Law:

Section:

Section 37(1), read with sections 28(i) and 57, of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1963-64 to 1965-66 – Assessee-company held shares and securities as its stock-in-trade and such holdings were not shown to be held by way of investment - Dividend was received by assessee from its stock-in-trade - Whether expenditure incurred by assessee on earning dividend income was referable to business activity carried on by assessee and must be allowable under head "Business income"- Held, yes – Whether even assuming that income of assessee was solely referable to dividend, there could be no question of apportionment of such expenditure between business income and dividend income - Held, yes FACTS The assessee was an investment company and also deals in shares. The assessee derived income from business, interest on securities, dividends and other sources. In its income-tax assessments for the relevant assessment years, the assessee claimed deduction of certain amount as business expenditure. The ITO held that a portion of such expenditure was attributable to the dividend income of the assessee in the said years and accordingly he apportioned the expenditure in a certain manner between the business income and the dividend income and allowed deduction on a pro rata basis. On second appeal, the Tribunal found that the investments held by the assessee were its stock-in-trade and that the dividend arose therefrom; that there was no material to show that any part of the holding of the assessee was held as investment. The Tribunal accordingly held that the assessee being a dealer in shares and securities, dividend arising from such shares and securities partook of the character of income from business and not income from investment and the dividend income constituted part of the business profits of the assessee though the same would be charged to income-tax under specific head provided. The Tribunal accordingly held that the order of the ITO was not justified and thus decided in favour of the assessee. On reference : HELD In view of the law as laid down by the Supreme Court in CIT v. Chugandas and Co. [1965] 55 ITR 17 , CIT v.…

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