Itxa/56/2005 Of The Commissioner Of Income-Tax-3 v. M/S Saumya Finance Dand Leasing Co. Pvt.ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.56 OF 2005 The Commissioner of Income-tax-3, ..AppellantAayakar Bhavan, M.K.Road,Mumbai – 400 020. M/s.Saumya Finance & Leasing Co.(P)..RespondentLtd., 84-A, Mittal Court, 224, Nariman Point, Mumbai – 400 021. Mr.Vinod Gupta with Mr.P.S.Sahadevan, Advocate, forAppellant Mr.J.D.Mistry with Mr.Raj Darak, Advocate, forRespondent JUDGMENT(PER R.S.MOHITE, J.) .The two questions of law, sought to beraised by the appellant in the appeal are as setout in paragraph 5 of the memo of appeal and are asunder :- 2 law, the Hon'ble Tribunal was justified in dismissing the appeal of the Revenue by relying upn its own order vide ITA No.462/Mum/2002 dated 10.05.2002 in the case of M/s.Silvassa Industries (P) Limited and directed the A.O. to allow the deduction u/s.80M of the I.T.Act of Rs.2,19,97,105/- as against Rs. Nil ? (ii)Whether on the facts and in the circumstances of the case and in law the Hon'ble Tribunal is correct in law in allowing deduction u/s.80M of the I.T.Act of Rs.2,19,97,105/- for A.Y. 1997-98 even though the dividend distributed is Interim Dividend related to A.Y. 98-99 ? 2. The brief facts of the case are as follows :- 3 (c) Income Tax Act. A deduction sought by the Assessee Company under Section 80M wasdisallowed by the Assessment Officer. The appeal filed by the Assessee Company on this point came to be allowed by the Commissioner ofIncome Tax(Appeals). In the second appeal filed by the revenue to the Income Tax Appellate Tribunal, the Tribunal by relying upon a Judgment of the Mumbai Bench delivered in ITANo.462/M/02 on 10[th] May, 2002 in the case of M/s.Silvassa Industries Private Limited passed an order on 23[rd] July, 2004 dismissing the appeal of the revenue. In the circumstances, the revenue has preferred the present appeal in thisCourt. 5 3.On behalf of the revenue it is contendedthat it is open to revenue to argue a question of law which had been decided in the case ofM/s.Silvassa Industries Private Limited even, though, the Judgment of the Tribunal in theaforesaid case had not been challenged by way of anappeal. It is then contended that the interimdividend was declared by the Assessee Company inthe financial year 1997-98 and out of incomeaccrued in the said year. His further contentionwas that the dividend declared and paid in asubsequent year could not be a permitted deductionfrom the income in a previous year since the saiddividend was paid out of income accruing in thesubsequent year. 4.To appreciate the contention raised by therevenue, it is necessary to reproduce (“80M” asthen existing) which was as under :- “80M. Deduction in respect of certain inter-corporate dividends.-(1) Where the gross total income of a domestic company, in any previous year, includes any income by way ofdividends from another domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first-mentioned domestic company on or before the due date. (2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.Explanation – For the purposes of this section, the expression “due date” means thedate for furnishing the return of income under sub-section (1) of section 139” (2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.Explanation – For the purposes of this section, the expression “due date” means thedate for furnishing the return of income under sub-section (1) of section 139” 5.On the bare reading of the Section it isclear that the deduction as permitted is of anamount equal to so much of the amount of income byway of dividend declared by the Company as does notexceed the amount of dividend distributed by theAssessee Company on or before the due date. 6.It is clearly seen that the section does not provide for the nature of the dividend distributedby the Assessee Company. It does not state thatthe nature of the dividend distributed must be forthe financial year under assessment. Accepting theargument of the revenue will amount to laying downan additional restriction to the effect that thedividend distributed by the Assessee Company mustbe for the financial year under assessment. Layingdown such restricting qualification, in our view,will amount to doing violence to the plain andclear meaning of the words as contained in Section80M. 7.Counsel appearing for the revenue sought toargue that where the literal meaning of the wordscontained in any provision of law, would lead to anabsurd result i.e. a result not intedned to be sub-served, by the object of the legislation and ifanother construction is possible apart from strictliteral construction, then that construction shouldbe preferred to the strict literal construction. According to counsel for revenue, if a literalconstruction is given to Section 80M then it wouldlead to an absurd result, since the amount ofdeduction earned in the subsequent year will bepermitted in respect of the income of the previousyear. He placed strong reliance on the Judgment ofthe Apex Court in the case of Varghese v. ITO(1981), reported in 131 ITR 597. In that case the Apex Court while considering the interpretation tobe given to Section 16(3) of the Income Tax Actobserved as under :- “If the purpose of a particular provision iseasily discernible from the whole scheme of the Act, which in this case is to counteractthe effect of the transfer of assets so far as computation of income of the assessee is concerned, then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction,then that construction should be preferredto the strict literal construction.” 8.In our view, this is not a case where aliteral construction to be given to Section 80Mwould lead to an absurd result. The intention oflegislature while enacting Section 80M was clearlyto ensure that the dividend income received by theAssessee Company should be permitted as a deductiononly if it is re-distributed as dividend income toits shareholders. The section provided that thesaid distribution to be made before the due date ofthe filing of the returns. This has been done bythe present respondent and all the requirements ofSection 80M are clearly met by them. 9.In the net result, in our view, thequestions as framed in the appeal do not arise andthe appeal therefore, stands dismissed. (R.S.MOHITE, J.) (F.I.REBELLO, J.)