Income Tax Appellate Tribunal - Mumbai
J.B. Boda And Co. (P.) Ltd. vs Income-Tax Officer on 1 January, 1992
Equivalent citations: [1992]41ITD36(MUM)
ORDER
M.A. Ajinkya, Accountant Member
1. This is an appeal filed by the assessee for the assessment year 1986-87. Several grounds are raised, which are dealt with seriatim as follows.
2. The first and the most important ground is that the learned CIT (Appeals) ought to have allowed the claim for deduction under Section 80-O of the Act amounting to Rs. 45,50,000. The alternative ground raised without prejudice to the main ground is that the learned CIT (Appeals) erred in upholding that the expenditure incurred has has to be allocated on a pro rata basis with reference to gross income as determined by excluding the dividend income. It is the case of the appellant that the contributions made to a scientific research association in India specified under Section 35(i)(ii) or an association for carrying out rural development programme in India specified under Section 35CCA should be excluded in computing the expenditure deductible from the foreign commission earnings. The relevant facts may first be stated.
3. The appellant is a private limited company. It filed its return for the assessment year 1986-87 on 27-6-1986 declaring an income of Rs. 14,99,280. It filed a revised return on 21-1-1987 enhancing the total income to Rs. 18,99,140. It filed yet another return on 31-3-1987 enhancing the income to Rs. 25,19,356. The main activity of the appellant company is to earn commission from parties abroad for technical services rendered. The company is engaged in the business as the insurance broker. It has also income from interest and dividend. Though such interest and dividend, according to the Assessing Officer, is secondary or peripheral in nature, the earning from foreign commission constitutes the bulk of the income of the company. During the relevant accounting year, the appellant received foreign commission of about Rs. 1.78 crores. According to the appellant, the foreign commission, which qualified for deduction under Section 80-O, was around Rs. 1.54 crores, although the appellant, had received approval from the CBDT for various agreements involving foreign commission of Rs. 1,02,24,483. Before the Assessing Officer the company claimed total deduction of Rs. 22,25,093 under Section 80-0. This amount was arrived at after deducting from the total income proportionate expenses. The working of such relief as submitted before the Assessing Officer and as stated by the CIT (Appeals) in para 2.1 of his order was as follows :
1. Foreign commission received for which CBDT's Rs.
approvals under Section 80-O are available. 1,02,24,483
2. Total income as per P & L A/c. 2,11,56,206
3. Total expenses as per P & L A/c. 1,70,46,743
Less :
(a) Charities & donations Rs. 42.12,439
(b) loss on property Rs. 23,919
(c) loss on sale of shares Rs. 8,60,375 50,98,733
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1,19,48,010
4. Expenses proportionate to
earning foreign commission.
(1,19,48,010 x 1,02,24,484) 57,74,297
--------------------------
2,11,56,206
5. Net foreign commission income eligible for
deduction under Section 80-O
(1,02,24,483 - 57,74,297) 44,50,186
6. 50 per cent of the above 22,25,093
This working was not accepted by the Assessing Officer because he held that charities and donations amounting to Rs. 42,12,439 could not be excluded from the expenses to be allocated pro rata. Such charities and donations consisted of contributions made for scientific research under Section 35(1)(ii) and contributions to rural development under Section 35CCA. There were also donations qualifying for deduction under Section 80G amounting to Rs. 3,64,439. The Assessing Officer allocated all these expenses including these contributions and donations on a pro rata basis. The second objection of the Assessing Officer was that while working out the proportion of expenses to be taken into consideration to arrive at the figure of income which qualified for 80-O relief, the appellant has taken into account the total income including income from other sources. He excluded such income and worked out the proportion of expenditure by relating the foreign commission to the total receipts other than the receipts under dividend and interest. Following this principle, the Assessing Officer worked out the deduction under Section 80-O at Rs. 8,19,930.
