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TMI Blog2013 (2) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial services to foreign institutional investors, domestic institutions and high net worth individuals. 3 . During the assessment year under consideration, assessee earned tax-free dividend income of Rs. 1,73,580 and the same has been claimed as exempt. The AO has stated that assessee has not allocated any expense incurred for earning of such tax-free income. Assessee stated that no expenditure has been incurred to earn the exempted income. However, AO did not agree with above contention of assessee and by applying r. 8D of IT Rules calculated the expenditure at Rs. 7,53,507 and disallowed the same as per sec. 14A of the Act. Being aggrieved, assessee filed appeal before learned CIT(A). 4 . Learned CIT(A) after considering the submissions of assessee stated that assessee had borrowed money which was utilized in purchase of shares held both as investment as well as stock-in-trade. Therefore, the interest incurred was relatable to earning of dividend on the shares purchased. Learned CIT(A) further stated that interest expenses of Rs. 18,64,977 are direct expenses for the IPO application. Hence, there exists direct nexus in expenses incurred. Learned CIT(A) has held that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year under consideration. 8. We have considered submissions of learned representatives of parties and orders of authorities below. 9. There is no dispute to the fact that assessee is engaged in the activity of stock broking and providing financial services. Assessee has given details of the payment of interest made to Birla Global Finance Co. Ltd. and Kotak Mahindra Investment Ltd., which are mentioned in para 6 hereinabove. It is not disputed that borrowed money was invested in IPO. At the time of hearing, learned Authorised Representative submitted that profit/loss on the said allotment of shares to the assessee has rightly been assessed under the head "Business income" of the assessee. Therefore, the borrowed money, which was utilized in investment in IPO, was considered as stock-in-trade-. We observe that similar issue has been considered by the Hon'ble Karnataka High Court in the case of CCL Ltd. v. Jt. CIT (2012) 206 Taxman 563/20 taxmann 196, wherein it was held that even though the dividend income is exempt from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut also in the earlier years and not accepting the principle of consistency. 11. The relevant facts are that assessee has earned bank interest of Rs. 24,03,692 on account of 50 percent of margin money given in the form of fixed deposits to obtain bank guarantee in favour of National Stock Exchange (NSE) so that assessee could have trading limits in the cash market segments of the Exchange Assessee claimed that said bank interest is to be assessed under the head "Income from business". Learned CIT(A) did not accept the contention of assessee and stated that interest income cannot be assessed under the head "Business income" and considered it under the head "Income from other sources". It is relevant to state that learned CIT(A) in para 4.3 of the impugned order referred the judgments of Hon'ble Apex Court in the cases of Pandian Chemicals Ltd. v. C/r (2003)262 ITR 278/129 Taxman 539 (SC), Liberty India v. C/F (2009)317 ITR 218/183 Taxman 349 (SC), Totgars Co-operative Sale Society Ltd. v. ITO (2010) 322 ITR 283/188 Taxman 282 (SC), CIT v. Dr. V.P. Gopinathan (2001)248 ITR 449 (SC), CIT v. Autokast Ltd. : (2001) 248 ITR 110/116 Taxman 244 (SC) and C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied on order of learned CIT(A), 15. We have considered submissions of learned representatives of parties and orders of authorities below and the cases relied upon by learned CIT(A). We observe that cases which have been relied upon by learned CIT(A) (supra) namely, Pandian Chemicals Ltd. (supra) and Liberty India (supra) are not relevant to the facts of the assessee's case as in the said cases, it was held that said income was not earned by industrial undertaking and, therefore, could not be considered for the purpose of claiming deduction under sec. 80HHC /80HH of the Act. Further, in the case of Totgars Co-operative Sale Society (supra), it was found that assessee Out the deposit in bank and earned interest on the funds which were not required immediately by the assessee for business purposes and hence, it was held that interest earned could not be" assessed under the head "Profits and gains of business". In the case of Dr. V.P. Gopinathan (supra). the Hon'ble Apex Court held that the amount paid by assessee as interest on loan taken from banks on the security given for fixed deposit could not be reduced from income by way of interest on the fixed deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been directed by him to be assessed under the head income from other sources. 17. Assessee has claimed total rebate under s. 88E of Rs. 19,49,722. AO stated that said rebate is allowable only on the income i.e. gross receipts (-) expenses and brought forward losses. AO has stated that assessee had an income of Rs. 63.88 lakhs from speculation business and Rs. 28.87 lakhs from F/O transactions which are eligible under sec. 88E. He has further stated that only speculative income after set off of losses of Rs. 37,36,642 and expenditure of Rs. 15,05,106, the claim of rebate under sec. 88E will be substantially reduced. AO has revised the working as under.: 18. Accordingly, AO stated that there is excess claim of STT of Rs. 7,82,080 and disallowed the same. Being aggrieved, assessee filed appeal before learned CIT(A). 19. Learned CIT(A) in para 4 has considered the submission of assessee and vide para 4.5 has directed the AO to recompute the rebate under sec. 88E of the Act as the interest on FD from banks as security for bank guarantee given to NSE to avail credit facility is assessed under the head "Income from other sources" and therefore, the same has to be wholly kept ..... X X X X Extracts X X X X X X X X Extracts X X X X
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