Gujarat High Court
The Commissioner Of Income Tax vs Aakar Leasing & Financial Services ... on 8 August, 2016
Author: Ks Jhaveri
Bench: Ks Jhaveri, G.R.Udhwani
O/TAXAP/820/2007 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 820 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE KS JHAVERI Sd/-
and
HONOURABLE MR.JUSTICE G.R.UDHWANI Sd/-
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1 Whether Reporters of Local Papers may be allowed to see Yes
the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as No
to the interpretation of the Constitution of India or any
order made thereunder ?
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THE COMMISSIONER OF INCOME TAX....Appellant(s)
Versus
AAKAR LEASING & FINANCIAL SERVICES LTD.....Opponent(s)
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Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1
MR. HARDIK V VORA, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE KS JHAVERI
and
HONOURABLE MR.JUSTICE G.R.UDHWANI
Date : 08/08/2016
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O/TAXAP/820/2007 JUDGMENT
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1) By way of this Appeal, the Appellant
- Department has challenged the order dated 28.09.2006 of the Income Tax Appellate Tribunal, Ahmedabad Bench 'A' in ITA No.1844/Ahd./2002 for the Assessment Year : 1995-1996 whereby the Tribunal dismissed the Appeal preferred by the Department and confirmed the order of CIT (Appeals).
2) While admitting the matter on 10.04.2008, the following substantial question of law was framed by the Court for consideration :-
"Whether the Appellate Tribunal is right in law and on facts in directing to allow the deduction under Sec. 80M of the I.T. Act, 1961 amounting to Rs.53,84,340/-?"
3) Learned Counsel for the appellant -
Department has submitted that the issue Page 2 of 13 HC-NIC Page 2 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT raised in this Appeal is squarely covered by the decision of the Hon'ble Supreme Court in the case of Distributors (Baroda) P. Ltd. v. Union of India and Others reported in [1985] 155 ITR 120 and has referred to the following paragraphs which are reproduced hereunder :-
"We may therefore first examine the language of Section 80M for arriving at its true interpretation. But before we do so, let us consider what is the object behind grant of relief under Section 80M. It was common ground between the parties that the main object of the relief under Section 80M is to avoid taxation once again in the hands of the receiving company of the amount which has already borne full tax in the hands of the paying company. Vide the written submission under the heading "Object of relief on inter- corporate dividends" filed by the learned counsel on behalf of the assessee in the course of the arguments. Now when an amount by way of dividend is received by the assessee from the paying company, the full amount of such dividend would have suffered tax in the assessment of the paying company and it is obvious, that, in order to encourage inter-company investments, Page 3 of 13 HC-NIC Page 3 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT the Legislature intended that this amount should not bear tax once again in the hands of the assessee either its entirety or to a specified extent. But the amount by way of dividend which would other- wise suffer tax in the hands of the assessee, would be the amount computed in accordance with the provisions of the Act and not the full amount received from the paying company. Therefore it is reasonable to assume that in enacting Section 80M the Legislature intended to grant relief with reference to the amount of dividend computed in accordance with the provisions of the Act and not with reference to the full amount of dividend received from the paying company. It is difficult to imagine any reason why the Legislature should have intended to give relief with reference to the full amount of dividend received from the paying company when that is not the amount with is liable to suffer tax once again in the hands of the assessee. The Legislature could certainly be attributed the intention to prevent double taxation but not to provide an additional benefit which would go beyond what is required for saving the amount of dividend from taxation once again in the hands of the assessee. Bearing in mind these prefatory observations in regard to the legislative object, we may now proceed to construe the language of Section 80M.Page 4 of 13
