COMMISSIONER OF INCOME TAX Vs. MAHENDRA SOBHAGCHAND SHAH

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961, made at the instance of the Revenue, the Tribunal has referred the following question of law to this Court for opinion :

(2.) THE assessee is an individual who carries on the business of sale and purchase of shares. In the asst. year 1974 75 (corresponding previous year being year ended on 26th Oct., 1973) the assessee received the following income under different heads : The assessee claimed deduction on account of following expenses incurred for the purpose of its business :

(3.) AGAINST the order of the ITO, the assessee preferred appeal before the AAC. Before the AAC, the assessee challenged the method of computation of total income adopted by the ITO. According to the assessee, bifurcation of business expenditure under different heads of income proportionately is not permissible under the Act. The AAC accepted the contention of the assessee and held that the bifurcation of expenses under the different heads was not correct in view of the fact that the total of Rs. 8,28,297 comprising of brokerage, transfer fees and interest were incurred in course of speculation and ready business of the assessee, the income from which itself amounted to more than Rs. 4 lakhs. It was further observed that the assessee was not required to incur any of these expenses for the purpose of earning the dividend income as such. The AAC, therefore, held that the ITO's method of computation of total income under these different heads dividing the total expenditure against these heads, was not correct and that in any event, the ITO was bound to allow deduction atleast in respect of the dividend income computed by him. He, therefore, allowed the appeal of the assessee and directed the ITO to recompute the total income and allow the deduction under S. 80K against the gross dividend income only. The order of the AAC was affirmed by the Tribunal on appeal. Hence this reference at the instance of the Revenue.