Ita/244/2016 Of The Pr. Commissioner Of Income Tax Patiala v. State Bank Of Patiala The Mall Patiala

I N THE HI GH COURT OF PUNJAB AND HARYANA AT CHANDI GARH I NCOME TAX APPEAL No. 244 of 2016 ( O&M)DATE OF DECI SI ON: 30. 01. 2017 The Pr . Commi ssi oner of I ncome Tax, Pat i al a …. . Appel l antver sus St at e Bank of Pat i al a . . . . . Respondent CORAM: - HON’ BLE MR. JUSTI CE S. J. VAZI FDAR, CHI EF JUSTI CE HON’ BLE MR. JUSTI CE DEEPAK SI BAL Pr esent :Mr . Zor a Si ngh Kl ar , Advocat e f or t he appel l ant Mr . Sanj ay Bansal , Seni or Advocat e wi t hMr . B. M. Monga, Advocat e,Mr . Ami t Par sad, Advocat e andMr . Rohi t Kaur a, Advocat e f or t he r espondent. . S. J. VAZI FDAR, CHI EF JUSTI CE: Thi s i s an appeal agai nst t he or der of t he I ncome TaxAppel l at e Tr i bunal al l owi ng t he r espondent / assessee’ s appealagai nst t he or der of t he Commi ssi oner of I ncome Tax ( Appeal s) . Theappeal per t ai ns t o t he Assessment Year 2008- 09. 2.The appeal i s admi t t ed on t he f ol l owi ng subst ant i alquest i on of l aw: - “ Whet her i n t he f act s and ci r cumst ances of t hecase, t he Hon’ bl e I TAT i s r i ght i n l aw i ndel et i ng t he addi t i on made on account ofdi sal l owance under sect i on 14A of t he I ncome TaxAct , 1961?” The quest i on r eal l y i s whet her t he pr ovi si ons of sect i on14A of t he I ncome Tax Act ( f or shor t– ‘ t he Act ’ ) appl y wher e t he exempt i ncomesuch as di vi dend or i nt er esti s ear ned f r omsecur i t i es hel d by t he assessee as i t s st ock- i n- t r ade. The assesseehad r ai sed ot her i ssues as wel l . The Tr i bunal havi ng deci ded t heabove quest i on i n f avour of t he assessee di d not deci de t he ot heri ssues. 3.As we have al so deci ded t he quest i on i n f avour of t heassessee, i t f ol l ows t hat sect i on 14A i s i nappl i cabl e al t oget her .The appeal must , t her ef or e,be di smi ssed. Had we deci ded t he i ssueagai nst t he assessee, we woul d have r emanded t he mat t er t o t heTr i bunal f ori t s deci si on on t he ot her aspect s, such as, whet hert he i nvest ment s and secur i t i es yi el di ng exempt i ncome wer e f r omi nt er est f r ee f unds/ assessee’ s own f unds or f r om i nt er est bear i ngf unds as t he Tr i bunal had not deci ded t he same. 4.The r espondent f i l ed a r et ur n decl ar i ng an i ncome ofabout Rs. 670 cr or es whi ch was sel ect ed f or scr ut i ny. The r et ur nshowed di vi dend i ncome exempt under sect i on 10( 34) and ( 35) ofabout Rs. 11. 07 cr or es and net i nt er est i ncome exempt under sect i on10( 15) ( i v) ( h) of about Rs. 1. 12 cr or es. The t ot al exempt i ncomecl ai med i n t he r et ur n was, t her ef or e, Rs. 12, 19, 78, 015/ - . The assessee whi l e cl ai mi ng t he exempt i on cont ended t hatt he i nvest ment i n shar es, bonds, et c.const i t ut ed i t s st ock- i n-t r ade; t hat t he i nvest ment had not been made onl y f or ear ni ng t axf r ee i ncome; t hat t he t ax f r ee i ncome was onl y i nci dent al t o t heassessee’ s mai n busi ness of sal e and pur chase of secur i t i es and,t her ef or e, no expendi t ur e had been i ncur r ed f or ear ni ng such exempti ncome; t he expendi t ur e woul d have r emai ned t he same even i f nodi vi dend or i nt er est i ncome had been ear ned by t he assessee f r omt he sai d secur i t i es and t hat no expendi t ur e on pr opor t i onat e basi scoul d be al l ocat ed agai nst exempt i ncome. The assessee al so cont ended t hat i n any event i t had acqui r ed t he secur i t i es f r om i t sown f unds and, t her ef or e, sect i on 14A was not appl i cabl e. cont ended t hat i n any event i t had acqui r ed t he secur i t i es f r om i t sown f unds and, t her ef or e, sect i on 14A was not appl i cabl e. 5.The Assessi ng Of f i cer r est r i ct ed t he di sal l owance t o t heamount whi ch was cl ai med as exempt i ncome and added t he same t o t heassessee’ s i ncome by appl yi ng sect i on 14A. The Assessi ng Of f i ceraccor di ngl y appl i ed r ul e 8D f or det er mi ni ng t he expendi t ur e t o bedi sal l owed as per sect i on 14A. He comput ed t he exempt i ncome ascl ai med by t he assessee, namel y, about Rs. 12. 20 cr or es. TheAssessi ng Of f i cer f ound t he t ot al expenses al l ocat ed agai nst exempti ncome t o be Rs. 40. 