4. Such working was objected to before the first appellate authority. The first objection was that the contributions and donations qualifying for deduction under Sections 35(1)(ii), 35CCA and 80G have to be excluded from the expenses. It was argued that such contributions and donations could not be treated as expenses incurred for earning foreign commission and donations qualifying for deduction 80G ought to be excluded from the expenses in view of the explicit provisions of Section 80AB. It was also argued that pro rata expenses with reference to the total gross income should have been worked out. The CIT (Appeals) observed that since the appellant had claimed deduction under Section 80M in respect of its dividend income, its claim that for the purpose of Section 80-O the expenses to be allocated with reference to the total gross income including dividend income was inconsistent with its claim of deduction under Section 80M. The CIT (Appeals,) therefore, held that it would be fair to allocate expenses prorate with reference to the gross income excluding dividend income. The CIT (Appeals) accepted that charities and donations qualifying for deduction under Section 80G had also to be excluded from the expenses in view of the specific provisions of Section 80AB. Such donations, the CIT (Appeals) observed, were not expenses and were an application of income and had to be excluded while working out the proportion of expenses. The CIT (Appeals,) however, in para 2.6 of his order, rejected the contention relating to contributions made under Section 35(1)(ii) and under Section 35CCA. While rejecting this claim, the CIT (Appeals) gave the following finding :
These are deductions allowable in computation of income from business. In fact, the marginal heading of Section 35 speaks of expenditure on scientific research. Section 80AB provides that the amount of income of the nature qualifying for deduction under various sections of Chapter VI-A (except Section 80M) has to be computed in accordance with the provisions of the IT Act, 1961. Such computation cannot exclude deduction claimed by the assessee under Section 35(1)(ii) or Section 35CCA. The fact that the pro-rating of expenditure has to be done is not denied and in the light of the provisions of Section 80AB, the expenses of the type referred to in the Section 35 or 35CCA cannot be excluded from computation of qualifying income.
Thus, in effect, the CIT (Appeals) allowed 80-O relief of Rs. 8,19,930. It is against the finding of the CIT (Appeals) that the present appeal is filed.
5. Shri S.E. Dastur, the learned counsel for the appellant, argued that the short, question for consideration was what was the correct amount of expenditure that should be deducted from foreign commission which may be conveniently called as 80-O receipts for arriving at a figure of income which qualifies for deduction under Section 80-O. This formula generally is total expenditure x 80-O receipts/total receipts The issue for consideration, according to the learned counsel, was what is the exact figure of 80-O receipts, what expenses should be taken into account as total expenses for working out the proportion of 80-O receipts to total receipts and what should or should not be included in the figure of total receipts. The counsel argued that although in the revised return filed the 80-O receipts shown were Rs. 1,02,24,483, it was the figure of receipts in respect of contracts approved at the point of time the return was filed. The actual 80-O receipts were Rs. 1,30,00,000, since these were the receipts in respect of contracts approved after the return was filed. Therefore, argued the counsel, the figure of 80-0 receipts in the above formula should have been taken at Rs. 1,30,00,000.
5.1 The next question was what was the total expenditure to betaken into consideration for working out the proportion of expenses deductible against 80-0 receipts. The total expenses were Rs. 1,70,46,742. These included loss on sale of shares and loss on property. There was no dispute between the revenue and the appellant that these two items were not to be included in the total expenditure. So far as donations under Section 80G were concerned, the CIT (Appeals) accepted that such donations could not be taken into account while working out the figure of total expenditure. The dispute was about contributions made under Sections 35(1)(«) and 35CCA. Such contributions amounted to Rs. 37 lakhs and Rs. 1,50,000 respectively. The counsel argued that the type of outgoing that is contemplated under Sections 35(1)(ii) and 35CCA could not be considered as an expenditure incurred for earning foreign commission which qualified for deduction under Section 80-0. The counsel argued that the language of Section 35(1)(ii) as well as 35CCA was very similar to the language of Section 80GGA. After referring to these sections, he stressed the point that these sections did not speak of expenditure to be allowed but spoke of any sum paid to scientific research association or any institution. In particular, the counsel emphasized that the language of Section 35(1)(it) was almost similar to the language of Section 80GGA, both of which spoke of any sum paid to a scientific research association or institution which has as its object the undertaking of any programme of rural development.
