G. Krishnamurthy, Senior Vice President
1. This appeal filed by Madan Mohan Lall Shriram (P.) Ltd. raises three objections against the order of the Commissioner (Appeals). The appeal relates to the assessment year 1971-72, the previous year of which ended on 30-6-1970. The asses-see, a private limited company, has income from business, dividends, rent and also managing agency remuneration from limited company called Bengal Potteries.
2. The first objection in this appeal relates to determination of the relief under Section 80M of the Income-tax Act, 1961 (‘the Act’). The income by way of dividend was Rs. 26,27,907. The assessee claimed relief under Section 80M on this entire amount but the ITO deducted from this dividend a sum by way of interest of Rs. 5,99,340, said to have been paid on the money borrowed for investment in shares and allowing 60 per cent on the balance, allowed relief of Rs. 12,15,244. The question, thus, was whether the relief should be allowed with reference to the gross dividend received by the assessee or after deducting the expenses by way of interest as above. According to the assessee’s calculation, the interest attributable to the dividend is only Rs. 11,042, whereas according to the calculation adopted by the ITO, the interest attributable to this dividend was Rs. 5,99,340. When the ITO completed the assessment originally deducting interest of Rs. 5,99,340 as against Rs. 11,042 claimed, rejecting the claim of the assessee that to compute the deduction due under Section 80M, it should not be the gross dividend income but net dividend income. Thereupon, there was an appeal to the AAC, who agreed with the assessee’s contention that it was the gross dividend that should be taken into consideration under Section 80M and not the net dividend. But he did not touch upon the question as to whether the interest should be Rs. 5,99,340 or Rs. 11,042. The revenue appealed to the Tribunal. In that appeal, the Tribunal held that the finding of the AAC that it should be gross dividend that should be considered for Section 80M, was not correct and on the alternative ground of finding out the amount of interest allocable to the dividend, the matter was set aside and sent back to the AAC with the following observations :
In view of this finding, it would become necessary to ascertain as to what part of interest income has to be deducted from dividend income under Section 57. As this controversy has not been touched upon by the Appellate Assistant Commissioner, it is necessary to restore the case back to him for disposing of the appeal de novo with regard to this point after hearing both the sides.
3. Pursuant to this direction, the matter was again heard by the Commissioner (Appeals). This time, before the Commissioner (Appeals), the assessee raised two contentions, which according to it were closely connected with the issue of allowance of interest and also determination of the quantum of relief that could be given under Section 80M, one was that the assessee’s main source of income is to acquire shares to gain control of managed companies and also to act as managing agents. The sources of income of the assessee are such that the funds got so mixed up that it is not possible to link or trace the amount of investment made in each line of business and to trace the investment to any particular borrowal or own capital. The entire business is an integrated whole and, therefore, the interest payable by the assessee cannot be segregated as to income from dividend or income from other business activities. The entire interest paid should, therefore, be allocated under the head ‘Profits and gains of business or profession’ and nothing should be allocated towards dividend. In support of this contention, reliance was placed upon the decision of the Supreme Court in CIT v. Indian Bank Ltd.  56 ITR 77 and a few High Courts decisions, which it is not necessary for us to refer to at this stage. The point that was made, to put it shortly, was, where the assessee has more than one source of income, all of which are inter-dependent, inseparably linked up and indivisible, the expenses incurred by the assessee should not be artificially allocated and the entire expenses must be taken as the expenditure for the purposes of business activity. Another point raised was that while the assessee-company paid interest, it also received interest and if at all it is decided to allocate the interest to dividend income and other business income, only the net interest paid must be allocated and not the gross interest as was done in this case. Both these points were taken up in the cross-objections filed before the Tribunal, when it disposed of the original appeal. The Commissioner (Appeals) did not permit the assessee to raise these two new grounds with the following observations :
I am of the view that within my invested jurisdiction in this appeal, I shall not be able to go beyond the directions of the Income-tax Appellate Tribunal. The clear mandate is to enter into an enquiry as to the facts, which may justify allocation of a part of interest expenses ; the assessee on its part having already accepted that allocable part was only Rs. 11,042.
7. In view of the above, I reject the new points raised by the learned A.R. and proceed to examine the facts in the context of enquiry for allocation of interest towards earning of dividend income under Section 57.
