1989 (12) TMI 360 - HC - Income Tax

Summary

Issues:
1. Assessment of sum as business income of the assessee
2. Classification of sum as dividend income under Section 2(22)(d) of the Income-tax Act, 1961
3. Entitlement of relief under Section 80M of the Income-tax Act, 1961

Analysis:

Assessment of sum as business income:
The case involved the purchase of shares by the assessee from a nationalized bank, which later offered an option to sell shares back at a higher price. The Income-tax Officer contended that the assessee attempted to gain double benefits by claiming a loss in share dealing account and profit as dividend income. The High Court held that expenditure for share acquisition cannot be considered for earning dividend income. The shares were treated as stock-in-trade, and the purchase price was deemed business expenditure, not deductible from dividend income.

Classification of sum as dividend income:
The Tribunal concluded that deemed dividends under Section 2(22)(d) qualified for relief under Section 80M. The High Court disagreed with the Tribunal's decision, emphasizing that the entire amount received by the assessee from the company should be treated as dividend income without deducting the face value or purchase price of the shares. It clarified that the purchase price of shares should be considered business expenditure and allowed as a deduction under the business head.

Entitlement of relief under Section 80M:
The High Court ruled that the assessee was entitled to relief under Section 80M for the dividend received from the company on the reduction of capital. The relief was to be calculated on the net amount of dividend included in the gross total income. The Court directed the Tribunal to dispose of the case in line with the provided answers, ensuring the assessee's entitlement to Section 80M relief.

In conclusion, the High Court clarified the treatment of dividend income, purchase price of shares, and eligibility for relief under Section 80M, emphasizing the distinction between business expenditure and dividend income. The judgment provided a comprehensive analysis of the issues raised by the Revenue, ensuring proper application of tax laws in the case.