- (1.)THE question that arises on this reference is a very simple one and really not capable of much elaboration. The assessee is a dealer in shares and shares held by it in the business are the stock-in-trade of the business. In the assessment year 1950-51 the assessee company suffered a loss of Rs. 45,911 from its business in shares. That loss was carried forward to the assessment year 1951-52 which is the year under reference. In the assessment year 1951-52 the Income-tax Officer ascertained the assessee's business loss at Rs. 87,042. The assessee received a gross dividend income in respect of the shares which were its stock-in-trade amounting to Rs. 1,42,884. Therefore the result was that after setting off the loss of business against dividend income under section 24 (1) there remained a balance of Rs. 55,842. The assessee contended that the loss from business in shares in the preceding year, viz. , Rs. 45,911, which, as already pointed out, was carried forward should be set off against the balance of the dividend income of Rs. 55,842. The Income-tax Officer refused to set off the loss contending that it could only be set off against the profits from the same business. The Tribunal agreed with the Appellate Assistant Commissioner who took a contrary view holding that the dividend received was a revenue receipt of the assessee's share business, and at the instance of the Commissioner this reference has been made to us.
(2.)NOW, the contention of Mr. Joshi is that looking to the scheme of the Income-tax Act dividends constitute a separate income which must be separately shown under section 12 and which can never form part of business income under section 10. Mr. Joshi further contends that the Income-tax treats the dividend income as income per se. Mr. Joshi has drawn our attention to various sections of the Indian Income-tax Act, section 16 (2), section 18 (3d), section 18 (5), section 20 and section 49b, to satisfy us that a special machinery is set up under the Income-tax Act to deal with dividend income, and the inference he wants us to draw from the provisions is that dividend income is looked upon as a separate head of income and can never be a part of the income arising from business.
(3.)NOW, the well established principle of the Income-tax Act is that section 6 lays down various heads of income, and the fifth head which is "income from other sources" can only be requisitioned provided the income cannot be included in any of the preceding heads. Therefore, an income can only be properly included under section 12 as falling under "other sources" if it could not be legitimately included in any of the preceding heads. Therefore, if the assessee can legitimately include any income under section 10, section 12 would have no operation, because it is only a residuary section and what Mr. Joshi has to satisfy us is that dividend income cannot be legitimately included under section 10.