Recently, ITAT Mumbai Bench stated that where, once deduction is allowable under specific section, which is on an altogether different footing, same cannot be withdrawn by any other section unless conditions mentioned under any overriding section have been infringed.

Facts of the case:

The assessee- company was engaged in the business of purchase and sale of shares and securities and investments in mutual funds. The assessee has received dividend from a company in the financial year 2002-03, relevant for the assessment year 2003-04 and the dividend was distributed to the shareholders only before the due date of filing of the return of income and, deduction under section 80M. The A.O noticed that section 115-O clearly provides that the dividend distributed will be subject to additional tax and no deduction shall be allowed under any other provisions of the Act and held that as the dividend was subject to tax under sub-section (1) of section 115-O, no deduction under section 80M was allowable to the assessee. The assessee submitted that during the relevant assessment year, the dividend was taxable in the hands of the assessee and the assessee was entitled to claim the deduction in respect of the dividend distributed by it before the due date of filing of the return of income and, accordingly, deduction under section 80M was allowable.Thus n appeal was made to ITAT for review of the case.

It was held that:

It the present case, it is very important to note that it is not the case of the department that the additional tax is to be levied on the dividend distributed by the domestic company, which has been received by the assessee or the dividend income has been claimed as exempt as such or the deduction of any tax paid on dividend has been claimed. Here the assessee has not been claiming any exemption on dividend as an exempt income in its hand either under section 10(33) or 10(34). The assessee’s claim of deduction under section 80M, is entirely on a different footing i.e., it has received the dividend and the same has been distributed. Otherwise also, once the deduction is allowable under specific section, which is on an altogether different footing, the same cannot be withdrawn by any other section unless the conditions mentioned under any overriding section have been infringed. The purpose and intent of section 115-O is entirely different inasmuch sought to tax the dividend at the time of declaration / distribution / payment and such payment of tax cannot be claimed as deduction under any section or any other provision. Thus, in the present case, the deduction allowable under section 80M to the assessee is not overridden by section 115-O as held by the Assessing Officer as well as the Commissioner (Appeals). Accordingly, the claim of deduction under section 80M is clearly allowable as all the conditions mentioned therein have been fully complied with.

Thus, any domestic company which has received the dividend income from another domestic company and has distributed such dividend on/or before the due date of filing of the return of income [as specified in section 139(1)], then deduction under section 80M has to be allowed. The revenue’s contention that sub-section (5) of section 115-O, bars the deduction under any other provisions of the Act by this overriding clause, is not correct. The bar which has been provided in sub-section (5) is only with respect to the deduction of the amount of tax which has been charged under sub-section (1) i.e., additional tax on the amount of dividend declared and distributed. There is no inherent contradiction in the deduction provided in section 80M and the tax which is to be charged on distributed profits of domestic companies.

 

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