TMI Blog2008 (5) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in this regard at any stage during the course of hearing before the Tribunal, hence, it did not arises consideration of the Tribunal. Thereafter, the ld. Counsel contended that the assessee had cited various judicial decisions which were not dealt by the Tribunal, which was a mistake apparent from record and also if the Tribunal was not agreeable with those decisions, then, it should have referred to the matter to the Special Bench. The ld. Counsel further submitted that the Tribunal had passed its order by making various unverified statements and assump-tions and the assessee had no opportunity to deal with the same and, therefore, the order had been passed in violation of rule of law as well as against the principles of natural justice. The ld. counsel also placed reliance on the decision of the Hon ble Calcutta High Court in the case of R.L. Rajgharia v. ITO [1977] 107 ITR 347 to contend that when the Tribunal decided the issue which was not a subject matter of appeal before the Tribunal, then, such action of the Tribunal was beyond it s jurisdiction, hence, such order was liable to be withdrawn. The ld. Counsel also contended that the decision of Hon ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is engaged in business of investment and the professional fees incurred thereon is allowable as business expenditure." From the perusal of the above ground, it is clear that the department has challenged the findings of the ld. CIT(A) that assessee was engaged in the business of investment, hence, the professional fee was allowable as business expenditure. The above ground inherently involved the issue of allowance of expenditure under the head Business or profession when the assessee is engaged in the business of investment. In our view, the findings of the Tribunal after holding that there could be a business of investment emanates from this very issue. For example, if there is a dispute regarding the nature of expenditure i.e. whether it should be treated as capital nature or revenue nature, then, if it is treated as of capital nature, then, automatically depreciation thereon is required to be allowed provided other conditions in section 32 of the Act are satisfied. Similarly, if the head of income is disputed, then, consequently whatever head is decided finally, the assessee can claim expenditure under that head only, hence, when certain issues remain embedded in a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble only when an assessee engages himself as a trader and not as an owner of an asset. The assessee has also contended that no judicial authority has been cited by the Tribunal, hence, the view of Tribunal is not correct. In our opinion, this plea is not valid because if it be so, then, no proposition of law can ever be pronounced as every time some authority would be required. We also find that assessee has said that several decisions had been cited for the proposition that whether there could be a business of investment or not and the Tribunal did not record these decisions in its order. In this regard, we state that the Tribunal after taking into consideration all these decisions, proceeded to deal with embed issue therein, hence, the basic argument of the assessee was accepted by the Tribunal and, therefore, if the Tribunal did not deal in a specific manner, with each of the cases cited for the proposition of business or investment. It did not commit any mistake. As regards the contentions of the assessee that the Tribunal acted beyond it s jurisdiction by holding so and for this proposition the assessee has relied on the decision of Hon ble Calcutta High Court where the subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, and that is why the Hon ble Supreme Court had no occasion to examine the aspect before us i.e. whether it could be allowed under the head Business or profession or it could be allowed under the head Income from other sources or under the head Capital gains . Accordingly, in our humble view, the said observations of the Hon ble Supreme Court do not render any assistance to the cause of the assessee. In this regard, we would further like to state that it is a settled principle that the ratio of the decision is to be applied only with reference to the dispute before that forum and observations made therein cannot be extended in this manner. We also find that the decision in the case of Amalgamations (P.) Ltd. ( supra ) is a two-Judge Bench decision whereas the decision in the case of United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC) is a three-Judge Bench decision which is directly on the issue, hence, it is required to be followed in this context. We also find that the ld. Counsel argued similar issue in the case of Kankhal Investments Trading Co. (P.) Ltd. v. Asstt. CIT and Nikhil Investments Co.