5.2 The third question posed by the learned counsel in this regard was what are the total receipts to be taken into consideration for working out the proportion of expenses (which would represent the denominator in the formula mentioned above). The total receipts of the appellant amounted to Rs. 2,11,56,206. These receipts consisted of the following:-
Gross commission received Rs. 1.92 crores (which consisted in round) figures of Rs. 1,92,50,000). Interest Rs. 14,89,000 Dividend Rs. 4,10,000
The Assessing Officer excluded from the computation of total receipts both interest and dividend. The CIT(Appeals) in his order included interest but has directed that dividend cannot betaken into total receipts because the appellant had claimed deduction under Section 80M. While countering the CIT (Appeals') finding in this regard, Shri Dastur pointed out that the total dividend of Rs. 4,10,000 consisted of Indian dividend of Rs. 27,000 on which alone deduction under Section 80M was available. The appellant also received foreign dividend of Rs. 3,83,000 on which no such deduction was available and no expenses claimed. Therefore, according to the counsel, the CIT (Appeals) was not justified in directing that the entire dividend income should be excluded from the figure of total receipts 5.3 Shri Keshav Prasad, the learned Departmental Representative, argued that the amount received in India on the basis of agreements approved by the Board alone could be taken into consideration for considering 80-O receipts and such amounts as disclosed by the appellant itself were Rs. 1,02,24,483. As regards the expenses to be allowed, the learned Departmental Representative argued that income by way of royalty had to be considered and the provisions of Section 80AB had to be borne in mind while deciding the quantum of such income. He argued that Sections 35(1)(u) and 35CCA are sections which do not fall within the purview of Chapter VI-A. The deductions provided under these sections have to be allowed to arrive at the total income and if such deductions are excluded from the computation of income under the head '80-O receipts', such exclusion will violate the provisions of Section 80AB. Lastly, the learned Departmental Representative pointed out that the interest received was taxed as business income and this fact has also to be taken into account for determining the quantum of expenses to be allowed. He pointed out that the CIT (Appeals) had excluded deductions under Section 80G in view of the provisions of Section 80AB and this rationale could not be applied in support of the argument that expenses under Section 35(1)(») or Section 35CCA were not expenses for earning foreign commission and, therefore, should not, be taken into account to arrive at the income contemplated under Section 80-0.
6. We have considered the submissions made by the learned counsel for the appellant and the learned Departmental Representative. Before going into the merits of the various legal arguments by the learned counsel, it would be necessary to point out that a substantial portion of the income of the appellant is income from foreign commission. In this connection, it would not be wholly irrelevant to take note of the extent of the foreign commission received by the appellant for the year under appeal and the earlier years as pointed out by the Assessing Officer in para 4 of his order where he has extracted the receipts under the three heads as follows:-
1984-85 1985-86 1986-87
(Rounded off to
nearest thousand)
Foreign commission 1,26,45,000 1,71,72,000 1,92,50,000
(92.8%) (92.2%) (90.2%)
Interest 8,51,000 13,13,000
14,89,000
(6.2%) (7%) (7%)
Dividend 1,22,000 1,19,000 4,10,000
(0.89%) (0.8%) (1.9%)
The Assessing Officer has pointed out that in the earlier years the foreign commission was about 95% of the total receipts. The above figures will clearly show that interest and dividend together form hardly 8 per cent of total receipts. The dividend included foreign dividend against which no expenses were incurred. We have to juxtapose the items of expenditure under Sections 35(1)(u) and 35CCA which, according to the appellant, are not expenditure incurred but only sums paid by way of donations and contributions and which therefore should be excluded from the total expenditure for working out the figure of 80-O income. Such deductions as per the details filed before us are as follows :
(i) under Section 35(1)(ii) Rs. 37,00,000
(ii) under Section 35CCA. Rs. 1,50,000
(iii) under Section 80G Rs. 3,12,002
(iv) other Donations Rs. 1,000 The above figures will show that the donations under Sections 35(1)(ii) and 35CCA together amount to about Rs. 38,50,000 and it appears a little incongruous that such donations could be said to have been made out of income from commission and dividend income which is much less than the donations themselves. In view of these facts, a query was raised by the Bench about what would happen if the entire receipts of the company were from foreign commission, and the counsel stated that in such an eventuality all such items of expenditure which are in the nature of donations would also have to be taken into account as expenditure for arriving at the 80-O receipts. We cannot persuade ourselves to accept the argument that these items of expenditure under Sections 35(1)(ii) and 35CCA are not items of expenditure incurred for earning 80-O receipts but are expenditure incurred for earning income from interest and dividend which together amount to about Rs. 18 lakhs which, in turn, include foreign dividend of Rs, 3,83,000. It is difficult for us to accept the proposition that the aforementioned amounts claimed under Sections 35(1)(u) and 35CCA can only be related to these items of income and cannot be related to the substantial foreign commission of Rs. 1,92,50,000 which constitutes more than 90 per cent of the total receipts of the company. This is what we observe on considering the facts as they appear before us.
