This appeal by department relates to assessment year 1981-82. 2. assessee is company. gross dividend income was Rs. 6,76,599. Expenses attributable to dividend income were Rs. 38,561. Thus net dividend income was Rs. 6,38,038. Deduction admissible under section 80K was Rs. 42,311. Income-tax Officer deducted Rs. 42,311 from Rs. 6,38,038 under section 80M(2) of Act and on balance of Rs. 5,95,727 he calculated deduction allowable under section 80M(1) being 60 per cent of said amount. This came to Rs. 3,67,436. He allowed this deduction under section 80M(1) of Act. assessee went in appeal before Commissioner of Income-tax (Appeals) and pleaded that calculation of 60 per cent under section 80M(1) should have been on Rs. 6,38,038 and not on Rs. 5,95,727 in view of provisions of section 80AA of Act. assessee relied on earlier decision of Tribunal in some other case. Commissioner of Income-tax (Appeals) accepted submission of assessee. department is now in appeal before us and only ground raised is that learned Commissioner of Income-tax (Appeals) had erred in directing Income-tax Officer to allow relief under section 80M without deducting relief allowed under section 80K of Act. 3. We have heard parties. We have examined provisions of sections 80M(1), 80M(2), 80K and 80AA of Act. Sub-section (1) of section 80M so far as relevant for our purpose, lays down that when gross total income of domestic company includes any income by way of dividends from domestic company, there shall, in accordance with and subject to provisions o f section 80M, be allowed, in computing total income of company, deduction from such income by way of dividends, amount equal to sixty per cent of such income. Sub-section (2) of section 80M provides that where company to which section 80M applies is entitled also to deduction under section 80K, deduction under sub-section (1) shall be allowed in respect of income by way of dividends referred to therein as reduced by amount of deduction under section 80K. 4. view taken by Supreme Court at earlier stage was that deduction under sub-section (1) of section 80M was to be calculated on gross dividend income and not on net dividend income vide Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 (SC). However, this view was subsequently rejected by Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 and it was held that on true interpretation of words of sub-section (1) of section 80M, deduction was allowable on net dividends and n o t gross dividends. By net dividends, what is meant is gross dividends as reduced by expenses for earning said dividends. 5. decision of Supreme Court in Cloth Traders (P.) Ltd.'s case was not accepted by department. Hence section 80AA was inserted in Act by Finance (No. 2) Act, 1980 and its operation was made retrospective with effect from 1-4-1968. This section laid down that where any deduction is required to be allowed under section 80M in respect of any income by way of dividends from domestic company which is included in gross total income of assessee, then, notwithstanding anything contained in that section, deduction under that section shall be computed with reference to income by way of dividends as computed in accordance with provisions of Act (before making any deduction under Chapter VI) and not with reference to gross amount of such dividends. 6. plain reading of section 80AA indicates that object of its insertion by Finance (No. 2) Act, 1980 was to nullify effect of earlier decision of Supreme Court in case of Cloth Traders (P.) Ltd. wherein it was held that deduction u/s 80M(1) was to be computed with reference to gross amount of dividends and not with reference to net amount of dividends. What was made clear by sec. 80AA was that deduction under section 80M(1) was to be computed with reference to net amount of dividends and not gross amount of dividends. 7. Now, net amount of dividend would be income by way of dividends as computed in accordance with provisions of Act. In computing income b y way of dividends, two types of deduction are to be made from gross amount of dividends. first is deduction allowable under provisions of Act excluding provisions under Chapter VIA. other is deduction under Chapter VIA. If, expression " income by way of dividends as computed in accordance with provisions of Act ", were to be used, amount would be net amount after all deductions allowed under Act including Chapter VIA. However, intention was not to grant relief on income as computed in accordance with provisions of Act including Chapter VIA. intention was to grant relief on income by way of dividends as computed in accordance with all provisions of Act excluding Chapter VIA. Hence words used in sec. 80AA are " amount of income of that nature as computed in accordance with provisions of this Act (before making any deduction under this Chapter) ". 8. learned representative of assessee relies on words " before making any deduction under this Chapter " in section 80AA to contend that in computing deduction under section 80M(1), no deduction of amount representing deduction allowed separately as deduction under section 80K should be made from income by way of dividends as computed in accordance with Act in spite of fact that in sub-section (2) of section 80M there is express provision to following effect--- " (2) When company to which this section applies is entitled also to deduction under section 80K, deduction under sub-section (1) shall be allowed in respect of income by way of dividends referred to therein as reduce by amount of deduction under section 80K." In other words, submission is that provisions of sub-section (2) of section 80M have been rendered nugatory by words " before making any deductions under this Chapter " in section 80AA. 9. We are unable to accept this submission. Deduction is required to be m d e under sub-section (1) of section 80M. Section 80AA prescribes manner in which amount on which deduction under sub-section (1) of section 80M is to be calculated should be arrived at. Consequently, words " notwithstanding anything contained in that section " mean notwithstanding anything contained in sub-section (1). words in sub-section (1) of section 80M are " income by way of dividends ". These words were capable of giving rise to two interpretations viz. gross amount of dividends or not amount of dividends. Supreme Court in case of Cloth Traders (P.) Ltd. interpreted those words as indicating gross dividends. Parliament wanted to make it clear that those words meant " net dividends ". In order to clarify this limited aspect section 80AA was inserted by Finance (No. 2) Act, 1980, with retrospective effect. Subsequently, Supreme Court itself in case of Distributors (Baroda) (P.) Ltd. interpreted words in sub-section (1) of section 80M as meaning net amount of dividends. There was no dispute even when case of Cloth Traders (P.) Ltd. was decided that deduction contemplated by sub-section (2) of section 80M should be made from income by way of dividends in order to arrive at amount of admissible deduction. Sub-section (2) of section 80M was independent provision about which there was never any dispute. Consequently, there could not have been any intention to nullify effect of said sub-section of section 80AA contains clarificatory provision regarding section 80M and clarification that was needed was only in respect of provisions in sub-section (1). Consequently, provisions of sub-section (2) of section 80M are in no way affected by provisions of section 80AA. We are unable to accept submission of assessee that provisions of sub-section (2) of section 80M stand completely nullified by provisions in section 80AA. 10. We may observe here that anomalous result would follow if interpretation put forth by representative of assessee is accepted because in cases where entire dividend income falls in category of dividend income referred in section 80K, assessee would get deduction of entire dividend income under section 80K and additional deduction of 60 per cent of same dividend income as computed in accordance with provisions of Act. result would be that total deduction would exceed dividend income included in total income. This result could not have been intended. interpretation which leads to such result cannot be accepted. language of section 80AA bears interpretation which we have put and as such said interpretation should be preferred to one canvassed by representative of assessee. 11. learned representative of assessee has relied on unreported old decision of Tribunal in which it was held that provisions of sub-section (2) of section 80M should be ignored in view of provisions in section 80AA. If this had been only decision of Tribunal on this point we section 80AA. If this had been only decision of Tribunal on this point we would have been bound by it despite contrary view which commends itself to us. However, we find that view similar to one which we have taken has been taken by Delhi Bench of Tribunal in Madan Mohan Lall Shriram (P.) Ltd. v. IAC [1985] 12 ITD 21 in subsequent decision. We are in agreement with view expressed therein. We accordingly set aside direction given by Commissioner of Income-tax (Appeals) and restore computation made by Income-tax Officer. 12. appeal is allowed. *** INCOME TAX OFFICER v. NENMANY INVESTMENTS AGENCIES LTD.