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TMI Blog2005 (9) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom) of 1987 for the assessment year 1981-82, has been referred to this court under section 256(1) of the Income-tax Act, 1961, by the Income-tax Tribunal: "Whether, on the facts and in the circumstances of the case and in law, the Tribunal is right in holding that relief under section 80M should be granted without deducting from the gross dividend, the interest paid on overdraft and other expenditure incurred for the purpose of earning the dividend in view of the provisions of section 80AA read with section 80M?" The assessee is a company dealing in shares and earns income from dividends and also property. The assessee-company filed its return for the assessment year 1981-82 on July 31, 1981 declaring a loss of Rs. 935. In response to a notice under section 143(2) of the Income-tax Act, the company's accountant attended before the Income-tax Officer. The assessee had earned income from the business of trading in shares of Rs. 16,549 and dividend of Rs. 1,34,984 and from property of Rs. 84,000. The company had utilised overdraft facility for purchase of shares and had paid interest of Rs. 45,469 on the overdraft and incurred other expenses to the tune of Rs. 24,900 which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading in shares and should have been allowed in computing income under the head "Business". Similar expenses cannot once again be deducted from the dividend income for the limited purpose of computing the deduction under section 80M since there is no statutory provision for permitting the Assessing Officer to deduct the same expenses under two different heads of income. It is further submitted that since the income by way of dividend included in gross total income is Rs. 1,34,984 deduction under section 80M has to be granted with reference to the said amount of Rs. 1,34,984. It is further submitted that the case of the assessee is that he is a trader dealing in shares and therefore, he holds the shares as stock-in-trade and not as investment. The assessee realises profit and loss from trading in shares. The income earned from dividend is incidental to the business of dealing in shares. The interest paid by the dealer for borrowing funds used for purchasing shares in the course of business of trading is an expenditure incurred in the course of business unlike an investor who may take loans for the purpose of purchasing shares as an investment and not for sale. In the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income." In the case of an investor, the interest paid on borrowed funds used for purchase of shares would be deducted out of the dividend income. Since the dividend income included in the gross total income would be the net dividend (gross dividend minus interest), deduction under section 80M would be allowed thereof. Section 80M reads as follows: "(1) Where the gross total income of an assessee, being a domestic company, includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to- (a) in respect of such income by way of dividends from a company formed and registered under the Companies Act, 1956 (1 of 1956), after the 28th day of February, 1975, and engaged exclusively or almost exclusively in the manufacture or production of any one or more of the articles or things specified in items 2 and 3, item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s". He, accordingly, directed the Income-tax Officer to allow deduction under section 80M on the gross dividend. The Tribunal also following the Gujarat High Court judgment held that the interest on borrowing for the purpose of acquiring shares and other expenses should not be deducted from the dividend income for granting deduction under section 80M and accordingly, confirmed the order of the Commissioner of Income-tax (Appeals). This court in the case of CIT v. Maganlal Chhaganlal P. Ltd. reported in [1999] 236 ITR 456 following the ratio of the decision of the Supreme Court in the case of Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 held that deduction under section 80M(1) of the Act has to be calculated with reference to the amount of dividend computed in accordance with the provisions of the Act and forming part of the gross total income i.e., after deducting interest on monies borrowed for earning such income and not with reference to the full amount of dividend received by the assessee. The Calcutta High Court in CIT v. National and Grindlays Bank Ltd. [1993] 202 ITR 559 had held that the relevant section 80M is admissible on the gross amount of divid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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