CLOTH TRADERS PRIVATE LIMITED COMMISSIONER OF INCOME TAX H K INVESTMENT PRIVATE LIMITED C V MEHTA PRIVATE LIMITED DISTRIBUTORS BARODA PRIVATE LIMITED Vs. ADDITIONAL C I T GUJARAT I: H K INVESTMENT P LTD

JUDGEMENT

(1.) This group of appeals and Reference raises a short question of construction of Ss. 85A and 80M of the Income-tax Act, 1961 (hereinafter referred to as the present Act). The question is whether on a true interpretation of these sections, rebate of income-tax is admissible on the actual amount of dividend received by an assessee, being a company, from an Indian company, or it is confined only to the dividend income as computed in accordance with the provisions of the Act, that is, after making the deductions specified in Section 57 including deduction of the interest paid on borrowings for making the investments. The Gujarat High Court has taken a view against the assessee while a different view has been taken by the Bombay, Madras and Calcutta High Courts. The appeals are preferred by the assessee, namely, Cloth Traders (P). Ltd., againsst the judgement of the Gujarat High Court and they relate to the assessment years 1965-66 and 1966-67 when S. 85A was in force. The Reference before us have been made directly by the Tribunal under S. 257 of the Act in view of the conflict of opinion amongst the High Courts. Out of these References, three are at instance of the assessees, namely, C. V. Mehta (P.) Ltd., M/s. Distributors (Baroda) Pvt. Ltd., and H. K. (Investment) Co. Pvt. Ltd. and one is at instance of the Commissioner of Income-tax, Gujarat. They relate to different assessment years; assessment year 1969-70 in case of C. V. Mehta (P.) Ltd. and Distributors (Baroda) Pvt. Ltd., and assessment years 1965-66 to 1969-70 in case of H. K. (Investment) Co. Pvt. Ltd. The interpretation of both Ss. 85A and 80M is involved in these References since S. 85A with some minor alterations made in it from time to time was in force during the assessment years 1965-66 to 1967-68 and S. 80M followed upon it with effect from the commencement of the assessment year 1968-69 as part of Chapter VIA. Though the language of Ss. 85A and 80M is almost identical, there are some verbal dissimilarities, but as we shall presently point out, they do not make any difference in interpretation so far as the present question is concerned.

(2.) We are concerned in these appeals and References only with the interpretation of Ss. 85A and 80M, but in order to arrive at the true interpretation of these sections, it is necessary to refer briefly to the history of the legislation enacted in these sections, since these sections were not written by the Legislature on a clean slate, nor were they the outcome of any new or innovative exercise of legislative judgement, but they were preceded by similar provisions granting rebate of super tax or income-tax on inter-corporate dividends and these provisions as interpreted by the courts throw light on the true meaning and content of Sections 85A and 80M.

(3.) The earliest provision granting exemption of super tax in respect of inter-corporate dividends was made as far back as 9th December, 1933 in a Notification issued by the Governor General in Council and it provided as follows: