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Section 80AA of the Income-tax Act, 1961 - Deductions - Computation of deduction under section 80M - Assessment year 1973-74 - Whether deduction under section 80M could be allowed only on net dividend income and not on gross dividend income -Held, yes Facts The assessee-company during the accounting year relevant to the assessment year 1973-74 received certain dividend income. The ITO granted relief under section 80M on the net dividend income after deducting the proportionate expenses. On appeal, the assessee contended that the benefit under section 80M had to be computed on the basis of the gross dividend income and not the net dividend income. The Tribunal, however, dismissed the appeal preferred by the assessee. On reference Held In view of the Supreme Court decision in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120, in the instant case, the Tribunal was justified in construing section 80M to mean that the deduction thereunder should be given only on the net dividend income. Cases referred to Distributors (Baroda ) (P.) Ltd. v. Union of India [1985] 155 ITR 120 (SC) and Cloth Traders (P. ) Ltd. v. Addl. CIT [1979] 118 ITR 243 (SC). L.L. Sharma for the Applicant. R.N. Surolia for the Respondent. JUDGMENT 1. This reference under section 256(1) of the Income-tax Act, 1961, is at the instance of the assessee to answer the following question of law : "Whether, on the facts and in the circumstances of the case, and correct interpretation of section 80M of the Income-tax Act, 1961, the Income-tax Appellate Tribunal was justified in holding that deduction under section 80M should be given on the net dividend income, i.e.,after deducting proportionate expenses." 2. The relevant assessment year is 1973-74. The assessee is a limited company. During the corresponding previous year the assessee received dividend income of Rs. 6,81,643. A deduction of Rs. 3,81,311, made in accordance with section 80K of the Act, worked out the balance of Rs. 3,00,332. Out of this amount, the ITO deducted Rs. 18,300 as expenses giving the net dividend income at Rs. 2,82,032. The ITO granted relief in accordance with section 80M of the Act at 60 per cent…

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