7. Coming to the legal arguments advanced, the first question to be decided is what are the total receipts to be taken into account as 80-O receipts. After a careful perusal of the order of the Assessing Officer as well as that of the first appellate authority, we find that the claim that the 80-O receipts amounted to Rs. 1,30,00,000 was neither raised before the Assessing Officer nor before the first appellate authority and, therefore, has not been considered by these authorities. This is not a pure question of law but requires verification of facts which probably were not before the lower authorities. Therefore, at this stage before the Tribunal, we cannot entertain the claim of the appellant that the total 80-O receipts should be taken at Rs. 1,30,00,000 instead of Rs. 1,02,24,483, particularly when the latter figure was shown by the appellant itself in the revised return filed by it. Therefore, the first limb of the argument advanced by the counsel is rejected.
7.1 The second aspect of the issue is what is to be taken as expenditure for the purpose of 80-O receipts. Section 80-0 provides that where the gross total income of an assesses, being an Indian company, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, etc., in consideration of technical services rendered or agreed to be rendered outside India under an agreement approved by the Board and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in or brought into India. The main burden of the argument of the counsel was that the expression income by way of royalty, commission, fees..." should be interpreted to mean income after excluding only such items of, expenditure which are required to be incurred for earning such income. The substance of the argument of the counsel was that the items contemplated under Sections 35(1)(«) and 35CCA are not items of expenditure but they are in the nature of contributions or donations to scientific associations or institutions set up for encouraging rural development and in that sense such sums paid are not expenditure and should be excluded from indentifying or working out foreign income which qualifies for deduction of 50 per cent under Section 80-O. In support of this argument, firstly it was pointed out that the CIT (Appeals) himself had excluded deductions available under Section 80G. Secondly, it was pointed out that these are not items of expenditure but these are sums paid by way of donations and contributions which need not be incurred for earning the type of income that is contemplated under Section 80-O. The third limb of the argument in this regard was that these are, in effect, items of the type contemplated under Section 80GGA and the language of Section 35(1)(u) and Section 35CCA was similar to that under Section 80GGA. In fact, it was pointedly brought to our notice that Section 80GGA(2)(6) specifically refers to Section 35CCA.
7.2 For considering the validity of this argument, it is necessary firstly to reproduce the relevant sections. Section 35(1)(t) & (ii) as it stood at the relevant time read as under :
35.(1) In respect of expenditure on scientific research, the following deductions shall be allowed-
(i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business-
Explanation : Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary [as defined in explanation 2 below Sub-section (5) of Section 40A] to an employee engaged in such scientific research or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced;
(ii) any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research ;
Provided that such association, university, college or institution is for the time being approved for the purposes of this clause by the prescribed authority.
Similarly, Section 35CCA reads as follows:-
35CCA. (1) Where an assessee incurs any expenditure by way of payment of any sum-
(a) to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved by the prescribed authority;
It will be clear on a plain reading of these sections that they contemplate expenditure on scientific research or expenditure by way of payment of any sum to an association or institution (Emphasis provided). So, basically, these are sections under which the assessee is allowed deduction of an expenditure and Section 35(1)(it) or 35CCA (1)(a) or 1(6) or 1(c) clarifies the nature of the expenditure. This is the first and the most important distinction between Sections 35(1) and 35CCA on one hand and Section 80GGA, on the other which reads as follows :-
80GGA. (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in Sub-section (2).
