Subramonian Poti, J.:— This is a reference to us on an application made by the assessee under s. 256(1) of the I.T Act, 1961 (hereinafter called “the Act”) by the Income-tax Appellate Tribunal, Cochin Bench. The question referred is;
“Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee-company is eligible for deduction only of Rs. 15,885, that being 60 per cent, of the net dividend of Rs. 26,475 under section 80M of the Income-tax Act, 1961, and not to a deduction of 60 per cent, of Rs. 65,507 under the aforesaid section’?”
2. The assessee is a private limited company. During the accounting year relevant to the assessment year 1969-70, the assessee-company received Rs. 65,507 by way of dividends on the shares held by it in other companies. While making the assessment for 1969-70, the ITO allowed a deduction of Rs. 35,532 under s. 57 of the Act and Rs. 500 under s. 80L of the same Act. The balance amount assessable was fixed at Rs. 26,475. From out of this, 60 per cent, was deducted under s. 80M of the Act. The assessee-company contended that the 60 per cent, that has to be deducted is not out of the net dividend under s. 57 but the gross dividend received, namely, Rs. 65,507. This contention was not accepted by the ITO who assessed on the basis that only 60 per cent, of the dividend as determined under s. 57 is to be deducted. The matter was taken up in appeal before the AAC and later before the Tribunal.
3. Both authorities upheld the view of the ITO and it is on these facts that the matter has reached this court by way of reference.
4. Section 80M of the Act, as it stood during the relevant year, was as follows:
“80M. Deduction in respect of certain inter-corporate dividends.— (1) Where the gross total income of an assessee being a company includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the asses see, a deduction from such income by way of dividends of an amount equal to—
(a) where the assessee is a foreign company—
(i) in respect of such income by way of dividends from an Indian company which is not such a company as, is referred to in section 108 and which is mainly engaged in a priority industry
—80 per cent, of such income;
(ii) in respect of such income by way of dividends other than the dividends referred to in sub-clause (i)
—65 per cent, of such income;
(b) where the assessee is a domestic company—
in respect of any such income by way of dividends
—60 per cent, of such income.
Explanation.— For the purposes of this section, a company shall be deemed to be mainly engaged in a priority industry if the income attributable to any such industry or industries included in its gross total income for the previous year is not less than fifty-one per cent, of such gross total income.
(2) Where a company to which this section applies is entitled also to the deduction under section 80K or section 80L, the deduction under subsection ‘(1) of this section shall be allowed in respect of income by way of dividends referred to therein as reduced by any such income in relation to which the company is entitled to a deduction under section 80K or section 80L.”
5. That the assessee is a domestic company is not disputed. That the gross total income of the assessee includes income by way of dividends from domestic company is also not in dispute. In that event it is agreed that in computing the total income of the assessee a deduction from such income by way of dividends of an amount equal to 60 per cent, of such income is to be made. But the controversy is about the scope of the term “such income” occurring in the section, and that is whether the income referred to in this context is the gross receipt of dividends or income from dividends as determined under s. 57 of the Act.
6. Gross total income has been defined in s. 80B(5) as:
“‘gross total income’ means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter or under section 280-0 and without applying the provisions of section 64.”
7. Gross total income, therefore, is income computed in accordance with the provisions of the I.T Act. This gross total income may include income from business or profession, income from property, income from other sources, etc. Dividend income would be income from other sources and in determining such income s. 57 prescribes that certain deductions have to be made. Section 57 of the Act runs as follows:
“57. The income chargeable under the head ‘Income from other sources’ shall be computed after making the following deductions, namely:—
(i) in the case of dividends, any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend on behalf of the assessee;
(ii) in the case of income of the nature referred-to in clauses (ii) and (iii) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub-clause (ii) of clause (a) and clause (c) of section 30, section 31, and sub-sections (1), (1A) and (2) of section 32 and subject to the provisions of sections 34 and 38;
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income.”
8. In the case of dividends, any reasonable sum ‘spent for the purpose of realising the dividend on behalf of the assessee is allowed to be deducted. The question is whether the 60 per cent, to be computed for the purpose of s. 80M is to be on the total dividend receipts; or the total dividend income as determined under s. 57 of the Act. Section 80M applies only to a case where the gross total income of an assessee being a company includes any income by way of dividends from a domestic company. What is so included in the gross total income is not the total gross receipt of dividends but income from dividends determined under s. 57. So the reference in the earlier part of the section could only be to such income. The latter part of the section provides that in such a case in computing the total income of the assessee a deduction from such income by way of dividends of 60 per cent, of such income shall be made. “Such income” must necessarily have reference to what has been mentioned in the section earlier. The contention of the counsel for the assessee is that the words “such income” must mean not income determined under s. 57 but the gross total receipt of dividends. Of course, it is not his case that such gross total receipt is the amount to be included in the gross total income, but that in the latter part of the section the words “such income” could mean only income without taking into account any deduction made under s. 57 of the Act.
9. It appears to us to be quite plain that when in the earlier part of the section reference is to the income by way of dividends included in the gross total income which could only be dividend and as determined under s. 57, and when the latter part of the section provides for deduction of 60 per cent, of such income ‘by way of dividends this could necessarily refer only to the dividend income which is included in the gross total income which, in turn, is the income determined under s. 57. We find no ambiguity in this section. The view taken by the I.T authorities appears to us to be quite proper. We, therefore, answer the question referred to us in the affirmative, that is, in favour of the revenue and against the assessee. Parties will suffer costs in this reference.
10. A copy of this judgment under the signature of the Registrar and the seal of the High Court will be sent to the Income-tax Appellate Tribunal, Cochin Bench, as required under s. 260(1) of the I.T Act. 1961.