Then he proceeded to consider the amount to be allowed by way of interest under Section 57 of the Act and found that for the earlier assessment years, the AAC had evolved a formula and that formula holds good for this year also. That formula was to allocate the interest on the basis of investment made in shares of joint stock companies with reference to total assets. By applying that formula, he found that the interest of Rs. 5,99,340 allocated by the ITO was correct and upheld it.
4. Now in this appeal filed against that order, the points raised by the learned counsel for the assessee, Shri O.P. Vaish, was that the interpretation placed by the Commissioner (Appeals) on the order of the Tribunal was incorrect. The Tribunal set aside the assessment not for the purpose of finding out whether the interest allowable should be Rs. 11,042 or Rs. 5,99,340, but to ascertain whether any interest at all was allocable under Section 57 on the peculiar facts of this case. The direction of the Tribunal was to go into the matter de novo and not to restrict it to the limited scope of finding out the allocable expenditure. When the Tribunal was mentioning that it was necessary to ascertain what part of interest income was to be deducted from dividend under Section 57, it did not mean that it was confined to either Rs. 11,042 or Rs. 5,99,340 but also to the fact whether any interest at all needs to be deducted. That was the reason why the Tribunal felt that the matter must be disposed of by the AAC from the starting point. The use of the expression that the AAC is to dispose of the appeal de novo with regard to this point, gives ample scope to the Commissioner (Appeals) to decide this issue from all angles enlarging it to the point whether interest at all requires to be allocated or not. If on an examination of the accounts, it is found that even the calculations made by the assessee were incorrect or the calculations made by the assessee were correct, it could not be interpreted that the Tribunal desired that those incorrect calculations should be ignored and allowance should be confined either to Rs. 11,042 or Rs. 5,99,340. This kind of interpretation on the order of the Tribunal as limiting the scope of the enquiry of the Commissioner (Appeals) is unwarranted and that he should have gone into this question from all its angles and then arrived at a finding whether any part of interest has to be deducted from dividend income under Section 57. That was the broad principle. The learned departmental representative, on the other hand, strongly relying on the order of the Commissioner (Appeals), submitted that the assessee was trying to enlarge the scope of enquiry at the level of the Commissioner (Appeals) and it should not be permitted. Accepting the assessee’s contention would, according to the learned departmental representative, mean rewriting the direction of the Tribunal given earlier. He also submitted that it was never the case of the assessee that interest should be deducted in its entirety against business income and nothing should be deducted against dividend income. If that were so, the question of arriving at a figure of Rs. 11,042 as allocable interest towards dividend, would not arise. There is, thus, a contradiction in the assessee’s stand and the Commissioner (Appeals) was, therefore, right in not permitting the assessee to change its stand and make it mutually contradictable.
5. In our opinion, the view taken by the Commissioner (Appeals) does seem on the narrower side. The directions given by the Tribunal quoted above, in our opinion, do vest in the AAC with the power to enquire into the matter in all its aspects and not to restrict in any manner than to arrive at the interest allowable under Section 57 against dividend income. It is difficult to read the directions given by the Tribunal, confining it to the allowing of either Rs. 11,042, as claimed by the assessee, or Rs. 5,99,340, as claimed by the revenue. There is nothing in the directions given by the Tribunal limiting the jurisdiction of the Commissioner (Appeals) to go into this question. As rightly pointed out on behalf of the assessee, if on verification, it is found that there are mistakes either in the calculation of the assessee or the department, it is certainly open to the Commissioner (Appeals) as an appellate authority to rectify those mistakes and arrive at the correct figure. Once an assessment is set aside and the matter is restored to the file of the Commissioner (Appeals), his powers to go into that matter become co-extensive with the powers he had while disposing of the original appeal. There is no difference between the powers of the Commissioner (Appeals) in disposing of the appeal originally or in disposing of an appeal, which was set aside and restored to his file provided there are no directions limiting the scope of enquiry. When an appeal is restored to his file, it becomes an appeal on his file and in deciding that appeal, he may exercise such powers as are open to him to determine the issue de novo and his powers in this regard are as plenary as coterminous as with that of the ITO. The Commissioner (Appeals) can do what the ITO could do. He can also direct the ITO to do what the latter had failed to do-CIT v. Kanpur Coal Syndicate  53 ITR 225 (SC). There is another aspect of the matter. An appeal is merely the continuation of the original proceedings and unless some fetters are placed upon the powers of the appellate authority by express words, he can exercise the same powers, as are exercisable by the ITO. The relevance of this observation would become at once clear when we refer to what happened before the ITO insofar