ORDER
T.D. Sugla, President
1. This is an appeal by the assessee. One of the grounds involves interpretation of the provisions of Sections 80AA and 80M of the Income-tax Act, 1961 (‘the Act’). The assessee’s claim in this regard was accepted in the earlier year. The result is that Section 80M(2) has thereby become redundant. The Division Bench which heard this appeal originally felt that the issue was important and required reconsideration by a larger Bench. A Special Bench has, thus, been constituted to hear and dispose of this appeal.
2. When the appeal came up for hearing before the Special Bench, it was brought to its notice that a Delhi Bench of the Tribunal had taken a contrary view in the case of Madan Mohan Lall Shriram (P.) Ltd. v. I AC [1985] 12 ITD 21 and that the constitution of a Special Bench to decide this appeal was fully justified.
3. For the sake of convenience we take up the grounds relating to this issue first. These are:
4.1 On the facts and in the circumstances of the case and in law, the Commissioner (Appeals) erred in holding that under the provisions of Section 80AA the deduction under Section 80M has to be granted on the dividend income after reducing the deduction allowable under Section 80K.
4.2 The Commissioner (Appeals) erred in not following the order passed by the Tribunal in IT Appeal Nos. 49 and 3016 (Bom.) of 1981, dated 12-2-1982 in the appellant’s own case for the assessment year 1977-78. Wherein on similar facts the Tribunal had held that in view of the provisions of Section 80AA, the deduction under Section 80M has to be computed with reference to the dividend income without reducing the deduction under Section 80K.
4. Briefly stated the relevant facts are that the assessee erred gross dividend income of Rs. 17,61,861. It also incurred an expenditure of Rs. 1,99,33 8 for earning the aforesaid dividend income. However, the ITO has taxed the gross dividend income as income from other sources and allowed the expenditure of Rs. 1,99,338 against the assessee’s other income. The dividend income to the extent of Rs. 7,85,341 is excluded from its taxable dividend income in view of the provisions of Section 80K of the Act. The assessee claimed that in view of the provisions of Section 80AA providing for deduction under Section 80M on the basis of net dividend income notwithstanding anything contained in Section 80M, it was entitled to the deduction under Section 80M on the basis of net dividend income and not on the basis of net dividend income as reduced by the amount of Rs. 7,85,341 being the deduction already allowed under Section 80K. The ITO has rejected the claim observing:
“The provisions of Section 80AA represent the guidelines for the purpose of computation of the net amount of dividend for allowing deduction under Section 80M on such net dividend. In Chapter VIA of the Income-tax Act, Section 80K precedes Section 80M. The effect to the provisions in Section 80M is to be given after given effect, whenever applicable to the provisions in Section 80K. Therefore, in accordance with the guidelines provided in Section 80AA the net dividend income is to be determined and then the deduction is to be allowed under Section 80K and then deduction under Section 80M is to be allowed.”
The Commissioner (Appeals) has confirmed the order of the ITO for detailed reasons given in paragraph Nos. 16 to 33 of his order.
5. It is submitted before us by Shri Trivedi, the learned counsel for the assessee, that the Commissioner (Appeals) was not justified in ignoring the Tribunal’s order in the assessee’s own case which order has been followed by the Tribunal in a number of other cases (copies of such orders filed on record). Inviting our attention to the expression ‘notwithstanding anything contained in that section’ (which means Section 80MM) used in Section 80AA, it is submitted that there is no scope for doubt that after insertion of Section 80AA, the relief under Section 80M is to be allowed on the net dividend income as against gross dividend income, notwithstanding anything to the contrary in Section 80M. In this context Shri Trivedi refers to the golden rule of construction of statutory provisions, viz., that if the language used in a provision is clear and unambiguous, the effect must be given to it. In such a case there is no scope for finding out the legislative intention as the legislative intention is best found from the expression used.
