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TMI Blog1984 (10) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... f the second and the third grounds, it is contended that payment of interest in the case of an investment company like the assessee, is a normal business expenditure. It is required to be allowed against the business income and not against the dividend income. Observing that the assessee-company had itself computed the net dividend income after deducting the interest paid from the gross dividend in the past, the ITO had computed the assessee's net dividend income at Rs. 85,128 and allowed deduction under section 80M on the said amount. 2. It was reiterated before the Commissioner (Appeals) that for the purpose of computing the deduction under section 80M, the interest payment could not be adjusted against the gross dividend income to arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations of the Calcutta High Court in the case of Bengal Assam Investors Ltd. v. CIT [1962] 46 ITR 655, which is stated to have been confirmed by the Supreme Court in Bengal Assam Investors Ltd. v. CIT [1966] 59 ITR 547. Further, according to the counsel, section 28 of the Act covers a case of not only business but also profession. Profession is defined in section 2(36) of the Act and it includes vocation. Accordingly, it is urged that even if the assessee is taken to have carried on vocation and not business, such interest paid by it, for the purpose of making investment, will have to be allowed as a deduction under section 36(1)(iii) of the Act itself. 4. The departmental representative has, on the other hand, strongly relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that with a view to earn the dividend income the assessee purchased shares of a particular company. There is no dispute that the assessee is not a dealer in these shares and, in any event, there has been no dealings in shares of this company or any other company during the previous year or in earlier years. Besides, the assessee has utilised its surplus funds in earning interest. Here again, the transactions are with three, four parties only. Thus, the assessee cannot be said to be carrying on even money-lending business. The borrowings are, certainly, for the purpose of purchasing the shares with a view to earn dividend from the shares. Having regard to the above circumstances, we have no difficulty in holding that the interest paid on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rightly so, that the interest paid was allowable under section 36(1)(iii) against business of share dealing and cannot be adjusted against dividend income. The observations of their Lordships at page 238, when read in the context of facts of that case, do not help the assessee at all. The facts in the Bombay High Court's decision in the case of Industrial Investment Trust Co. Ltd. are not different. There again, their Lordships have held that, on general principles, if the expenses are allowable as business expenses, they should be deducted from the income of the business which is liable to tax. The circumstances that the business activity has produced income, a part of which is liable to tax and a part of which is free from tax, will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a company or any other entity, must carry on business in respect of shares, that is to say, the assessee must deal in those shares. An individual, who merely invests in shares for the purpose of earning dividend, does not carry on a business. The only way he can come under section 10 is by converting the shares into stock-in-trade, i.e., by carrying on the business of dealing in stocks and shares. If a company merely acquires and holds shares with the object of receiving dividends, it does not carry on business within section 10. " 9. The ratio decidendi of all these decisions appears to be that if an assessee carries on business, the income of which is assessable under the head 'Profits and gains of business or profession', i.e., unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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