as this claim is concerned. We find from the paper book that on 23-1-1972, the assessee wrote to the ITO in connection with the assessments for the assessment years 1966-67 and 1967-68 and later on 23-2-1973 in connection with the assessment year 1970-71 and much later on 22-3-1974 in connection with the present assessment year, pointing out to the ITO the genesis of the investment made by the assessee-company in the shares. In an elaborate statement prepared and filed before the ITO, the assessee-company had shown the name of the company of which shares are purchased, the quantity of shares purchased, the amount invested, the date of investment and how the amount came, whether by overdraft from the bank or whether out of the balance already available in the bank, and interest, if at all, paid on those purchases. A cursory glance of this statement would show to any one that in majority of the cases, these shares were purchased out of the existing money and no borrowed funds were utilised. If any one had looked into this statement and applied his mind, verified them with regard to the books, a conclusion will have been reached that the assessee purchased these shares out of its own money and not out of borrowed funds and where the overdraft money was utilised, the interest payable thereon was very nominal. Such interest calculations were arrived at Rs. 64,242, Rs. 12,765 and Rs. 17,477 for the years ending on 30-6-1965, 30-6-1966 and 30-6-1969, respectively. Prepared in the same way, the interest payable for the year under appeal came to Rs. 11,042. When the ITO by applying Section 57 has to arrive at the interest payable on the investment made in the purchase of shares to determine the dividend income, this exercise has to be gone through. We doubt whether it is open to the ITO to ignore this exercise in toto and to arrive at the interest on the basis of gross interest paid by the company with reference to the total assets acquired and the investment made in shares. We are not expressing any definite opinion on the correctness of the formula arrived at by the AAC in the earlier years and which was accepted by the Commissioner (Appeals) this year but what we are trying to highlight at this juncture is the fact that the assessee has made an attempt to show that at the time these shares were purchased, no borrowed funds were involved. Consequently, no interest of such a magnitude as the ITO had attributed, was also involved. Should or should not this matter be enquired into ? Did the Tribunal mean that this matter should not be enquired into at all when it set aside the assessment, restored the appeal to the file of the AAC for finding out that part of the interest attributable to the dividend income within the meaning of Section 57 ? The assessee now contends that first of all no borrowed money was utilised in purchasing of shares in such a large quantity. Secondly, even the purchase of shares having regard to the nature of business conducted is a business necessity, i.e., activity. Unless these points are discussed, how can it be said that the interest of particular amount is to be deducted in arriving at the dividend income for the purposes of Section 57. Further, when interest is to be taken into consideration and when there is also interest received by the assessee on the amounts it advanced out of its mixed funds, should that interest be not deducted from the gross interest payable to arrive at the net interest for the purposes of allocation under Section 57 ? Does Section 57 speak of only gross interest ? Does it not speak of net interest or these questions arc not germane to the issue of allowance of interest under Section 57 to determine the income from dividend ? These are the aspects which the Tribunal wanted the AAC to go into and not to look at the problem with blinkers. We are, therefore, of the opinion that the Commissioner (Appeals) is not justified in construing the directions given by the Tribunal as putting a fetter on his power of enquiry and that his enquiry is confined only to whether Rs. 11,042 is to be allowed or Rs. 5,99,340 should be allowed. We also find that the Commissioner (Appeals) has not discussed as to how the assessee’s claim of Rs. 11,042 should be rejected and why the claim of the Commissioner (Appeals) should be approved of. The demerits, if any, in the assessee’s case were not at all pointed out. This is also a lacuna in the order passed by the Commissioner (Appeals). Having regard to these aspects, we think it would be very proper and just that the matter should be restored again to the file of the Commissioner (Appeals), with the direction that he should go into all these aspects again and then give his decision thereon keeping in view the above discussion. He should decide whether at all any interest is allocable as a deduction from dividend income having regard to the assessee’s contention that the interest was attributable only to the business activities and nothing is allocable towards dividend on the ground that its activity was an indivisible whole or whether the gross interest should be taken or net interest should be taken and also whether the claim of the assessee that Rs. 11,042 alone should be deducted and not Rs. 5,99,340. Normally, we would not have dealt with this point in so elaborate manner except for the impression created on our mind that the Commissioner (Appeals) and the departmental representative appeared to have genuinely felt that there was a fetter placed upon their powers of enquiry when the matter was set aside by the Tribunal. It is to remove what we consider the misapprehension that we discussed the matter in a somewhat detailed way.
