TaxTMI 
TaxTMI 
2005 (9) TMI 53
X X X X Extracts X X X X
X X X X Extracts X X X X
....w have been referred for the opinion of this court: "(1) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that where the assessee is a dealer in shares and holds certain shares as stock-in-trade, the interest paid by the assessee on the funds borrowed for the purpose of investment in such shares is to be allowed as admissible deduction under section 36(1)(iii) and not under section 57(1)(iii)? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that where the assessee is a dealer in shares and holds certain shares as stock-in-trade, the interest paid by the assessee on the funds borrowed for the purpose of investment in such shares is not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 36(1)(iii) of the Act being payment in respect of sums borrowed for the purpose of business in share dealings. In doing so, the Commissioner of Income-tax (Appeals) relied on the decision of the Gujarat High Court in the case of CIT v. Cotton Fabrics Ltd. [1981] 131 ITR 99. In the appeal preferred by the Revenue before the Tribunal, the order passed by the Commissioner of Income-tax (Appeals) came to be confirmed. The Tribunal held that the Supreme Court decision in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120, relied upon by the Revenue, did not apply to the facts of the case. Rival submissions: Learned counsel appearing for the Revenue reiterated the submissions made before the Tribunal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me, related to the business of trading in shares, have to be allowed as deduction in computing the income under the head "Business" and the expenses should be deducted from the dividend income granting deduction under section 80M of the Act. The issue: The issue for consideration is: "Whether or not the interest paid on borrowings used for the purchase of shares held by the respondent-assessee should not be reduced from the dividend income granting deduction under section 80M or it should be treated as business expenditure incurred for trading in shares?" Consideration: Having heard the rival parties, before dealing with the rival submissions, we must point out that the assessee is a private limited company carrying on busine....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, and not with reference to the full amount of dividend received by the assessee. At this juncture, it will not be out of place to mention that in Income-tax Reference No. 117 of 1989 (CIT v. Emrald Co. Ltd. [2006] 284 ITR 586 (Bom)), which has been decided by us along with the reference at hand, we did permit the respondent-assessee therein to claim deduction of interest paid on overdraft and the expenditure incurred relating to the business of trading in shares treating it as allowable expenditure under the head "Business" since the sole business of the assessee therein M/s. Emrald Co. Ltd. was to deal in shares and stocks only. The income from dividend was an incidental income. In that view of the matter, it is not possible for us to....