COMMISSIONER OF INCOME TAX Vs. EMRALD CO. LTD

JUDGEMENT

(1.) The following question of law arising out of ITA No. 4924.Bom.1984 in R.A. No. 2711.Bom.1987 for the asst. yr. 1981-82, has been referred to this Court u/s. 256(1) of the IT Act by the Tribunal:

(2.) The assessee is a company dealing in shares, and earns income from dividends and also property. The assessee-company filed its return for the asst. yr. 1981-82 on 31st July, 1981, declaring a loss of Rs. 935. In response to notice u/s. 143(2) of the IT Act, the company's accountant attended before the ITO. The assessee had earned income from the business of trading in shares of Rs. 16,549 and dividend of Rs. 1,34,984 and from property of Rs. 84,000. Company had utilised overdraft facility for purchase of shares and had paid interest of Rs. 45,469 on the overdraft, and incurred other expenses to the tune of Rs. 24,900 which was debited to the P&L a/c and taken into account for arriving at a profit of Rs. 81,718. The ITO computed the net dividend income in accordance with the provisions of Sections 56, 57 and 58 and proceeded to allow 60 per cent deduction u/s. 80M on the income so computed.

(3.) The CIT(A) following the Gujarat High Court decision in the case of Commissioner of Income Tax V/s. Cotton Fabrics Ltd.,1981 132 ITR 99 held that the assessee was a dealer in shares. Both the interest paid on the amount borrowed for the purchase of shares and other expenses incurred by the company and allocated to the dividend income were held to be allowable under the head "Business" and not under the head "Other sources". He accordingly directed the ITO to allow deduction u/s. 80M on the gross dividend.