THE COMMISSIONER OF INCOME-TAX-3 vs. M/S SAUMYA FINANCE DAND LEASING CO. PVT.LTD

The   brief   facts   of   the   case   are   as follows :­ Uploaded on - 21/08/2020 (a) During the financial year 1996­97, Assessee   Company   filed   a   return which   included   dividend   income   of Rs.2,69,16,774/­. During   this financial year, since the Assessee Company   earned   a   net   profit   of Rs.0.06 lakhs only, no dividend was declared by the Company.   The due date for filing the tax returns for the financial year was 28th November, 2007. Before   this   due   date   the Assessee   Company   declared   and distributed an amount of Rs.2,19,97,105/­ by way of interim dividend   for   the   financial   year 1997­98. (b) When the returns were filed by the Assessee Company for the financial year 1996­97, the Company claimed a deduction of Rs.2,19,97,105/­ from its profit, under Section 80M of the Uploaded on - 21/08/2020 Income Tax Act. (c) A deduction sought by the Assessee Company   under   Section   80M   was disallowed by the Assessment Officer.   The   appeal   filed   by   the Assessee Company on this point came to be allowed by the Commissioner of Income 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 ITA No.462/M/02 on 10th May, 2002 in the case   of   M/s.Silvassa   Industries Private Limited passed an order on 23rd July, 2004 dismissing the appeal of the revenue.  In the circumstances,   the   revenue   has preferred the present appeal in this Court. Uploaded on - 21/08/2020

On   behalf   of   the   revenue   it   is   contended that it is open to revenue to argue a question of law   which   had   been   decided   in   the   case   of M/s.Silvassa   Industries   Private   Limited   even, though,   the   Judgment   of   the   Tribunal   in   the aforesaid case had not been challenged by way of an appeal.     It   is   then   contended   that   the   interim dividend   was   declared   by   the   Assessee   Company   in the   financial   year   1997­98   and   out   of   income accrued in the said year.   His further contention was   that   the   dividend   declared   and   paid   in   a subsequent year could not be a permitted deduction from the income in a previous year since the said dividend   was   paid   out   of   income   accruing   in   the subsequent year.

To appreciate the contention raised by the revenue,   it   is   necessary   to   reproduce   (“80M”   as then existing) which was as under :­ “80M. Deduction in respect of certain inter­ corporate   dividends.­(1)   Where   the   gross Uploaded on - 21/08/2020 total income of a domestic company, in any previous year, includes any income by way of dividends   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 sub­section (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 the date for furnishing the return of income under sub­section (1) of section 139”

On   the   bare   reading   of   the   Section   it   is clear   that   the   deduction   as   permitted   is   of   an amount equal to so much of the amount of income by way of dividend declared by the Company as does not exceed   the   amount   of   dividend   distributed   by   the Assessee Company on or before the due date.

It is clearly seen that the section does not Uploaded on - 21/08/2020 provide for the nature of the dividend distributed by the Assessee Company.   It does not state that the nature of the dividend distributed must be for the financial year under assessment.  Accepting the argument of the revenue will amount to laying down an   additional   restriction   to   the   effect   that   the dividend distributed by the Assessee Company must be for the financial year under assessment.  Laying down such restricting qualification, in our view, will   amount   to   doing   violence   to   the   plain   and clear meaning of the words as contained in Section 80M.

Counsel appearing for the revenue sought to argue that where the literal meaning of the words contained in any provision of law, would lead to an absurd result i.e. a result not intedned to be sub­ served,   by   the   object   of   the   legislation   and   if another construction is possible apart from strict literal construction, then that construction should be   preferred   to   the   strict   literal   construction. Uploaded on - 21/08/2020 According   to   counsel   for   revenue,   if   a   literal construction is given to Section 80M then it would lead   to   an   absurd   result,   since   the   amount   of deduction   earned   in   the   subsequent   year   will   be permitted in respect of the income of the previous year.  He placed strong reliance on the Judgment of the   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 to be  given   to   Section  16(3)   of   the   Income   Tax   Act observed as under :­ “If the purpose of a particular provision is easily discernible from the whole scheme of the Act, which in this case is to counteract the 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   preferred to the strict literal  construction.” Uploaded on - 21/08/2020

In   our   view,   this   is   not   a   case   where   a literal   construction   to   be   given   to   Section   80M would lead to an absurd result.   The intention of legislature while enacting Section 80M was clearly to ensure that the dividend income received by the Assessee Company should be permitted as a deduction only if it is re­distributed as dividend income to its  shareholders.     The   section   provided   that   the said distribution to be made before the due date of the filing of the returns.   This has been done by the present respondent and all the requirements of Section 80M are clearly met by them.

In   the   net   result,   in   our   view,   the questions as framed in the appeal do not arise and the appeal therefore, stands dismissed. (R.S.MOHITE, J.) (F.I.REBELLO, J.) Uploaded on - 21/08/2020 Powered by TCPDF (www.tcpdf.org)