AI Drafter 
TaxTMI 
TaxTMI 
2006 (4) TMI 561
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.... asst. yr. 1991-92 vide para 2 of its order the Tribunal held that no expenditure can be deducted on proportionate basis out of the common administrative expenses for the purpose of computation of deduction under Section 80M. The request of the assessee was accepted by the President of Tribunal. The Special Bench is constituted mainly for deciding the common issue relating to computation of deduction under Section 80M of the IT Act, 1961. Three appeals have been filed by the assessee for asst. yrs. 1994-95, 1995-96 and 1997-98. The appeal of the assessee for asst. yr. 1996-97 stands decided against the assessee by the Tribunal. There are cross-appeals by the Revenue for the aforementioned assessment years. The Revenue has also filed an appeal for asst. yr. 1996-97. 2. We have heard the parties and perused the record, Since all the appeals (seven in number) were allotted to the Special Bench for disposal, we proceed to decide the same on all issues including the hotly contested issue relating to computation of deduction under Section 80M. The main issue involved in the present appeals is as to whether in computing the deduction under Section 80M proportionate management expenses/....
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....ourt in the case of CIT v. United Collieries Ltd. . Reliance was also placed on the following decisions in support of the contention: (i) Usha Martin Industries Ltd. v. Dy. CIT (2003) 79 TTJ (Kol) 23: (2003) 86 ITD 261 (Kol). (ii) East India Agencies (P) Ltd. v. CIT . (iii) CIT v. Pfizer Corporation , (iv) CIT v. Jai Hind Investment Industries (P) Ltd. , (v) CIT v. Mahendra Sobhagchand Shah . 4. After hearing of the appeals, the learned Counsel filed a letter inviting our attention to the decision of Madhya Pradesh High Court in the case of State Bank of Indore v. CIT to support the contention that the proportionate management expenses are not to be deducted for the purposes computation of deduction under Section 80M. 5. The learned Departmental Representative, Shri R.K. Goyal, on the other hand, contended that the issue has been decided in favour of the Revenue by the Tribunal for the asst. yrs. 1990-91 to 1992-93 (supra) on the basis of the facts and circumstances of this case. It was submitted that each case has got to be decided on the basis of its own facts and, therefore, if a different view has been taken in any other case, ....
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....It was claimed that in this case, reference was deemed to have been made and the question of law relating to deduction on proportionate management expenses for the purposes of computation of deduction under Section 80M decided in favour of the Revenue. 7. The learned Departmental Representative also relied upon the decision of the Chandigarh Bench of the Tribunal in the case of Haryana State Co-op. Supply & Marketing Federation Ltd. v. Asstt. CIT, ITA Nos. 681, 682 and 683/Chd/2002, reported at (2005) 92 TTJ (Chd) 1269Ed. in support of the contention that deduction under Chapter VI-A is to be allowed after taking into account the proportionate management and other indivisible expenses. Reliance was also placed on the following decisions to support the contention that deduction of expenses on proportionate basis has been recognized by Supreme Court and various High Courts and the principle that deduction under Section 80M is permissible in respect of net dividend income after giving effect to all the provisions of the Act.: (i) Lahaul Potato Growers Co-operative Marketing Processing Society Ltd. v. CIT; (ii) CIT v. Sonepat Co-operative Marketing Society Ltd.; ....
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....t expenses have got to be deducted under Section 57 of the IT Act, 1961 10. In counter-reply, the learned Counsel for the assessee contended that the decision of Haryana State Co-operative Supply & Marketing Federation (supra) is inapplicable to the facts of this case insofar as in that case the deduction was permissible out of the business income under Section 80P(2) and in the case of the assessee the deduction is permissible out of the income from other sources. It was further contended that borrowed money has not been utilized for acquisition of share yielding dividend income. 11. We have given our careful consideration to the rival contentions and have also considered the earlier order of the Tribunal in the case of the assessee for asst. yrs. 1990-91 to 1992-93 (supra) and order of the Tribunal in the case of Mahavir Spinning Mills (supra). We first consider the main issue in these appeals relating to computation of deduction under Section 80M of the IT Act, 1961. 12. It hardly needs to be mentioned that the IT Act, 1961 provides for taxation of income of various persons. The Act recognizes some of the artificial entities as persons such as partnership firm is recogn....
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....section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends. 15. It may be pertinent to mention that Section 80M was omitted by the Finance Act, 1997 (26 of 1997) w.e.f. 1st April, 1998 in consequence of insertion of Section 10(33) of the IT Act, 1961 granting exemption in respect of dividend income. However, the said section was reintroduced from asst. yr. 2003-04 as the exemption in respect of dividend income was removed. Subsequently, it was again omitted by the Finance Act, 2003 w.e.f 1st April, 2004 as the dividend income is now exempt in the hands of the shareholders. However, Section 14A has been incorporated with retrospective effect to ensure that exemption under Section 10(33) is granted only on the net component of dividend included in gross total income. 16. Section 80M applied to only one category of dividend, i.e., dividend received by domestic company from a domestic company. A domestic company means an Indian company or any foreign company which makes prescribed arrangement f....
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....e provisions of the Act, that is, after deducting interest on monies borrowed for earning such income. If income by way of dividends from a domestic company computed in accordance with the provisions of the Act is included in the gross total income, or in other words, forms part of the gross total income, the condition specified in the opening part of Sub-section (1) of Section 80M would be fulfilled and the provisions enacted in that sub-section would be attracted. What is included in the gross total income in such a case is a particular quantum of income belonging to the specified category. Therefore, the words 'such income by way of dividends' must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. It is obvious, as a matter of plain grammar, that the words 'such income by way of dividends" must have reference to the income by way of dividends mentioned earlier and that would be income by way of dividends from a domestic company which is included in the gross total income. That would obviously be the income by way of dividends computed in accordance with the provisions of the Act. (....
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....Section 2(45) defines "total income" as under: Total income' mans the total amount of income referred to in Section 5, computed in the manner laid down in this Act. 22. Section 14 of the IT Act, 1961 provides for classification of income chargeable to tax. It reads as under: 14. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income: A.-Salaries *** C.-Income from house property D.-Profits and gains of business or profession E.-Capital gains F.-Income from other sources Chapter-VI deals with deductions out of gross total income. Some of the relevant provisions are as under: Section 80A reads as under: 80A. (1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in Section 80C to 80U. (2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. ....
