COMMISSIONER OF INCOME TAX Vs. J K BANKERS

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question of law for our opinion :

(2.) THE question referred relates to the assessment year 1972-73. THE assessee had purchased shares of J. K. Synthetics Ltd., and for making the purchase, had borrowed certain amounts of money bearing interest. In the relevant previous year the assessee received an amount of Rs. 3,24,238 as dividend from M/s. J. K. Synthetics Ltd. THE assessee claimed that this amount be deducted from its income under Section 80K while computing its income. THE contention was, however, rejected by the ITO on the ground that no certificate had been issued for the assessment year either provisionally or finally by the. ITO assessing the company, and further that, in any event, the assessee would be entitled to a deduction only for an amount arrived at after deducting the interest paid on the loans raised for purchasing the shares. He, accordingly, granted relief only to the extent of Rs. 92,548 as representing the net amount of dividend received by the assessee. THE appeal filed against this order before the AAC failed. THE matter was then taken up in appeal by the assessee before the Tribunal. By the time, the Tribunal took up the appeal for hearing, the Commissioner had directed the ITO assessing M/s. J. K. Synthetics Ltd. to pass an order under Section 197(3), and determine the portion of the dividend declared by the company, which would be exempt under Section 80K in the hands of the shareholders. THE Tribunal in view of this held that the assessee would be entitled to deduction under Section 80K in respect of the entire dividend received from M/s. J. K. Synthetics Ltd., to the extent to which these dividends were attributable to the profits of the company in respect of which the company was entitled to relief under Section 80J. It also held, following the decision of the Supreme Cour-t in the case of Union of India v. Coromandel Fertilizers Ltd. [1976] 102 ITR 533, that it was not necessary that the relief under Section 80J in respect of the company should have been quantified before relief to a shareholder could be given under Section 80K. As regards the view of the revenue authorities that the amount of interest paid by the assessee on loans raised by it for purchasing shares had to be deducted from the amount of dividend received, it held following the decisions of the Madras High Court in the cases of CIT v. Madras Motor and General Insurance Co. [1975] 99 ITR 243 and Madras Auto Service v. ITO [1975] 101 ITR 589 that the interest could not be deducted for purposes of calculating the relief under Section 80K. THE Commissioner has now come up in reference before us.

(3.) IT will be noticed that before advantage under Section 80K can be taken, dividend received by an assessee must be from a company, which is entitled to a deduction under Section 80J. Now, as held by the Supreme Court in the case of Union of India v. Coromandel Fertilizers Ltd. [1976] 102 ITR 533, it is not necessary that the relief for which a company is entitled under Section 80J should have been quantified by an order passed by the ITO under Section 197(3), for granting relief to a shareholder under Section 80K. There does not appear to be a serious controversy that J, K. Synthetics Ltd. is entitled to relief under Section 80J. In fact from the order of the Tribunal it appears that the Commissioner, Kanpur, had issued an order directing the ITO assessing J. K. Synthetics to pass an order under Section 197(3), and determining the portion of dividend paid by a company which would be exempt under Section 80K in the hands of the shareholder. Thus, one has to proceed on the footing that the dividend received by the assessee was one in respect of which M/s. J. K, Synthetics Ltd. was entitled to deduction under Section 80J. Rule 20 sets out the computation of the portion of dividend attributable to the profits and gains from a new industrial undertaking. There is no suggestion, and it is not the department's case that the amount of Rs. 3,24,238 received by the assessee as dividend from M/s. J, K. Synthetics did not conform to the computation of dividend as required to be done under Rule 20. The only dispute is as to whether deduction under Section 80K should be made after deduction of the interest paid by the assessee on the loans raised by it for purchasing the shares. Neither Section 85K nor Rule 20 permits such a deduction. Section 80K contemplates deduction of the entire dividend income, provided that it is attributable to the profits and gains of a company which is entitled to deduction under Section 80J. This being the statutory position, the question of any further deduction from the amount of dividend received by the assessee does not arise. The Madras High Court in the cases of CIT v. Madras Motor andamp; General Insurance Co. [1975] 99 ITR 243 and Madras Auto Service v. ITO [1975] 1,01 ITR 589 has held likewise ; so has the Bombay High Court in the case of CIT v. Union Bank of India [1976] 102 ITR 270. The views expressed by these courts have the authority of reason and logic and we are in complete agreement with these views.