Commissioner of Income-tax Vs. G.B.J. Seth and C.O.J. Seth - Court Judgment

G.G. Sohani, J.

1. By this reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion :

' Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessees, who is an association of persons, is entitled to deduction as per Clause (c) of Sub-section (1) of Section 80L of the Income-tax Act, 1961 ?'

2. The material facts giving rise to this reference, briefly, are as follows :

The assessees are executors of the will of late Shri R. C. Jail and are assessed in respect of the income of the estate of the deceased in the status of an association of persons. For the assessment year 1976-77, the assessee's claim for deduction of dividend income was allowed by the Income-tax Officer under Section 80L of the Act. That exemption was, however, withdrawn by the Income-tax Officer in reassessment proceedings in compliance with the directions of the Commissioner of Income-tax under Section 263 of the Act. Aggrieved by that order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who upheld the assessee's claim for deduction under Section 80L of the Act by holding that exemption under Section 80L of the Act was admissible to an association of persons. The Revenue thereupon preferred an appeal before the Tribunal which was dismissed. Hence, at the instance of the Revenue, the aforesaid question of law has been referred to this court for its opinion.

3. At the time of hearing, Shri Mukati, learned counsel for theRevenue, brought to our notice that Section 80L of the Act had beenamended by the Taxation Laws (Amendment) Act, 1984, with retrospective effect from April 1, 1972. Under the relevant provisions of Clause (c)of Sub-section (1) of Section 80L of the Act, as amended, deduction can be claimed in respect of interest on securities, dividends, etc., only when the assessee is an association of persons or a body of individuals, consisting in either case of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu. In view of the amended provisions of Clause (c) of Sub-section (1) of Section 80L of the Act, deduction cannot be allowed to the assessee in respect of dividend income. Learned counsel for the assessee, however, contended that the assessee could not have been assessed in the status of an association of persons. But the question as to whether the assessee can be assessed in the status of an association of persons has not been referred to us and it does not arise out of the order passed by the Tribunal. From the order passed by the Tribunal, it is clear that the assessees had never disputed that the assessee was liable to be assessed in the status of an association of persons. The only claim made by the assessee was that the assessee was entitled to exemption under Section 80L of the Act in respect of dividend income. In our opinion, in view of the amended provisions of Section 80L of the Act, which have been given retrospective effect from April 1, 1972, it must be held that the Tribunal was not justified in holding that the assessee was entitled to deduction under Clause (c) of Sub-section (1) of Section 80L of the Act.

4. Our answer to the question referred to this court is, therefore, in the negative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.