Ita/30/2002 Of The South Indian Bank Ltd v. The Commissioner Of Incometax, Kochi

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN TUESDAY, THE 17TH JUNE, 2008 / 27TH JYAISHTA, 1930 ITA.No. 30 of 2002 (ITA.156(Coch)/1997 of I.T.A.TRIBUNAL,COCHIN BENCH) .................... APPELLANT/RESPONDENT: -------------------------------- THE SOUTH INDIAN BANK LTD. TRICHUR. BY ADV. SRI.P.BALAKRISHNAN (E) SRI.R.AMRITHARAJ RESPONDENT/APPELLANT: --------------------------------- THE COMMISSIONER OF INMCOME TAX,COCHIN. BY ADV.SRI.P.K.R.MENON. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 17/06/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: (C.R.) C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ.--------------------------------------------- I.T.A.No. 30 of 2002 --------------------------------------------- Dated this the 17th day of June, 2008 J U D G M E N T Ramachandran Nair,J: The appellant, a scheduled bank, claimeddeduction of 4/5[th] of the dividend income received from theUnit Trust of India under proviso (a) to Section 80 M(1) ofthe Income Tax Act for the assessment year 1994-95. TheAssessing Officer however restricted the deduction to 4/5[th]of 60% of the dividend income from the Unit Trust bytaking the view that 'such income' referred to in proviso(a) above referred means 60% of dividend incomementioned in sub-clause(i) of Section 80 M(1) of the Act.Even though, the First Appellate Authority allowed theappeal holding that the appellant is entitled to deductionof 60% on the dividend income from the Unit Trust interms of proviso(a) to Section 80M(1) of the Act, theTribunal reversed the order of the First AppellateAuthority and restored the assessment. It is against this I.T.A. NO. 30 OF 2002 :-2-: order of the Tribunal, the assessee has filed this appeal raising two questions of law. Since the questionsraised separately or together do not reflect the issueprecisely, we re-draft the question as follows:- 'Whether the assessee, a scheduled bank is entitled to deduction of 4/5th ofthe dividend income received from theUnit Trust of India or only 4/5th of 60%of the dividend income from Unit Trust ofIndia under proviso (a) to Section 80M(1)of the I.T.Act., for the assessment year1994-95?' 2.We have heard Sri.P.Balakrishnan, counselappearing for the appellant and Sri.P.K.R.Menon, SeniorCounsel appearing for the respondent. 3.Since the question raised pertains to interpretation of Section 80M, we extract herein belowthe said section. “-80M. Deduction in respect of certain intercorporate dividends (1) Where the gross total income of adomestic company, in any previous year, includesany income by way of dividends from another domestic company, there shall, in accordancewith and subject to the provisions of thissection, be allowed, in computing the totalincome of such domestic company, a deductionof an amount equal to,-- (i) in the case of a scheduled bank or apublic financial institution or a Statefinancial corporation or a Stateindustrial investment corporation or acompany registered under section 25of the Companies Act, 1956 (1 of1956), sixty per cent of the income byway of dividends from anotherdomestic company; (ii) in the case of any other domesticcompany, so much of the amount ofincome by way of dividends fromanother domestic company as does notexceed the amount of dividenddistributed by the first mentioneddomestic company on or before the duedate; (Provided that where any domestic companyreceives any income by way of dividend fromthe units of the Unit Trust of Indiaestablished under the Unit Trust of IndiaAct, 1963 (52 of 1963), such domesticcompany shall, subject to the aforesaidprovisions, be eligible for deduction to theextent of--- (a) four-fifth of such income in respect of theprevious year relevant to the assessment year (ii) in the case of any other domesticcompany, so much of the amount ofincome by way of dividends fromanother domestic company as does notexceed the amount of dividenddistributed by the first mentioneddomestic company on or before the duedate; (Provided that where any domestic companyreceives any income by way of dividend fromthe units of the Unit Trust of Indiaestablished under the Unit Trust of IndiaAct, 1963 (52 of 1963), such domesticcompany shall, subject to the aforesaidprovisions, be eligible for deduction to theextent of--- (a) four-fifth of such income in respect of theprevious year relevant to the assessment year commencing on the 1[st] day of April, 1994; (b) two-fifth of such income in respect of theprevious year relevant to the assessment yearcommencing on the 1[st] day of April, 1995, andno deduction shall be allowed on such income inrespect of the previous year relevant to theassessment year commencing on the 1[st] day ofApril, 1996 and any subsequent previous year.] 4.The answer to the question above referred will depend on the meaning of 'such income' as it occursin provisos (a) and (b) above. While the contention ofthe assessee is that 'such income' means dividendincome from Unit Trust of India, for which the mainproviso is introduced by the Finance Act 1993 witheffect from 1.4.1994, the Senior Counsel appearing forthe Revenue contended that 'such income' when readwith 'subject to the aforesaid provisions' referred to inthe main provision means 60% of the dividend incomereceived from the Unit Trust of India because theassessee is covered by clause (i) of Section 80M(1) of theAct. The proviso which is the subject matter of :-5-: controversy in this appeal was introduced by theFinance Act, 1993 with effect from 1.4.1994. It is not indispute that until the proviso was introduced, everydomestic company was eligible for deduction underSection 80M of the Act of the full dividend incomeincluding dividend received from the Unit Trust of India.However, scheduled banks like appellant and publicfinancial institutions and Section 25 companies wereentitled to deduction of only 60% of the dividend incomeincluding dividend received from U.T.I. The purpose ofintroduction of the proviso is explained in the Notes onClauses of Finance Bill, 1993 as follows:- “Clause 16 seeks to amend sub-section(1) of section 80M of the Income tax Actrelating to deduction in