TMI Blog1999 (2) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... worth ₹ 182.60 lakhs. There was opening stock of shares of ₹ 150.57 lakhs and closing stock of ₹ 412.55 lakhs. However, there was no dealing in synthetic fabric in this year. In addition to this, the assessee rendered certain services against which it earned the gross receipts of ₹ 64.24 lakhs. During the year under consideration, the assessee had borrowed certain funds from banks on which interest amounting to ₹ 9.60 lakhs was paid to the bank. During the year under consideration, the assessee had also received dividend income of ₹ 4,26,898. The assessee claimed the aforesaid amount of dividend income as deduction under section 80M. However, the Assessing Officer rejected the claim of the assessee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submitted by him as an alternate contention that at least the interest paid by the assessee should be apportioned between the business income and the dividend income on pro-rata basis. In support of this submission, he relied on the decision of the Gujarat High Court in the case of H.K. (Investment) Co. (P.) Ltd. v. CIT [1995] 211 ITR 511. 4. On the other hand, the learned counsel for the assessee submitted before us that the issue is squarely covered by the decision of the Gujarat High Court in the case of CIT v. Cotton Fabrics Ltd. [1981] 131 ITR 99 and decisions of the Calcutta High Court in the case of CIT v. National Grindlays Bank Ltd. [1993] 202 ITR 559 and in the case of CIT v. Enemour Investments Ltd. [1994] 72 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the interest on such borrowings is deductible under section 36(1)(iii) while computing the business income. 6. It has to be brought in mind that there is a distinction between the monies borrowed for purchase of shares to be held as stock in trade and the monies borrowed for the purchase of shares to be held as investments. In the former case, the interest on borrowings has to be allowed as the business expenditure under section 36(1)(iii). While in the latter case, the interest is allowable as deduction under section 57(iii), while computing the income from dividend under the head income from other sources . Therefore, as a consequence thereof, the gross amount of dividend has to be allowed as deduction under section 80M in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the assessee and, therefore, allowable as deduction under section 36(1)(iii). 7. The decision of the Hon ble Supreme Court in the case of Distributors (Baroda) (P.) Ltd. (supra) relied upon by the learned Departmental Representative, in our opinion, does not support the case of the revenue on the facts of the case. According to this decision, the gross total income should include the income by way of dividend from domestic company and the income from dividend has to be computed in accordance with the provisions of the I.T. Act, before making any deduction under Chaper VIA. Therefore, if the assessee has incurred any expenditure by way of interest on the monies borrowed for earning of such income, then it has to be deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in the case of Mahendra Sobhagchand Shah (supra). Though this decision relates to deduction under section 80K, but the principle laid down by the Bombay High Court is the same as laid down by the Gujarat High Court in the aforesaid case. The other decisions of the Tribunal relied upon by the ld. assessee s counsel also support the case of the assessee. 9. The decision of the Gujarat High Court in the case of H.K. (Investment) Co. (P.) Ltd. (supra) relied upon by the learned D.R. is distinguishable on the facts of the case. In that case, there was a finding that the borrowed funds were utilised partly for the purpose of business and partly for earning income assessable under the head Income from other sources . Becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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