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....ions, so far as may be, in accordance with the provisions of Sub-clause (ii) of Clause (a) and Clause (c) of Section 30, Section 31 and Sub-sections (1) and (2) of Section 32 and subject to the provisions of Section 38. (iia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or (fifteen) thousand rupees, whichever is less. Explanation: For the purposes of this clause, "family pension" means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death; (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. Section 58 reads as under: (1) Notwithstanding anything to the contrary contained in Section 57, the following amounts shall not be deductible in computing the income chargeable under the head 'Income from other sources' namely: (a) in the case of any assessee, (i) any personal expenses of the assessee; (ia) any expenditure of the nature referred....
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....;Profits and gains of business or profession'. 23. A plain reading of the aforementioned provisions of the Act clearly indicates that income-tax is chargeable on the gross total income as computed in accordance with the provisions of the Act. The procedure for determination of income from business as well as income from other sources is provided under the statute. It may be pertinent to mention that certain deductions which may not be provided specifically under various provisions of the Act, can also be deducted in computing the net income from a particular source if deduction of such expenditure is necessary to ascertain the true income. We will deal with this aspect at a later stage. We shall initially deal with the deductions, which are permissible out of the dividend income assessed under the head "Income from other sources" specifically provided under the statute. The deductions under the head "Income from other sources" are specifically provided under Section 57 of the Act which has been quoted elsewhere in this order. Section 58 restricts the deductions in certain circumstances. Section 57(iii) is a general clause for admissibility of deduction in respect of any expe....
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....mi Sugar Mills Ltd. (supra). It may be indirect. In the case of Seth R. Dalmia v. CIT , their Lordships of Supreme Court at pp. 652-653 have also held as under: In CIT v. H.H. Maharani Shri Vijaykuveiba Saheb of Mom and Ors. (1975) 100 ITR 67 (Bom), a Division Bench of the Bombay High Court held that the deduction which is permissible under Sub-section (2) of Section 12 is an expenditure incurred solely for the purpose of making or earning the income which has been subjected to tax and the dominant purpose of the expenditure incurred must be to earn income. It was further held that the connection between the expenditure and the earning of income need not be direct and even an indirect connection could prove the nexus between the expenditure incurred and the income. We fully agree with the view taken by the Bombay High Court. (Emphasis, italicised in print, supplied) In view of the direct decision of this Court in Eastern Investments Ltd. v. CIT , it is not necessary for us to multiply authorities. Summarising, therefore, the facts of the present case, the position which emerges is as follows: (1) that a genuine and bona fide contract had been entered i....
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....in such cases where the assessee derives income from various sources but the income derived from other sources is unconnected with the business activities of the assessee. The difficulty arises in such cases where the assessee has income from various sources and the expenditure is combined expenditure taken into account in the computation of net income as per the books of account maintained by the assessee. 28. A pertinent question that requires consideration is as to whether establishment expenses are allowable as a deduction in computing the income from other sources. 29. It has to be borne in mind that no deduction would be permissible in respect of such establishment expenses which are unconnected with the earning of income assessable under the head "Income from other sources". In case of company liquidation, the expenses incurred by a liquidator such as salary and other expenses were not allowed as deduction from income earned by way of interest from a fixed deposit in the relevant year on the ground that the expenses were not incurred for earning of the income. The Hon'ble Supreme Court in the case of Vijaya Laxmi Sugar Mills Ltd v. CIT (supra) has laid down the fol....
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....the income shall have to be deducted in computation of the income for the purpose of inclusion in the gross total income. 32. It hardly needs to be emphasized that the tax is on "income" and certain expenditure even if it does not fall within the specified deductions would be deductible in computing the net income. 33. The concept of income is well understood not to be the gross receipts but only the net income properly so-called and, therefore, such deductions may be made as are necessary to ascertain the true income. In order to determine the net income derived by the assessee which forms the basis for taxation, it is necessary to take into account the gross receipts which are reduced by the outgoings. Under various heads of income, certain deductions are regulated under the Act and as such at times it is necessary to make adjustments in the net income determined in accordance with the recognized method of computation. In order to appreciate as to whether only deductions as provided under Section 57 are to be made in computing the dividend income, it will be useful to find out some precedents. 34. In the case of Probhat Chandra Barua v. Emperor 5 ITC 1 (PC), it was held ....
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....of Badridas Daga v. CIT (supra), their Lordships of the Supreme Court held that profits should be computed after deducting the losses and expenditure incurred for the purpose of the business, profession or vocation, though such losses and expenses may not be expressly allowed under Sections 30 to 43 unless the losses and expenses are expressly or by necessary implication disallowed by the Act. The relevant portion of the judgment is reproduced as under: While Section 10(1) of the Indian IT Act, 1922. imposes a charge on the profits or gains of a business, it does not provide how these profits are to be computed. Section 10(2) enumerates various items which are admissible as deduction but they are not exhaustive of all allowances which could be made in ascertaining the profits of a business taxable under Section 10(1). Profits and gains which are liable to be taxed under Section 10(1) are what are understood to be such under ordinary commercial principles. When a claim is made for a deduction for which there is no specific provision under Section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading....
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....e deduction in regard to the same business outgoing; and, if it is intended, it will be clearly expressed". It would be unreasonable to presume that the legislature intended to give relief to the assessee under Section 80M in excess of the tax that would otherwise be chargeable on dividend income in the hands of the recipient of such income. It is, therefore, in our view, necessary to determine the net component of dividends included in the gross total income on which deduction under Section 80M is permissible to the assessee. 43. Therefore, in order to determine the issue relating to the computation of deduction under Section 80M, it is necessary to trace out the source of income of dividend in the case of any assessee. The mere fact that the dividend income is to be computed under the head "Income from other sources" may not be decisive about the source of income by way of dividend. As pointed out earlier, in some cases the earning of dividend may be in the course of carrying on the business or may be incidental to the business. On the other hand, in some cases, the earning of dividend income may be unrelated to the activities of business of the assessee and may also not be in....
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....omponent of the total income. The statute permits specified deduction from gross receipts in order to compute the net income. The net income under the different heads is then pooled together to constitute the total income. The process of computation at this stage takes in the provisions relating to the carry forward and setting off of losses and of unabsorbed depreciation. On the conclusion of the entire process of assessment, what emerges is the figure of taxable income, i.e., the quantum of income which is assessed to tax. (Emphasis, italicised in print, supplied) 46. In the case of CIT v. Cocanada Radhaswami Bank Ltd. , their Lordships of Supreme Court expressing similar view held as under: Some of the decisions cited at the Bar may conveniently be referred to at this stage. The Judicial Committee in Punjab Co-operative Bank Ltd. v. CIT has clearly brought out the business connection between the securities of a bank and its business, thus; In the ordinary case of a bank, the business consists in its essence of dealing with money and credit. Numerous depositors place their money with the bank often receiving a small rate of interest on it. A number o....
