2004 (9) TMI 9 - HC - Income Tax

Whether, Tribunal was right in law in directing deduction of the interest and expenditure from the business income also without recording a finding that the assessee is also a dealer in shares and a portion of the interest and expenditure are attributable to the business income? - the question of law framed that without there being any finding as to whether the assessee-company is dealing in shares, the order passed by the Tribunal cannot be sustained, has to be rejected, as there is a clear finding as well as the admission of the assessee as well as the Revenue themselves before all the authorities that the assessee-company is dealing with shares and of the alternative submission made by counsel that there is no finding as to whether the apportionment has to be made on the net dividend and gross dividend, which has also been categorically stated in the order passed by the Tribunal that the direction as to apportionment is only on the net dividend, there remains nothing to be adjudicated, and the appeal is liable to be dismissed

Summary

Issues:
1. Interpretation of law regarding deduction of interest and expenditure from business income for a company dealing in shares.
2. Validity of the Tribunal's direction to apportion dividend without a specific finding on whether the assessee is a dealer in shares.
3. Determining whether the apportionment of dividend should be based on gross dividend or net dividend.

Analysis:
1. The primary issue in this case revolves around the interpretation of law concerning the deduction of interest and expenditure from business income for a company engaged in dealing with shares. The Revenue contended that the Appellate Tribunal erred in directing an apportionment without establishing whether the assessee is a dealer in shares. However, it was revealed that both the Department and the assessee acknowledged the company's status as a dealer in shares, as evident from their submissions before the Commissioner of Income-tax (Appeals) and the Appellate Tribunal. Therefore, the argument that there was no finding to support the assessee's status as a dealer in shares was deemed invalid by the court.

2. The second issue pertains to the validity of the Tribunal's direction to apportion dividend without a specific finding on whether the assessee is a dealer in shares. The court noted that the Tribunal explicitly stated that the assessee is a company engaged in the business of dealing in shares, which was also acknowledged by both the Department and the assessee. As such, the Tribunal's decision to apportion the dividend based on the net dividend, after deducting interest on capital borrowed for investment, was found to be in line with the facts presented in the case. Therefore, the argument challenging the Tribunal's direction due to the absence of a specific finding on the assessee's status as a dealer in shares was dismissed by the court.

3. The final issue addressed in the judgment concerns the determination of whether the apportionment of dividend should be based on gross dividend or net dividend. The court clarified that the Tribunal's order specified that the apportionment should be calculated on the net dividend, after deducting the interest on the capital borrowed for investment. This clarification rendered the argument questioning the basis of apportionment between gross and net dividend as moot. Consequently, the court concluded that since there was a clear finding and admission regarding the assessee's status as a dealer in shares and the method of apportionment, the appeal filed by the Revenue was dismissed.