IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 30 of 2002()
1. THE SOUTH INDIAN BANK LTD. TRICHUR.
... Petitioner
Vs
1. THE COMMISSIONER OF INMCOME TAX,COCHIN.
... Respondent
For Petitioner :SRI.P.BALAKRISHNAN (E)
For Respondent : No Appearance
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN
Dated :17/06/2008
O R D E R
(C.R.)
C.N.RAMACHANDRAN NAIR
& V.K.MOHANAN, JJ.
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I.T.A.No. 30 of 2002
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Dated this the 17th day of June, 2008
J U D G M E N T
Ramachandran Nair,J:
The appellant, a scheduled bank, claimed
deduction of 4/5th of the dividend income received from the
Unit Trust of India under proviso (a) to Section 80 M(1) of
the Income Tax Act for the assessment year 1994-95. The
Assessing Officer however restricted the deduction to 4/5th
of 60% of the dividend income from the Unit Trust by
taking the view that ‘such income’ referred to in proviso
(a) above referred means 60% of dividend income
mentioned in sub-clause(i) of Section 80 M(1) of the Act.
Even though, the First Appellate Authority allowed the
appeal holding that the appellant is entitled to deduction
of 60% on the dividend income from the Unit Trust in
terms of proviso(a) to Section 80M(1) of the Act, the
Tribunal reversed the order of the First Appellate
Authority and restored the assessment. It is against this
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order of the Tribunal, the assessee has filed this appeal
raising two questions of law. Since the questions
raised separately or together do not reflect the issue
precisely, we re-draft the question as follows:-
‘Whether the assessee, a scheduled
bank is entitled to deduction of 4/5th of
the dividend income received from the
Unit Trust of India or only 4/5th of 60%
of the dividend income from Unit Trust of
India under proviso (a) to Section 80M(1)
of the I.T.Act., for the assessment year
1994-95?’
2. We have heard Sri.P.Balakrishnan, counsel
appearing for the appellant and Sri.P.K.R.Menon, Senior
Counsel appearing for the respondent.
3. Since the question raised pertains to
interpretation of Section 80M, we extract herein below
the said section.
“80M. Deduction in respect of certain inter-
corporate dividends
(1) Where the gross total income of a
domestic company, in any previous year, includes
any income by way of dividends from another
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domestic company, there shall, in accordance
with and subject to the provisions of this
section, be allowed, in computing the total
income of such domestic company, a deduction
of an amount equal to,–
(i) in the case of a scheduled bank or a
public financial institution or a State
financial corporation or a State
industrial investment corporation or a
company registered under section 25
of the Companies Act, 1956 (1 of
1956), sixty per cent of the income by
way of dividends from another
domestic company;
(ii) in the case of any other domestic
company, 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;
(Provided that where any domestic company
receives any income by way of dividend from
the units of the Unit Trust of India
established under the Unit Trust of India
Act, 1963 (52 of 1963), such domestic
company shall, subject to the aforesaid
provisions, be eligible for deduction to the
extent of—
(a) four-fifth of such income in respect of the
previous year relevant to the assessment year
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commencing on the 1st day of April, 1994;
(b) two-fifth of such income in respect of the
previous year relevant to the assessment year
commencing on the 1st day of April, 1995, and
no deduction shall be allowed on such income in
respect of the previous year relevant to the
assessment year commencing on the 1st day of
April, 1996 and any subsequent previous year.]
4. The answer to the question above referred
will depend on the meaning of ‘such income’ as it occurs
in provisos (a) and (b) above. While the contention of
the assessee is that ‘such income’ means dividend
income from Unit Trust of India, for which the main
proviso is introduced by the Finance Act 1993 with
effect from 1.4.1994, the Senior Counsel appearing for
the Revenue contended that ‘such income’ when read
with ‘subject to the aforesaid provisions’ referred to in
the main provision means 60% of the dividend income
received from the Unit Trust of India because the
assessee is covered by clause (i) of Section 80M(1) of the
Act. The proviso which is the subject matter of
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controversy in this appeal was introduced by the
Finance Act, 1993 with effect from 1.4.1994. It is not in
dispute that until the proviso was introduced, every
domestic company was eligible for deduction under
Section 80M of the Act of the full dividend income
including dividend received from the Unit Trust of India.
However, scheduled banks like appellant and public
financial institutions and Section 25 companies were
entitled to deduction of only 60% of the dividend income
including dividend received from U.T.I. The purpose of
introduction of the proviso is explained in the Notes on
Clauses of Finance Bill, 1993 as follows:-
“Clause 16 seeks to amend sub-section
(1) of section 80M of the Income tax Act
relating to deduction in respect of certain
intercorporate dividends.