respect of certainintercorporate dividends. The proposed amendment seeks to insert a proviso in sub-section(1) of section80M so as to withdraw the deduction underthat section in respect of dividend incomereceived by a domestic company from theunits of the Unit Trust of India in a phasedmanner. The amount of deduction shall be limited to four-fifth of such dividend incomeof the previous year relevant to theassessment year 1994-95. Similarly, inrespect of dividend of the previous yearrelevant to the assessment year 1995-96, theamount of deduction allowed shall be limitedto two-fifth of such dividend. No suchdeduction in respect of dividend income fromunits in any other subsequent previous yearshall be allowed. This amendment will take effect from1[st] April, 1994 and will accordingly apply inrelation to assessment year 1994-95 andsubsequent years.” The only question to be considered is whether 'such income' referred to in provisos (a) and (b) above refersto dividend income from Unit Trust of India or reliefportion of dividend income from Unit Trust i.e., 60% inthe case of the appellant. If the appellant's claim is tobe allowed, the appellant is entitled to deduction of 4/5[th]of the dividend income from the Unit Trust of India i.e., 80%. On the other hand, if the Department's case isaccepted, the appellant will only be entitled to 4/5[th], i.e.,80% of the 60% of the dividend income from the Unit This amendment will take effect from1[st] April, 1994 and will accordingly apply inrelation to assessment year 1994-95 andsubsequent years.” The only question to be considered is whether 'such income' referred to in provisos (a) and (b) above refersto dividend income from Unit Trust of India or reliefportion of dividend income from Unit Trust i.e., 60% inthe case of the appellant. If the appellant's claim is tobe allowed, the appellant is entitled to deduction of 4/5[th]of the dividend income from the Unit Trust of India i.e., 80%. On the other hand, if the Department's case isaccepted, the appellant will only be entitled to 4/5[th], i.e.,80% of the 60% of the dividend income from the Unit Trust of India. “Any income” referred to in the mainproviso to the Section talks of dividend income from theUnit Trust of India. Therefore, in the normal course,when 'such income' is later referred to in the proviso, itwould only mean dividend income from Unit Trust ofIndia. The question to be considered is whether the useof words 'subject to aforesaid provisions' in the mainproviso makes any difference or not. The SeniorCounsel appearing for the Revenue contended that'subject to the aforesaid provisions' refers to the limitson relief covered by clauses (i) and (ii) of Section 80M(1)or in other words, provisos (a) and (b) are a furtherrestriction or limitation on the reliefs provided in clause(i) and (ii) of the main provision. We are unable to agreewith this argument because the purpose of introductionof proviso as stated in the Explanatory Note attached tothe Finance Bill is to take away deduction for dividendincome from Unit Trust of India in a phased manner. In :-8-: the first year, 1994-95, the relief provided was up to4/5[th] of dividend income received from Unit Trust ofIndia. For the next year 1995-96, it was reduced to 2/5[th]of the dividend income received from Unit Trust of Indiaand thereafter, from the assessment year 1996-97onwards, no deduction is admissible under Section 80M(1) of the Act for the dividend income received from theUnit Trust of India. As already stated, the purpose ofamendment through introduction of provisos (a) and (b)to sub-clauses (i)and (ii) to Section 80M(1) of the Act isto abolish the deduction provided for dividend incomefrom the Unit Trust of India in a phased manner. Thepurpose will not be achieved unless the proviso is takento cover deduction pertaining to dividend incomereceived from the Unit Trust of India. In other words,after the proviso was introduced, sub-clauses (i) and (ii)of Section 80M(1) of the Act no longer applies todividend income from the Unit Trust of India. If the argument of the Revenue that the limitation contained inclause (i) of Section 80M(1) of the Act applies to theceiling contained in clause(a) of the proviso is accepted,then it would mean that even after the abolition of thededuction of the dividend income from the Unit Trust ofIndia from 1996-97 onwards, the assessee will beentitled to claim deduction under sub-clause(i), which is60%. This will defeat the very purpose of theamendment. 5. Therefore, we hold that the contention of theRevenue that clause(a) to proviso is subject to the limitcontained in sub-clause (i) of Section 80M(1) isabsolutely untenable. So much so, the argument of theRevenue that admissible deduction for dividend incomefrom Unit Trust of India for the year 1994-95 is only 4/5[th]of 60% of such income is rejected. We hold that thededuction under main section available to dividendincome from the Unit Trust of India is subject to the 5. Therefore, we hold that the contention of theRevenue that clause(a) to proviso is subject to the limitcontained in sub-clause (i) of Section 80M(1) isabsolutely untenable. So much so, the argument of theRevenue that admissible deduction for dividend incomefrom Unit Trust of India for the year 1994-95 is only 4/5[th]of 60% of such income is rejected. We hold that thededuction under main section available to dividendincome from the Unit Trust of India is subject to the limit contained only in clause(a) to the proviso for theyear 1994-95. So the assessee is entitled to deduction of4/5[th] of the dividend income received from the Unit Trustof India. For the year 1995-96, the limitation is onlywhat is provided in clause (b) of the proviso to Section80M(1) of the Act. Consequently, we allow the appealby reversing the order of the Tribunal and restoring theorder of the First Appellate Authority in favour of theassessee. C.N.RAMACHANDRAN NAIR, Judge V.K.MOHANAN, Judge MBS/ I.T.A. NO. 30 OF 2002 :-11-: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. -------------------------------------------- I.T.A.NO. 30 OF 2002(C.R.) ----------------------------------------- J U D G M E N T DATED:17-06-2008 I.T.A. NO. 30 OF 2002