2011 (8) TMI 1124 - HC - Income Tax

Set off of the dividend income against the speculation loss - dividend is placed under the head Income from other sources - Held that - As already reproduced it has been consistently held from material on record that shares were held by the assessee as stockintrade. CIT(Appeals) as well as tribunal therefore, were of the opinion that dividend income was incidental to share business and that therefore, irrespective of provisions contained in Section 56 of the Act and explanation to section 73, loss should be adjusted against such business income.

Summary

Issues:
1. Whether the Appellate Tribunal correctly allowed the set off of dividend income against speculation loss?
2. Whether the Assessing Officer's treatment of the loss as arising from speculation business was correct?
3. Whether the dividend income should be considered part of the share trading business income?

Analysis:
1. The Revenue challenged the Tribunal's decision allowing the set off of dividend income against speculation loss. The Respondent, a share trading Company, received dividend income, brokerage, and Kasar during business activities. The CIT(Appeals) held that the Assessing Officer was wrong in treating the entire amount as speculation loss and disallowing set off. The Tribunal clarified that the business should be considered as a whole, including incidental receipts and expenditures, and dividend income should be treated as part of the share trading business income.

2. The Assessing Officer considered the entire amount as a loss from speculation business, disallowing set off against any other income. However, the CIT(Appeals) and the Tribunal disagreed, stating that the business activities and income were interconnected and should be considered together. They relied on the explanation to Section 73, emphasizing that the business should not be limited to share purchase and sale only, but should include all related activities like dividend income.

3. The Tribunal relied on past judgments like Western States Trading Co. P. Ltd. and Cocanada Radhaswami Bank Ltd. to support its decision. These cases emphasized that if shares are part of trading assets, dividend income should be considered as part of the business income. In the present case, where shares were held as stockintrade, the dividend income was deemed incidental to the share trading business. The Court found no substantial legal question and dismissed the Tax Appeal based on consistent findings that dividend income should be adjusted against business income, irrespective of specific provisions in the Income Tax Act.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the interconnected nature of business activities and income sources. The judgment highlighted the importance of considering the business as a whole, including all related income and expenditures, and treating dividend income as part of the business income when shares are held as trading assets.