Deduction for dividend earned and distributed u/s 80M before due date of return

Deduction for dividend earned and distributed u/s 80M before due date of return - Revenue cannot disallow it as Sec 115-O has no applicability : ITA THE provisions of Sec.80-M (Omitted by Finance Act 2003 from 1.4.2004) and Sec.115-O as they existed at the relevant time i.e. AY- 2003-04 are mutually exclusive and have their separate domains in which they work, or application of one has an effect on other and hinders the functionality of the other. This was looked into by the Tribunal, wherein it held that both pertain to and work in different situations. Whereas Sec 80-M pertains to deduction on dividend received by a Co. from another Co., Sec.115-O talks of additional dividend distribution tax on dividend declared, paid, distributed by a Co. out of its profits and applicability of Sec.115-O in no way restricts the claim of deduction u/s 80-M. Brief Facts : This case pertains to AY-2003-04 and assessee earned dividend income from 7 different Cos. to the tune of Rs. Rs.1,00,95,751/ - in the relevant previous year. Assessee also paid dividend of Rs.1,00,90,000/ -for the year ending 31.03.2003 on August 7, 2003 i.e., before the due date for filing the Return of Income. Consequently assessee claimed a deduction u/s 80-M for dividend earned to the extent of dividend distributed which was allowed in earlier years to it. But in the year under consideration A.O. disallowed the claim of assessee on the ground that the same could be allowed only if dividend was distributed upto 31.3.2003 but since it was done after that, provision of Sec.115-O came to be invoked on distributed dividend in terms of which assessee could not be allowed deduction. Feeling aggrieved with the decision of A.O., assessee took the matter in appeal to CIT(A).CIT(A), however, also ruled against the assessee after considering the two relevant provisions i.e. Sec.80-M and 115-O and laid down the following proposition. It held that there is no doubt that assessee was eligible for deduction u/s 80-M for the relevant year, but that could be done only if dividend was paid before 31.3.2003 and even if paid after that date it shouldn't have been subjected to tax on distributed profits (dividend distribution tax) under the provisions of Sec.115-O. What CIT laid down was that once assessee pays dividend distribution tax in terms of Sec.115-O(1) , then it can't claim deduction u/s 80-M in light of restriction u/s 115-O(5) which disallows deduction on any amount under any other provision of the Act on which dividend distribution tax has been paid. Accordingly it upheld the order of A.O. in disallowing the claim of assessee. Assessee appealed to the Tribunal against this order. Tribunal heard the contentions of both and considered the matter threadbare before deciding the issue. The representative of assessee put forth his contention and stated that what assessee was seeking is a deduction on dividend earned and not dividend distributed. He claimed that Sec.80-M is primarily to avoid double taxation on dividend because where a Co. earns dividend from another domestic co. and also pays dividend wherein the shareholders are liable to pay tax, then in order to avoid double taxation, the Co. earning dividend is given deduction u/s 80-M of dividend earned to the extent of dividend paid by the same Co. to its shareholders. In such a scenario there will be two previous years, one in which dividend is earned and other in which dividend is declared because dividend is declared only at the end of the financial year thus in the instant case the assessee Co. earned a dividend of Rs.1,00,95,751/ - in previous year 2002-03 and declared its dividend at the AGM on August 7, 2003 for the year ending 31.03.2003 and therefore assessee claimed a deduction of dividend earned u/s 80-M for dividend distributed. It was thus clarified that basic claim is being made on dividend earned and not dividend that has been distributed. On the other hand DR stressed on the point that Sec.80-M takes into account two elements i.e. dividend earned and dividend distributed. In the instant case dividend was distributed after 31.3.2003 i.e. after AY-2003-04 when Sec.80-M was omitted thus has no applicability. Since dividend was paid after 31.3.2003, it was done under Sec. 115-O on which tax was also paid and thus no deduction u/s 80-M is allowable in light of Sec.115-O(5) . Having heard the rival contentions, Tribunal first went into the provision of Sec.80-M and observed that under the said section whenever a Co. earns dividend from another Co. that is its gross income for a year includes such dividend earned then in computing the income, this can be deducted by the amount of dividend distributed by the Co. for that relevant year before the due date. It noted that in the instant case the co. had earned a dividend of Rs.1,00,95,751/ - in the previous year 2002-03 of AY-2003-04. In the same previous year co. earned profits on which dividend was to be paid but which could have been declared only after the end of the financial year i.e. after 31.3.2003 but before the date of filing of return which was duly done by the Co. by declaring dividend of Rs.1,00,90,000/ -for the year ending 31.03.2003 on August 7, 2003. Thus, it was noted that asessee was claiming deduction in terms of Sec.80-M on dividend earned and dividend distributed which it had claimed in earlier years also and which was duly allowed. Then Tribunal looked into the provision of Sec.115-O which lays down that a Co. distributing profits by way of dividend were to be charged tax on such dividend over and above the income tax payable by the Co. on its income. It noted that the provision underwent change from time to time and was withdrawn in between but was reinserted and made applicable from 1.4.2003 by Finance Act 2003. Under this the liability to pay tax on dividend was shifted from the shareholders to the Co. paying such dividend u/s 115-O(1) and as per sub sec. (5) of the same section once a Co. pays tax on distributed dividend, the Co. can't be given deduction under any other provisions of the Act. Coming to the main issue Tribunal observed that the main ground of disallowing the deduction by the A.O. is Sec.115-O(5) which is as under : "No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub-section (1) or the tax thereon." But it noted that what is disallowed as deduction u/s 115-O(5) is dividend declared, distributed or paid by the Co. and tax paid under clause (1) of the said section whereas assessee is claiming deduction u/s 80-M which is on dividend earned and not dividend distributed, though to the extent of dividend distributed. Dividend distributed or paid was never claimed by assessee but the claim was made on dividend earned and only restriction on such allowability was the amount of dividend distributed by the Co. to its shareholders for the relevant year which was to be offset against the earned dividend and deduction claimed could not exceed dividend distributed. It was held that in any case Sec.115-O(5) could not in any way restrict the allowability of claim u/s 80-M and had no applicability in the instant case as this was not a case of claim of deduction on dividend distributed but a claim of deduction on dividend earned. On the basis of above discussion and keeping in mind the provisions of law, Tribunal allowed the assessee to claim deduction u/s 80-M and accordingly its appeal was allowed. The gist of the above entire discussion is that restriction u/s 115-O(5) has no applicability on the omitted Sec.80-M and cannot restrict the claim under it as the deduction claimed under Sec.80-M pertains to dividend earned though to the extent of dividend distributed only whereas Sec. 115-O deals with dividend distributed and tax payable by the co. on that.