Circular No. 58

Section 80M l Inter-corporate Dividends

What this is

Circular No. 58 was issued by the Central Board of Direct Taxes on 15 April 1971. Its subject is Section 80M l Inter-corporate Dividends.

What it does

Holds that where part of a company's dividend income is used to set off a loss under another head, the deduction under section 80M is computed on the dividend income before that set-off, subject to the overall limit in section 80A(2). The Board reasons that dividend is one of the components that go to make up gross total income, which is arrived at by aggregating income under the various heads, and it would not accord with the language of the section to treat an amount added in computing gross total income as not included in it merely because the computation of total income involves a loss. Its own illustration takes dividend of Rs. 20,000 and a business loss of Rs. 10,000, giving total income of Rs. 10,000: the deduction is sixty per cent of Rs. 20,000, that is Rs. 12,000, but is limited by section 80A(2) to the total income of Rs. 10,000.

Why it was issued

A question had arisen whether relief under section 80M is allowed on the reduced dividend remaining after set-off of a loss under another head, or on the whole dividend before set-off.

Who it reaches

Companies with inter-corporate dividend income and losses under other heads
Assessing Officers computing the section 80M deduction
Companies whose deduction is capped by section 80A(2)

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.80A	s.122
s.80M	s.148

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

SECTION 80M l INTER-CORPORATE DIVIDENDS
598. Whether, in the case of company where part of dividend is utilised for setting-off loss under any other head, deduction under the section is to be allowed on reduced dividend remaining after such set-off
1. A question has arisen as to whether in the case of a company where a part of the dividend income is utilised for setting-off loss under any other head, relief under section 80M, is to be allowed on the reduced dividend income remaining after such set-off or on the total dividend income before set-off.
2. In this connection, the Board are advised that the income received by an assessee-company by way of dividends is one of the components which go to make up its gross total income which is arrived at by aggregating its income under the various heads. It would not be strictly in accordance with the language of the section to state that a certain amount which has been added in calculating the gross total income of an assessee should be considered as not being included in it merely because the computation of the total income of the assessee includes a loss.
Thus, in the case of an assessee being a company, where a part of the dividend income is utilised for setting off loss under any other head, relief under section 80M, is to be allowed on the dividend income before such set off, subject to the overall limit imposed by section 80A(2). This is illustrated in the following example :

Rs.

1. Income from dividend

20,000

2. Business loss

10,000

Total income

10,000

Deduction under section 80M at the rate of 60 per cent of Rs. 20,000 (Rs. 12,000) but subject to the limit of total income, i.e, Rs. 10,000.
Circular : No. 58 [F. No. 167/24/70-IT (A-I)] dated 15-4-1971.

What to watch

The gross basis does not increase the deduction beyond total income, because section 80A(2) caps all Chapter VI-A deductions at the gross total income.
The sixty per cent in the illustration is the rate then applicable; the rate under section 80M varied over the years.
Section 80M has since been omitted and later re-enacted in different terms, so this construction belongs to the section as it then stood.

Where you meet it

In a company's assessment where the section 80M deduction is restricted to the dividend net of a set-off loss.

An example

Ours, not the Board’s: a worked case built from the rule the instrument sets, to show how it falls out.

A company has dividend income of Rs. 20,000 and a business loss of Rs. 10,000, so its total income is Rs. 10,000. The deduction is worked out on the full Rs. 20,000 of dividend, giving Rs. 12,000 at sixty per cent, but section 80A(2) restricts what is actually allowed to the total income of Rs. 10,000.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 321 — Deductions from total income 15 January 1982
Circular No. 61 — 1051. Instructions for deduction of tax at source from dividends payable/paid by domestic company to foreign companies a 19 June 1971
Circular No. 57 — Section 80-I l Profits and Gains from Industries After Certain Date 23 March 1971

← Circular No. 59 · Circular No. 57 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.