M/S Nahar Spinning Mills Ltd v. The Commissioner Of Income Tax (Central), Ludhiana

ITA No. 281 of 2004 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 281 of 2004 Date of Decision: 7.10.2010 M/s Nahar Spinning Mills Ltd. ....Appellant. Versus The Commissioner of Income Tax (Central), Ludhiana ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sanjay Bansal, Senior Advocate with Ms. Suveta Malhotra, Advocate for the appellant.Ms. Suveta Malhotra, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITA Nos. 281 of 2004, 500 and501 of 2005 as common question of law and facts are involved therein.For brevity, the facts are being taken from ITA No. 281 of 2004. 2.This Court vide order dated 4.7.2006 had admitted theappeal for consideration of the following substantial question of law:- “Whether on the facts and circumstances of the case, the Tribunal was right in law in not allowing deductionu/s 80-M of the Act to the assessee company inrespect of income distributed by PNB Mutual Fundwhich partakes the same character as was in theirhand and exempt u/s 80-M of the Act?” 3.Facts necessary for disposal of the appeal relating to claim of deduction under Section 80M of the Income Tax Act, 1961 (in short“the Act') only may be noticed. The assessee is engaged in themanufacture and export of Textile & Hosiery garments. It claimeddeduction under Section 80M of the Act. During the course ofassessment proceedings for the assessment year 1992-93, theAssessing Officer found that the assessee had claimed deduction underSection 80M amounting to Rs.8,00,000/- The Assessing Officerdisallowed aforesaid amount under Section 80M. On appeal, theCommissioner of Income Tax (Appeals) [in short “the CIT(A)”]confirmed the action of the Assessing Officer. On further appeal by theassessee, the Tribunal rejected the plea and held that the assesseewas not entitled to any relief under Section 80M of the Act with regard todeduction of Rs.8 lacs. Hence, the present appeal by the assessee. 4.We have heard learned counsel for the parties and perusedthe record. 5.The point that arises for determination in this case iswhether the assessee who had received income which was distributedby PNB Mutual Fund was allowable as deduction under Section 80M ofthe Act. 6.Learned counsel for the assessee submitted that theincome which was distributed by another company, namely, PNBMutual Fund was in the nature of dividend received by the assessee-company and, therefore, in view of Section 80M, the assessee wasentitled to deduction. He has placed reliance upon the judgment of thisCourt in Commissioner of Income-tax v. Puja Investments (P) Ltd.,[2005] 272 ITR 606 (P&H) in support of his submission. 7.On the other hand, controverting the aforesaid submission,learned counsel for the revenue argued that the authorities below haveconcurrently recorded that it was an income and not a dividend whichwas distributed by the PNB Mutual Fund and that the Mutual Fund wasnot a company. It was urged that once it was so, the assessee was notentitled to any deduction under Section 80M of the Act. Learnedcounsel supported the orders passed by the authorities below. 8.We have given our thoughtful consideration to therespective submissions of the learned counsel for the parties and arenot impressed with the submission made by the learned counsel for theassessee. It would be relevant to reproduce Section 80M as it existedbefore it was omitted by Finance Act, 2003 w.e.f. 1.4.2003 and thesame reads thus:- 8.We have given our thoughtful consideration to therespective submissions of the learned counsel for the parties and arenot impressed with the submission made by the learned counsel for theassessee. It would be relevant to reproduce Section 80M as it existedbefore it was omitted by Finance Act, 2003 w.e.f. 1.4.2003 and thesame reads thus:- “80M. Deduction in respect of certain inter-corporatedividends.- (1) Where the gross total income of adomestic company, in any previous year, includesany income by way of dividends from anotherdomestic company, there shall, in accordance withand subject to the provisions of this section, beallowed, in computing the total income of suchdomestic company, a deduction of an amount equalto so much of the amount of income by way ofdividends from another domestic company as doesnot exceed the amount of dividend distributed by thefirst-mentioned domestic company on or before thedue date.” ITA No. 281 of 2004 9.A bare reading of the aforesaid provision clearly spells outthat where the gross total income of an assessee which is a domesticcompany in any previous year includes any income by way of dividendsfrom another domestic company, the assessee shall be entitled todeduction of such dividend from its income as does not exceed theamount of dividend distributed by such domestic company. Thus, theassessee is entitled to deduction when it receives dividend income fromanother domestic company. 