TMI Blog2006 (7) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... stated, the facts are these: The assessee was engaged in the business of purchase and sale of shares. She declared business loss of Rs. 40,94,017 and speculation loss of Rs. 3,83,00,505 for the assessment year under consideration. She also received dividends of Rs. 3,80,302 in respect of traded shares and the same was claimed as exempt under section 10(33) of the Income-tax Act, 1961 ('Act'). The Assessing Officer was of the view that the dividend received by the assessee on traded shares was in the nature of "Business Income" in view of various Supreme Court judgments and, therefore, the same was liable to be adjusted against the business loss declared by the assessee by Rs. 3,80,302. Consequently, no income was assessed on account of dividend income separately. The reason for doing so was that the cost of dividend embedded in the purchase cost should be excluded and the same should be set-off against dividend receipt. 3. The matter was carried in appeal before the learned CIT(A), before whom, it was contended that any income by way of dividend was exempt under section 10(33) of the Act irrespective of the fact whether such income is "Business income" or "Income from other sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning is higher than the dividend received. Thus, there would be no income earned out of the dividend received and, therefore, there is no question of any exemption under section 10(33) of the Income-tax Act." In view of the above observations, the learned CIT(A) dismissed the appeal of the assessee. Aggrieved by the same, the assessee is in further appeal before the Tribunal. 4. The learned counsel for the assessee has contended before us that incomes which are exempt under section 10 of the Act are not to be included in the total income of the assessee and consequently such income do not enter in the computation of total income. Accordingly, it has been submitted that the dividend income being exempt under section 10(33) of the Act, has to be excluded from the Profit Loss A/c. and only thereafter the profit or loss arising from the business has to be computed. In view of this legal position, it was submitted by him that question of setting-off such income against the business loss does not arise. On the other hand, the learned D.R. has submitted that the assessee not only acquired the shares but also acquired the right to receive dividend and, therefore, the purchase pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is pertinent to note that it is the income falling under section 10 which is to be excluded and not the gross receipt. Income cannot be determined unless the expenditure incurred from earning the receipt is taken into consideration. As a necessary corollary, first, income is to be determined from a particular source and then if such income is exempt under section 10, then it shall not be considered for computing total income. Accordingly, we are unable to accept the contention of Mr. Vora that gross dividend should be excluded from the computation of total income. Further, section 14A of the Act also provides that the expenditure, incurred in relation to the income not includible in the total income, shall not be allowed as deduction while computing to total income. Thus, if any expenditure is incurred by the assessee in relation to dividend income exempt under section 10(33) of the Act, shall not be allowed as deduction while computing the profit or loss of trading business carried on by the assessee. To that extent, we are in agreement with Mr. Maheshwari, learned D.R. appearing for the revenue. 7. The question which remains for our consideration is whether can it be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the parties. The consideration paid by the buyer must relate to the goods delivered or services rendered. Merely because something passes along with subject-matter intended under the contract would not mean that any part of the consideration related to that element. It would be appropriate to illustrate our point of view with reference to few decisions of the Apex Court. 10. In the case of State of Madras v. Gannon Dunkerly Co. (Madras) Ltd [1958] 9 STC 353 (SC), the respondent was engaged in the construction of buildings. State of Madras levied sales tax on the value of the materials used by the respondent in execution of the building contracts. The Constitution Bench of the Hon'ble Supreme Court had to consider the question whether building contract included the sale of materials used in such contract. Their Lordship held that the consideration paid was for construction of building and, therefore, no part of consideration could be considered as price of raw materials exigible to sales tax. Their Lordships, at pages 377-378, observed as under: "We are accordingly of the opinion that on the true interpretation of the expression 'sale of goods' there must be an agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to consider the question whether, when a trader in cigarettes sold cigarettes priced at a particular figure for a specified number and handed them over to a customer in a cheap card board container of insignificant value, he intended to sell the cardboard container and the customer intended to buy the same? It is not possible to state as a proposition of law that whenever particular goods were sold in a container the parties did not intend to sell and buy the container also. Many cases may be visualized where the container is comparatively of high value and sometimes even higher than that contained in it. Scent or whisky may be sold in costly containers. Even cigarettes may be sold in silver or gold caskets. It may be that in such cases the agreement to pay an extra price for the container may be more readily implied." The perusal of the above observations of Their Lordships clearly reveals that it is the intention of the parties which is relevant and not the material or element which incidentally passes under the contract. Such intention may be express or implied but nothing can be inferred on suspicion. Before parting with this decision, we may mention that in the above cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts of each case. Nothing can be inferred on suspicion. 13. The legal position, as enunciated above, is further strengthened by the Supreme Court judgment in the case of CIT v. India Discount Co. Ltd [1970] 75 ITR 191. In that case, the assessee, a dealer in shares, purchased 11,900 shares of a company from a share broker against a total consideration of Rs. 1,12,576, which included arrears of dividend pertaining to earlier years amounting to Rs. 43,925. The said amount of dividend was received by the assessee during the year under consideration and the same was credited to Profit Loss A/c. However, the assessee claimed that there was no income by way of dividend since the amount of dividend was nothing but realization of the price paid which was included in the purchase price of shares. The matter reached the Apex Court and Their Lordships held that the assessee had entered into a contract not only to purchase the shares but the arrears of dividends also and this clearly implied that the price paid by him was not only for the shares but also for the sum of Rs. 43,925 which was going to be realized in the form of arrears of dividends. Hence, the sum of Rs. 43,925 was n ..... 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