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.... heads described in Section 6 and further elaborated for the purpose of computation of income in Sections 7 to 10 and 12, 12A, 12AA and 12B are intended merely to indicate the classes of income; the heads do not exhaustively delimit sources from which income arises. This is made clear in that business income is broken up under different heads only for the purpose of computation of the total income; by that break-up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Indian IT Act for computation of income. 48. In the case of Apollo Tyres Ltd. v. CIT, it was held as under: The Tribunal had found as a fact on material on record that the investment by the assessee-company in units of the UTI was in the course of its business and its business of manufacture and sale of tyres and the business of purchase and sale of units of the UTI were common in nature and both toe businesses were intertwined and interlaced; and, therefore, the business in purchase and sale of units was an "eligible business" within the meaning of the definition of 'eligible business" in Section 32AB(2) and the assess....
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...., following principles of law emerge: (i) That deduction under Section 80M is permissible on the net dividend income computed in accordance with the provisions of the Act and included in the gross total income. (ii) That for determination of net dividend income included in the gross total income, it is necessary to trace the "Source of dividend income" notwithstanding the fact that it is assessable under the head "Income from other sources". (iii) That computation of dividend income in accordance with Act does not restrict the scope of computation to Sections 56 to 59 of the Act. That the real component of dividend income included in the gross total income shall have to be computed in accordance with the Act and established principles of accounting. (iv) The nature of dividend income may vary from case to case. In some cases, the dividend earned by the assessee may be on investments made in the domestic company(s) de hors any business considerations (we will hereafter refer, to this category as category 'A'), In some cases, the earning of dividend may be in the course of business activities of the assessee or may be incidental to the busi....
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....ed on investment unconnected with the business of the assessee. This view that the proportionate management expenses are not to be deducted in computation of the such dividend income for the purpose of deduction under Section 80M is supported by various authorities, some of which may be mentioned hereunder to complete the record as it is not necessary to elaborately refer to such cases in support of this view: (vi) CIT v. Central Bank of India (supra), (vii) Shaw Wallace & Co. Ltd. v. Dy. CIT (supra), (viii) CIT v. United Collieries Ltd. (supra), (ix) State Bank oflndore v. CIT (supra), (x) Usha Martin Industries Ltd. v. Dy. CIT (supra), (xi) East India Agencies (P) Ltd. v. CIT (supra), (xii) CIT v. Pfizer Corporation (supra), (xiii) CIT v. Jai Hind Investment Industries (P) Ltd. (supra), (xiv) CIT v. Mahendra Sobhagchand Shah (supra). 55. Reference may also be usefully made to some of the other decisions: 56. Their Lordships of Madhya Pradesh High Court in the case of State Bank of Indore v. CIT (supra) held as under: Held, that, since in the instant case, the taxing authorities had not....
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....wherein it was observed as under: On a reference to the Madras High Court under Section 256(1) of the IT Act, 1961, it was held that the income assessed was the "interest income" and the expenditure allowed was not incurred solely for the purpose of making or earning the interest income. After pointing out that the assessee was not carrying on any business during the relevant assessment years, it was held that the deductions claimed by the assessee were not expenditure incurred solely for the purpose of earning interest income and that those expenses are so remote that they have no connection with the earning of the interest, Incidentally, the question of the estimate of the expenditure made by the ITO for the purpose of earning income had also come up for consideration before the Madras High Court. It was contended that the allocation should have been with reference to the total expenditure and not with reference to the actual income earned in that year, The ITO had estimated the expenses at 10 per cent of the receipts and disallowed the balance of the claim. It was observed that no effort is necessary for receiving interest from fixed deposits and the compensation. It ap....
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....t in the case of CIT v. United General Trust Ltd. (supra). In this case, Hon'ble Supreme Court had reversed the decision of the Bombay High Court. It would, therefore, be useful to refer to the decision of the Bombay High Court in the case of CIT v. United General Trust (P) Ltd. (supra) which has been reversed by the Supreme Court in the case of CIT v. United General Trust (P) Ltd. (supra). In this case, the following question of law was raised by the Revenue before the Bombay High Court: Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in applying the decision of the Bombay High Court in the case of CIT v. New Great Insurance Co. Ltd. to the assessment year in question without considering the effect of the amendment operative from 1st April, 1968, and in thus holding that the assessee would be entitled to the deduction under Section 80M on the gross dividend before deduction of the proportionate management expenses? (Emphasis, italicised in print, supplied) 62. The Bombay High Court made following observations: Tulzapurkar J. The question in respect of which rule has been obtained by the CIT thus: ....
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....ction 80M on the gross dividend before deduction of the proportionate management expenses, was answered in favour of the Revenue. Their Lordships of the Supreme Court have referred to its own decision in the case of CIT v. United General Trust Ltd. (supra) and the provisions of Section 80AA introduced by the Finance (No. 2) Act, 1980 w.e.f. 1st April, 1968 to support the answer in favour of the Revenue. The Hon'ble Supreme Court having answered the question raised by the Revenue in favour of the Revenue, its esteemed opinion is binding upon any authorities working under its jurisdiction. 65. Admittedly, the issue relating to reduction of proportionate management expenses from the gross dividend was not considered by the Hon'ble Supreme Court in detail. In such circumstances what is the effect of the decision of the Supreme Court when it does not contain reasons as to how proportionate management expenses are to be deduced for computation of dividend income included in the gross total income. 66. In our view, the effect of the decision of the Supreme Court can be ascertained from another decision of the apex Court in the case of Kunhayammed and Ors. v. State of Kerala ....
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..... 1964-65, 1965-66 and 1966-67 the appellant claimed exemption from income-tax under Section 81(i)(d) of the IT Act, 1961, on the gross profits and gains of the business with its members. But the ITO granted relief only on the net amount as was includible in the computation of its total income under Section 110, since the income exempted under Section 81(i)(d) was to be included in its total income as required by Section 66. For the first two years, the Tribunal accepted the claim of the appellant but for the third year the Tribunal rejected the claim and upheld the ITO's order. On reference, the High Court held, rejecting the claim of the appellant, that the only way of working out the scheme of the provisions of Section 81(i)(d) in the light of Sections 66 and 110 was first to calculate to total income and the income-tax thereon, secondly, to ascertain the net profits in respect of the activities on which income-tax was not payable by setting off against the gross profits the proportionate amount of expenditure and then to determine the profits and gains from the taxable activities and thereafter from the income-tax on the total income grant a rebate at the average rate of in....
