Delhi High Court
Commissioner Of Income-Tax vs Kabirdas Investment Co. (P.) Ltd. on 17 September, 1998
Equivalent citations: [2001]249ITR776(DELHI), [2002]120TAXMAN209(DELHI)
Author: R.C. Lahoti
Bench: R.C. Lahoti
JUDGMENT R.C. Lahoti, J.
1. The Revenue has filed this application under Section 256(2) of the Income-tax Act, 1961, seeking a mandamus to the Tribunal for drawing up a statement of case and referring the following three questions of law for the opinion of the High Court :
"1. Whether, the Income-tax Appellate Tribunal was correct in law in holding that interest paid on loans borrowed by the assessed is not to be apportioned between the income from the business and income from dividends and that this is fully adjustable against business income only ?
2. Whether, the Income-tax Appellate Tribunal was correct in law in holding that for the purpose of deduction under Section 80M, it was the gross dividend income that should be considered, especially in view of the decision of the Supreme Court in the case of the Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 ?
3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law and on facts in confirming the order of Commissioner of Income-tax (Appeals) ?"
2. The above said three questions are referable to the assessment year 1987-88. An application under Sub-section 256(1) filed before the Tribunal was dismissed forming an opinion that similar questions sought to be referred for the assessment years 1985-86 and 1986-87 was also refused to be referred.
3. The relevant facts may be noticed in brief. The assessed is a limited company engaged in the business of shares besides having income from dividend. For the assessment year 1987-88, the assessed filed its return showing the income of Rs. 1,17,680 which was later on revised to Rs. 1,24,960. The assessed claimed a deduction of Rs. 2,49,632 under Section 80M of the Act.
4. The Assessing Officer noticed that the assessed apart from being engaged in the business of share dealing was also deriving income by way of transportation charges, dividends and interest received. The assessed had paid an amount of Rs. 39,242 by way of interest on the loans taken by the assessed. The Assessing Officer found that the interest paid was partly attributable to the earning of the dividends. The Assessing Officer held that an amount of Rs. 16,383 out of the interest paid was attributable to the dividend income on pro-rata basis. The Assessing Officer thus worked out net dividend income for the purpose of calculating deduction under Section 80M of the Act.
5. The assessed preferred an appeal before the Commissioner of Income-tax (Appeals). On behalf of the assessed it was conceded that there was no objection to working out the dividend income by allocating the expenses on pro rata basis.
6. A further appeal was preferred to the Income-tax Appellate Tribunal. Before the Tribunal it was contended that the deduction under Section 80M was available to be worked out on the gross dividend without reducing interest paid on borrowings and other expenses. The Tribunal relied on its own earlier order for the assessment year 1981-82 in the case of this very assessed and upheld the plea of the appellant-assessed.
7. The aggrieved Revenue sought for reference which has been refused as already stated hereinabove. Learned senior standing counsel for the Revenue submitted that the view taken by the Tribunal was erroneous and runs in conflict with the law laid down by the Supreme Court in Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, wherein their Lordships have held that income by way of dividend from a domestic company included in the gross total income would obviously be income computed in accordance with the provisions of the Act, i.e., after deducting the interest on money borrowed for earning such income. Counsel further submitted that merely because a reference application for earlier years was refused it would not constitute res judicata and the Revenue is not debarred from raising the issue for the year of assessment under consideration.
8. Learned counsel for the respondent-assessed submitted that whether any interest was paid for earning dividend income was a question of fact and could not be a question of law, Learned counsel for the Revenue rejoined by submitting that deduction of a part amount of interest paid by the assessed from the amount of gross dividend income by working out on pro rata basis was a point conceded on behalf of the assessed and, therefore, the factual finding was really in favor of the Revenue which has not been disturbed by the Tribunal. The question suggested by the Revenue was a question of law especially in view of the law laid down by the Supreme Court in the case of Distributors (Baroda) P. Ltd. [1985] 155 ITR 120.
9. Having heard counsel for the parties and having perused the order of assessment as also the appellate orders we are of the opinion that the question whether the deduction under Section 80M was permissible to the assessed on gross dividend income or net dividend income by working out the same by reducing the pro-rata interest paid by the assessed from the gross dividend income is certainly a question of law. At this stage, we are not expressing any opinion on the merits of the issue ; we arc simply forming an opinion (i) whether the question sought to be referred is a question of law, and (it) whether it arises from the order of the Tribunal. On these two questions we find ourselves in agreement with the submission of learned senior standing counsel for the Revenue. However, the suggested question No. 3 is merely an inferential one depending on the answer to questions Nos. 1 and 2.
10. The petition is allowed. The Tribunal shall draw up a statement on the facts of the case and refer questions Nos. 1 and 2 out of the three questions set out in para. 1 and refer the same for the opinion of the High Court. No order as to costs.