1992-VIL-550-CAL-DT

Equivalent Citation: [1992] 198 ITR 734, 108 CTR 344, 70 TAXMANN 169

CALCUTTA HIGH COURT

Date: 06.01.1992

COMMISSIONER OF INCOME-TAX

Vs

BHORUKA INVESTMENTS PVT. LIMITED

BENCH

Judge(s)  : SHYAMAL KUMAR SEN., AJIT KUMAR SENGUPTA 

JUDGMENT

AJIT K. SENGUPTA J. - In this reference under section 256(2) of the Income-tax Act, 1961, for the assessment year 1982-83, the following question of law has been referred to this court :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, is not valid and legal and as such he had no jurisdiction to revise the order of assessment?"

Shortly stated, the facts are that the Income-tax Officer, in making the assessment, allowed deduction of Rs. 4,93,198 to the assessee under section 80M of the Income-tax Act, 1961, on the intercorporate dividend of Rs. 8,21,996 which was equal to the gross amount of Rs. 9,73,594 minus interest expenses of Rs. 1,51,172 and deduction under section 80K of Rs. 426. On scrutiny of the records, the Commissioner of Income-tax subsequently found that the Income-tax Officer allowed an excess deduction of Rs. 1,40,148 to the assessee under section 80M and as such the order of the Income-tax Officer was considered to be erroneous and prejudicial to the interests of the Revenue. The Commissioner of Income-tax initiated proceedings under section 263 of the Act and, after rejecting the arguments of the assessee, passed an order under section 263 of the Act directing the officer to allow deduction under section 80M on the net dividend income after setting off the losses under the heads " Business " and " Property ". Against the aforesaid order of the Commissioner of Income-tax passed under section 263, the assessee preferred an appeal before the Tribunal.

The Tribunal, after considering the submissions made before it by the parties, came to the conclusion that the assessment order of the Income-tax Officer dated February 14, 1985, was not erroneous and prejudicial to the interests of the Revenue. The Tribunal held as follows :

" We have considered the rival submissions. Circular No. 58, dated 15th April, 1971, squarely covers the point at issue. The assessment was completed on February 14, 1985. Thus, it has to be taken that the Income-tax Officer followed the said circular while computing the relief under section 80M given to the assessee in the assessment order. As the Circulars of the Central Board of Direct Taxes are binding on all officers of the Income-tax Department, as laid down by the Supreme Court in the case of Navnit Lal C. Javeri v. K. K. Sen, AAC of I T. [1965] 56 ITR 198, the Commissioner is not justified in coming to the conclusion in his order under section 263 that the assessment order of the Income-tax Officer dated February 14, 1985, is erroneous and prejudicial to the interests of the Revenue. In the facts and circumstances of the case, we are of the opinion that no error was committed by the Income-tax Officer in the assessment order passed by him in the matter of granting relief tinder section 80M to the extent of Rs. 4,93,198. "

At the hearing before us, the contention raised before the Tribunal has been reiterated. The Commissioner of Income-tax, in passing the order tinder section 263 of the Income-tax Act, 1961, observed as follows :

" On a careful consideration of the point at issue, I am unable to accept the arguments put forth by the learned authorised representative on behalf of the assessee. In my opinion, deduction under section 80M should have been computed with reference to the dividend income left after setting off the losses from business and property heads under section 71 of the Income-tax Act. In other words, the maximum amount of dividend income left after setting off the losses from business and property heads under section 71 of the Income-tax Act (sic). In other words, the maximum amount of dividend income allowable was as follows :

Rs.

Total losses from business and property ( - ) 3,18,647

Capital gains set off ( - ) 85,067

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Left over loss set off from-dividend ( - ) 2,33,580

Dividend income ( + ) 8,21,996

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( + ) 5,88,416

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Deduction under section 80M of the Income tax Act was allowable at 60 per cent. on Rs. 5,88,416, i.e., Rs. 3,53,050. As against this, the Income-tax Officer had erroneously allowed under section 80M of the Income-tax Act deduction amounting to Rs. 4,93,198, i.e., 6-0 per cent. on Rs. 8,21,996. As a result of this error committed by the Income-tax Officer in the assessment order for the year 1982-83, excess allowance of deduction under section 80M of the Income-tax Act came to Rs. 1,40,148. Consequent under-charge of income-tax and surcharge was of the order of Rs. 93,373."

The contention of the assessee is that the assessee is entitled to relief on net dividend income amounting to Rs. 8,21,996 whereas the Revenue contends that, in allowing the relief, the loss should be set off from the dividend income and relief under section 80M should be allowed on the resultant income.

We are unable to accept this contention of the Revenue. Where part of the dividend income is utilised for setting off loss under any other head, relief under section 80M of the Income-tax Act, 1961, is to be allowed on the dividend income before such set-off subject to the overall limit imposed by section 80A(2) of the Income-tax Act, 1961. The relief tinder section 80M has to be computed on the dividend income included in the assessment but while allowing relief, the relevant consideration is what is the total income computed after setting off of loss and unabsorbed depreciation, if any. The relief must be linked with the income arrived at after taking into account the loss and depreciation. In a case where the total income is not sufficient to allow the relief under section 80M in entirety, relief has to be restricted to the income so arrived at. As for example, if the income from dividend is computed at Rs. 20,000 and business loss is computed at Rs. 10,000, in that event, the total income as computed after setting off of the loss would be Rs. 10,000. Although deduction under section 80M at the rate of 60 per cent. of Rs. 20,000 (Rs. 12,000) would be available but the actual relief cannot exceed the total income of Rs. 10,000. Accordingly, the deduction will be subject to the limit of the total income. This question, however, does not arise on the facts of this case inasmuch as the total income comes to Rs. 5,88,416 after setting off of loss, unabsorbed depreciation, etc. The assessee is entitled to get relief of Rs. 4,93,198 being 60 per cent. of Rs. 8,21,976 which is the dividend income included in the gross total income of the assessee. Therefore, the relief under section 80M does not exceed the total income which was computed at Rs. 5,88,416. In our view, therefore, relief was correctly allowed by the Income-tax Officer and the assessment order was not erroneous or prejudicial to the interests of the Revenue.

For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee.

There will be no order as to costs.

SHYAMAL KUMAR SEN J. -I agree.

 

 

 

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