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....hat proportionate expenses were to be deducted from computation of income qualifying for deduction under Section 80P(2)(a)(iii) of the Act. 72. In the case of Shekhavati General Traders Ltd. v. CIT (supra), their Lordships of Rajasthan High Court held that relief in respect of dividends received from a domestic company was available only with respect to net amount of dividend after deducting proportionate expenses. 73. In the case of CIT v. Chemical Holdings Ltd. (supra), their Lordships of Madras High Court held as under: The computation insofar as dividends are concerned is to be made under Section 57. Section 57, Clause (i), requires that in the case of dividends or interest on securities any reasonable sum paid by way of commission or remuneration of a banker or any other person for the purposes of realizing the dividend, interest on behalf of the assessee should be deducted. Where moneys are borrowed for investment in shares, to the extent the interest charged is capable of being regarded as expenditure laid out or expended wholly and exclusively for the purpose of making or earning dividend income, the interest so paid is liable to be deducted under Section 57(....
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....ther deduction for the expenses incurred However, it is not so insofar as it is well established principle of law that the tax is on real income. The assessee in fact, has incurred expenses for earning the business income If the receipts of the business are by way of dividends, the expenditure incurred by the assessee in earning such income by way of carrying on the business activities shall have to be taken into account for determining the net income which is chargeable to tax notwithstanding the fact that such expenditure is not covered under Sections 57 to 59 of the Act. In this case, the interest and dividend receipts of the assessee are from activities of the business of the assessee. In earning the business income, the assessee has incurred indivisible expenditure between the receipts, which shall have to be taken into account, for the purpose of determination of the net income chargeable to tax. It is, therefore, evident from the above example that in computation of the net income which is included in the gross total income, all the provisions of the Act have got to be kept in mind and not merely provisions of Sections 56 to 59. The charging section has also to be kept in mi....
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.... Vechan Sangh Ltd. v. CIT (supra) relate to deductions/rebate out of the income included in the gross total income. The decisions cited on behalf of the assessee have been considered by us. Most of the decisions relate to the dividend earned on pure investments unrelated to business of the assessee. Some of the High Court decisions may appear contrary to the decisions of the Supreme Court referred to above. In none of the decisions cited before us, the aforesaid decisions of the Supreme Court have been considered. We hardly need to mention that if there is a conflict between the decision of the High Court and that of the Supreme Court, the decision of the Supreme Court will prevail. We accordingly, with utmost respect to the decisions of the High Courts referred to above follow the principle laid down by the Hon'ble Supreme Court (supra). 79. We, therefore, hold that in category 'B' cases, i.e., the cases where income by way of dividend is part of the business income or is incidental to the business income, the expenses incurred shall be apportioned between the gross dividend and other receipts of business proportionately and deduction allowed on the net dividend so ....
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....er financial collaboration agreements the collaborators have to buy back the shares at the end of specified period at the highest market price quoted on recognized stock exchange(s) or the book value along with the simple interest at the lending rate at which the financial institutions/banks have provided long-term finance to the company, whichever is higher. However, the terms of standard Financial Collaboration Agreement have been amended w.e.f 18th Oct., 1996 which provide for buy back of the Corporation's investments at the highest price quoted on the stock exchanges 3 months prior to the date of option or with interest at the rate of which the corporation provides term loans to the loanees, compounded half-yearly, whichever is higher,. Hence no provision for depreciation in the value of investment has been made as per the guidelines provided in terms of IDBI Circular dt. 26th April, 1994, 23rd June, 1994 and 8th May, 1996 and 19th Feb., 1997, (e) The market value of shares in case of quoted shares is calculated on the basis of shares last quoted in a recognized stock exchange on or before 31st March as the case may be. However, in case of shares which are....
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....ave gone through the orders passed by the AO as well as the learned CIT(A), relevant portion of which has been extracted by us extensively in para 16 to bring the whole controversy into close focus. Earlier deduction admissible in the inter-corporate dividend was to be calculated with respect to the gross amount of dividend received by a domestic company from an Indian company and not with respect to the dividend income as computed in accordance with the provisions of the Act, i.e., after making deduction provided under the Act as per the decision of the Hon'ble Supreme Court in the case of Cloth Traders (P) Ltd. v. Addl. CIT . In order to get over the difficulty caused by the decision in the case of Cloth Traders (P) Ltd. (supra), the Finance (No. 2) Act 1980 inserted of new section being Section 80AA to provide that deduction under Section 80M in respect of inter-corporate dividend will be calculated with respect to the dividend income as computed in accordance with the provisions of the IT Act (before making any deduction in Chapter VI-A) and not with respect to gross amount of such dividend. This provision was introduced with retrospective effect from 1st April, 1968. The d....
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....ase of CIT v. United Collieries (supra) is not of much help to the assessee because in that judgment, it is specifically held that deduction under Section 80M is allowable only on the net dividend after taking into account the expenditure, if any, incurred for the purpose of earning such dividend. The contention of the learned Counsel for the assessee that in the case of the assessee corporation, gross dividend income was the net dividend income, cannot be accepted on its fact value because it cannot be presumed that no expenditure whatsoever was incurred, for the purpose of earning a huge dividend income of Rs. 2,21,77,240. In the present case, admittedly in the profit and loss account, the assessee had claimed an expenditure of Rs. 6,88,13,469 against the total income of Rs. 10,45,23,890. This comes to about 60 per cent of the total income. In this view of the matter, we are of the opinion that the learned first appellate authority was justified in estimating the net dividend income at 50 per cent of the gross dividend income as per the guidelines of the Hon'ble Supreme Court in the case of United General Trust Ltd. Accordingly, we uphold the order of the learned CIT(A) in th....
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....f shares has been held to be assessable under the head "Capital gains" and for the purpose of deduction under Section BOM, the dividend income earned by the assessee has been held to be incidental to the carrying on the activities of business by the assessee. It is, however, not so. The assessee has made investment in the course of business by purchasing shares of the companies promoted by it. The investment in purchase of shares though for the purpose of business, is a capital investment as the assessee is not dealing in shares. Therefore, when the shares are held for more than the specified period, the profit derived on sale of such shares has been held to be assessable under the head "Capital gains". However, the dividend earned on investment made in the course of business, has been held to be from the source of business as the yield of investment would be on revenue account and not necessarily on capital account. This observation may be elaborated with an example. We may take a case where the assessee purchases vehicles from a party and provides the same to the seller of the vehicles for use on payment of lease rent. The investment in vehicles would be capital investment but th....