(2) The sums referred to in Sub-section (1) shall be the following, namely:-
(a) any sum paid by the assessee in the previous year to a scientific research association which has as its object the undertaking of scientific research or to a University, college or other institution to be used for scientific research :
Provided that such association, University, college or institution is for the time being approved for the purposes of Clause (ii) of Sub-section (1) of Section 35;
(b) any sum paid by the assessee in the previous year-
(i) to an association or institution, which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development approved for the purposes of Section 35CCA; or
(ii) to an association or institution which has as its object the training of persons for implementing programmes of rural development:
Provided that the assessee furnishes the certificate referred to in Sub-section (2) or, as the case may be, Sub-section (2A) of Section 35CCA from such association or institution;
Section 80GGA, as is clear from its plain reading, does not speak of any expenditure but provides for deduction in respect of certain donations for scientific research and such deduction is allowed under Chapter VI-A against gross total income, the definition of which given under Section 80B(5) is "gross total income" means the total income computed in accordance with the provisions of this Act before making any deduction under this Chapter or under Section 280-O. Now, Section 80AB, which speaks of deductions to be made with reference to the income included in the gross total income, reads as follows :
80AB. Where any deduction is required to be made or allowed under any section (except Section 80M) included in this Chapter under the heading 'C.-Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction in that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the income of that nature which is derived or received by the assessee and which is included in his gross total income.
(Emphasis provided) The underlined portion of the section clearly supports the stand of the revenue. Then again, Section 29 clearly states that income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43B as stated at that time. Therefore, the computation of income of all types has to be first made in accordance with the provisions of the Act, and the items of expenditure which are allowed as permissible deductions under Sections 30 to 43B have to be allowed to arrive at the income under a particular head. The scope of Sections 35(1)(ii) and 35CCA has to be considered in the context of the provisions of Section 29 because these sections are covered by the expression "provisions contained in Sections 30 to 43B". As the operative portion of Sections 35(1) and 35CCA clearly mentions, these are items of expenditure which may include contributions to scientific research organisations or institutions. These are not items of donations per se of the type contemplated under Section 80G or 80GGA. Then again, these items of expenditure have to be allowed and have, in fact, been allowed in arriving at the total income of the appellant in the present case and we have already seen that more than 90 per cent of the total receipts of the appellant and therefore a substantial portion of the total income of the appellant is from foreign commission. Therefore, it is difficult for us to accept the argument of the counsel that items of expenditure under Section 35(1)(ii) or 35CCA are not expenditure incurred for earning such income but only donations of the type referred to in Section 80G or 80GGA. On the one hand, we do not accept the argument that these are not items of expenditure and, on the other hand, we cannot also accept that these are sums paid in the nature of contributions or donations similar to those contemplated under Section 80G or 80GGA. Thirdly, deductions under Section 80G or 80GGA are what are known as Chapter VI-A deductions which are to be allowed under gross total income, which is total income computed under the provisions of the Act before making any deductions under these sections and, therefore, the total income so computed has been computed after taking note of deductions under Section 35(1)(u) or 35CCA. The expression "income by way of royalty, commission..." cannot be interpreted to mean income which is arrived at only after deducting expenses incurred directly to earn such income. This interpretation finds support from the following observations of the Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 : 22 Taxman 49 at pages 135 and 136 :-
Now, it was urged on behalf of the assessee that the words "where the gross total income of an assessee...includes any income by way of dividends from a domestic company" in the opening part of Sub-section (1) of Section 80M refer only to the inclusion of the category of income and not to the quantum of such income and, therefore, the words "such income by way of dividends" following upon the specification of this condition, cannot have reference to the quantum of the income included, that is, income by way of dividends from a domestic company. This was the same argument which found favour with the court in Cloth Traders' case[1979] 118 ITR 243, but on fuller consideration, we do not think it is well founded. We may assume with the court in Cloth Traders' case [1979] 118 ITR 243, that the words "where the gross total income of an assessee...includes any income