CLOTH TRADERS P LTD Vs. COMMISSIONER OF INCOME TAX
LAWS(GJH)-1983-1-16
HIGH COURT OF GUJARAT
Decided on January 13,1983

CLOTH TRADERS (P) LTD. Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

MEHTA, J. - (1.) : At the instance of the assessee, the Tribunal, Ahmedabad, has referred to us the following tow questions under s. 256(1) of the IT Act, 1961 ('the Act') : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not entitled to deduction of whole of interest deficit of Rs. 2,28,484 in computing business income, but the same was required to be allocated to various heads of income?
(2.) WHETHER, on the facts and in the circumstances of the case, the assessee is entitled to relief under s. 80M of the IT Act, 1961, in respect of the entire amount of the dividend income without deduction of interest paid in borrowing for acquiring the shares?" 2. Though we are handicapped partially in answering one out of the two questions referred to us since the facts in the statement of case are not elaborate, we have to set out those facts for purposes of appreciating the ultimate result in this reference. The assessee is a private limited company deriving income from interest, dividends, property and shares from a firm, Tube distributors. Its gross dividend income for the year under consideration, viz., asst. yr. 1971-72 was Rs. 8,64,155. The assessee had borrowed some of the funds for investment in shares and claimed interest deficit pertaining to these investment at Rs. 1,77,150. While determining the income from the other sources with regard to the source of dividend income, the ITO deducted this sum of Rs. 1,77,150 from the gross dividend of Rs. 8,64,155 and worked out dividend income at Rs. 6,87,805. The assessee claimed that relief under s. 80M of the Act should be allowed at 60 percent in respect of the dividend income of Rs. 8,64,155, after adjusting the deduction of Rs. 5,100 under s. 80K and 80L of the Act. The ITO, however, held that relief under S. 80M had to be worked out on the basis of the dividend income taken after deduction of interest deficit, i.e., Rs. 6,87,005 and from this figure the ITO deducted Rs. 5,100 and on the balance of Rs. 6,81,905, he gave s. 80M relief at 60 percent, i.e., about Rs. 4,09,143. The assessee being aggrieved by this order of the ITO went in appeal before the AAC who dismissed the assessee's appeal an both the points.
(3.) THE assessee, therefore, carried the matter in appeal before the Tribunal on the above as well as other points. So far as the claim of the assessee for setting off of the interest deficit of Rs. 2,28,484 against the business income is concerned, the Tribunal followed its earlier decision in IT Appeal Nos. 1746, 1747 and 1748 of 1973-74 and upheld the view of the ITO as affirmed by the AAC. As regards the claim of the assessee that relief under s. 80M should be allowed at 60 percent of the dividend of Rs. 8,64,155 the Tribunal following its earlier decision in the aforesaid appeals, affirmed the view of the ITO and the questions set out above have been referred to us. So far as the second question is concerned, it may be recalled that the Tribunal followed the decision of the Gujarat High Court in Addl. CIT vs. Cloth Traders (P.) Ltd. (1974) 97 ITR 140 (Guj) which in effect ruled that for purposes of the relief under s. 80M, the net dividend income should be considered. Now this decision of the Gujarat High Court was reversed by the Supreme Court in Cloth Traders (P.) Ltd. vs. Addl. CIT (1979) 10 CTR (SC) 393 : (1979) 118 ITR 243 (SC) holding that the assessee were entitled to relief under s. 80M for the asst. yrs. 1968-69 and 1969-70 and under s. 85A of the Act for the asst. yrs. 1965-66 to 1967-68 in respect of the entire amount of the dividend income without deduction of interest paid on borrowings for acquiring the shares. By Finance (No. 2) Act, 1980, s. 80AA was put on the statute book so as to be effective retrospectively, that is, from 1st April, 1968 prescribing that for purposes of deduction required to be allowed under s. 80M in respect of any income by way of dividend from the domestic company which is included in the gross total income of the assessee, the deduction under that section shall be computed with reference to the income by way of such dividend as computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A and not with reference to the gross amount of such dividends. The effect of the amended provision as contained to s. 80MM was in effect and substance to restore the view of the Gujarat High Court in Cloth Traders (P.) Ltd.'s case (supra)) We are told by the counsels appearing for both the sides that the vires of this amended provisions in s. 80AA of the Act has been challenged by Distributors (Baroda) (P.) Ltd. by Writ Petition No. 2043 of 1981 and the Supreme Court has issued rule nisi and issued interim stay on the said petition (see(1981) 130 ITR (St.) p. 7). So far as the question of law is concerned, the position as enunciated by the Gujarat High Court has been restored by insertion of s. 80AA in the statute book, retrospectively. Mr. J.P. Shah, having realised this position states that if the Revenue is prepared to the adjustment of the case by the Tribunal in light of the decision of the Supreme Court, he does not press this question for the time being. The learned counsel on behalf of the Revenue has stated that the Revenue would have no objection to the adjustment of the case by the Tribunal in light of the decision of the Supreme Court in the Writ Petition No. 2043 of 1981. In view of this consensus, therefore, the second question is not pressed and is, therefore, not required to be answered and the Tribunal shall adjust the case in light of the decision of the Supreme Court in the aforesaid Writ Petition.;


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