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....r deduction under Section 36(i)(viii). The AO had computed the deduction under Section 80M first determining the net dividend income after apportionment of expenses and further reducing the same by deduction claimed and allowed to the assessee under Section 36(i)(viii). The CIT(A) has upheld the view of the AO that the net dividend computed has got to be further reduced by deduction allowed under Section 36(i)(viii) for the purpose of computation of the amount on each deduction under Section 80M is to be calculated. 93. It has been agreed by the parties before us that the issue is covered in favour of the Revenue by the decision of the Tribunal in assessee's own cases in ITA Nos. 1333/Chd/1994, 944 and 1591/Chd/1995 for asst. yrs. 1990-91 to 1992-93 (supra). The operative portion of the order in para 15.5 is reproduced hereunder: Thus, as per combined reading of Sections 80AA and 80M of the IT Act, the deduction under Section 80M would be admissible with reference to the amount of dividend income computed after allowing deduction under Section 36(1)(viii) of the IT Act. The counsel of the appellant has made reference to the decision of the Tribunal in the case of th....
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....ge that deduction under Section 80M is permissible with reference to dividend in one before allowing deduction under Section 36(1)(viii) of the IT Act irrespective of the fact that the deduction under Section 36(1)(viii) @ 40 per cent is being allowed from the said dividend income. By claiming deduction under Section 36(1)(viii) from the dividend income and again claiming deduction under Section 80M of the IT Act with reference to the dividend income before deducting allowance under Section 36(1)(viii) @ 60 per cent, the appellant is in fact claiming 100 per cent exemption in respect of dividend income which is not permissible under any provisions of the IT Act. From the discussion and reference to the assessment record, it is evident that the finding of the Tribunal is regarding allowing deduction under Section 36(1)(viii) of the IT Act out of dividend income also irrespective of the fact that it is being assessed as income under the head 'Other sources'. This finding stands accepted by the AO as the claim under Section 36(1)(viii) of the IT Act has been allowed and there is no dispute regarding this issue. In this view of the matter, the first ground of appeal is rejected....
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.... 80M. The gross dividend received by the assessee is the net dividend income as no expenses as provided under Section 57 have been incurred to earn the dividend. 98. The abovementioned grounds of appeal relate to computation of deduction under Section 80M. The CIT(A) has estimated the expenses attributable to the earning of dividend income at Rs. 2 lacs for asst. yr. 1995-96 and Rs. 3 lacs for asst. yr. 1997-98. There are cross grounds of appeal raised by the Revenue in regard to computation of deduction under Section 80M. Such grounds are ground No. 2 in asst. yr. 1994-95, ground No. 3 in asst. yr. 1995-96 and ground No. 5 in asst. yr. 1997-98. For asst, yr. 1996-97, the Revenue has raised the issue in ground No. 5. These grounds of appeal are reproduced hereunder for the sake of ready reference: Asst. yr. 1994-95 3. The learned CIT(A) has also erred in allowing relief out of the addition made by the AO by restricting the claim under Section 80M to Rs. 1,12,10,100 against Rs. 2,66,90,728 claimed by the assessee. Asst. yr. 1995-96 3. The learned CIT(A) has further erred in directing the AO to allow the deduction under Section 80M. Ass....
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....yr. 1995-96 1. On the facts and circumstances of the case, the learned CIT(A) Chandigarh has erred in deleting the addition of Rs. 9,23,404 rightly made by the AO treating it as capital expenditure. Asst. yr. 1996-97 2. Learned CIT(A) erred in deleting the addition of Rs. 5,22,435 made on account of project survey expenses, by holding the same in the nature of revenue expenditure. Asst. yr. 1997-98 2. Learned CIT(A) has erred in deleting the addition of Rs. 1,73,273 made on account of Project Survey expenses being capital expenditure. Learned CIT(A) has erred in holding the same in the nature of revenue expenditure. 101. The AO had treated these expenses as of capital nature. The CIT(A) decided the issue in favour of the assessee. Parties have agreed before us that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for asst. yrs. 1990-91 to 1992-93 (supra). The issue has been dealt in para Nos. 5 and 6 of the order. Since the facts are identical, we adopt the reasoning given by the Tribunal in the aforementioned decisions to uphold the order of the CIT(A) in this regard: ....
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....assessee had pleaded that the preparation of project reports/feasibility reports would result into stock-in-trade, would not change the exact nature of the expenditure debited in relation thereto. The issue is squarely covered by the decision of the Karnataka High Court in the case of Kamataka State Industrial & Investment Development Corporation (supra) and as such the Departmental authorities ought to have allowed the entire expenditure debited under this head as a revenue expenditure. 6. Before parting with the matter, we may mention that even if the contention of the first appellate authority that the expenditure on the preparation of project/feasibility reports resulted into stock-in-trade, then the adjustment has to be given for the cost of the reports which were available with the assessee corporation as on 1st April, 1989 about which no date is available and whatever is the valuation of the closing stock debited will have to be taken as the opening stock of the subsequent assessment year. Since the assessment is a wholly owned company of the Punjab Government and the rate of tax is almost the same is the case of a company, there is hardly any purpose in disturbing ....
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....see corporation was to act as a catalyst for establishment of new Industrial Project in the state of Punjab by acting as promoters/collaborators along with other industrial entrepreneurs. At the time of the start of the project, the assessee corporation makes investment and when the production in the projects reaches upto a certain level where after the projects become self-sufficient, it disinvests those holdings in that project by selling it to the other promoter with a view to realize funds for investments in other projects. Thus basically the investment in shares of companies which were jointly promoted by the assessee along with other industrial undertakings is in the nature of an investment and any profit/gain earned by the assessee on the realization of such an investment is liable to tax under the head 'Capital gains' and this position has all along been accepted even by the Departmental authorities upto the asst. yr. 1989-90. Accordingly, we hold that the profit and gain realized by the assessee on account of disinvestment of shares is liable to tax as capital gams. As such the assessee is entitled to deduction under Section 48(2). Grounds raised by the Revenue ....
