TMI Blog2005 (10) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... d in question. But nonetheless, it is only a capital receipt which will go to reduce the cost of acquisition of the preference shares. Reliance was placed on the decision in the case of Globe United Engg. Foundry Co. Ltd. v. Industrial Finance Corpn. of India [1974] 44 Comp. Cas. 347 (Delhi). Our attention was also invited to the decision of the Hon ble Supreme Court in CIT v. India Discount Co. Ltd. [1970] 75 ITR 191 wherein it was held that arrears of uncollected dividend received by the buyer was not taxable as the income of the buyer. The learned Departmental Representative, on the other hand, strongly supported the impugned order. 2. The relevant facts relating to this issue are that the assessee has purchased 50,000 shares of 11% redeemable cumulative preference shares of the erstwhile Karnataka Shipping Corporation Ltd. of the face value of Rs. 50 lakhs, for a sum of Rs. 5,00,000 only from the Government of Karnataka in 1983. No dividend was declared by the said shipping corporation for years as it was always in loss. After the acquisition in 1983 by the Essar group, the said corporation was merged with M/s. Bulk Carriers, a profit making concern of the same gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed under section 207 of the Companies Act, 1956. 4. Now coming to the taxing provisions, dividend income is subject-matter of discussion in section 8 of the Income-tax Act, 1961, which makes dividend taxable only when it is declared by the company or distributed or paid by it and it shall be deemed to be the income of the previous year in which it was declared, distributed or paid, as the case may be. In other words, dividend to be treated as income within the various sub-clauses of section 2( 22 ) of the IT Act, the same must be declared or distributed or paid, as the case may be. In this case, there is no dispute as to the fact that the so-called dividend was in arrears and it came to be declared by the successor company after the assessee became the owner of these shares. We, therefore, in the light of the aforesaid provisions, confirm the order of the CIT(A). The CIT(A) has elaborately discussed the case-laws relied upon by the assessee in this regard and has upheld the order of the Assessing Officer in the light of the clear provisions of section 8 of the Income-tax Act, 1961. We approve his findings by affirming his order on the disputed issue. 5. The next disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower unit. Such an expenditure is covered by the provisions of section 35D(1)( ii ). The expenditure incurred by the appellant was not related to the existing business and, accordingly, was not allowable under section 37 of the Income-tax Act, 1961. The judgments relied upon by the appellant cannot help its cause as the expenditure incurred in those cases was directly relatable to the existing business. No new viable lines of business were explored in those cases. In view of the above discussion the claim of the appellant is rejected." We have heard the parties to the dispute and have gone through the records. In our opinion, the findings of the CIT(A) are reasonable, in the facts and circumstances of the case, and do not call for any interference. The CIT(A) has already recorded a finding that the judicial pronouncements relied upon by the assessee before him are distinguishable on facts. We, therefore, uphold the order of the CIT(A) on this issue and reject the assessee ground. 8. The next dispute relates to deduction under section 80M of the Act. During the year under consideration, the assessee received gross dividend of Rs. 2,51,35,880 and claimed deduction under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those items of expenditure which were laid out of expended wholly and exclusively for the purpose of making or earning the dividend income. Without doing such an exercise, he should not have reduced the dividend income of the appellant by Rs. 34,15,304. Considering the circumstances, this issue is remitted to the file of the Assessing Officer. He is directed to give a clear finding about the expenditure incurred for making or earning the dividend income. It may be repeated that no fault can be found in the method in which the Deputy Commissioner has allocated the expenditure towards the dividend income. The rate of 251 (gross dividend income) to 266 (the total income) cannot be said to be unreasonable. Thus, the Assessing Officer may proportionately allocate the expenditure which was incurred for making or earning the dividend income subject to the discussion above." Still aggrieved, the assessee is in appeal before us. 9. We have heard the parties to the dispute and have gone through the record. The claim of the assessee was that it was having composite business activities and hence no part of the expenses is allocable against the dividend income. It is also seen that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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