BANERJEE,J. - (1.) PURSUANT to the directions of this Court under S. 256(2) of the IT Act, 1961('the Act'), the Tribunal has referred the following questions of law to this Court: "1. Whether, the findings of the Tribunal that the shares, on which the assessee received dividend were held by the assessee as stock-in-trade was based upon any evidence? 2. Whether, on the facts and in the circumstances of the case, the relief under S. 80M of the IT Act, 1961 should be computed on the gross dividend or after deducting the proportionate expenditure as on by the ITO?"
(2.) THE brief facts relating to both the assessees are that in the asst. yrs. 1985-86 and 1986-87, the assessee claimed deduction under S. 80M of the Act on the gross dividends of Rs. 37,708, Rs. 22,490, Rs. 1,99,500 and Rs. 2,49,500. The ITO, however, held that a part of the expenditure booked by the assessee was attributable to earning of the dividend income and in the absence of any apportionment in the books of the account he estimated such expenditure at the rate of 5 per cent of the gross dividends. Aggrieved by the aforesaid orders of the ITO, the assessee's filed appeals before the CIT (A). Before the CIT (A), the assessees submitted that they were dealers in the shares and securities which were held by them as stock-in-trade and, accordingly, all items of expenditure incurred were referable to the business and same amount was deductible from the gross dividends earned by them. The CIT (A) observed that the assessee were doing the business of dealing in shares and the dividend income accrued to them was in the course of such dealings. The CIT (A),accordingly, in his order held as follows: "I find myself in agreement with the appellant in the matter. The facts that at the relevant time the appellant was carrying on the business of dealing in shares has not been called into question and in such case no apportionment of the expenses as between the business income and dividend income is to be made as so held by the Hon'ble High Court at Calcutta in the decision reported in CIT vs. New India Investment Corpn. Ltd (1978) 113 ITR 778 (Cal). The expenditure incurred by the appellant should in its entirety be treated as being referable to its business activity. I agree that the introduction of S. 80AA by the Finance Act, 1980 has not brought about any alteration in the situation. I, therefore, allow the appeals on this point and direct the ITO to recompute the deductions under S. 80M for the asst. yrs. 1985-86 and 1986-87 on the gross dividends of Rs. 37,708 and Rs. 22,490, respectively. Consequently, the ITO shall recompute the unabsorbed deduction under S. 80M to be carried forward". Against the order of the CIT (A), Department filed appeal before the Tribunal. The learned counsel for the Revenue submitted that for the purpose of relief under S. 80M the proportionate expenditure allocable for earning dividend income has to be deducted from the gross amount of dividend in view of S. 80AA of the Act which was inserted with retrospective effect from 1st April, 1968.
(3.) THE Tribunal after considering the rival contentions of the parties have held that: "the assessees are found to be dealers in shares and shares were held by them as stock-in-trade by the CIT (A). The Tribunal after examining the printed accounts of these two assessees found that the assessees are engaged in the business of dealing in shares and money lending. Shares are held by them as stock-in-trade. The Hon'ble Calcutta High Court in the case of New India Investment Corp. Ltd. (supra) held that where an assessee was holdings shares and securities as its stock-in-trade and dividend was received by the assessee from such stock-in-trade and the assessee had incurred expenditure to earn its income, though the dividend earned by the assessee was assessable under the head 'Income from other sources' it was really his 'business income' and that the expenditure incurred by the assessee cannot be apportioned against income arising under two different heads, i.e., 'business' and 'dividend'. The facts and circumstances of the case of these two assessees searely fit into the facts and circumstances of that case in New India Investment Corp. Ltd.(supra). In such circumstances the said decision is fully applicable and these in the facts and circumstances of the case I hold that the CIT (A) was fully justified in directing the ITO to recompute the deduction under S. 80M on the gross dividends without deducting anything towards the alleged expenditure for the purposes of earning the dividends". ;