COMMISSIONER OF INCOME TAX Vs. CAROLINA INVESTMENT LTD

JUDGEMENT

(1.) PURSUANT to the directions of this Court under S. 256(2) of the IT Act, 1961('the Act'), the Tribunal has referred the following questions of law to this Court:

(2.) THE brief facts relating to both the assessees are that in the asst. yrs. 1985-86 and 1986-87, the assessee claimed deduction under S. 80M of the Act on the gross dividends of Rs. 37,708, Rs. 22,490, Rs. 1,99,500 and Rs. 2,49,500. The ITO, however, held that a part of the expenditure booked by the assessee was attributable to earning of the dividend income and in the absence of any apportionment in the books of the account he estimated such expenditure at the rate of 5 per cent of the gross dividends. Aggrieved by the aforesaid orders of the ITO, the assessee's filed appeals before the CIT (A). Before the CIT (A), the assessees submitted that they were dealers in the shares and securities which were held by them as stock-in-trade and, accordingly, all items of expenditure incurred were referable to the business and same amount was deductible from the gross dividends earned by them. The CIT (A) observed that the assessee were doing the business of dealing in shares and the dividend income accrued to them was in the course of such dealings.

(3.) THE Tribunal after considering the rival contentions of the parties have held that: