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2011 (4) TMI 778 - HC - Income TaxUnder section 32AB Deduction in respect of dividend income - Held that - the investment by the assessee in the units of UTI was not the business of the assessee - The dividend income received from those shares was not treated by the assessee as income from business or profession nor could it be treated as income from business or profession - The income was not applied in the main business of the assessee and thus the Tribunal rightly concluded that the assessee was not entitled to deduction in respect of dividend income under Section 32AB of the Act - Hence the appeal is decided against the assessee and in favour of the department.
Issues:
1. Interpretation of income from investments in securities as business income or income from other sources. 2. Eligibility of dividend income from investments in Unit Trust of India (UTI) for deduction under Section 32AB of the Income Tax Act, 1961. 3. Application of Supreme Court judgment in Apollo Tyres Ltd. case to determine the treatment of dividend income from UTI units. Issue 1: Interpretation of income from investments in securities The appellant-company, engaged in the manufacture and sale of hot glass, earned income from business and investments in securities like Unit Trust of India (UTI). The assessing authority initially treated Octroi & Entry tax as business income but excluded it while calculating deductions under Section 32-AB. The CIT (A) directed inclusion of the amount in total business profits. However, the Tribunal differentiated income from UTI as not business income but income from other sources, as the company did not engage in the purchase and sale of units as a business activity. Issue 2: Eligibility of dividend income from UTI for Section 32AB deduction The appellant raised substantial questions of law challenging the Tribunal's decision on the treatment of dividend income from UTI units for deduction under Section 32AB. The appellant argued that the income should be considered part of business profits and eligible for the deduction. The Supreme Court in Apollo Tyres Ltd. case held that dividend income from UTI investments can be included in computing profits of an eligible business under Section 32AB, provided such investments are part of the eligible business. Issue 3: Application of Apollo Tyres Ltd. judgment The department relied on the Calcutta High Court judgment, arguing that Section 32AB deduction cannot be extended to dividend income. However, the Supreme Court in Apollo Tyres Ltd. case clarified that if investments in UTI are part of the business activities, the dividend income can be considered part of the eligible business profits for Section 32AB deduction. The court emphasized that the treatment of dividend income should align with the nature of the business activities and their integration with the main business operations. In the present case, the appellant's investments in UTI units were not considered integral to its main business of manufacturing and selling glass. The company treated dividend income separately under "other sources" in its accounts, indicating a distinction from business income. The Tribunal found no evidence of utilizing dividend income in the main business, leading to the conclusion that the appellant was not entitled to a deduction under Section 32AB for such income. The judgment favored the department's position, dismissing the Income Tax Appeal.
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