6. The next ground relates again to the deduction to be allowed under Section 80M but in a slightly different way. The ground appeared though innocuous, is in the following terms :
5. That, on the facts and in the circumstances of the case and in law, the Commissioner (Appeals) erred in deducting dividend exempt under Section 80K in arriving at the dividend on which deduction under Section 80M is available.
A perusal of the order of the Commissioner (Appeals) would show, how he dealt with this matter :
10.3 In view of the retrospective operation of Section 80AA, which is to be given effect to in this appeal, and in view of the Income-tax Appellate Tribunal’s observation extracted above, I allow the appellant to raise the additional ground of appeal. However, I do not agree with the construction placed by the learned A.R. on the provisions of Sections 80AA, 80M and 80K. We may discover the mischief aimed at by the amendment introduced by the Finance (No. 2) Act, 1980. As observed by the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT  101 ITR 234, the real meaning and purpose of the words used may be understood satisfactorily with reference to the past history of the legislation on the subject and the speech of the mover in the Parliament. The memorandum explaining the provisions of the Bill states that in order to get over the difficulty caused by the ruling of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. AddI. CIT  118 ITR 243 (SC) and there always being the intention to grant the deduction at the specified percentage on the net amount, Section 80AA was introduced. Therefore, there was no intention to render Section 80M(2) redundant. Even on plain reading what Section 80AA clarified, is that the income by way of dividends, which is the basis of deduction under Section 80M(l), shall be computed in accordance with the relevant Sections 56 to 59. Sub-section (2) ibid. which is to avoid deduction in respect of the same income being allowed 100 per cent under Section 80K and 60 per cent under Section 80M(l) comes into play after ‘the income by way of dividends’ has been determined under Section 80M(l), read with Section 80AA. The words in parenthesis in Section 80AA should apply to the first stage of determining the income by way of dividends and not to the later stage, when 60 per cent of the income is to be determined. So understood, there should remain no doubt as to the real meaning and purpose of Section 80AA or Section 80M(2). I, therefore, reject the additional ground of appeal.
The question that is now debated before us proceeded on the same lines as before the authorities below. Section 80M(l) and (2) is in the following terms :
(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 –
(a) in respect of such income by way of dividends the whole of such from a company formed and registered under income ; the Companies Act, 1956 (1 of 1956), after the 28th day of February, 1975, and engaged exclusively or almost exclusively in the manufacture or production of any one or more of the articles or things specified in items 2 and 3, item 4 (excluding alloy, malleable and S.G. iron castings), items 7 to 15 (both inclusive refractories -, items 17 and 18, item 23 (excluding) and items 24, 26, 27 and 29 in the list in the Ninth Schedule. (b) in respect of such income by way of divi- sixty per cent of dends other than the dividends referred to in such income. clause (a) (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. We are concerned more in this appeal with the effect of Sub-section (2) of Section 80M, read with Section 80K of the Act, and another section having a bearing on this, Section 80AA of the Act, which was inserted by the Finance (No. 2) Act, 1980, with retrospective effect from 1-4-1968. To appreciate the controversy before us, Section 80AA also needs to be reproduced which is as under : 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. Note : This topic was originally dealt with by Section 85A which was inserted by the Finance Act, 1965, with effect from 1-4-1965. Section 80M was inserted in place of Section 85A which was deleted, by the Finance (No. 2) Act, 1967, with effect from 1-4-1968.
