Section 115BBD and Deduction under Chapter VI-A

[vdboss]

As per section 115BBD, where the total income of an Indian company includes any dividend declared, distributed or paid by a specified foreign company (in which Indian company holds 26% or more), the dividend will be taxable at 15% (plus applicable surcharge and cess) on gross basis. Subsection 2 of section 115BBD denies any deduction in respect of any "expenditure" or "allowance" in computing income by way of dividend.

Whether deduction under Chapter VI-A can be claimed from such dividend income forming part of Gross Total Income? Whether deduction under Chapter VI-A can be treated as "ependiture or allowance"?

[ashutosh majumdar]

S. 115BBD reads as follows:

Tax on certain dividends received from foreign companies.

115BBD. (1) Where the total income of an assessee, being an Indian company, for the previous year relevant to the assessment year beginning on the 1st day of April, 2012 includes any income by way of dividends declared, distributed or paid by a specified foreign company, the income-tax payable shall be the aggregate of—

          (a)  the amount of income-tax calculated on the income by way of such dividends, at the rate of fifteen per cent; and

          (b)  the amount of income-tax with which the assessee would have been chargeable had its total income been reduced by the aforesaid income by way of dividends.

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends referred to in sub-section (1).

(3) In this section,—

           (i)  “dividends” shall have the same meaning as is given to “dividend” in clause (22) of section 2 but shall not include sub-clause (e) thereof;

          (ii)  “specified foreign company” means a foreign company in which the Indian company holds twenty-six per cent or more in nominal value of the equity share capital of the company.

The dividends will become a part of the gross total income and will be eligible for Chapter VI-A deduction in the normal course. S. 115BBD (2) provides that "no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends".

The Chapter VI-A deduction is not allowed "in computing income by way of dividends. In fact, it is after the income by way of dividends is computed that it enters the GTI. The Chapter VI-A deduction is allowed thereafter, in computing the total income.