Set-off of brought forward business loss against dividend income from stock-in-trade shares is permitted under the income-tax scheme.

Carried forward business loss may be set off against dividend income where the shares generating the dividend are held as stock-in-trade. The governing principle under both the 1922 and 1961 income-tax enactments is that brought forward business loss is adjustable against business profits, and the Supreme Court's interpretation of section 24(2) of the 1922 Act applies equally to section 72(1) of the 1961 Act because the language is materially similar. Where shares are trading assets, dividend from those shares is treated as part of business income for the limited purpose of set-off, and the assessee was entitled to the adjustment.

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Issues: Whether business loss brought forward from earlier years can be set off against dividend income where the shares yielding the dividend were held as stock-in-trade.

Analysis: The governing principle under both the 1922 Act and the 1961 Act is that carried forward business loss is adjustable against the profits and gains of business or profession. The controlling Supreme Court reasoning on section 24(2) of the 1922 Act was held to apply with equal force to section 72(1) of the 1961 Act because the language is not materially different. Where shares form part of trading assets, dividend received on those shares is treated as part of business income for the limited purpose of set-off, even if the dividend is computed under another head.

Conclusion: The carried forward business loss was rightly allowed to be set off against the dividend income derived from shares held as stock-in-trade, in favour of the assessee.

Final Conclusion: The reference was answered by holding that the statutory scheme permits the set-off of brought forward business loss against dividend income in the stated circumstances.

Ratio Decidendi: Where shares are held as trading assets, dividend income arising from them can be treated as part of business income for the purpose of setting off carried forward business loss, and the rule applies equally under the materially similar provisions of the 1922 and 1961 income-tax enactments.

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