1981 (3) TMI 68

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....e brothers. During the material assessment years 1962-63 to 1965-66, the firm in the ordinary course of its business in ready shares sold some of its stock of shares ex-dividend and the total income of the firm for all the years includes sizeable amounts of the dividends received on the shares so sold. These dividends were allocated to the partners and the dividend income was taxed in the hands of the assessees as income from other sources. The ITO held that the assessee was not entitled to any earned income relief. The AAC, however, while rejecting the contention of the assessee that dividend income should be included under the head "Income from business", took the view that there could be earned income even in respect of income from other....

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....als in shares and whose stock-in-trade consists of shares in business income because such income in the case of a dealer in shares arises in the course of business. We have pointed out in that case that the question whether such income qualifies for being classified as earned income has to be decided on the definition in s. 2(7) of the Finance (No. 2) Act, 1962. Construing the definition of earned income " we have observed in that decision as follows : " The words 'derived from' were intended to indicate that the source must be the personal exertion and the word 'immediately' which has been used clearly indicated that the income must be directly derived from personal exertion. It is vehemently contended before us on behalf of the assesse....

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....the shares, the purchase or the sale price, as the case may be, takes into account the amount of dividend and since in the case of a person dealing in shares, the amount of expected dividend constitutes an element of the price, any income in the form of dividend must be treated as resulting from the personal exertion of the assessee. It is difficult for us to appreciate this contention. When dividend income is treated as falling under the heading "Income from other sources", the income contemplated is that which arises as a result of a declaration of dividend by the company whose shares the assessee holds. It is only after the dividend is properly declared that the amount so received by the assessee can be said to be dividend income. It ....