For the entitlement of relief under Section 80M, the condition is that the gross total income of an assessee, which should be a domestic company, should include income by way of dividend if the dividend happened to be from companies categorised in Clause (a), the whole of such dividend would be deducted but if the dividend happens to be falling in the category (b), only 60 per cent thereof is to be exempted. In this case, it is the 60 per cent category that is disputed. Sub-section (2) of Section 80M puts an embargo on the allowance of deduction under Section 80M(l). It will be seen from the section quoted above that if the assessee happens to be a company entitled to relief both under sections 80M and 80K, the deduction under Section 80M would be as reduced by the deduction allowable under Section 80K. In other words, in the case of a company entitled to relief under Sections 80M and 80K, deduction under Section 80K is given preference over the deduction under Section 80M. Here in the case before us, the relief due to the assessee under Section 80K is of the order of about Rs. 18.91 lakhs. What the assessee claimed was, that of the gross dividends of Rs. 26,27,907 no interest was allocable as deduction and from the gross amount the deduction allowable under Sections 80K and 80L of the Act was only Rs. 3,160 and of the balance of Rs. 26,24,747 deduction under Section 80M at 60 per cent should be allowed, which worked out to Rs. 15,74,848. What the 1TO did was, he deducted interest of Rs. 5,99,340 from the dividend and also 80K and 80L deduction of Rs. 3,160 and arrived at the balance of Rs. 20,25,407, whereof he allowed 60 per cent which came to Rs. 12,15,244. As per the order of the Commissioner (Appeals), the ITO rectified the order and in that rectified order after deducting the interest allocable of Rs. 5,99,340 from the gross dividend of Rs. 26,27,987, he further deducted Rs. 18.91 lakhs as deduction under Section 80K and arrived at a balance of only Rs. 1,33,369 for the purpose of allowing deduction under Section 80M. The assessee now claims that the deduction of Rs. 18,91,198 under Section 80K should not have been allowed. This it says is the meaning of and supported by the provisions of Section 80AA. Now Section 80AA, as extracted above, would show how the deduction under Section 80M is to be computed. It says where any deduction is required to be allowed under Section 80M, notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the income by way of such dividend 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 dividend. What Mr. Vaish argues is even though Section 80M(2) provided that deduction under Section 80K must be allowed first, before giving deduction under Section 80M(l), Section 80AA contemplated the computation of the relief due under Section 80M and it specifically provided that the deductions spoken of in this Chapter, i.e., Chapter VIA of the Act, should not be considered while the other provisions of the Act could be applied. Mr. Vaish’s emphasis was that when Section 80AA provided that the amount of deduction to be given under Section 80M is to be computed before making any deduction under this Chapter, meaning Chapter VIA, it meant in effect that the deductions spoken of in Section 80K, which is part of Chapter VIA, is to be ignored. In other words, the enactment of Section 80AA is to nullify the effect of Section 80M(2). If that is the object, the ITO was not justified in deducting Rs. 18.91 lakhs from the net dividend after deducting the interest allocable to it. The departmental representative says that this is not the object of the section. The whole object of Section 80AA was to supersede the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT  118 ITR 243, where the Supreme Court held that deduction under Section 80M in respect of inter-corporate dividend is to be computed with reference to the gross amount of such dividend and not the net amount arrived at minus admissible expenditure. That was the reason why Section 80AA was inserted with retrospective effect from 1-4-1968, providing that the deduction under Section 80M is to be computed with reference to the net dividend income and not the gross dividend income. If this is the entire object of enacting of Section 80AA then it cannot be said that its object was to nullify the effect of Section 80M(2), which was inserted with effect from 1-4-1972. One has no relation to the other. He then gave us instances to show where both could co-exist in furtherance of the legislative intention. Shri Vaish, on the other hand, by citing several examples opposed this view.
7. But we are of the view that the view canvassed on behalf of the asses-see is difficult to accept. Assuming for a minute that Shri Vaish is right, what Section 80AA clearly says is (i) where any deduction is required to be allowed under Section 80M in respect of any income by way of dividend, (ii) notwithstanding anything contained in Section 80M, (iii) the deduction under Section 80M shall be computed with reference to, (iv) the income by way of such dividend as computed in accordance with the provisions of this Act, (v) ‘before making any deduction’ under this Chapter and (vi) not with reference to the gross amount of such dividend. The words in parenthesis ‘before making any deduction under this Chapter’ would no doubt refer to the deductions allowable under Chapter VIA, which have a bearing upon the determination of the income under Section 80M and that is the deduction spoken of in Section 80K. The purpose of Section 80AA is to determine and arrive at the quantum of deduction to be allowed under Section 80M. The controversy before Section 80AA inserted was, what should be the quantum of income. The Supreme Court said that it is gross and not net. The Legislature intended it to be otherwise. It, therefore, said that the quantum of deduction that is to be given for the purpose of Section 80M is only net amount. It, therefore, provided that in arriving at the quantum of deduction under Section 80M from the gross dividend, deduct the expenditure allocable to it in accordance with the provisions of the Act but not with reference to the gross amount of such dividend. Once that quantum of deduction is arrived at as stipulated in Section 80AA, then one has again to go to Section 80M for the purpose of granting the deduction. Even after the amount of relief due under Section 80M is arrived at as per Section 80AA, that amount does not automatically become entitled to the relief. It is again to be processed as provided for in Section 80M(2). That is why the section says that the deductions to be allowed shall be computed with reference to the income by way of dividend as computed in accordance with the provisions of this Act but not with reference to the gross amount of such dividend, taking care to see that the gross amount of dividend is not further diminished by the deductions to be made under Section 80M(2). If we trace the history of Section 80M, it would become clear that the present Sub-section (2) of Section 80M, inserted with effect from 1-4-1971, appeared even earlier as the Explanation 2 to Section 80M, when it provided :
Where a company to which this section applies is entitled also to the deduction in respect of income by way of dividends under Section 80K or Section 80L, the deduction under Sub-section (1) shall be allowed in respect of income by way of dividends referred to therein as reduced by the aggregate of the deductions, if any, in respect of income by way of dividends under Section 80K and Section 80L.