6. Shri Tuli, the senior departmental representative has, on the other hand, strongly relied on the order of the Delhi Bench of the Tribunal in Madan Mohan Lall Shriram (P.) Ltd.’s case (supra). It is stated that if the interpretation as proposed by Shri Trivedi is accepted, the provisions of Section 80M(2) become otiose and that there is another well recognised rule of interpretation, viz., a construction which makes a particular provision of the Act otiose should be avoided. Besides he has strongly relied on the order of the Commissioner (Appeals).
7. Before we proceed to consider the rival contentions, it is desirable to refer to certain well known rules of construction which we will have to bear in mind while deciding the point in issue. Where the meaning of a statutory provision is plain and unambiguous, the said meaning must be given effect to. Where language of a statutory provision is ambiguous and capable of two constructions that construction must be adopted which will give meaning and effect to all the other provisions of the enactment rather than that which will make one or more of the provisions otiose–Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 at p. 19 (SC). Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction–CIT v. J.H. Gotla [1985] 23 Taxman 14J (SC).
8. In this background it is desirable to refer to the provisions of Section 80AA and Section 80M:
80AA. Where any deduction is required to be allowed under Section 80M in respect of any income by way of dividends from a domestic company which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends.
80M. (1) Where the gross total income of an assessee, being a domestic company, includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to sixty per cent of such income.
(2) Where a company to which this section applies is entitled also to the deduction under Section 80K, the deduction under Sub-section (1) shall be allowed in respect of income by way of dividends referred to therein as reduced by the amount of the deduction under Section 80K.
The condition precedent for application of Section 80AA is where any deduction is required to be allowed under Section 80M in respect of any income by way of dividends included in the gross total income of the assessee. Gross total income has been defined in Section 80B(5) as the total income computed in accordance with the provisions of this Act before making any deduction under Chapter VIA or Section 280-O of the Act. Once the aforesaid condition precedent is satisfied, the section provides that the deduction under Section 80M shall be computed with reference to what is included as income by way of dividends in the gross total income and not with reference to the gross amount of such dividends. There is, of course, a non obstante clause which provides that this would be so notwithstanding anything contained in Section 80M. Therefore, in order to understand the purport and scope of Section 80AA it has to be borne in mind that the section as such only lays down that deduction under Section 80M will have to be with reference to the income by way of dividends included in the gross total income and not with reference to the gross amount of such dividends irrespective of any provision to the contrary in Section 80M. Section 80M(2) provides for reduction of the amount of income included in the gross total income by way of dividend for a different reason. This is not the subject-matter of Section 80AA and, therefore, such a provision is not and cannot be said to be overridden. In the above view of the matter, we are inclined to take the view that the plain meaning of Section 80AA is that deduction under Section 80M is to be allowed on the basis of net dividend income included in the gross total income and not the gross dividend income and if there is anything contrary to this proposition in Section 80M, the same will have to be ignored.
9. The matter can be viewed from a different angle. Non obstante clause used in Section 80AA does not and cannot mean that it overrides Section 80M in entirety. The object of the non obstante clause is to override only that part of Section 80M which is contrary to what has been laid down in Section 80AA by way of positive enactment. For this purpose, it becomes necessary to ascertain the purport and scope of Section 80AA on a plain construction of the language used. It cannot be disputed that Section 80AA provides that deduction under Section 80M is allowable with reference to the income by way of dividends as computed under the Act and not with reference to the gross amount of dividends. The scope of non obstante clause is to be understood in this background. It only means that the deduction under Section 80M will be with reference to not dividend income and not gross dividend income irrespective of whether there is or is not anything inconsistent with this proposition in Section 80M. The Legislature has advisedly used the expression ‘and not with reference to the gross amount of such dividends’ in Section 80AA. This is indicative of the parameter of the proposition laid down in the section. In the absence of the above expression it could perhaps be argued that the proposition laid down by Section 80AA is wide and that irrespective of what is stated in Section 80M, deduction under Section 80M after the insertion of Section 80AA will be allowed on the basis of net amount of dividend included in the gross total income. The specific use of expression within the brackets (‘before making any deduction under this Chapter’) is to ensure that the starting point for computation for deduction under Section 80M is the net dividend income included in the gross total income. It re-emphasises the fact that the controversy proposed to be set at rest by Section 80AA is about the net or gross amount of dividend included in the gross total income on which deduction is allowable under Section 80M. This aspect of the matter is dealt with in Sub-section (1) of Section 80M. Therefore, the non obstante clause is to be understood to set aside as no longer valid anything in Section 80M which is inconsistent with this provision. To accept that the non obstante clause affects the entire gamut of Section 80M including Section 80M(2) is too broad a proposition. The object of Section 80AA, as stated above, is to define the quantum of dividend income, i.e., net or gross income by way of dividends on which deduction under Section 80M is to be allowed. The object of Section 80M(2), on the other hand, is to reduce the net dividend income by the amount of relief allowed under Section 80K. The purpose of the two provisions is different and there seems to be no justification for the view that the concept of net or gross dividend income has or should have anything to do in the matter of reducing the quantum of dividend income further on account of relief under Section 80K already allowed or available.