The proposed amendment seeks to
insert a proviso in sub-section(1) of section
80M so as to withdraw the deduction under
that section in respect of dividend income
received by a domestic company from the
units of the Unit Trust of India in a phased
manner. The amount of deduction shall be
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limited to four-fifth of such dividend income
of the previous year relevant to the
assessment year 1994-95. Similarly, in
respect of dividend of the previous year
relevant to the assessment year 1995-96, the
amount of deduction allowed shall be limited
to two-fifth of such dividend. No such
deduction in respect of dividend income from
units in any other subsequent previous year
shall be allowed.
This amendment will take effect from
1st April, 1994 and will accordingly apply in
relation to assessment year 1994-95 and
subsequent years.”
The only question to be considered is whether ‘such
income’ referred to in provisos (a) and (b) above refers
to dividend income from Unit Trust of India or relief
portion of dividend income from Unit Trust i.e., 60% in
the case of the appellant. If the appellant’s claim is to
be allowed, the appellant is entitled to deduction of 4/5th
of the dividend income from the Unit Trust of India i.e.,
80%. On the other hand, if the Department’s case is
accepted, the appellant will only be entitled to 4/5th, i.e.,
80% of the 60% of the dividend income from the Unit
I.T.A. NO. 30 OF 2002
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Trust of India. “Any income” referred to in the main
proviso to the Section talks of dividend income from the
Unit Trust of India. Therefore, in the normal course,
when ‘such income’ is later referred to in the proviso, it
would only mean dividend income from Unit Trust of
India. The question to be considered is whether the use
of words ‘subject to aforesaid provisions’ in the main
proviso makes any difference or not. The Senior
Counsel appearing for the Revenue contended that
‘subject to the aforesaid provisions’ refers to the limits
on relief covered by clauses (i) and (ii) of Section 80M(1)
or in other words, provisos (a) and (b) are a further
restriction or limitation on the reliefs provided in clause
(i) and (ii) of the main provision. We are unable to agree
with this argument because the purpose of introduction
of proviso as stated in the Explanatory Note attached to
the Finance Bill is to take away deduction for dividend
income from Unit Trust of India in a phased manner. In
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the first year, 1994-95, the relief provided was up to
4/5th of dividend income received from Unit Trust of
India. For the next year 1995-96, it was reduced to 2/5th
of the dividend income received from Unit Trust of India
and thereafter, from the assessment year 1996-97
onwards, no deduction is admissible under Section 80M
(1) of the Act for the dividend income received from the
Unit Trust of India. As already stated, the purpose of
amendment through introduction of provisos (a) and (b)
to sub-clauses (i)and (ii) to Section 80M(1) of the Act is
to abolish the deduction provided for dividend income
from the Unit Trust of India in a phased manner. The
purpose will not be achieved unless the proviso is taken
to cover deduction pertaining to dividend income
received from the Unit Trust of India. In other words,
after the proviso was introduced, sub-clauses (i) and (ii)
of Section 80M(1) of the Act no longer applies to
dividend income from the Unit Trust of India. If the
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argument of the Revenue that the limitation contained in
clause (i) of Section 80M(1) of the Act applies to the
ceiling contained in clause(a) of the proviso is accepted,
then it would mean that even after the abolition of the
deduction of the dividend income from the Unit Trust of
India from 1996-97 onwards, the assessee will be
entitled to claim deduction under sub-clause(i), which is
60%. This will defeat the very purpose of the
amendment.
5. Therefore, we hold that the contention of the
Revenue that clause(a) to proviso is subject to the limit
contained in sub-clause (i) of Section 80M(1) is
absolutely untenable. So much so, the argument of the
Revenue that admissible deduction for dividend income
from Unit Trust of India for the year 1994-95 is only 4/5th
of 60% of such income is rejected. We hold that the
deduction under main section available to dividend
income from the Unit Trust of India is subject to the
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limit contained only in clause(a) to the proviso for the
year 1994-95. So the assessee is entitled to deduction of
4/5th of the dividend income received from the Unit Trust
of India. For the year 1995-96, the limitation is only
what is provided in clause (b) of the proviso to Section
80M(1) of the Act. Consequently, we allow the appeal
by reversing the order of the Tribunal and restoring the
order of the First Appellate Authority in favour of the
assessee.
C.N.RAMACHANDRAN NAIR,
Judge
V.K.MOHANAN,
Judge
MBS/
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C.N.RAMACHANDRAN NAIR
&
V.K.MOHANAN, JJ.
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I.T.A.NO. 30 OF 2002
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(C.R.)
J U D G M E N T
DATED:17-06-2008
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