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Issues involved: Interpretation of section 32AB of the Income-tax Act, 1961 regarding eligibility for deduction on dividend income.
Summary: In an application u/s 256(1) of the Income-tax Act, 1961, the High Court of Calcutta considered whether the assessee, who owned 13 tea gardens in upper Assam, was eligible for deduction under section 32AB for dividend income received in addition to income from the tea gardens. The Assessing Officer and the Commissioner of Income-tax (Appeals) had denied the deduction, but the Tribunal referred to section 32AB(3) which defines the profits of the business for the purpose of the deduction. The Tribunal noted that as the assessee had shown the dividends as part of business profits in the profit and loss account prepared as per the Companies Act, the assessee was entitled to the deduction under section 32AB for the dividend income. However, the Revenue argued that dividend income does not fall under "Profits and gains of business or profession" as per a decision of the Gauhati High Court. The Court observed that section 32AB allows a deduction equal to 20% of the profits of the business or profession audited in accordance with the Act. It emphasized that the deduction is only applicable to profits from "business or profession" and not from other sources like investment in shares. Since the investment in shares was not the business of the assessee, the dividend income from those shares could not be considered income from the "business or profession." Therefore, the Tribunal had erred in directing to allow the deduction under section 32AB for the dividend income. In conclusion, the Court ruled in favor of the Revenue and against the assessee, stating that the assessee was not eligible for the deduction under section 32AB for the dividend income. The reference was disposed of accordingly, and all parties were directed to obtain a signed copy of the order.
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