Nahar Spinning Mills Ltd. V. The Commissioner of Income Tax (Central), Ludhiana

ITA/281/2004

AI Insights

The case involves M/s Nahar Spinning Mills Ltd. appealing against the decision of the Income Tax Appellate Tribunal, which denied them a deduction under Section 80M of the Income Tax Act, 1961, for income received from PNB Mutual Fund. The primary legal question was whether the income distributed by PNB Mutual Fund, which is not a domestic company, qualifies for deduction under Section 80M, which specifically allows deductions for dividends received from another domestic company. The Tribunal and lower authorities had found that the income was not eligible as it did not meet the criteria of being inter-corporate dividends as stipulated under Section 80M.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 810604 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 07-10-2010
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax v. Puja Investments (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: RAJESH KATOCH
• Assessee Lawyers: SANJAY BANSAL; SUVETA MALHOTRA
• Keywords: Deduction; Dividend; Income Tax; Mutual Fund; Inter-corporate Dividend
• Section: 80M

Judgement Text

"ITA No. 281 of 2004 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 281 of 2004 Date of Decision: 7.10.2010 M/s Nahar Spinning Mills Ltd. ....Appellant. Versus The Commissioner of Income Tax (Central), Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sanjay Bansal, Senior Advocate with Ms. Suveta Malhotra, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 281 of 2004, 500 and 501 of 2005 as common question of law and facts are involved therein. For brevity, the facts are being taken from ITA No. 281 of 2004. 2. This Court vide order dated 4.7.2006 had admitted the appeal for consideration of the following substantial question of law:- “Whether on the facts and circumstances of the case, the Tribunal was right in law in not allowing deduction u/s 80-M of the Act to the assessee company in respect of income distributed by PNB Mutual Fund which partakes the same character as was in their hand and exempt u/s 80-M of the Act?” 3. Facts necessary for disposal of the appeal relating to claim ITA No. 281 of 2004 -2- of deduction under Section 80M of the Income Tax Act, 1961 (in short “the Act') only may be noticed. The assessee is engaged in the manufacture and export of Textile & Hosiery garments. It claimed deduction under Section 80M of the Act. During the course of assessment proceedings for the assessment year 1992-93, the Assessing Officer found that the assessee had claimed deduction under Section 80M amounting to Rs.8,00,000/- The Assessing Officer disallowed aforesaid amount under Section 80M. On appeal, the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] confirmed the action of the Assessing Officer. On further appeal by the assessee, the Tribunal rejected the plea and held that the assessee was not entitled to any relief under Section 80M of the Act with regard to deduction of Rs.8 lacs. Hence, the present appeal by the assessee. 4. We have heard learned counsel for the parties and perused the record. 5. The point that arises for determination in this case is whether the assessee who had received income which was distributed by PNB Mutual Fund was allowable as deduction under Section 80M of the Act. 6. Learned counsel for the assessee submitted that the income which was distributed by another company, namely, PNB Mutual Fund was in the nature of dividend received by the assessee- company and, therefore, in view of Section 80M, the assessee was entitled to deduction. He has placed reliance upon the judgment of this Court in Commissioner of Income-tax v. Puja Investments (P) Ltd., [2005] 272 ITR 606 (P&H) in support of his submission. ITA No. 281 of 2004 -3- 7. On the other hand, controverting the aforesaid submission, learned counsel for the revenue argued that the authorities below have concurrently recorded that it was an income and not a dividend which was distributed by the PNB Mutual Fund and that the Mutual Fund was not a company. It was urged that once it was so, the assessee was not entitled to any deduction under Section 80M of the Act. Learned counsel supported the orders passed by the authorities below. 8. We have given our thoughtful consideration to the respective submissions of the learned counsel for the parties and are not impressed with the submission made by the learned counsel for the assessee. It would be relevant to reproduce Section 80M as it existed before it was omitted by Finance Act, 2003 w.e.f. 1.4.2003 and the same reads thus:- “80M. Deduction in respect of certain inter-corporate dividends.- (1) Where the gross 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.” ITA No. 281 of 2004 -4- 9. A bare reading of the aforesaid provision clearly spells out that where the gross total income of an assessee which is a domestic company in any previous year includes any income by way of dividends from another domestic company, the assessee shall be entitled to deduction of such dividend from its income as does not exceed the amount of dividend distributed by such domestic company. Thus, the assessee is entitled to deduction when it receives dividend income from another domestic company. 