Y. Upadhyay, Vice-president -
(1.) THE assessee is a limited company. THE previous year of the assessee ended on 31-10-1974. THE assessee was having income from dividend. THE gross income from dividend was disclosed at Rs. 1,47,864. THE ITO deducted Rs. 35,768 for expenses towards audit fees, general charges, interest, loan and establishment charges debited to profit and loss account. THE balance amount worked out to Rs. 1,12,096. THE ITO allowed deduction @60 per cent of Rs. 1,12,096 under Section 80M at Rs. 67,257. THE total income after deduction came to Rs. 44,839 which was rounded off to Rs. 44,840. THE computation of the ITO is given below :
(2.) The assessee came in appeal before the Commissioner (Appeals) and urged that the ITO should have allowed deduction under Section 80M of the Income-tax Act, 1961 ('the Act'), on the gross dividend of Rs. 1,47,864. The Commissioner (Appeals) accepted the argument of the assessee following the decision of the Supreme Court in the case of Cloth Traders (P.) Ltd. v. Addl. CIT  118 ITR 243 and, accordingly, directed the ITO to work out the deduction on the gross dividend of the assessee.
The department is in appeal and has taken the following ground :
That, on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in law and in fact in holding that deduction under Section 80M should be on gross dividend and not on net dividend.
Shri Bajoria, the learned departmental representative, referred to Section 80AA and stated that the section was introduced by the Finance (No. 2) Act, 1980, with retrospective effect from 1-4-1968. Under the circumstances, deduction under Section 80M cannot be allowed on the gross dividend of the assessee. Shri Bajoria stated that the ITO had determined the income from dividend after deducting the various expenses which were allowable under Section 57 (iii) of the Act and, therefore, the deduction under Section 80M was rightly allowed by the ITO on the net dividend.
(3.) SRI Guha, the assessee's counsel, filed a note in which it was stated that even after the new Section 80AA was inserted with effect from 1-4-1968, the assessee could be allowed, in the present case, deduction on the gross dividend income. It was indicated by SRI Guha that the provisions relating to dividend income are Sections 8, 2(22), 194, 198, 199, 203, 56(2)(i) and 57(0 of the Act. After referring to the decisions in CIT v. Raghunandan Prasad Moody  115 ITR 519 (SC), CIT v. Cotton Fabrics Ltd.  131 ITR 99 (Guj.), CIT. Bagyalakshmi & Co.  55 ITR 660 (SC), CIT v. Lahore Electric Supply Co. Ltd.  60 ITR 1 (SC) and Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad  25 ITR 449 (SC) he stated that the income from dividend can be computed under Section 56 after allowing deduction as enumerated under Section 57(i) The assessee did not claim any collection charges and, therefore, the gross as well as net dividend of the assessee after the computation was the same. He specifically stated that Section 57(iii) applies to all other income chargeable to income-tax under the head 'Income from other sources'. It is a general provision not applicable to dividend income as such. Deduction under Section 57(iii) has to be allowed even when there is no positive income chargeable to tax. He, therefore, stated, on the basis of his argument as well as on the basis of the note, that the finding of the Commissioner (Appeals) even after the introduction of Section 80AA with effect from 1-4-1968 was correct.;