HC-NIC Page 4 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT There is also one other strong indication in the language of sub- section (1) of Section 80M which clearly compels us to take the view that the deduction envisaged by that provision is required to be made with reference to the income by way of dividends computed in accordance with the provisions of the Act and not with reference to the full amount of dividend received by the assessee. This indication was also unfortunately lost sight of by the Court in Cloth Traders case presumably because it was not brought to the attention of the Court. The Court observed in Cloth Traders case that the whole of the income by way of dividends from a domestic company or 60% of such income as the case may be? would be deductible from the gross 802 total income for arriving at the total income of the assessee. We are afraid this observation appears to have been made under some misapprehension, because what sub- section (1) of Section 80M requires is that the deduction of the whole or a specified percentage must be made from "such income by way of dividends" and not from the gross total income. Sub-section (1) of Section 80M provides that in computing the total income of the assessee there shall be allowed a deduction from "such income by way of dividends" of an amount equal to Page 5 of 13 HC-NIC Page 5 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT the whole or a specified percentage of such income. Now when in computing the total income of the assessee, a deduction has to be made from "such income by way of dividends", it is elementary that "such income by way of dividends"
from which deduction has to be made must be part of gross total income. It is difficult to see how the language of this part of sub-section (1) of Section 80M can possibly fit in if "such income by way of dividends" were interpreted to mean the full amount of dividend received by the assessee. The full amount of dividend received by the assessee would not be included in the gross total income: what would be included would only be the amount of dividend as computed in accordance with the provisions of the Act. If that be 50 it is difficult to appreciate how for the purpose of computing the total income from the gross total income any deduction should be required to be made from the full amount of the dividend. The deduction required to be made for computing the total income from the gross total income can only be from the amount of dividend computed in accordance with the provisions of the Act which would be forming part of the gross total income. It is therefore clear that whatever might have been the interpretation placed on clause (iv) of sub-section (1) of Section 99 and Section 85A, the Page 6 of 13 HC-NIC Page 6 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT correctness of which is not in issue before us, so far as sub-section (1) of Section 80M is concerned, the deduction required to be allowed under that provision is liable to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income and not with reference to the full amount of dividend received by the assessee."
It is submitted that the Hon'ble Supreme Court through the above decision overruled the earlier decision of the Hon'ble Supreme Court in the case of Cloth Traders P. Ltd. v. Addl. CIT reported in [1979] 118 ITR 243 (SC). It is therefore, contended that considering the decision of the Apex Court in the case of Distributors (Baroda) P. Ltd. v. Union of India and Others (supra), in the facts of the case, the findings of the Tribunal needs to be upturned by this Court.
4) On the other hand, learned Counsel for the respondent - assessee has placed Page 7 of 13 HC-NIC Page 7 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT reliance on the following decisions :-
• Decision of the High Court of Bombay in the case of Commissioner of Income- tax v. Manganlal Chaganlal (P.) Ltd.reported in [2006] 150 Taxman 146
(Bombay) and • Decision of this Court dated 24.06.2016 in the case of Commissioner of Income Tax Gandhinagar v. Gujarat Industrial Investment Corporation Ltd.
in Tax Appeal No.1059/2008.
5) It is submitted that the High Court of Bombay through it above decision had distinguished the decision in the case of CIT v. Emrald Co. Ltd. reported in [2006] 284 ITR 586 (Bom.) and at Paragraph 12 had observed as under :-
"12. At this juncture, it will not be out of place to mention that in (CIT v. Emrald Co. Ltd.) [Income-tax Reference No.117 of 1989] which has been decided by us alongwith the reference at hand, we did permit the respondent-assessee therein to claim deduction of interest paid on Page 8 of 13 HC-NIC Page 8 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT overdraft and the expenditure incurred relating to the business of trading in shares treating it as allowable expenditure under the head "Business" since the sole business of the assessee therein Emrald Co. Ltd.'s case (supra) was to deal in shares and stocks only. The income from dividend was an incidental income. In that view of the matter, it is not possible for us to follow the judgment delivered by us in the case of Emrald Co. Ltd. (supra). The said judgment can be distinguished on fact. The view taken in the case at hand is based on the fact that the respondent-assessee's main business is not of dealing in shares and stocks but they are basically engaged in the business of manufacture of drums and barrels. According to us, this is a crucial distinguishing feature between the case of the present respondent- assessee Maganlal Chhaganlal (P.) Ltd. case (supra) and that of Emrald Co. Ltd. case (supra)."
