Law:

Section:

Section 2(7)(iii) of the Finance (No.2) Act, 1962, read with Section 56 of the Income-tax Act, 1961 Act, - Earned income - Meaning of - Assessment years 1963-64 to 1965-66 - Whether definition of 'earned income' contained in section 2(7)(iii) intends that dividend income must be direct result of personal exertion - Held, yes - Whether between personal exertion and receipt of income inform of dividend, there must be no intervening stage or event - Held, yes - Whether where there is an intervening event, between personal excretion and dividend income, income earned cannot be said to be immediately derived from carrying on of profession - Held, yes - Whether where dividend income was derived from ownership of shares and stock, intervening event between personal exertion and dividend income was acquisition of shares and once that event intervened, dividend income could not be said to be immediately derived from personal exertion of assessee - Held, yes Wards and Phrases:- Wards 'immediately derived from' as occurring in section 2(7)(iii)(c) of the Finance (No.2) Act, 1962 FACTS The assessee carried on the business on the business of purchasing and selling shares. During the relevant assessment years, the assessee received certain amount as dividends during the course of his share business. Rs. 1,26,118 and Rs. 69,227 during the course of his share business. Out of said amounts he paid back to the purchasers the dividends received by him on the shares sold by him. The ITO deducted those amounts out of the income from brokerage and the income from share business while he included the gross dividends received by the assessee as his income under the head 'Other sources' and classified it as earned income. The Commissioner in exercise of his revisional jurisdiction under section 263 modified the assessment orders by treating and assessing the dividend as unearned income. On appeal, the Tribunal set aside the order of the Commissioner and treated the dividend income as earned income. On referene: HELD Before an income which is chargeable under the head 'Income from other sources' can qualify for being classified as earned income, it has to satisfy the test laid down in…

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