10.Now adverting to the present case, the Assessing Officerrejected the ground of the assessee in respect of deduction underSection 80M of the Act, with the following observations:- “The assessee has claimed deduction u/s 80Mamounting to Rs.9,83,120/-. On scrutinizing thedetails with respect to the claim of this deduction it isseen that Rs.8,00,000/- PNB Mutual Funds is not adomestic company. It is simply a Mutual Fund whosetrustee is the PNB Capital Services Ltd. Thus anyreceipts of dividend received from such entity whichis not company itself does not make such receipts,eligible for deduction u/s 80M as under the provisionsof this section, the dividend must flow from onedomestic company to another domestic company. Inview of the fact that the dividend received from PNBMutual Funds is not inter-corporate dividend,deduction to the extent of 8,00,000/- is not allowed,as claimed by the assessee.” ITA No. 281 of 2004-5- 11.The said finding was upheld by the CIT (A) and affirmed bythe Tribunal. The findings of the Tribunal recorded in paras 13 and 14read thus:- “13.Ground No.4 is relating to deduction u/s 80Mon dividend of Rs.8 Lacs received from PNB mutualfund. The Ld. counsel for the assessee contendedthat income derived from Mutual Fund was nothingbut distribution of dividend to members of the MutualFund. On the ground of mutuality, the incomederived by the mutual fund and distributed amongstthe members partakes the same character as in thecase of mutual fund. It was accordingly pleaded thatdeduction u/s 80-M may be allowed on the dividendreceived from the said fund. The Ld. D.R. on theother hand, contended that there is no ambiguity inthe language of section 80-M. Deduction ispermissible in respect of the dividend received from adomestic company. Mutual fund is not a domesticcompany and, therefore, no deduction is permissibleto the assessee u/s 80-M. 14.We have given our careful consideration to therival contentions. In our considered view thelanguage of Section 80M is unambiguous and nodeduction is permissible u/s 80M in respect ofdividend received from the mutual fund. It may bepertinent to mention that the income from mutual fund is now specifically exempt u/s 10(33). However,the said amendment is not applicable in the yearunder appeal. The assessee is thus not entitled toany relief u/s 80-M in regard to dividend of Rs.8 Lac.This ground of appeal is thus dismissed.” 14.We have given our careful consideration to therival contentions. In our considered view thelanguage of Section 80M is unambiguous and nodeduction is permissible u/s 80M in respect ofdividend received from the mutual fund. It may bepertinent to mention that the income from mutual fund is now specifically exempt u/s 10(33). However,the said amendment is not applicable in the yearunder appeal. The assessee is thus not entitled toany relief u/s 80-M in regard to dividend of Rs.8 Lac.This ground of appeal is thus dismissed.” 12.Nothing was shown by the learned counsel for theassessee that the said finding was perverse in any manner. 13.The judgment relied upon by the assessee in PujaInvestments (P) Ltd's case (supra) does not apply to the facts of thepresent case. In that case, the trust had received certain dividendsfrom an Indian Company which was paid to the assessee-company. Itwas held that in view of Section 67A of the Act, the dividend incomewhich was received by the trust and distributed to the assessee-company therein retained the character of dividend and was entitled todeduction under Section 80M of the Act. In the present case, neitherthe income received from PNB Mutual Fund can be termed as dividendincome nor can the said fund be categorized as the domestic companywithin the meaning of Section 80M of the Act. 14.In view of the above, the question of law, reproducedabove, is answered against the assessee and in favour of the revenue.15.Consequently, the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE October 7, 2010gbs (ADARSH KUMAR GOEL)JUDGE ITA No. 281 of 2004 -7- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 501 of 2005 Date of Decision: 7.10.2010 M/s Nahar Spinning Mills Ltd. ....Appellant. Versus The Commissioner of Income Tax (Central), Ludhiana ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sanjay Bansal, Senior Advocate with Ms. Suveta Malhotra, Advocate for the appellant.Ms. Suveta Malhotra, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. This appeal is dismissed. For orders, see ITA No. 281 of 2004 (M/s Nahar Spinning Mills Ltd. v. The Commissioner of Income Tax (Central), Ludhiana). (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) JUDGE ITA No. 281 of 2004 -8- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 500 of 2005 Date of Decision: 7.10.2010 M/s Nahar Spinning Mills Ltd. ....Appellant. Versus The Commissioner of Income Tax (Central), Ludhiana ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sanjay Bansal, Senior Advocate with Ms. Suveta Malhotra, Advocate for the appellant.Ms. Suveta Malhotra, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. This appeal is dismissed. For orders, see ITA No. 281 of 2004 (M/s Nahar Spinning Mills Ltd. v. The Commissioner of Income Tax (Central), Ludhiana). (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) JUDGE