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.... development of the corpn. 3,63,000.00 (ix) Lunch to dignitaries in Hotel Mountview. 8,318.00 (x) Air tickets of Chief Minister H.S. Brar & others for visit to Bombay, 32,658.00 (xi) Presentation with slide projector at Punjab Bhawan, Chandigarh on activities of PSIDC. 1,116.00 (xii) Captioned Exhibition organized By CII at Hotel Taj Palace, New Delhi, for rendering all assistance to PSIDC's stall, 3,098.00 (xiii) Chief Secretary meeting with officers of Industries Deptt. and foreign delegates. 9,020.00 7,77,594.00 On going through these expenses, it is seen that these expenses have been basically incurred for promotion of business and for attracting or inviting industrial participation from outside State and are incidental to the business of the appellant corporation. Accordingly, the impugned addition is ordered to be deleted and the appellant gets a relief of Rs. 7,77,594. 108. Considering the nature of the expenses and the business of the assessee, the CIT(A) has held that the expenditure has been incurred for promotion of the business of the assessee and for attracting/inviting industrial participation from ou....
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....yees happy and satisfied. The expenditure of Rs. 21,982 on account of dinner for farewell party has also been considered to have been incurred for the purpose of business. The CIT(A) has also relied upon the decision of the Supreme Court in the case of Shahzada Nand & Sons v. CIT , the relevant portion of the order is reproduced as under: Commercial expediency must be tested in the context of current socio-economic thinking-commercial expediency must be judged not in the light of the 19th Century laissez faire doctrine which regarded man as an economic being concerned only to protect and advance his self-interest but in the context of current socio-economic thinking which places the general interest of the community above the personal interest of the individual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and where there is sufficiently large profit, after providing for the salary or remuneration of the employer and the employees and other prior charges such as interest on capital, depreciation, reserves, etc. a part of it should in all fairness go to the employees. 114. The findings of facts record....
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....proportionate administrative or interest expenditure. The assessee did not incur any expenditure and, therefore, deduction under Section 80M be allowed on the gross amount of dividend. There is no dispute that last year this issue was decided against the assessee and sail! matter is pending before the Hon'ble High Court. In some earlier year the issue was decided in favour of the assessee. In the light of decisions of different High Courts and the Tribunals and other important circumstances, a Special Bench was constituted to hear the matter. 5. The facts of the case are noted in the proposed order of my learned Brother and I deem it unnecessary to reproduce them in detail. Relevant statutory provisions and case law have also been noted and cited in detail. I would have to make a brief reference to what my learned Brother has observed in the proposed order and also record my reasons for not agreeing with him. This is an unpleasant duty I will have to perform. On consideration of proposed order of my Brother, I have no problem in agreeing with him in what is stated upto p. 12 of the proposed order. On p. 13 in para 23, my learned Brother has drawn legal inferences. I am un....
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....t in the case of CIT v. Rajendra Prasad Moody where deduction of interest was allowed although investment in shares did not yield any income under the head "Income from other sources". 6. In my humble opinion, the law as per aforesaid decisions and Section 57(iii) is clear that expenditure to be allowed for deduction under the head "Other sources" must be incurred for purposes of making or earning such income. It should be incurred with object or purpose of earning income. There should be nexus between expenditure and income although such nexus may not be a direct one. There can possibly be no exception to this well settled law. Thereafter at p. 16, the Hon'ble Vice President has posed the following question: 28. A pertinent question that requires consideration is as to whether establishment expenses are allowable as a deduction in computing the income from other sources. 7. Again the learned Brother refers to decision of Vijaya Laxmi Sugar Mills Ltd. (supra) where expenses incurred by Liquidator on salary and other expenses were not allowed out of income earned by way of interest, for the reasons that these expenses had no connection with receipt. The learned....
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....s not even some sort of evidence to show that the expenses incurred by the liquidator were to facilitate the earning of or at least for preserving the estate. In the abovesaid decision, the Supreme Court held that if any expenditure were incurred like commission for collection or such similar expenditure, it may be considered as spent solely for the purpose of earning that income, the position may be different. 8. Thereafter some more decisions are noted at the end of p. 16 of the proposed order and reference is made to Section 58 of IT Act which admittedly has no application in the present case. The principle laid down in the case of Vijaya Laxmi Sugar Mills (supra) or case of Seth R. Dalmia (supra) are correctly noted but thereafter in para 32, my learned Brother has observed as under: 32. It hardly; needs to be emphasized that the tax is on "income" and certain expenditure even if it does not fall within the specified deductions would be deductible in computing the net income. 9. With greatest respect, I do not see any nexus between the legal inference drawn and cases quoted and referred to above. The decisions of Supreme Court and Madras High Court have reiterate....
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.... Lordships while deciding above cases had principle in mind that tax has to be upon "income, profits and gains and not on gross receipt." In my considered opinion, no different proposition than one laid down by their Lordship in the case of Vijay Laxmi Sugar Mills Ltd. (supra) and Seth R. Dalmia (supra) was laid down by Privy Council in the above mentioned cases. 14. There is reference to certain cases allowing establishment expenses to the assessee to keep alive the earning of income assessable under "other sources". Establishment expenses incurred for purposes of earning income from other sources were allowed as they had necessary nexus with earning of income. This is the proposition laid down by all the decisions referred to above and there can be no problem in agreeing with the above proposition. In all these cases, expenditure were allowed under the head "Other sources" as expenses were incurred for purposes of earning or making income assessed under the head "Other sources". Expenses were allowed in above cases under a specific provision of the statute. 15. In para 36, there is reference to certain precedents relating to income assessable under the head "Profits and gai....
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....tation of income. If shares are held as a capital investment, the dividend cannot be treated as business income. There is no question of holding that dividend was acquired in the course of the business or it is related to business activity. The reason being that dividend is distributed or allowed on account of ownership or holding of shares. It is an income which is incidental to the holding. It is "sui generis". No separate efforts need be made to earn dividend income apart from efforts to acquire shares. Therefore, only nature of shareholding in the hands of assessee is required to be determined to find out nature of dividend income. At any rate, in my humble view, this issue is not very material for resolving the controversy involved before us. 18. There is then discussion of heads of income and sources of income. Reference is made to classification of income under Section 14 of the IT Act and decisions of Supreme Court in the case of Brook Bond & Co. Ltd. v. CIT, in case of CIT v. Cocanada Radhaswami Bank Ltd. , United Commercial Bank Ltd. v. CIT , CIT v. Chugandas & Co. and Apollo Tyres Ltd. v. CIT . I have already agreed that dividend income in certain circumstances can be....