(P.) Ltd. v. Asstt. CIT wherein the arguments raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e did not invest the money for earning dividend income and therefore it should be presumed that investment was on account of business consideration. We are unable to accept this contention. An investor normally does not invest merely for dividend. It takes into consideration the rise in prices of shares in future and that is why such investments are called long term investments. All good shares are quoted in Stock Exchange at very high prices as compared to the Face Value and dividends declared in the past are most of the time insignificant. Still the investor invests the money considering the facts that ( i ) Prices may rise and ( ii ) bonus shares may be issued in future in addition to the dividends received. So mere investment in shares by a company would not tantamount in business of holding investments. Assessee must prove the business considerations for making investment before claiming any deduction under section 36(1)( iii ). Even the Apex Court in the case of Distributors (Baroda) Ltd. ( supra ) has clearly held that assessee must satisfy the test laid down by the Apex Court in the case of Narain Swadeshi Weaving Mills ( supra ). Faced with the factual situation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations of Their Lordships are being reproduced as under : Under the Indian Income-tax Act, 1922, the income of an assessee is one and sections 7 to 12 of the Act direct the modes in which income-tax is to be levied. No one of those sections can be treated to be general or specific for the purpose of any one particular source of income; they are all specific and deal with the various head in which an item of income, profits and gains of an assessee falls. These sections are mutually exclusive and where an item of income falls specifically under one head it has to be charged under that head and no other. Income from interest on securities falls under section 8 of the Act and not under section 10; it cannot be brought under a different head of income, viz., profits and gains of business under section 10, even though the securities are held by a banker as part of his trading assets in the course of his business. The above view was reiterated by the Hon ble Supreme Court is in the case of East India Housing and Land Development Trust Ltd. 42 ITR 49 by observing as under : Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. Counsel for the assessee, could relate to the profits arising from sale of investments since the main object was to hold the investments. Since income arising from sale of investment has to be computed under the head Capital Gains , the deduction has to be allowed only in accordance with the provisions specified under the head Capital Gains . The Legislature was aware of the aspect of inflation of price and therefore, it made provisions to determine the indexed cost of acquisition, which would take care of interest cost also. No separate deduction is allowable under this head in respect of interest paid on borrowed funds. Thus, in our opinion, no deduction is allowable to the assessee in respect of interest paid on borrowed funds. 20. It has been contended by the ld. Counsel for the assessee that the assessee should not lose the statutory deductions under section 36(1)( iii ) merely because its income is to be computed under other heads. We are unable to accept such contention. What is to be computed under section 28 is the profits gains of business or profession, which also includes losses. As per the commercial or accounting principles, neither the profits nor the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other source under the same head. A bare look at the above provisions make it clear that the income must be computed in respect of each source assessable under the same head. If there is loss from one source, the same can be set off against the income from the other source assessable under the same head. Let us explain it through an example. A company may carry on business of dealing in shares as a broker as well as on its own account. In the eyes of law, dealing in shares as a broker is one source of income while dealing in shares on its own account is another source of income. In such cases, assessee may earn gross profit of Rs. 50,000 from purchase and sale of shares on its own account with the assistance of borrowed fund on which interest of Rs. 1,20,000 is paid. Thus there would be net loss of Rs. 70,000. On the other hand, income from the brokerage business may be computed at Rs. 1,00,000. After setting off the loss, the net income for business would be Rs. 30,000. However, such set off is not permissible as per the provisions of section 73 as loss on sale of shares will have to be considered as speculation loss, which can only be carried forward to next year. To a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciples subject to the overriding provisions of law which may provide that the assessee would be entitled to expenditure without being a possibility of income under that head and since, no such provision exist in respect of this issue, hence, said accounting principle also weighs against the assessee. In this regard, the assessee has contended that if it was in the legal profession, it established the set up and incurred expenses on salaries and if no client came, the expenditure was allowable. We hold that there is no denial of the fact that the assessee would be eligible for deduction for the expenses incurred in the course of carrying on the legal profession because whenever a client comes, the fees received from that client would be chargeable under the head income from business or profession and such possibility entitles the assessee to claim the expenditure regardless of the fact that whether the client comes or not or receipts may be less than the expenses incurred by the assessee. However, in the present case, as stated earlier, there is no possibility of any income coming under the head Income from business or profession , hence, the expenses under that head cannot be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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