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For the Interveners : (1) M/s. Jardine Henderson Ltd.: Dr. Debi Pal and D. N. Gupta, (2) Indore Exporting & Importing Co. Ltd. : Dr. Debi Pal, Miss Bina Gupta and Mr. Praveen Kumar, and (3) M/s. Ajay Investment Co. : Praveen Kumar and Miss Bina Gupta. FAC |
TAX REFERENCE NOS. FAC |
6 9 OF 1975 For the Appellant : F. section Nariman, I. N. Shroff, and H. section Parihar. FAC |
For the Respondent : section N. Kacker, Solicitor General, section P. Nayar and Miss A. Subhashini. FAC |
For the Intervener Central India Industries : Dr. Debi Pal, Miss Bina Gupta and Mr. Praveen Kumar. FAC |
TAX REFERENCE No. 16 OF 1975 For the Appellant : Mrs. A. K. Verma and J. B. Dadachanji, K. J. John and Shri Narain. FAC |
For the Respondent : section N. Kacker, Sol. and Miss A. Subhashini. FAC |
For the Interveners Central India Industries : Dr. Debi Pal, Miss Bina Gupta and Mr. Praveen Kumar. FAC |
TAX REFERENCE NO. 18 OF 1975 For the Appellant : section P. Mehta, K. C. Patel, Shri Narain, J. B. Dadachanji, Mrs. A. K. Verma and Miss Arti Mehta. FAC |
For the Respondent : Miss A. Subhashini. FAC |
For the Intervener Central India Industries Ltd : Dr. Debi Pal, Miss Bina Gupta and Mr. Praveen Kumar. FAC |
The Judgment of the Court was delivered by BHAGWATI, J. FAC |
This group of appeals and References raises a short question of construction of sections 85A and 80M of the Income Tax Act, 1961 (hereinafter referred to as the present Act). FAC |
The question is whether on a true interpretation of these sections, rebate of income tax is admissible on the actual amount of divident received by an assessee, being a company, from an Indian company, or it is confined only to the dividend income as computed in accordance with the provisions of the Act, that is, after... |
The Gujarat High Court has taken a view against the assessee while a different view has been taken by the 991 Bombay, Madras and Calcutta High Courts. FAC |
The appeals are preferred by the assessee, namely, Cloth Traders (P) Ltd. against the judgment of the Gujarat High Court and they relate to the assessment years 1965 66 and 1966 67 when section 85A was in force. FAC |
The Reference before us have been made directly by the Tribunal under section 257 of the Act in view of the conflict of opinion amongst the High Courts. FAC |
Out of these References, three are at the instance of the assessees, namely, C. V. Mehta (P) Ltd., M/s. Distributors (Baroda) Pvt. Ltd., and H. K. (Investment) Co. Pvt. Ltd. and one is at the instance of the Commissioner of Income tax, Gujarat. FAC |
They relate to different assessment years: assessment year 1969 70 in case of C. V. Mehta (P) Ltd. and Distributors (Baroda) Pvt. Ltd. and assessment years 1965 66 to 1969 70 in case of H. K. (Investment) Co. Pvt.Ltd. FAC |
The interpretation of both sections 85A and 80M is involved in these References since section 85A with some minor alterations made in it from time to time was in force during the assessment years 1965 66 to 1967 68 and section 80M followed upon it with effect from the commencement of the assessment year 1968 69 as part... |
Though the language of sections 85A and 80M is almost identical, there are some verbal dissimilarities, but as we shall presently point out, they do not make any difference in interpretation so far as the present question is concerned. Ratio |
We are concerned in these appeals and References only with the interpretation of sections 85A and 80M but in order to arrive at the true interpretation of these sections, it is necessary to refer briefly to the history of the legislation enacted in these sections, since these sections were not written by the Legislatur... |
The earliest provision granting exemption of super tax in respect of inter corporate dividends was made as far back as 9th December, 1933 in a Notification issued by the Governor General in Council and it provided as follows: "The Governor General in Council is pleased to exempt from super tax (i) so much of the income... |
" This provision came up for consideration before a Division Bench of the High Court of Bombay in Commissioner of Income Tax vs Industrial Investment Trust Co. Ltd.(1) and the question was whether the dividend income exempted from super tax was the entire income by way of dividend received by an investment trust compan... |
The High Court of Bombay held that the "dividend income which was exempted under the notification would be the dividend income received by the assessee and not the said income less any further amounts", because "the notification must be regarded as a self contained one and not controlled by any other provisions of the ... |
It was thus held that the entire amount of dividend received by an investment trust company would be exempt from super tax and not the amount of dividend minus the expenses incurred in earning it. PRE |
This Notification was followed by a provision of a similar kind granting exemption from super tax in respect of certain specified categories of inter corporate dividends introduced as section 56A in the Indian Income tax Act, 1922 (hereinafter referred to as the Old Act) by Finance Act, 1953. Ratio |
It is not necessary to make any detailed reference to this provision since there is no decided case which has considered this provision or expressed an opinion upon it. Ratio |
When the old Act was repealed and the present Act enacted with effect from 1st April, 1962, section 99, sub section (1) was introduced in the present Act exempting certain categories of income from super tax and one of such categories was that set out in clause (iv). Ratio |
Section 99, sub section (1), clause (iv) read as follows: "99(1) Super tax shall not payable by an assessee in respect of the following amounts which are included in his total income. STA |
(iv) if the assessee is a company, any dividend received by it from an Indian company, subject to the provisions contained in the Fifth Schedule". STA |