10. Shri Trivedi had stated that if his interpretation is not accepted, then Section 80AA will become otiose. In our opinion, the submission is not correct. As we have indicated above the scope of Section 80AA is very much different. No part of it becomes nugatory. On the other hand, we agree with the departmental representative that if Shri Trivedi’s interpretation is accepted, Section 80M(2) becomes otiose. It is a well known rule of construction that when there are in a statute two provisions which are in conflict with each other, so that both of them cannot stand, they should, if possible, be so interpreted that effect can be given to both and that a construction which renders either of them inoperative and useless should be avoided. To harmonise is not to destroy.
11. Referring to another golden rule of construction Shri Trivedi submitted that when the language of section is clear there is no scope for either going into the object for which the section was introduced or an effort to harmonise the provisions. There cannot be any quarrel with this rule of construction. However, as stated above the provisions of Section 80AA do not appear to favour the view propounded by Shri Trivedi. On the contrary our reading of the provision is just the contrary. It may not be out of place to observe that a somewhat similar situation obtained before the Supreme Court in the case of Swat Art Silk Cloth Mfrs. Association (supra). It was felt that if the construction put forth by the department was accepted, Section 11(4) after the enactment of Section 13(1)(M) of the Act will become totally redundant. This is what their Lordships observed:
. . . The construction contended for on behalf of the revenue would thus have the effect of rendering Section 11, Sub-section (4), totally redundant after the enactment of Section 13(1)(bb). We do not think we can accept such a construction which renders a provision of the Act superfluous and reduces it to silence. If there is one rule of interpretation more well settled than any other, it is that if the language of a statutory provision is ambiguous and capable of two constructions, that construction must be adopted which will give meaning and effect to the other provisions of the enactment rather than that which will give none. The construction which we are placing on Section 2, Clause (15), leaves a certain area of operation to Section 11, Sub-section (4), notwithstanding the enactment of Section 13(1)(bb) and we must, therefore, in any event, prefer that construction to the one submitted on behalf of the revenue.” (p. 19)
A somewhat stronger view has been expressed by the Supreme Court in a recent decision in J.H. Gaud’s case (supra), where it has been observed:
“Now where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. If the purpose of a particular provision is easily discernible from the whole scheme of the Act which, in the present case, was to counteract the effect of the transfer of assets so far as computation of income of the assessee was concerned, then bearing that purpose in mind, the intention should be found out from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., result not intended to be subserved by the object of the legislation found out in the manner indicated above, then if other construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain so always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. …” (p. 14K)
According to the latter decision, we have first to ascertain the purpose for which Section 80AA was introduced in the Act. If the purpose is easily discernible from the whole scheme of the Act, which in this case is admittedly to get over the controversy about the deduction to be allowed under Section 80M on gross or net amount of dividend, there would be no difficulty. On the other hand, if strict and literal construction leads to an absurd result, i.e., result not intended to be subserved by the object of the legislation as found by us above, then if other construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction.