6) Learned Counsel for the respondent- assessee has relied on the decision of this Court in Tax Appeal No.1059/2008 and has emphasized on Paragraphs 3, 5 and 6 which are reproduced as under :-
"3. At the time of hearing of this Page 9 of 13 HC-NIC Page 9 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT appeal, Mr.Soparkar, learned advocate for the respondent submitted that the issue involved in this appeal is covered by the decision of this High Court in Deputy Commissioner of Income-tax v. GIIC Limited reported in [2010] 325 ITR 597 (Gujarat) and another decision of this Court in Tax Appeal No.1450 of 2005 decided on 2.12.2014, and prayed that this appeal may also be disposed of accordingly.
5. While deciding the matter, in the case of Deputy Commissioner of Income-tax v. GIIC Limited (supra), this Court observed as under:-
"(6) As can be seen from the facts found concurrently, both by Commissioner (Appeals) and the Tribunal in Assessment Year 1988-89, there was no difference between the gross dividend and net dividend and, therefore, deduction under Section 80M of the Act was allowed on the entire amount of dividend. It was further found that deduction under Section 36 of the Act was available while computing business income under Section 28 of the Act and the said amount viz. the income from which such deduction is available did not fall under the head Income from Other Sources.
(7) For the year under consideration, learned advocate for the appellant-revenue was not in a position to point out any distinguishing feature on facts so as to warrant a different view taken from assessee's own case for the year 1988-89.
(8) Accordingly, it is held that the Tribunal was justified in holding that deduction under Section 80M of the Act was allowable on gross amount of dividend without deducting the proportionate deduction available under Section 36(i)(viii) of the Page 10 of 13 HC-NIC Page 10 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT Act."
6. While dealing with a similar issue in Tax Appeal No.1450 of 2008, this Court has observed as under:-
"3.1 Similarly, question no. 2 raised in this appeal is also squarely governed by the decision of this Court in the case of Commissioner of Income-Tax vs. Gujarat State Financial Corporation reported in [1994] 210 ITR 698 wherein this Court has held that the deduction under section 36(1)(viii) of the Income-tax Act, 1961 has to be worked out by applying the proper percentage of the total income computed before deductions under section 36(1)
(viii) and Chapter VI-A.
4. Having heard learned advocates for the revenue and the questions posed for consideration for us reproduced herein above and considering the decisions cited, the questions which are raised in the present appeal are required to be answered in favour of the assessee. We are not giving any elaborate reasons for the same as this Court in similar cases has answered the very same question in favour of the assessee."
It is therefore contended by learned Counsel for the respondent that in view of the observations of this Court, the case of the assessee herein is similar to that of the above case and therefore, the issue raised in this Appeal is to be answered in favour of the assessee.
7) We have heard learned Counsel for the respective parties and perused the Page 11 of 13 HC-NIC Page 11 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT records of the case. We have considered the fact that the appellant - assessee herein is an entity, who is dealing in securities. We have through the decisions in the cases of Distributors (Baroda) P. Ltd. v. Union of India and Others (supra) and Commissioner of Income-tax v. Manganlal Chaganlal (P.) Ltd. (supra). The High Court of Bombay in the decision of Commissioner of Income-tax v. Manganlal Chaganlal (P.) Ltd. (supra) held in favour of the assessee. We therefore accept the findings and the contention of the learned Counsel for the respondent. Hence, we are of the view that the findings of the Tribunal are just and proper and hence, the issue raised in this Appeal is to be answered in favour of the assessee and against the Department. Accordingly, the above Tax Appeal stands disposed of.
Sd/-
(K.S. JHAVERI, J.) Page 12 of 13 HC-NIC Page 12 of 13 Created On Fri Aug 12 00:48:00 IST 2016 O/TAXAP/820/2007 JUDGMENT Sd/-
(G.R. UDHWANI, J.) Caroline Page 13 of 13 HC-NIC Page 13 of 13 Created On Fri Aug 12 00:48:00 IST 2016