ADDITIONAL COMMISSIONER OF INCOME TAX Vs. MADAN MOHAN LALL SHRI RAM PRIVATE LIMITED
LAWS(DLH)-1983-9-4
HIGH COURT OF DELHI
Decided on September 22,1983

ADDITIONAL COMMISSIONER OF INCOME TAX Appellant
VERSUS
MADAN MOHAN LALL SHRI RAM (P) LTD. Respondents

JUDGEMENT

CHADHA,J. - (1.)THESE two sets of references can be disposed of by a common order. IT Ref. Nos. 84 to 89 of 1975 under S. 256(1) of the INCOME TAX ACT, 1961 (hereinafter referred to as "the Act"), at the instance of the Department raise the following questions :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO was not entitled to set off loss under the head 'Business' from the dividend income while computing the rebate under S. 85A for the asst. yrs. 1966 -67 and 1967 -68? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO was not entitled to deduct from the gross dividend income the proportionate expenditure claimed to be allocable to the earning of dividend while calculating rebate under S. 85A of the INCOME TAX ACT, 1961, for the asst. yrs. 1966 -67 and 1967 -68 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the rebate under S. 85A of the INCOME TAX ACT, 1961, was admissible to the assessee for the asst. yrs. 1966 -67 and 1967 -68 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO was not entitled to deduct from the gross dividend income the proportionate expenditure claimed to be allocable for earning dividend income for the purpose of computing the relief under S. 80.M of the INCOME TAX ACT, 1961, for the asst. year 1969 -70 ? 5. Whether the Tribunal was right in upholding the order of the AAC in the matter of determining the market value of 93,930 shares of Delhi Cloth Mills Ltd. for purposes of determining capital gains for the asst. year 1969 -70 ?"

(2.)THE common question of law raised in IT. Ref. Nos. 96 and 97 of 1975 at the instance of the assessee for the two asst. yrs. 1966 - 67 and 1967 -68 for the opinion of this Court is :
"Whether, oil the facts and in the circumstances of the case, the Tribunal was right in holding that proceedings under S. 147(b) of the INCOME TAX ACT, 1961, were validly initiated ?" So far as questions Nos. 1 and 2 at the instance of the Department are concerned, they are directly covered by the decision of the Supreme Court in the case of Cloth Traders Pvt. Ltd. vs. Addl. CIT (19790 10 CTR (SC) 393 : (1979) 118 ITR 243. Their Lordships held that the rebate on income -tax under S. 85A is to be calculated by applying the average rate of tax to the "income by way of dividends from an Indian company" which can only be the full amount of dividend received from an Indian company. The words "income so included" do not refer to the quantum of the income included but only to the category of the income included, viz., "income by way dividends from in Indian company". In other words, no amount of expenditure was deductible or no business loss was to be set off from the gross amount of dividend by reference to which the relief under S. 85A was to be given. Questions Nos. 1 and 2 are answered against the Department.

So far as question No. 3 is concerned, we need not answer this question. The scheme of S. 85A was that the rebate would be given only in respect of tax in excess of 25per cent of the total liability. To the extent of 25per cent, the assessee was clearly liable and in respect of that liability it was undoubtedly entitled to rebate under S. 88, if it satisfies the conditions laid down in that section. That is the direction of the AAC and rightly upheld by the Tribunal. It would be up to the ITO to act in accordance with those directions.

(3.)BY the Finance (No. 2) Act, 1980, S. 80AA has been inserted in the Act, with retrospective effect from April 1, 1968. It is to this effect :
"Where any deduction is required to be allowed under S. 80M in respect of any income by way of dividends from a domestic company which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends."

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