Court in German Remedies this Court, while setting aside
the exercise of the power, adverted to the circumstance that the very same issue
which was sought to be agitated by the assessing officer had been concluded by a
4 (2006) 285 ITR 26 (Bom).
5 (2010) 320 ITR 561 (SC).
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judgment of the Tribunal for an earlier assessment year. This Court deplored the
conduct of the assessing officer in refusing to follow a binding decision of the
Tribunal. The same view has been reiterated in the judgment of a Division Bench
of this Court in Asteroids Trading and Investments P. Ltd. v. Deputy
Commissioner of Income Tax6.
12. The assessing officer, in his reasons for reopening the assessment
adverts to the circumstance that the assessee paid dividend tax after 1 st April,
2003 under Section 115-O. It is on this basis that the inference is drawn that the
assessee has forfeited the right to claim a deduction under Section 80-M. The
reasons which have been recorded by the assessing officer are ex facie extraneous
to the question as to whether the assessee would be entitled to a deduction under
Section 80-M. Section 80-M, it may be noted, forms a part of the provisions of
Chapter VI-A of the Income Tax Act, 1961. Chapter VI-A is distributed in several
parts. Part A deals with the general provisions and consists of Sections 80-A and
80-B. Part B deals with deductions with respect to certain payments and
comprises of Section 80-C to 80-GGC. Part C of Chapter VI-A provides for
deductions in respect of certain incomes. Section 80-M as it then stood during the
course of assessment year 2003-04 formed a part of Part C of Chapter VI-A.
Under Section 80-M the deduction is not in respect of the amount declared or
distributed by way of dividend. The deduction that was stipulated under Section
6 [2009] 308 ITR 190 (Bom).
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80-M was in respect of dividend received by a domestic company from another
domestic company. The extent of the deduction was, however, subject to a
monetary ceiling, the ceiling being that the deduction should not exceed the
amount distributed by way of dividend on or before the due date for the filing of
a return. The assessing officer by adverting to the provisions of Section 115-O
has proceeded to reopen the assessment on a plainly extraneous ground.
13. For the aforesaid reasons, the assessing officer has clearly acted in
excess of the restraints on his jurisdiction to reopen an assessment in exercise of
the powers under Section 147 read with Section 148. The assessee would be
entitled to succeed in these proceedings. Rule is accordingly made absolute by
setting aside the notice dated 28th March, 2008. In the circumstances of the case,
there shall be no order as to costs.
(Dr. D.Y.Chandrachud, J.)
(J.P. Devadhar, J.)
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