10. Now adverting to the present case, the Assessing Officer rejected the ground of the assessee in respect of deduction under Section 80M of the Act, with the following observations:- “The assessee has claimed deduction u/s 80M amounting to Rs.9,83,120/-. On scrutinizing the details with respect to the claim of this deduction it is seen that Rs.8,00,000/- PNB Mutual Funds is not a domestic company. It is simply a Mutual Fund whose trustee is the PNB Capital Services Ltd. Thus any receipts of dividend received from such entity which is not company itself does not make such receipts, eligible for deduction u/s 80M as under the provisions of this section, the dividend must flow from one domestic company to another domestic company. In view of the fact that the dividend received from PNB Mutual Funds is not inter-corporate dividend, deduction to the extent of 8,00,000/- is not allowed, as claimed by the assessee.” ITA No. 281 of 2004 -5- 11. The said finding was upheld by the CIT (A) and affirmed by the Tribunal. The findings of the Tribunal recorded in paras 13 and 14 read thus:- “13. Ground No.4 is relating to deduction u/s 80M on dividend of Rs.8 Lacs received from PNB mutual fund. The Ld. counsel for the assessee contended that income derived from Mutual Fund was nothing but distribution of dividend to members of the Mutual Fund. On the ground of mutuality, the income derived by the mutual fund and distributed amongst the members partakes the same character as in the case of mutual fund. It was accordingly pleaded that deduction u/s 80-M may be allowed on the dividend received from the said fund. The Ld. D.R. on the other hand, contended that there is no ambiguity in the language of section 80-M. Deduction is permissible in respect of the dividend received from a domestic company. Mutual fund is not a domestic company and, therefore, no deduction is permissible to the assessee u/s 80-M. 14. We have given our careful consideration to the rival contentions. In our considered view the language of Section 80M is unambiguous and no deduction is permissible u/s 80M in respect of dividend received from the mutual fund. It may be pertinent to mention that the income from mutual ITA No. 281 of 2004 -6- fund is now specifically exempt u/s 10(33). However, the said amendment is not applicable in the year under appeal. The assessee is thus not entitled to any relief u/s 80-M in regard to dividend of Rs.8 Lac. This ground of appeal is thus dismissed.” 12. Nothing was shown by the learned counsel for the assessee that the said finding was perverse in any manner. 13. The judgment relied upon by the assessee in Puja Investments (P) Ltd's case (supra) does not apply to the facts of the present case. In that case, the trust had received certain dividends from an Indian Company which was paid to the assessee-company. It was held that in view of Section 67A of the Act, the dividend income which was received by the trust and distributed to the assessee- company therein retained the character of dividend and was entitled to deduction under Section 80M of the Act. In the present case, neither the income received from PNB Mutual Fund can be termed as dividend income nor can the said fund be categorized as the domestic company within the meaning of Section 80M of the Act. 14. In view of the above, the question of law, reproduced above, is answered against the assessee and in favour of the revenue. 15. Consequently, the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE October 7, 2010 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 281 of 2004 -7- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 501 of 2005 Date of Decision: 7.10.2010 M/s Nahar Spinning Mills Ltd. ....Appellant. Versus The Commissioner of Income Tax (Central), Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sanjay Bansal, Senior Advocate with Ms. Suveta Malhotra, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. This appeal is dismissed. For orders, see ITA No. 281 of 2004 (M/s Nahar Spinning Mills Ltd. v. The Commissioner of Income Tax (Central), Ludhiana). (AJAY KUMAR MITTAL) JUDGE October 7, 2010 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 281 of 2004 -8- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 500 of 2005 Date of Decision: 7.10.2010 M/s Nahar Spinning Mills Ltd. ....Appellant. Versus The Commissioner of Income Tax (Central), Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sanjay Bansal, Senior Advocate with Ms. Suveta Malhotra, Advocate for the appellant. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. This appeal is dismissed. For orders, see ITA No. 281 of 2004 (M/s Nahar Spinning Mills Ltd. v. The Commissioner of Income Tax (Central), Ludhiana). (AJAY KUMAR MITTAL) JUDGE October 7, 2010 (ADARSH KUMAR GOEL) gbs JUDGE "