Dividend on shares taken for a business debt can qualify as business income for loss set-off purposes.

Dividend received on shares allotted in part satisfaction of a money-lending debt was treated as business income because the shares arose from and remained connected with the assessee's trading activity. Assessability of the dividend under the dividend head did not prevent its treatment as business income where, on the facts, the shares were trading assets rather than capital investments. Mere retention of the shares for some years was insufficient to show conversion into capital, particularly when the underlying borrowed monies continued to be treated as business expenditure. The dividend income was therefore available for set-off against carried forward loss under section 24(2).

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Issues: Whether dividend income arising from shares received in part satisfaction of a money-lending debt formed part of the assessee's business income for the purpose of set-off of carried forward loss under section 24(2).

Analysis: The shares were allotted in discharge of a debt arising in the course of the assessee's money-lending business. They were received as part satisfaction of that business debt and, on the facts, remained connected with the money-lending activity. The circumstance that the income from the shares was assessable under section 12 did not prevent it from being treated as business income if, in reality, it was derived from trading assets. The retention of the shares for some years did not by itself establish that they had been converted into capital investments, especially when the borrowed monies represented by those shares continued to be treated as business expenditure.

Conclusion: The dividend income was part of the income of the assessee's business, and the carried forward loss was admissible for set-off under section 24(2).

Ratio Decidendi: Where shares are received in satisfaction of a business debt and remain trading assets of the business, dividend from those shares constitutes business income for the purpose of set-off of carried forward loss, notwithstanding its assessability under the dividend head.

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