COMMISSIONER OF INCOME TAX Vs. COTTON FABRICS LIMITED

JUDGEMENT

(1.) IN this case, at the instance of the Revenue, the following two questions are referred to this High Court for its opinion :

(2.) THE facts leading to this reference are as follows : We are concerned with the asst. year 1969 70. The assessee is a private limited company and carries on business as a dealer in shares. In the relevant previous year in connection with asst. year 1969 70, the ITO separately computed income from dividends chargeable under the head "Other sources" and set off against the same interest amounting to Rs. 37,961 as the amount of interest attributable to and liable to be set off against such dividend income out of the total interest paid by the assessee on loans obtained or moneys borrowed for the purpose of the assessee's business. The amount of loss detetmined by it under the head "Profits and gains of business" was accordingly reduced by the sum of Rs. 37,691 which was apportioned against the dividend income. Against this order of the ITO, the assessee carried the matter in appeal to the AAC and it was contended before the AAC that the ITO had erred in bifurcating the interest payment between the heads "Business" and "Other sources" and as the assessee was a dealer in shares, the entire interest paid on overdraft and other loan accounts should be deducted in computing the income or loss under the head "Profits and gains of business" and there was no justification in apportioning any part thereof to be attributed and set off against the dividend income. The AAC accepted this contention and as a result thereof the loss determined by the ITO was reduced by Rs. 37,691. It was also contended before the AAC that while considering the deduction admissible under S. 80M of the IT Act, the ITO should have taken into consideration the amount of gross dividend whereas he has considered the amount of net dividend for deduction of interest, etc., for the purpose of such deduction. This contention was also upheld by the AAC. Against the decision of the AAC, the Revenue went in appeal to the Tribunal and the Tribunal upheld the order of the AAC as in its view the decision of the Gujarat High Court in Addl. CIT vs. Cloth Traders (P.) Ltd. (1974) 97 ITR 140 was applicable. The Tribunal considered that the dispute really was whether in computing the assessee's income under the head "Profits and gains" the interest claimed had to be set off in toto or a part thereof should be apportioned to the income as dividend under the head "Other sources", and, ultimately, the Tribunal having dismissed the appeal of the Revenue on these two points, at the instance of the Revenue the two questions hereinabove set out have been referred to us for our opinion.

(3.) WE are not concerned with the rate of relief which is to be granted.