TMI Blog1978 (2) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years 1963-64, 1964-65 and 1965-66, the assessee claimed deduction of its expenditure respectively of Rs.79,560, Rs. 89,125 and Rs. 63,308 as business expenditure. The Income-tax Officer took the view that a portion of such expenditure was attributable to the dividend income of the assessee in the said years and accordingly he apportioned the expenditure in a certain manner between the business income and the dividend income and allowed deduction on a pro rata basis. The assessee preferred appeals before the Appellate Assistant Commissioner and contended that there was no basis for allocation of expenses between business income and dividend. The Appellate Assistant Commissioner held that a small part of the interest paid by the assessee on bank overdrafts could be described to the business income. But considering the extent of investments of the assessee in shares he allocated Rs. 22,000, Rs. 35,000 and Rs. 30,000, respectively, out of such interest against dividend for the purposes of deduction. Next, he considered other expenses incurred by the assessee, viz., commission paid to the secretaries and treasurers as also salaries, bonus, bank charges and membership subscrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent cause which prevented the appearance of the assessee and accordingly on the 11th January, 1978, we recalled our judgment and directed that the matter should be heard afresh. Mr. B.L. Pal, learned counsel for the revenue, has contended before us at the hearing that under the statute the dividend received had to be assessed under the head "Other sources". If expenditure was incurred solely and exclusively for the purpose of earning dividend then such expenditure had to be deducted from the dividend earned under section 57 of the Income-tax Act, 1961, whether claimed by the assessee or not. Mr. Pal placed particular emphasis upon the observation of the Tribunal that in the appeal there was no dispute as to the amount actually allocated by the Appellate Assistant Commissioner between the dividend income and business income. He submitted that no challenge having been thrown to the basis of the allocation the question referred was academic. Mr. Pal contended further that the finding of the Appellate Assistant Commissioner, that the assessee was an investment company and held the stocks and shares by way of investment, had not been exclusively negatived by the Tribunal. In support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broken up, and taxable income under the head 'Profits and gains of business' will be that amount alone which is earned in the business, and does not fall under any other specific head." (b) Commissioner of Income-tax v. Indian Bank Ltd. [1965] 56 ITR 77 (SC). The facts in this case were that the assessee was a banking company and had, in the course of its business, invested a large sum in securities, including securities the interest wherefrom was exempt from tax. Profits and losses on the purchase and sale of such securities were taken into account in computing the business income of the respondent. The question arose whether the bank could claim deduction of the entire interest paid to its own constituents on their deposits. The Supreme Court held that such interest had to be allowed in its entirety under section 10(2)(iii) of the Indian Income-tax Act, 1922, and observed as follows : "In section 10(2)(xv), what Parliament requires to be ascertained is whether the expenditure has been laid out or expended wholly and exclusively for the purpose of the business. The legislature stops short at directing that it be ascertained what was the purpose of the expenditure. If the answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case which yielded the income form part of the trading assets of the assessee? The Tribunal and the High Court found that they were the assessee's trading assets and the income therefrom was, therefore, the income of the business. If it was the income of the business, section 24(2) of the Act was immediately attracted. If the income from the securities was the income from its business, the loss could, in terms of that section, be set off against that income." (d) Commissioner of Income-tax v. Industrial Investment Trust Co. Ltd. [1968] 67 ITR 436, 448 (Bom). This case was cited for the following observation of the Bombay High Court : "The circumstance that the business activity has produced income, a part of which is liable to tax and a part of which is free from tax, will not permit the allocation of the expenses between these two parts of the income and allow only that part which is attributable to the earning of the taxable income. In the present case before us, it is not disputed that the business activity of the assessee was a single activity and it had not two distinct or different businesses : one yielding a tax-free profit and the other a profit, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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