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....the source of the dividend for purposes of Section 80M of the IT Act. I have not been able to find any legal justification for above view in the proposed order of my learned Brother. This I say with all the respect for my learned Brother. The other proposition "for computation of dividend income in accordance with the Act" one need not restrict for deduction to Sections 56 to 59 of the Act, also does not follow from any decision. In fact I find that my learned Brother has himself emphasized that it is necessary to establish nexus between expenditure and earning and making of income. The expenditure must be incurred for purposes of earning income. The aforesaid proposition is well settled and based upon interpretation of Section 57 of the IT Act I find, it difficult to accept that computation of dividend income is not to be restricted to Sections 56 to 59 of the Act, The nature of dividend income vary from case to case depending upon nature of holding as discussed above and not on any other consideration. 21. My learned Brother has referred to cases in categories 'A' and 'Br. My learned Brother, Hon'ble Vice President has put in category 'A' cases where pr....
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....n computing the profits under Section 10(1) of the Act. In this view, the order of the lower Court must be set aside and the reference answered in the affirmative. The appellant will get his costs of this appeal and of the reference in the Court below. Appeal allowed. It is clear from above that deduction has been allowed as loss incidental to the carrying of business under a specific provision relating to computation of profits and gain of business. 23. In fact principle relating to deduction under the head "Business" cannot be universally applied to deduction permissible under the head "Other sources". In the case of CIT v. Malayalam Plantations Ltd. , their Lordship of Supreme Court held that expression "for purposes of business" is wider in scope than the expression "for purposes of earning profit". It was held that the expression "for the purpose of business" may take in not only the day-to-day running of the business, but also the rationalization of its administration and modernization of its machinery. It may include measures for the preservation of the business and for the protection of its assets. It was further held that the purpose shall be for the purpose of the b....
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....d without entertaining any doubt about the binding nature of the decision of the Hon'ble Supreme Court, one must see as to what is the proposition laid down by the Supreme Court which is binding under Article 141 of the Constitution. The question referred to the Hon'ble Court is reproduced in the decision of Hon'ble Bombay High Court and is as under: Whether, on the facts and in the circumstances of the case, and in law, the Tribunal was justified in applying the decision of the Bombay High Court in the case of CIT v. New Great Insurance Co. Ltd. to the assessment year in question without considering the effect of the amendment operative from 1st April, 1968, and in thus holding that the assessee would be entitled to the deduction under Section 80M on the gross dividend before deduction of the proportionate management expenses? As already stated the Tribunal held that deduction under Section 80M was to be allowed on gross dividend in line with the decision of Hon'ble Bombay High Court in the case of CIT v. New Great Insurance Co. Ltd. . The aforesaid decision was challenged by the Revenue on the ground that above view could not be taken in the light of a....
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....anguage used in the statutory provision being considered. 28. My learned Brother and Hon'ble Vice President then referred to the decision of Calcutta Benches of Tribunal in the case of Dy. CIT v. S.G. Investments & Industries Ltd. (2004) 84 ITJ (Kol) 143: (2004) 89 ITD 44 (Kol). The said decision is admittedly given with reference to Section 14A and not with reference to Section 80M of IT Act. There is then reference to the decision of the Hon'ble Bombay High Court in the case of CIT v. Maganlal Chhaganlal (P) Ltd. . In the said case, the Court held that assessee was entitled to deduction under Section 80M on gross dividend whereas Revenue's contention was that interest paid on money borrowed for purchase of shares on which dividend was allowed, was required to be deducted. Their Lordship of Bombay High Court following the decision of Supreme Court in the case of Distributors (Baroda) (P) Ltd. (supra) answered the reference in favour of the Revenue. While doing so, their Lordship allowed deduction of interest out of the total income as "interest was paid on money borrowed for earning such income". Thus deduction of interest was allowed in terms of Section 57 of th....
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....or presumption basis. This is even demonstrated from the decision cited and relied upon in the order of my learned Brother. 31. Reference has also been made to Brooke Bond & Co. Ltd. v. CIT (supra), wherein their Lordship of the Supreme Court has observed as under: It is a cardinal principle of the law relating to income-tax that income-tax is a single charge on the total income of an assessee. For the purpose of computation, the statute recognizes different classes of income which it classifies under different heads of income. For each head of income, the statute has provided the mode of computing the quantum of such income. The mode of computation varies with the nature of the class of such income, for the deductions permissible under the law in computing the income under each head bear a particular relevance to the nature of the income. The statute operates on the principle that it is the net income under each head, which should be considered as a component of the total income. The statute permits specified deductions from gross receipts in order to compute the net income. The net income under the different heads is then pooled together to constitute the total income....
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....t to consider the requirement of above section without reproducing them. It being suffice to mention that deduction of dividend under Section 80M is allowed in the case of a domestic company, in computing the total income of such domestic company for an amount equal to so much of amount of income by way of dividend from another domestic company as does not exceed the amount of dividend distributed. Section 80AA providing for computation of deduction under Section 80M contains these words, "the deduction under that section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act". 33. In both the relevant sections, the deduction is allowed of an amount equal to so much of an amount of dividend as computed in accordance with provisions of this Act and included in the total income. The controversy raised will lose its sheen if due importance is attached to the words "dividend income" computed in accordance with provisions of this Act. It is computed dividend income on which deduction is allowed and, therefore, there is no question of considering dividend as business income. The dividend indisputably is asse....
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....e charged under the provisions of the Indian IT Act, 1918 (VII of 1918), is discontinued, then, unless there has been a succession by virtue of which the provisions of Sub-section (4) have been rendered applicable, no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period. Where any such claim is made, an assessment shall be made on the basis of the income, profits and gains of the said period, and if an amount of tax has already been paid in respect of the income, profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference. The AO did not allow exemption to the assessee under the above provision as according to him interest on securities was liable to be assessed to tax under the head "Interest on securities" (Section 8) and not under the head "Business" (Section 10) of the IT Act. When the matter was carried to the Hon'ble Bombay....
