$~8.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 92/2013
Date of decision: 16th July, 2013
COMMISSIONER OF INCOME TAX DELHI -IV
..... Appellant
Through Mr. Sanjeev Sabharwal, Sr.
Standing Counsel.
versus
DELHI TOURISM & TRANSPORTATION DEVELOPMENT
CORPORTATION LTD
..... Respondent
Through Ms. Prem Lata Bansal, Sr. Advocate
with Mr. Ruchir Bhatia, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
Having heard learned counsel for the parties, the following
substantial question of law is framed:
"Whether the Income Tax Appellate
Tribunal was right in holding that assessee is
entitled to deduction under Section 80M of the
Income Tax Act, 1961?"
2. We have heard learned counsel for the parties on the aforesaid
question and proceed to dictate our judgment.
ITA No. 92/2013 Page 1 of 10
3. Respondent is a domestic company wholly owned by the
Government of NCT of Delhi and the Assessment Year involved is
1993-94. The assessee had disclosed income of Rs.14,26,29,843/-
during the assessment year in question. Deduction under Section 80M
of the Income Tax Act, 1961 (Act, for short) was claimed on the
ground that the assessee had received dividend of Rs.50,00,000/- in
this year from Unit Trust of India (UTI). The Assessing Officer
disallowed the claim for deduction under Section 80M observing that
the respondent-assessee had not produced evidence in support of
payment of dividend within the specified time and as per the audit
statement the respondent had proposed dividend of Rs.36,83,000/- and
the dividend had not been paid. There is no further discussion in the
order of the Assessing Officer.
4. Commissioner of Income Tax (Appeals) [CIT (Appeals), for
short] affirmed the said view observing that the dividend distribution
related to earlier years, i.e., Financial Years 1990-91 and 1991-92 and
as such deduction under Section 80M of the Act was not permissible.
He also recorded that the dividend of Rs.48,72,518/- was paid to the
shareholders of the company by four cheques dated 31st March, 1993,
which were encashed on 21st April, 1993. We record here that the CIT
(Appeals) has not indicated or mentioned why the dividend distributed
related to Financial Years 1990-91 and 1991-92. He has not elaborated
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upon the said statement. As noticed above, the order of the Assessing
Officer also does not elaborate and deal with the said aspect.
5. The Income Tax Appellate Tribunal has recorded some factual
details. It has recorded that the respondent-assessee had declared
dividend of Rs.48,72,518/- relating to Financial Years 1990-91 and
1991-92 but the dividends were paid on 21st April, 1993 by cheques
dated 31st March, 1993. CIT (Appeals) had held that benefit of Section
80M would be only relatable to dividends paid and distributed and
were relatable to the Assessment Year 1993-94 or Financial Year
1992-93.
6. In other words, the contention of the Revenue is that each
assessment year is a self contained and as dividend of Rs.48,72,518/-
related to Financial Years 1990-91 and 1991-92, deduction under
Section 80M cannot be allowed on the basis of dividend income of
Rs.50,00,000/- received in the Financial Year 1992-93. This is
because the dividend distributed was for Financial Years 1990-91 and
1991-92 and deduction under Section 80M was claimed for the year
ending 31st March, 1993.
7. Ex facie, there appeared to be some merit in the contention
raised by the appellant-Revenue but on deeper scrutiny, we do not find
that ground or justification is made out to interfere with the order of the
tribunal. Section 80M as it existed and applicable to the Assessment
ITA No. 92/2013 Page 3 of 10
Year 1993-94 was as under:
"80M. Deduction in respect of certain
intercorporate dividends.--(1) Where the gross
total income of a domestic company, in any
previous year, 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 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
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
ITA No. 92/2013 Page 4 of 10
the assessment year commencing on the 1st day
of April, 1996, and any subsequent previous
year.
(2) Where any deduction, in respect of the
amount of dividend distributed by the domestic
company, has been allowed under clause (ii) of
sub-section (1) in any previous year, no
deduction shall be allowed in respect of such
amount in any other previous year.
(3) Where the dividend distributed is in respect
of any period comprised in the previous year
ending on the 31st day of March, l99O, no
deduction shall be allowed in respect of such
dividend.
Explanation.--For the purposes of this section,
the expressions--
(i) "scheduled bank" means the State Bank
of India constituted under the State Bank of India
Act, 1955 (23 of 1955), a subsidiary bank as
defined in the State Bank of India (Subsidiary
Banks) Act, 1959 (38 of 1959), a corresponding
new bank constituted under section 3 of the
Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (5 of 1970), or under
section 3 of the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1980 (40 of
1980), or any other bank included in the Second
Schedule to the Reserve Bank of India Act, 1934
(2 of 1934), and which is a domestic company;
(ii) "public financial institution" shall have
the meaning assigned to it in section 4A of the
Companies Act, 1956 (1 of 1956);
(iii) "State financial corporation" and
"State industrial investment corporation" shall
have the same meanings as in section 43B;
(iv) "due date" means the date for
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furnishing the return of income under sub-section
(1) of section 139."