993 This provision continued to be in force upto 31st March, 1965 subject to a minor inconsequential amendment made by Finance Act, 1964. Ratio |
Now a question arose before the High Court of Bombay in Commissioner of Income Tax vs Indian Guarantee & General Insurance Co. Ltd.(1) whether the exemption granted under this provision was in regard to the entire amount of dividend received by the assessee from an Indian company or it was limited to the dividend incom... |
The argument of the assessee based on the words 'any dividend received by it from an Indian company ' was that it was the full amount of dividend received by the assessee which was exempt from super tax, while the Revenue relying on the words "amounts which are included in his total income" contended that it was only t... |
The High Court accepted the contention of the assessee and pointed out that on a plain reading of sub clause (iv) of sub section (1) of section 99 it was clear that the exemption from super tax was granted in respect of "any dividend received by it from an Indian company" and these last words, according to their plain ... |
The High Court emphasised the word "received" following immediately upon the word 'dividend ' and observed that the use of this word also showed that the exemption was in regard to the dividend received and not in regard to the "dividend received minus the expenses". Ratio |
The High Court pointed out that the words "amounts which are included in his total income" in the opening part of section 99 sub section (1) did not have any limitative effect, but they were used merely as a convenient mode of describing the different items of income set out in clauses (i) to (v) of that sub section. R... |
Clauses (i) to (v) referred to different items of income which were sought to be exempted from super tax under subsection (1) of section 99 and it was only if these items of income were included in the total income of the assessee that the question of exemption from super tax would arise and hence the legislature used ... |
These words according to the High Court were descriptive of the items of income included in the computation of the total income and were not indicative of the quantum 994 of the amounts of the different items included in such computation and they did not, therefore, have the effect of cutting down the plain natural mea... |
This view, observed the High Court, not only followed logically and inevitably from the words used in the statutory provision, but was also in consonance with the object of the legislation, which was to prevent double taxation of the amount of dividend with the view to encouraging investment by companies in the share c... |
It may be pointed out that the same view in regard to the construction of clause (iv) of sub section (1) of section 99 was taken by the Calcutta High Court in Commissioner of Income tax vs Darbhanga Marketing Co.(1) and it was held that under that provision, exemption from super tax was granted to an assessee in respec... |
The Calcutta High Court observed: "The expressions 'which are included in his total income ' in sub section (1) of section 99 and 'incomes forming part of total income ' in the heading are descriptive of the items included in the computation of the total income and not indicative of the quantum of the amounts included ... |
Such a construction of these expressions would be in harmony wit the obvious meaning of the expression 'dividend received '". Ratio |
The decision of the Bombay High Court in Industrial Investment Trust Co 's case (supra) was strongly relied upon by the Calcutta High Court in coming to this decision and the view taken by the Calcutta High Court was noted with approval by the Bombay High Court in New Great Insurace Co 's case (supra). Ratio |
The same view was also taken by the Madras High Court in Commissioner of Income tax vs Madras Motor and General Insurance Co. Ltd.(2) and it was approved in later decision of the same Court in Madras Auto Service vs Income tax Officer (3). Ratio |
It would, thus, be seen that notwithstanding the words "amounts which are included in his total income" in the opening part of sub section (1) of section 99, all the three High Courts, namely, Bombay, Calcutta and Madras took the view that the entire amount of dividend received by the assessee from an Indian Company wa... |
Section 99, sub section (1) however remained in force only upto the close of the assessment year 1964 65 and by an amendment made by Finance Act 10 of 1965, section 99, sub section (1) was omitted and Chapter VI A and section 85A were introduced in the present Act with effect from 1st April, 1965. Ratio |
Chapter VI A comprised sections 80A and 80D providing for certain specified deductions to be made in computing total income while section 85A, in so far as material, provides as follows: "85A. DEDUCTION OF TAX ON INTER CORPORATE DIVIDENDS: Where the total income of an assessee being a company includes any income by way... |
Section 85A also came to be considered by the Bombay High Court in the New Great Insurance Co 's case (supra) because two of the assessment years with which the Bombay High Court was concerned in that case were assessment years 1965 66 and 1966 67 when section 85A was in force. Ratio |
The Bombay High Court pointed out that except for some minor verbal changes section 85A was almost in the same terms as section 99, sub section (1), clause (iv), the only real differences being that the exemption granted under section 99, sub section (1), clause (iv) was in regerd to super tax, while the deduction allo... |
The same interpretation was, therefore, placed on section 85A as in the case of section 99 sub section (1), clause (iv) and it was held that under section 85A, the assessee would be entitled to de 996 duction of income tax in respect of the whole of the dividend received from an Indian company. Ratio |
