DEVIDUTT DHURMAL BAJAJ Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS judgment will dispose of IT Refs. Nos. 123 and 124 of 1971.

(2.) THE assessee in each of the references, at all material times relevant for the purposes of the references, was a partner of a firm called M/s Devidutt Ramnivas which was carrying on business in ready shares and also speculation in shares. Both the assessees are brothers. During the material asst. yrs. 1962 63 to 1965 66, the firm in the ordinary course of its business in ready shares sold some of its stock of shares ex dividend and the total income of the firm for all the years includes sizeable amounts of the dividends received on the shares so sold. These dividends were allocated to the partners and the dividend income was taxed in the hands of the assessees as income from other sources. The ITO held that the assessee was not entitled to any earned income relief. The AAC, however, while rejecting the contention of the assessee that dividend income should be included under the head "Income from business", took the view that there could be earned income even in respect of income from other sources and that dividends were earned by the assessee because of his personal exertion and should be taken as earned income notwithstanding that the dividends constituted income from other sources.

(3.) THE scope and meaning of the words "earned income" in S. 2(7) of the Finance (No. 2) Act of 1962 has been considered in detail by us in CIT vs. D. G. Goenka (IT Ref. No. 48 of 1971, decided on 28th April, 1980) (1981) 129 ITR 260 (Bom), where the question which fell for our consideration was whether dividend income received by the assessee on the shares held by him as stock in trade of his share business was earned income. We have in that case taken the view that though for the purposes of charge ability dividends fall under the classification "income from other sources", the nature of the income from dividends in the case of an assessee who deals in shares and whose stock in trade consists of shares in business income because such income in the case of a dealer in shares arises in the course of business. We have pointed out in that case that the question whether such income qualifies for being classified as earned income has to be decided on the definition in s. 2(7) of the Finance (No. 2) Act, 1962. Construing the definition of "earned income" we have observed in that decision as follows :