ASSTT. CIT vs. ALKAPURI INV. PVT. LTD.

Facts

The Revenue is in appeal against the order of the Income Tax Appellate Tribunal (ITAT) dated February 28, 2000, for Assessment Year 1985-86. The assessee, Alkapuri Inv. Pvt. Ltd., had claimed that its entire interest expenses were attributable to income other than dividend income, making the gross dividend eligible for deduction under Section 80M. The Assessing Officer (AO) initially accepted this but later rejected the claim upon reconsideration after the CIT set aside the original assessment. The CIT(A) directed the AO to deduct interest attributable to investments (Rs. 6,73,863/-) from the dividend received and compute the Section 80M deduction on the net amount. The ITAT dismissed the Revenue's appeal, confirming the CIT(A)'s order.

Held

The High Court agreed with the reasoning and findings of the Tribunal. It noted that the Tribunal had considered the decision in Distributors (Baroda) Pvt. Ltd vs. Union of India & Others (155 ITR 120), which held that the deduction under Section 80M should be calculated with reference to the amount of dividend computed in accordance with the Act and forming part of the gross dividend received. The Court found that the CIT(A) was justified in holding that interest attributable to the acquisition of shares of domestic companies must be deducted from the gross total income, including dividend from domestic companies, before computing the deduction under Section 80M. Therefore, the issue was answered in the affirmative, against the revenue and in favour of the assessee. The appeal was dismissed.

Key Issues

1. Whether the Appellate Tribunal was right in law and on facts in treating the investment of Rs. 10,49,72,000/- as having been made by the assessee from its own funds for granting relief under Section 80M of the Income Tax Act, 1961, and in doing so failed to examine the relevant circumstances and material available in the case. Assessee's Contention: The respondent assessee supported the impugned order, submitting that the Tribunal had rightly held in their favour and that the appeal lacked merits. Revenue's Contention: The appellant Revenue contended that the Tribunal erred in law and on facts by directing that the investment of Rs. 10,49,72,000/- be treated as made from own funds, thereby allowing relief under Section 80M. The Revenue argued that the assessee had claimed in its return of income that no interest was attributable to the funds used for investment on which interest was earned.