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Interpretation of Income-tax Act regarding set-off of business loss against dividend income. Analysis: The case involved a dealer in shares who suffered a loss in one year and received dividend income in the subsequent year. The primary issue was whether the loss from the business could be set off against the dividend income. The Income-tax Officer refused the set-off, stating that the loss could only be set off against profits from the same business. The Tribunal upheld this view, leading to a reference to the High Court. The crux of the matter was whether dividend income should be considered a separate income category or part of the business income. The respondent contended that dividends constitute a distinct income category under the Income-tax Act and should not be included as part of business income. Various sections of the Act were cited to support this argument. The High Court analyzed the provisions of the Income-tax Act, emphasizing that income should be categorized under different heads as per Section 6. The Court highlighted that if income can legitimately fall under a specific head, such as business income under Section 10, it should not be categorized under the residual head of "other sources" under Section 12. The Court examined the nature of dividend income received by the assessee, noting that the dividends were incidental to the shares held as stock-in-trade. It concluded that since the income from dividends arose in the course of the business, it should be considered part of the business income under Section 10, rather than being classified separately under Section 12. Additionally, the Court addressed the argument that dividend income should be computed separately due to the provisions of the Act. It dismissed this contention, stating that there is no restriction preventing a business dealing in shares from utilizing the Act's machinery to compute dividend income along with business income. The Court also discussed precedents cited by the respondent, emphasizing the distinction between income from securities and dividends. It pointed out that while securities constitute a separate head, dividends are not categorized as such. The Court concluded that on the facts of the case, the dividend income should be considered part of the business income, and the department could not compel the assessee to show it under a different category. In the final analysis, the High Court answered the reference in the affirmative, ruling in favor of the assessee and directing the Commissioner to pay costs.
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