12. Having regard to the above discussion and for other reasons given by the Delhi Bench of the Tribunal in Madan Mohan Loll Shrimm (P.) Ltd’s case (supra) and the Commissioner (Appeals), we hold that the subject-matter of Section 80AA is income by way of dividends before making a deduction under Chapter VIA which includes Section 80K. It provides that Section 80M will be with reference to the net income by way of dividend as computed under the Act notwithstanding anything contained in Section 80M as then interpreted by the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 (reversed recently in the case of Distributors (Baroda) (P.) Ltd. v. CIT [1979] 118 ITR 243). Assuming for the sake of argument that the provisions are not clear, there being possibly no dispute that the literal construction will make the provisions of Section 80M(2) otiose, even then we have the authority of the Supreme Court in Surat Art Silk Cloth Mfrs. Association’s case (supra), at p. 19 to hold that the construction which makes all provisions of the statute workable is to be adopted. Lastly, we have the latest Supreme Court decision in the case of J.H. Gotla (supra) as an authority which authorises finding out of the legislative intention for interpreting the provisions of a statute, if it is found that the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature. Needless to mention there is not even a suggestion that the Legislature ever thought of allowing deduction under section 8GM on the amount of dividends which had already been excluded from the dividend income under Section 80K.
13. Now, we shall deal with the other grounds involved in the appeal. The first ground is:
1.1 On the facts and in the circumstances of the case and in law, the Commissioner (Appeals) erred in rejecting the appellant’s submission that assessment order ought to be annulled on account of non-determination of tax liability in the assessment order itself.
1.2 The Commissioner (Appeals) further erred in observing that even if for any reason the assessment had been annulled, it would not have been permissible for him to direct the Income-tax Officer to refund the tax deducted at source amounting to Rs. 4,25,418.
1.3 In view of the above grounds of appeal, the appellant submits that the assessment order be struck down as null and void and consequently the tax deducted at source amounting to Rs. 4,25,418,be refunded since the Income-tax Officer has no authority to withhold tax in the absence of a valid assessment.
It is admitted by Shri H.R. Kamdar that a Special Bench of the Tribunal in the case of Highway Construction Co. (P.) Ltd. v. ITO [1983] 4 ITD 545 (Cal.) had considered and decided the issue against the assessee. The departmental representative pointed out that the Karnataka High Court in the case of CIT v. JR. Giridhar [1984] 145 ITR 246 has also taken the same view. Following the decision of the High Court and the order of the Special Bench of the Tribunal in Highway Construction Co. (P.) Ltd.’s case (supra), we uphold the order of the Commissioner (Appeals) and reject the ground.
14. The second ground in the appeal is:
2.1 On the facts and in the circumstances of the case, the Commissioner (Appeals) erred in holding that the expenditure of Rs. 2,000 being consultation fees paid in connection with proceedings under Section 132 is covered within the purview of Section 80VV.
2.2 The Commissioner (Appeals) further erred in ignoring the Tribunal’s order dated 12-2-1982 in IT Appeal No. 3016 (Bom.) of 1981 in the appellant’s own case for the assessment year 1977-78 wherein on similar facts, it was held that consultation fees in connection with proceedings under Section 132 are not covered within the purview of Section 80VV.
There is no dispute about the facts. It is seen that this issue has also come up for consideration in the assessee’s own case for the earlier year and for reasons stated in paragraph No. 13 of the order, the Tribunal has held that consultation fees paid in connection with the proceedings under Section 132 of the Act do not fall within the purview of Section 80VV of the Act. The facts and rival contentions being identical, for reasons given in the Tribunal’s order supra, we hold that the expenditure of Rs. 2,000 requires to be allowed as a deduction. However, before concluding we would like to observe that the departmental representative had strongly contended that in the proceedings under Section 132(5) also the ITO determines the assessee’s liability to tax, interest and penalty and, therefore, the fees paid in connection therewith fall within the purview of Section 80VV. No doubt the ITO does determine the assessee’s liability to tax, interest and penalty in accordance with the provisions of the Act as if the order had been an order of regular assessment. All the same, the order is very much different from the regular order inasmuch as the liability so determined is tentative and computed not with a view to recover but to retain in his custody seized assets or part thereof as are in his opinion sufficient to satisfy the liability determined on estimate in the manner required under Section 132(5). Accordingly, the relief claimed in this ground is allowed.