The expression "where the total income . . includes any income by way of dividends" in the opening part of section 85A was construed as referring to the category of income by way of dividends received from an Indian company so that if this particular category of income is included in the computation of total income, th... |
The words "income so included" were read to mean not the quantum of the "income by way of dividends" included in the total income but the income falling within the category of "income by way of dividends from an Indian company" included in the total income. Ratio |
Thus the view taken by the Bombay High Court was that under Section 85A also, the deduction admissible was in respect of the entire dividend received by the assessee from an Indian company and not in respect of dividend income minus deductions allowable under the provisions of the Act in computing the total income. Rat... |
The original Chapter VI A and certain other sections including section 85A were deleted from the present Act by Finance (No. with effect from 1st April, 1968 and replaced by a new Chapter VI A which contains a fasciculous of sections from section 80A to section 80VV. Ratio |
Section 80A, sub section (1) provides that in computing the total income of an assessee there shall be allowed from his gross total income, in accordance with and subject to the provisions of Chapter VI A, the deduction specified in section 80C to section 80VV and sub section (2) of that section imposes a ceiling on su... |
The expression "gross total income" is defined in clause (5) of section 80B to mean the total income computed in accordance with the provisions of the Act before making any deduction under Chapter VI A or under section 280.O. Section 80M is the new section which corresponds to the repealed section 85A and it provides f... |
It is the interpretation of this section which constitutes the subject matter of controversy between the parties and hence it would be desirable to set it out in extenso. Ratio |
This section has undergone changes from time to time since the date of its enactment and we will, therefore, reproduce it in the form in which it was during the assessment years 1968 69 and 1969 70 being the assessment years with which we are concerned in these cases: 997 "80 M. DEDUCTION IN RESPECT OF CERTAIN INTER CO... |
(b) where the assessee is domestic company in respect of any such income by way of dividends. 60% of such income. Ratio |
" There were several amendments made subsequently in this section but they relate primarily to the percentage of the income to be allowed as a deduction and do not have any bearing on the question of interpretation posed before us. Ratio |
One amendment is, however, material and that was made by Finance Act 1968 by which the words "received by it" occurring in sub section (1) of section 80M were omitted with effect from 1st April, 1968. Ratio |
The Finance Act of 1968 also provided in sub sections (2) and (3) of section 31 that notwithstanding the omission of section 99, sub section (1), clause (iv) and section 85A, the provisions of those sections shall have and be deemed always to have effect, subject to the modification that the words "received by it" in t... |
The net effect of these amendments was that the words "received by it" following upon the word "dividend" were omitted with retrospective effect from section 99, sub section (1), clause (iv) and section 85A and section 998 80M was to be read as if the words "received by it" were not in the opening part of that section.... |
We shall presently consider the language of section 80M for the purpose of arriving at its true interpretation, but before we do so, we must refer to an argument advanced on behalf of the Revenue that whatever might have been the interpretation placed on section 99, subsection (1), clause (iv) by the Bombay, Calcutta a... |
The argument was that the decisions of the Bombay, Calcutta and Madras High Courts upholding the view that the exemption from super tax under section 99, sub section (1), clause (iv) and the deduction of income tax under section 85A were admissible in respect of the entire amount of dividend received by an assessee wit... |
We do not think this contention of the Revenue can be sustained if we have regard to the object and purpose for which the words "received by it" were deleted. Ratio |
It is clear from the Notes on clause 31 which subsequently became section 31 of the Finance Act, 1968 that the amendments retrospectively deleting the words "received by it" from the opening part of section 99, sub section (1), clause (iv) and section 85A were made with a view to widening scope of the relief granted un... |
The object of introducing these amendments was to widen the scope of the tax relief provided under section 99, sub section (1), clause (iv) and section 85A by making it available to the assessee even though the shares to which the dividend related were registered in the name of a person other than the assessee and not ... |
The omission of the words "received by it" does not, therefore, make any difference in the interpretation of section 99, sub section (1), clause (iv) and section 85A so far as the present question is concerned. Ratio |
Even after the deletion of the words "received by it", the expressions "any dividend from an Indian company" and "any income by way of dividends from an Indian company" occurring in the opening part of these sections continue to mean the 999 same thing, namely the full amount of dividend derived or moving from an India... |
The decisions of the Bombay, Calcutta and Madras High Courts interpreting these sections cannot, therefore, be said to be displaced by the retrospective omission of the words "received by it". Ratio |
So far as section 99, sub section (1), clause (iv) is concerned, we have no doubt that the interpretation placed on this provision by the Bombay, Calcutta and Madras High Courts is correct. Ratio |