This Explanation later became Sub-section (2) of Section 80M inserted by the Finance (No. 2) Act, 1971, with effect from 1-4-1972. The whole idea is that if an assessee is entitled to relief under Sections 80K and 80M, the relief under Section 80K must first be given and only the balance shall be entitled to the relief under Section 80M. While Section 80M gives relief in respect of inter-corporate dividends received by domestic companies, Section 80K relief is allowable to shareholders. Since a shareholder can also be a domestic company receiving dividend from another company, the object perhaps is to see that no double advantage is taken by the same assessee. The history of Section 80M, particularly the reason for inserting Section 80M(2), must be borne in mind to understand the purpose of insertion of Section 80AA, which as we have noticed earlier is to off-set the effect of the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. (supra). Now coming back to Section 80AA, its sole purpose is to determine the quantum of deduction available for Section 80M. It must be understood as a section laying down the procedure for arriving at the quantum of deduction. It says to repeat from the gross dividend income, deduct the expenses allowable under the provisions of the Act but not any deduction under Chapter VIA, that is not to say that the effect of Section 80M(2) is nullified. After arriving at the quantum as provided for in Section 80AA, from that quantum of income, the further deduction allowable under Section 80K is to be deducted as provided for in Sub-section (2) of Section 80M. It is also very significant to note that when Section 80AA spoke of deduction allowable under Section 80M, the deduction allowable under Section 80M is specified in Section 80M(l) and 80M(2) does not speak of the deduction in the context of arriving at it but only places a procedural restriction as to which relief should take precedence. That is why Section 80M(2) also refers to deduction allowable under Section 80M as ‘deduction under Sub-section (1)’. It is, therefore, difficult to understand that the Legislature by insertion of Section 80AA has totally annihilated the effect of Sub-section (2) of Section 80M. The effect of that section still remains and the only thing is that it comes into operation after the deductions allowable under Section 80M(l) is computed as provided for in Section 80AA. Thus, in the context of Section 80M(l), Section 80AA must be read as a proviso to Section 80M(l) and not in substitution of Section 80M(2). Taking the case of the assessee, for example, the gross dividends are Rs. 26,27,987. Assuming that the assessee’s contention that no interest is allocable towards gross dividend is right, then from the amount of gross dividend, the deduction allowable under Section 80K, which was shown in the computation sheet at Rs. 18,91,198, must be deducted and on the balance of Rs. 7,36,709, 60 per cent relief ought to be given. In this process, the assessee is getting relief of Rs. 18,91,198 under Section 80K and also 60 per cent of Rs. 7,36,709 under Section 80M. He is not denied arty relief, and that the assessee is getting both the relief’s contemplated. This seems to be the intention of the Legislature. If this is so, we cannot subscribe to the contention put forward on behalf of the assessee that for the purpose of granting relief under Section 80M, the deduction under Section 80K of Rs. 18,91,198 should be totally ignored. If we understood the contention of the assessee correctly, then accepting the interpretation placed by the assessee upon the interpretation of these Sections 80AA and 80M, would mean that the assessee would get relief under Section 80K of Rs. 18,91,198 and again the full relief of Rs. 26,27,908, which does not seem to us to be the Legislature’s intention. If the intention of the Parliament is to nullify effect of Section 80M(2), it would have done so in very explicit terms. We, therefore, hold that this view canvassed on behalf of the assessee is not borne out by the language of Section 80M(2), read with Section 80AA. The view taken by the Commissioner (Appeals) appealed to us to be correct and we endorse it.
8. [This para is not reproduced here as it involves minor issue.]
9. In the result, the appeal is allowed in part.