SC dismissed the assessee's appeal, holding that dividend on...

SC dismissed the assessee's appeal, holding that dividend on redeemable preference shares, interest on short-term bank deposits and service charges for monitoring Sugar Development Fund loans do not qualify for deduction under Section 36(1)(viii) of the Income-tax Act. Interpreting "derived from" narrowly, the Court ruled that only profits having a direct, first-degree nexus with the business of providing long-term finance (as statutorily defined) are eligible. Dividend arises from investment in share capital, not from lending; interest on short-term deposits stems from passive parking of surplus funds; and service charges for SDF loans arise from an agency arrangement using Government funds. These receipts are merely attributable to, but not derived from, the long-term finance business, and are therefore outside the deduction's scope.

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