The reasoning given by the Bombay High Court in New Great Insurance Co. 's case (supra) is unexceptionable and we find ourselves in agreement with it. Ratio |
It is clear on a plain natural construction of the language of this provision that it grants exemption from super tax in respect of "any dividend from the Indian company" and these last mentioned words cannot mean anything else than the full amount of dividend derived from an Indian company. Ratio |
They cannot obviously mean dividend from an Indian company minus any expenses incurred in earning it, or less any other deduction allowable under the Act. Ratio |
It is no doubt true that the opening part of section 99, sub section (1) contains the words "the following amounts which are included in his total income", but these words do not have any limitative effect so as to restrict "dividend from an Indian company" in respect of which exemption from super tax is granted to net... |
It may be noticed that the ememption from supr tax granted under section 99, sub section (1) is not only in respect of "dividend from an Indian company" is not referred to in clause (iv), but also in respect of other items of income mentioned in clauses (i) to (iii) and (v). Ratio |
The Legislature clearly and understandably wanted to provide that the different categories of income mentioned in clauses (i) to (v) should be eligible for exemption from super tax only if they are included in the total income and the Legislature could have made such a provision separately in respect of each category o... |
These words were introduced merely to provide that the category of income in respect of which exemption from super tax is claimed must be included in the total income and they were not intended to refer to the quantum of such income included in the total income for exempting it from supertax: they were descriptive of i... |
It would, therefore, seem that though the exemption from super tax granted under clause (iv) of sub section (1) of section 99 would be applicable only if the particular item of income, namely, "dividend from an Indian company" is included in the total income, what is exempted is "dividend from an Indian company" which ... |
This view which we are taking is clearly supported by the decision of this court in Commissioner of Income tax, Kerala vs South Indian Bank Ltd.(1) where the question was so as to the true interpretation of a notification issued by the Central Government under section 60A of the old Act which was in the following terms... |
Such interest shall, however, be included in the total income of the assessee for the purposes of section 16 of the Indian Income tax Act, 1922. PRE |
" The argument of the Revenue was that the exemption from income tax granted under this notification was in respect of interest receivable on securities minus the expenses incurred in earning it and not in respect of the entire amount of interest because it was only that amount of interest arrived at after computation ... |
This argument was negatived by the Court and it was pointed out by Subba Rao, J., that: "this notification does not refer to the provisions of section 8 of the Income tax Act at all. Ratio |
It gives a total exemption from income tax to an assessee in respect of the interest receivable on income tax free loans mentioned therein. Ratio |
It gives that exemption subject to two conditions, namely, (i) that the interest is received within the territories of the State of Travancore Cochin, and (ii) that it is not brought into any other part of the taxable territories. Ratio |
It includes the said exempted interest in the total 1001 income of the assessee for the purpose of section 16 of the Income tax A Act. Ratio |
Shortly stated, the notification is a self contained one; it provides an exemption from income tax payable by an assessee on a particular class of income subject to specified conditions. Ratio |
Therefore, there is no scope for controlling the provisions of the notification with reference to section 8 of the Income tax Act. Ratio |
The expression "interest receivable on income tax free loans" is clear and unambiguous. Ratio |
Though the point of time from which the exemption works is when it is received within the territories of the State of Travancore Cochin, what is exempted is the interest receivable. Ratio |
"Interest receivable" can only mean the amount of interest calculated as per the terms of the securities. Ratio |
It cannot obviously mean interest receivable minus the amount spent in receiving the same. Ratio |
" It may be noted that the last part of this notification provided for inclusion "of such interest", that is, interest in respect of which exemption from tax was granted, in the total income of the assessee and obviously this would have to be done after computation in accordance with the provisions of section 8 of the ... |
But even so, it was held that the exemption from tax was in respect of the entire amount of interest received on the securities. Ratio |
The reasoning adopted in this decision clearly supports the view we are taking in regard to the construction of clause (iv) of sub section (1) of section 99 and we must hold that the decisions of the Bombay, Calcutta and Madras High Courts lay down the correct law on the interpretation of this provision. Ratio |
The next provision we must consider is section 85A which came in the wake of section 99, sub section (1), clause (iv). Ratio |
This section lays down a condition for its applicability in its opening part by using the words "where the total income of an assessee includes any income by way of dividends from an Indian company". Ratio |
The condition is that the total income must include income by way of dividends from an Indian company. Ratio |
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