Dividend income from investment shares treated as other sources where the company was not carrying on a share-dealing business.

Dividend income of an investment company was taxable as income from other sources, not as business profits, because the real test was whether it was carrying on a share-dealing business. Powers in the memorandum to acquire, hold, sell, invest in and vary investments were not conclusive. On the facts, the company merely held shares as investments and did not treat them as stock-in-trade. Dividend receipts in that situation could not be treated as business income simply because the recipient was an investment company. The position was treated as no different in principle from an individual investing in shares to earn dividends.

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Issues: Whether the dividend income of an investment company was assessable as profits and gains of business under section 10 of the Indian Income-tax Act, 1922, or as income from other sources under section 12.

Analysis: The decisive inquiry was whether the assessee was carrying on business in shares. The memorandum of association showed powers to acquire, hold, sell, invest in and vary investments, but those objects were not conclusive of business activity. On the facts found, the company was merely holding shares as investments and was not dealing in them as stock-in-trade. Dividend income received in such circumstances could not be treated as business income merely because the recipient was an investment company. The position was treated as no different in principle from an individual investing money in shares to earn dividends.

Conclusion: The dividend income was not assessable under section 10 as business income and was rightly assessable under section 12; the answer was against the assessee.

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