8. Section 80M(1) for the purpose of interpretation can be
segregated into two parts or postulates two requirements. The first
requirement is that gross income of a domestic company in the
previous year should include income by way of dividend from another
domestic company. The said condition it is accepted is satisfied as the
respondent-assessee had received dividend of Rs.50,00,000/- from
another domestic company, i.e., UTI. The second part of Section
80M(1) states that in the year in which the dividend was received, the
assessee company would be allowed a deduction of an amount equal to
and not exceeding the amount of dividend distributed on or before the
due date. Due date as per Explanation to Section 80M means the date
of filing of return of income under Section 139(1). If we go by the
order of the CIT (Appeals) and the tribunal, they have accepted the
plea of the respondent-assessee that the dividend was paid to the
shareholders of the assessee before due date vide cheques dated 31st
March, 1993, which were encahsed on 21st April, 1993.
9. The requirement of the second part of Section 80M(1) is that the
company, which has received dividend from a domestic company
should have distributed dividend not exceeding the amount of dividend
received on or before the due date. The second part of Section 80M(1)
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does not stipulate that the dividend, which was distributed, must relate
to the year in question to which the return relates. The only
requirement or condition is that the dividend should have been
distributed in the year in question or on or before the due date. The
due date has been specified to mean the date of furnishing of return
under Section 139(1) of the Act.
10. The view we have taken is supported by sub-section (2) to
Section 80M. The said sub-section stipulates that where dividend was
distributed in a previous year, no deduction would be allowed in
respect of the said amount in any other year. In other words, the
deduction is to be allowed in the year when the dividend was
distributed and not in any other year. Sub-section (3) to Section 80M
states that no deduction would be allowed under the said Section where
dividend distributed was in respect of periods prior to 31st March,
1990. The said sub-section supports the contention of the respondent-
assessee that when dividend distributed relates to period prior to 31 st
March, 1990, deduction under Section 80M as applicable cannot be
allowed.
11. The second part of Section 80(1) of the Act, does not
specifically postulate or prescribes the requirement that dividend
distributed must match or relate to the assessment year itself. There is
good reason, why the Legislature has not prescribed the said
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condition/requirement. Dividends can be declared and are normally
declared after the end of the financial year and when financial results
are known. Payment of dividend in several cases may spill over and
distribution can and does take in the subsequent year.
12. We are also inclined to accept the view of the respondent-
assessee for another important reason, even if we feel that the
contention of the Revenue is plausible. The reason is that Bombay
High Court in Commission of Income Tax versus Saumya Finance
and Leasing Co. P. Ltd, [2008] 300 ITR 422 (Bombay) has taken an
identical view and this judgment was noticed and followed by the
tribunal. Facts in the case of Saumya Finance and Leasing Co. P.
Ltd. (supra) are almost similar though not identical. In the said case,
the assessee company had received dividend in the Financial Year
1996-97 but had declared interim dividend for the Financial Year
1997-98. In the returns filed for the Financial Year 1996-97, deduction
under Section 80M was claimed on account of dividend earned and
received in the said previous year. Bombay High Court dismissing the
appeal of the Revenue, observed:-
"5. On the bare reading of the Section it is clear
that the deduction as permitted is of an amount
equal to so much of the amount of income by
way of dividend declared by the Company as
does not exceed the amount of dividend
ITA No. 92/2013 Page 8 of 10
distributed by the assessee company on or before
the due date.
6. It is clearly seen that the section does not
provide for the nature of the dividend distributed
by the assessee company. It does not state that
the nature of the dividend distributed must be for
the financial year under assessment. Accepting
the argument of the revenue will amount to
laying down an additional restriction to the effect
that the dividend distributed by the Assessee
Company must be for the financial year under
assessment. Laying down such restricting
qualification, in our view, will amount to doing
violence to the plain and clear meaning of the
words as contained in Section 80M."
13. The contention of the Revenue that the interpretation given by
the Bombay High Court would result in absurdity was rejected as the
intention of the legislature in enacting Section 80M was clear, i.e., to
ensure that the dividend income received by the assessee company
would be permitted as a deduction only if it was redistributed as
dividend to the shareholders. The emphasis was on the word
"distribution" and not on the "period" to which the dividend paid
related. The possibility of misuse of the said provision appears to be
remote as normally dividends declared have to be paid within the
statutory time limit fixed under the Companies Act, 1956 and
violations invite punishment and penalty. This is a peculiar case of a
Government company wherein dividend for Financial Years 1990-91
ITA No. 92/2013 Page 9 of 10
and 1991-92 got distributed on 23rd April, 1993, i.e. the date of
encashment of cheques dated 31st March, 1993. We have also noted
that the provision, Section 80M would become illusory, if we accept
the interpretation of the Revenue, as it would ignore the factum that
dividends are mostly declared after the end of the financial year, upon
approval of accounts and in many, if not in majority, distribution may
be after "due date" for filing of the return of income for the relevant
year. Thus, interpretation of the Revenue if accepted, would result in
denial of benefit under Section 80M in most cases. Legislature being
aware and conscious has deliberately not prescribed and stipulated
principle of matching i.e. dividend received and dividend distributed
must relate to the same assessment year.
14. In view of the aforesaid position, we answer the question of law
in affirmative, i.e., in favour of the respondent-assessee and against the
Revenue. The appeal is dismissed. There is no order as to costs.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
JULY 16, 2013
VKR
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