15. The third ground in the appeal is as under:
3.1 The Commissioner (Appeals) erred in confirming the deduction of allocated indirect expenditure amounting to Rs. 1,99,338 made by the Income-tax Officer while granting the deduction under Section 80M.
3.2 The appellant submits that no expenditure of the nature referred to in Sections 57(i) and 57(iii) has been incurred and accordingly the deduction under Section 80M ought to be granted on the gross dividend income, even after the insertion of Section 80AA, relying on the decision of the Gujarat High Court in the case of CIT v. Cotton Fabrics Ltd. [1981] 131 ITR 99.
3.3 Without prejudice to the above ground that no expenditure ought to be deducted against the dividend income, the appellant submits that in the alternative even on the Income-tax Officer’s basis, the expenditure which would be attributed to the dividend income on which deduction under Section 80M is granted, ought to be computed at Rs. 1,10,484 instead of Rs. 1,99,338.
There is no dispute that in view of the insertion of Section 80AA by the Finance (No. 2) Act, 1980, with retrospective effect from 1-4-1968, deduction under Section 80M is to be allowed on the income by way of dividend as computed in accordance with the provisions of the Act, i.e., on the basis of net and not gross dividend income. However, it is pointed out that the ITO has taken the gross dividend, i.e., Rs. 17,61,860 as the dividend income under Section 56 of the Act. All expenses incurred for earning dividend income have been allowed against the other income. Alternatively, it is submitted that the figure of Rs. 1,99,338 adopted by the ITO as expenditure referable to the earning of dividend income requires to be apportioned further as referable to dividend income falling under Section 80K and under Section 80M. So done, according to the assessee, the expenditure referable to the amount of dividend income with reference to which deduction is allowable under Section 80M would be Rs. 1,10,484. The manner of computation of this figure has been given at p. 14 of the paper book. The departmental representative has, on the other hand, pointed out that the assessee has himself given the figure of Rs. 1,99,338 as expenditure incurred for earning dividend income. This fact has been duly noted in the assessment order. The mere fact of its allowing as deduction against other income does not mean that gross dividend income becomes net dividend income. It is submitted that the fact that the expenditure has not been allowed as deduction as such against dividend income for the purpose of determining the dividend income or the interest income is of no consequence. As regards the alternative contention, Shri Tuli contended that the expenditure is to be allocated between the dividend income and other income and not between the dividend income on which relief is allowable under Section 80K and on other dividend income on which relief is to be allowed under Section 80M. Accordingly, he submits that the computation of expenditure of Rs. 1,10,484 by the assessee at p. 14 of the paper book requires to be rejected.
16. We have heard the parties. There is no merit in the argument advanced on behalf of the assessee. The assessee-company is an investment company. Its sources of income being only two, viz., interest and dividend, the expenditure has been properly and rightly allocated between the dividend income and interest income. Therefore, we do not see anything wrong with the figure of expenditure attributable to dividend income computed by the ITO at Rs. 1,99,338 which was given by the assessee itself, we are also of the view that if the assessee’s income from dividend was to be computed independently as income from ‘other source’. The dividend income would have been the gross dividend income as reduced by the above expenditure of Rs. 1,99,338. Further in view of Section 80AA, the relief under Section 80M cannot but be allowed on net dividend income (i.e., Rs. 17,61,861 minus Rs. l,99,338) = Rs. 15,62,523. This ground is, therefore, rejected.
17. In the result, the appeal is partly allowed.