TMI Blog1989 (12) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... irmative, then whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under Section 80M of the Income-tax Act, 1961, in respect of the sum of ₹ 6,04,320 ? 2. The assessment year involved is 1974-75 for which the relevant accounting period is the year ended March 31, 1974. The facts of this case, as found by the Tribunal, are as follows : The assessee-company had purchased 20,144 shares of the Punjab National Bank Ltd., on January 2, 1974, at ₹ 37 per share. The cost price of the shares amounted to ₹ 7,45,320. In the meanwhile, however, the Punjab National Bank Ltd. was nationalised by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Thereafter, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n over the face value of shares of ₹ 10 each in the nature of dividend as per the definition of dividend under Section 2(22) of the Act. It was, therefore, claimed that, out of the total realisation of ₹ 8,05,760, a sum of ₹ 6,04,320 being the realisation over the face value of the shares was in the nature of distribution by the company of its accumulated profits on reduction of the capital and thus constituted dividend within the meaning of Section 2(22)(d). It was also claimed that dividend income of ₹ 6,04,320 entitled the assessee-company to relief under Section 80M. The Income-tax Officer, however, did not allow the claim. 3. The assessee thereafter filed an appeal to the Appellate Assistant Commissioner, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of arriving at the surplus which alone can be regarded as dividend income which qualified for relief under Section 80M. 6. Lastly, Mr. Naha, on behalf of the Revenue, has drawn my attention to the order of the Income-tax Officer from which it appears that the assessee has debited his business account with the purchase price of the shares and had claimed a loss of ₹ 5,43,888 being the difference between the purchase price and the face value of 20,144 shares. Mr. Naha has contended that the assessee tried to obtain double benefit. He has debited the purchase price in his trading account of share dealing and once again has deducted the face value of the shares from the dividend income. 7. The Income-tax Officer held : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above two types of entries in the books of account as the assessee is not quite sure about the nature of the income. 8. I have carefully considered the arguments of both the sides and I am of the view that the Tribunal fell into an error in disposing of the case in the manner it did. The expenditure incurred for the purposes of acquisition of shares cannot be treated as expenditure for the purpose of earning dividend income. Even if a person buys shares for the purpose of getting dividend year after year, the price for acquisition of the shares will be capital expenditure. Section 56(2)(i) of the Act makes it clear that the dividend must be computed under the head Income from other soures . Therefore, even if a share dealer obtains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the dividend income. When the assessee sells the shares then the excess realisation made may amount to capital gain or business profit depending upon the nature of the shareholding. Similarly, if any loss is suffered as a result of the sale of the shares, the loss would be either capital loss or business loss depending upon the nature of the holding of the shares. 10. There is no dispute that, in this case, the assessee was a dealer in shares and the shares were held as stock-in-trade. Therefore, the buying and selling of shares will have to he shown in the assessee's share-dealing account. This is precisely what the assessee himself has done as was noted by the Income-tax Officer. The purchase price of the shares will be expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st day of April, 1933, whether such accumulated profits have been capitalised or not. 15. This sub-section contemplates that the entire amount of distribution to its shareholder by a company to the extent the company possesses accumulated profits after a certain date will be treated as dividend. Therefore, the entire amount paid by the company to its shareholder will have to be treated as dividend. I fail to see how the face value of the shares can be deducted from such payment of dividend. When a shareholder receives dividend from a company, the face value of the share is not deducted. If the amount which has- been paid by the company is to be treated as dividend, then there is no scope for deduction of the face value of the shares f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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