by way of dividends from a domestic company" are intended only to provide that a particular category of income, namely, income by way of dividends from a domestic company should form a component part of gross total income, irrespective of what is the quantum of the income so included when we talk of any category of income included in the gross total income. What is included in the gross total income in such a case is a particular quantum of income belong to the specified category. Therefore, the words "such income by way of dividends" must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. It is obvious, as a matter of plain grammar, that the words "such income by way of dividends" must have reference to the income by way of dividends" mentioned earlier and that would be income by way of dividends from a domestic company which is included in the gross total income. Consequently, in order to determine what is such income by way of dividends', we have to ask the question: what is the income by way of dividends from a domestic company included in the gross total income and that would obviously be the income by way of dividends computed in accordance with the provisions of the Act. It is difficult to appreciate how, when we are interpreting the words "such income by way of dividends", we can make a dichotomy between the category of income by way of dividends included in the gross total income and the quantum of the income by way of dividends so included. This court observed in Cloth Traders' case [1979] 118 ITR 243, that the words "such income by way of dividends" as a matter of plain grammar must be substituted by the words "income byway of dividends from a domestic company" in order to arrive at a proper construction of the section, but there is a clear fallacy in this observation, because in making the substitution, it stops short with the words 'income byway of dividends from a domestic company" and does not go the full length to which plain grammar must dictate us to go, namely, "income by way of dividends from a domestic company included in the gross total income". Otherwise, we would not be giving to the word "such" its full meaning and effect. The word "such" in the context in which it occurs can only mean that income by way of dividends from a domestic company which is included in the gross total income and that must necessarily be income by way of dividends computed in accordance with the provisions of the Act.
Although the Hon'ble Supreme Court was interpreting the provisions of Section 80M, the argument taken there was similar to the argument that has been taken before us in the context of income contemplated under Section 80-O. Further, the provisions of Section 80AB very clearly and unambiguously state that where any deduction is required to be made under any section included in this Chapter in respect of any income of the nature specified in that section (in the present case Section 80-O) which is included in the gross total income, then, notwithstanding anything contained in that section (namely, Section 80-0), for the purpose of computing the deduction under that section (namely, Section 80-O), the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. In view of this section, in our opinion, it is not necessary to indpendently consider the income under Section 80-0 separately by excluding certain items of expenditure on the ground that such expenditure is not required to be incurred for earning such income or on the ground that it is not expenditure at all but in the nature of contributions or donations to scientific institutions which is not the type of expenditure required to be incurred for the purpose of earning such income. Therefore, the arguments advanced by the learned counsel are not acceptable. Reference in this regard was made to a decision of the Supreme Court in CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 3201. The Hon'ble Supreme Court was interpreting Section 80E as it then stood, and the Supreme Court held that in the application of Section 80E, the profits and gains earned by one priority industry cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. Each industry must be considered on its own working only, when adjudging its title to the deduction under Section 80E. It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee. The issue there, in our opinion, was wholly different from the issue before us. The facts were also different. In our opinion, the rationale of the Supreme Court decision in Distributors (Baroda) (P.) Ltd.'s case (supra) reproduced above is more relevant and appropriate to the facts of the present case.
7.3 The last limb of Shri Dastur's argument was that the CIT(Appeals) had erred in not taking into account the dividend income on the ground that deduction under Section 80M was available in respect of such income. Here, we agree that the entire dividend income cannot be excluded from the total receipts. Only the dividend from Indian companies, in respect of which 80M relief was available to the assessee, can be excluded but the same ratio cannot apply to foreign dividends which, according to the counsel, amounted to Rs. 3,83,000. We direct that in computing the total receipts such foreign dividend should be taken into consideration In the result, the first ground will be treated as partly allowed to the extent indicated above.
8 to 16. [These paras are not reproduced here as they involve minor issues.]