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Issues:
1. Interpretation of section 66(1) of the Income-tax Act, 1922 regarding set-off of dividend income against business loss. 2. Classification of dividend income from shares held as stock-in-trade under section 12(1A) and its impact on set-off provisions under section 24(2). 3. Determination of whether dividend income should be considered as income derived from business, profession, or vocation for the purpose of set-off. Analysis: The High Court of Madhya Pradesh was presented with a question under section 66(1) of the Income-tax Act, 1922, regarding the set-off of dividend income against business loss for the assessment year 1956-57. The case involved an assessee, a Hindu undivided family deriving income from various sources, including dividend income from shares held as stock-in-trade. The Tribunal referred the question of law to the court, focusing on the set-off of dividend income of Rs. 23,302 against a business loss of Rs. 4,17,255 brought forward from the previous assessment year 1955-56. The crux of the matter revolved around the interpretation of section 12(1A) and section 24(2) of the Income-tax Act. Section 12(1A) included dividend income under the residuary head, while section 24(2) dealt with the set-off of losses against profits or gains from business, profession, or vocation. The court had to determine whether dividend income from shares held as stock-in-trade should be classified under the residuary head or as income derived from business for the purpose of set-off. The court referred to previous judgments, such as Commissioner of Income-tax v. Ahmuty & Co. Ltd., which held that dividend income from shares was considered income arising out of business before the enactment of section 12(1A). Additionally, references were made to cases like United Commercial Bank Ltd. v. Commissioner of Income-tax, which emphasized that the classification of income heads under the Act was for computation purposes and did not restrict the sources of income. Further, the court analyzed cases like Cocanada Radhaswami Bank Ltd. v. Commissioner of Income-tax, which allowed the set-off of interest on securities held as trading assets against business losses. The court also considered Commissioner of Income-tax v. Chugandas & Co., which discussed the exemption of profits and gains from business under section 25(3) not limited to section 10 income. Based on these precedents and the legislative intent behind the amendments, the court concluded that the dividend income of Rs. 23,302 for the assessment year 1956-57 could be set off against the business losses from earlier years. The court directed the department to bear its costs and pay those incurred by the assessee, along with a hearing fee of Rs. 100.
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