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....or paying any income chargeable under the head "Salaries" to deduct income-tax and super-tax on the amount payable. Similarly, under Section 18(3) the person responsible for paying income-tax under the head "Interest on securities" is liable to deduct income-tax and super-tax at the prescribed rates on the amount of interest payable. Section 24 enables set off in respect of loss sustained under any of the heads mentioned in Section 6 against income, profits and gains from any other head in that year. These are some of the provisions in which reference is made to specific heads of taxation. But the exemption under Section 25(3) is general; it is not restricted to income chargeable under Section 10 of the Act. (Underlined by me, italicised in print, to emphasise) It is evident from above as to the relevance of the head under which a particular income is computed for charging to income-tax. Whether particular section imposes a condition of chargeability under a particular head to allow benefit of exemption depends upon the language and text of the section. Their Lordship in the case of Chugandas & Co. (supra) has given illustrations of several sections where the legislature has ....
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.... by their Lordship is reproduced at p. 138 of the report and is as under: 80E, Deduction in respect of profits and gains from specified industries in the case of certain companies.(1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent thereof in computing the total income of the company. The sub-section required "computation of business income in accordance with provision of the Act" included in the "total income". Thereafter three steps required to be taken, for computing deduction under Section 80E(1), are stated by the Court. As noted earlier, the deduction was to be allowed on profits and gains computed in accordance with provisions of the Act and included in the total income. Their Lordship observed as under: ....
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....ed in accordance with provisions of the Act", it was held that, "same will have to be computed in accordance with Sections 30 to 43A which included Section 32(2)" of the Act. Computation of profit in accordance with provision of the Act was read as the legislative mandate. Requirement is to look for "key words" in the parenthetical clause. It must, therefore, be clear from above that when section talk of computation of dividend income in accordance with provisions of the Act, "the dividend income" has to be computed as per provision of Sections 56 to 59 of the IT Act, No other provision is relevant having regard to authoritative pronouncement of Supreme Court in Distributors (Baroda)'s case (supra). Sufficiently strong language has been used by employing words like "legislative mandate" "key words in parenthetical clause" to rule out application of commercial principles in interpreting Section 80M. It is not possible to ignore restrictions imposed on applicability of deduction and in particular ignore the words, "dividend income computed in accordance with provisions of this Act". The section does not say "business income". Therefore, there is no question of referring to any....
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....ould be allowed on the gross dividend income without deducting the allocation of expenses incurred in earning such dividend income? In our view, only the actual expenditure incurred by the assessee in earning the dividend income shall be deducted from the gross dividend income. There is no scope for any estimate of expenditure being made and no notional expenditure can be allocated also for the purpose of earning income unless the facts of a particular case warrant such allocation. In that view of the matter, we are of the view that only the actual expenses should be taken into account, in reducing the dividend income and not any notional expenditure as has been done in the instant case. We, therefore, decline to answer the question. The Tribunal will find out the expenditure, if any, actually incurred in earning the dividend and, to that extent, the dividend income should be reduced and relief under Section 80M should be allowed on that. 40. Bombay High Court in the case of CIT v. Central Bank of India (supra) held as under: As held in numerous cases by the Court, Chapter VI-A constitutes a separate code dealing with deductions to be made in computing....
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.... for the purpose of deduction while calculating the income from dividend or only expenditure actually incurred by an assessee can be taken into consideration while calculating the deduction claimed under Section 80M. In our considered opinion, there lies a distinction between what we call notional expenditure and actual expenditure. If it is proved to be a case of actual expenditure incurred by an assessee while earning/depositing the dividend, then certainly the amount actually incurred by way of expenditure has got to be deducted in accordance with the procedure prescribed under the Act. But when there is nothing on record to show that any expenditure is incurred by an assessee while earning/depositing the dividend, then it is difficult for us to hold that some hypothetical and/or notional expenditure can be made a basis for deduction. In other words, we have not been able to notice any provision which may entitle the taxing authorities to work out by way of expenditure any notional figure for the purpose of s, 80M though, in fact, it has not been so incurred by an assessee while encashing the dividend. In somewhat similar circumstances, this question had come up for con....
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....10 paise per Rs. 100 of dividend income be taken for deduction under Section 80M. 42. In the present case, the assessee was holding shares as a capital investment. The shares were not stock-in-trade of the assessee. The dividend income earned by the assessee might have some connection with business. But this connection is not sufficient to make dividend incomebusiness income. Shares were held by the assessee as a capital investment. Dividend received by the assessee-company can under no circumstances be held to be business income. It is incidental income received by the assessee on account of holding of a capital investment. It cannot have a character different from the character of shares in the hands of the assessee. Shares were not trading assets. Therefore, dividend receipts could only be assessed under the head "Other sources". Out of dividend receipts only expenditure referred to in Section 57 could be deducted, i.e., any sum expended wholly and exclusively for the purpose of making or earning such income (dividend). In this case, I see no reason to take a view different from one taken by Madhya Pradesh High Court in the case of State Bank of Indore (supra) or by Bombay Hi....
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....idend as earned in the course of the business. My learned Brother and Hon'ble Vice President for his view has also relied upon the decision of Calcutta Bench of Tribunal in the case of Dy. CIT v. S.G. Investments & Industries Ltd. (supra). The said decision was admittedly given, having regard to provision of Section 14A of the IT Act and in my humble view has no application to the facts and circumstances of the case. 44. The ultimate conclusion of my learned Brother and Hon'ble Vice President is reflected in para 28 which is as below: 28. A pertinent question that requires consideration is as to whether establishment expenses are allowable as a deduction in computing the income from other sources. The question is ultimately answered in the affirmative. With utmost respect, I am unable to subscribe to the view taken in the above para. I have recorded above my reasons for not agreeing with the view taken by my learned Brother, the Hon'ble Vice President. The issue is not res Integra and is fully covered in favour of assessee, as per direct decisions of various High Courts and of Supreme Court including Distributors (Baroda) (supra). 45. One controvers....
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....gross dividend receipt. (ii) That net dividend income is to be computed under the head "Other sources" after deduction of expenditure incurred for purposes of earning, making or realizing dividend income. (iii) The deduction to be allowed out of dividend income are as per specified provision of the statute. These cannot be allowed on general commercial considerations. (iv) That actual expenditure incurred are to be taken into consideration. There is no question of taking expenditure on estimate or presumption basis while computing dividend income or while allowing deduction under Section 80M of the IT Act. (v) That where shares are acquired out of borrowed funds, on which dividend is received, deduction of interest paid can be allowed under Section 57, provided loan was taken for making and earning dividend income. There is no question of deduction of any amount paid as interest, to which provisions of Section 36(1)(iii) are applicable, while computing deduction under Section 80M of the IT Act. 47. In the light of above propositions, I am unable to agree with the order of the Tribunal for asst. yrs. 1990-91 to 1992-93 in the case of the assess....