72 cr or es, but hel d t hat t he same shoul d notexceed t he exempt ed i ncome and, t her ef or e, he r est r i ct ed t heexpenses t o t he ext ent of exempt i ncome cl ai med by t he assesseei . e. about Rs. 12. 20 cr or es and added t he same t o t he assessee’ si ncome. 6.The CI T ( Appeal s)by t he sai d not i ce f or enhancementunder sect i on 251enqui r ed of t he assessee i t s obl i gat i on t omai nt ai n t he secur i t i es.The assessee r epl i ed t hat t he i nvest menti n shar es and bonds was not made under any obl i gat i on under t heBanki ng Regul at i on Act , 1949, but t hat i t was deal i ng i n shar es andbonds as a t r ader whi ch was per mi t t ed by sect i on 6 of t he Banki ngRegul at i on Act , 1949.The CI T ( Appeal s) hel d as f ol l ows:I n vi ewof sect i on 14A t he assessee was not t o be al l owed any deduct i on i nr espectof i ncome whi ch i s not char geabl e t o t ax. The assessee hadi ncur r ed i nt er est expendi t ur e and admi ni st r at i ve expendi t ur e f orear ni ng i t s i ncome bot h exempt and non exempt .The Assessi ngOf f i cer had wr ongl y r est r i ct ed t he di sal l owance t o t he ext ent ofexempt i ncome cl ai med by t he assessee t o Rs. 12. 20 cr or es and t hatt he ent i r e sum of Rs. 40. 72 cr or es shoul d have been di sal l owed by t he Assessi ng Of f i cer as t her e was no l egal pr ovi si on ei t her i nsect i on 14A or r ul e 8D t o l i mi t t he di sal l owance t o t he amount ofdi vi dend r ecei ved.Expendi t ur e i ncur r ed i n r espect of ear ni ngt axabl e i ncome al one can be al l owed as deduct i on and expensesi ncur r ed i n r el at i on t o exempt i ncome wer e not t o be al l owed as adeduct i on.The appl i cat i on of r ul e 8D by t he Assessi ng Of f i cer wasal so uphel d. 7.The Tr i bunal set asi de t he or der of t he Assessi ngOf f i cer and of t he CI T ( Appeal s) . The cont ent i on on behal f of t heassessee was t hat as i t hel d t he secur i t i es as st ock- i n- t r ade t hei ncome ear ned t her ef r om was onl y i nci dent al t o i t s busi ness andt hat , t her ef or e, t he pr ovi si ons of sect i on 14A wer e not at t r act ed.The Tr i bunal r ef er r ed t oa CBDT Ci r cul ar No. 18/ 2015 dat ed02. 11. 2015 whi ch st at es t hat i ncome ar i si ng f r om i nvest ment of abanki ng concer n i s at t r i but abl e t o t he busi ness of banki ng whi chf al l s under t he head “ Pr of i t s and gai ns of busi ness andpr of essi on” . The ci r cul ar st at es t hat shar es and st ock hel d by t hebank ar e st ock- i n- t r ade and not i nvest ment . Ref er r i ng t o cer t ai nj udgment s, whi ch we wi l l al so r ef er t o, and t he ear l i er or der s oft he Tr i bunal , i t was hel d t hat i f shar es ar e hel d as st ock- i n- t r adeand not as i nvest ment even t he di sal l owance under r ul e 8D woul d beni l as r ul e 8D( 2) ( i ) woul d be conf i ned t o di r ect expenses f orear ni ng t he t ax exempt i ncome. 8.I n vi ew of t he i ssue i nvol ved, i t i s necessar y t o r ef ert o t he f act s onl y br i ef l y. 8.I n vi ew of t he i ssue i nvol ved, i t i s necessar y t o r ef ert o t he f act s onl y br i ef l y. 9.The CI T ( Appeal s) by t he sai d not i ce f or enhancementunder sect i on 251 enqui r ed of t he assessee i t s obl i gat i on t omai nt ai n t he secur i t i es. The assesseer i ght l yr epl i ed t hat t he i nvest ment i n shar es and bonds was not made under any obl i gat i onunder t he Banki ng Regul at i on Act , 1949, but t hat i t was deal i ng i nshar es and bonds as a t r ader whi ch was per mi t t ed by sect i on 6 oft he Banki ng Regul at i on Act , 1949. The assessee was, i n vi ew ofsect i on 6 of t he Banki ng Regul at i on Act , 1949, ent i t l ed t o pur chaseand sel l such secur i t i es. Sect i on 6 speci f i es t he f or ms of busi nessi n whi ch banki ng compani es may engage. Sub- sect i on ( 1) per mi t s abanki ng company i n addi t i on t o t he busi ness of banki ng t o deal ,i nt er al i a, i n scr i ps and ot her i nst r ument s and secur i t i es whet hert r ansf er abl e or negot i abl e or not as wel l as i n st ock, f unds,shar es, debent ur es, debent ur e st ocks, bonds, secur i t i es andi nvest ment s of al l ki nds. Accor di ngl y, any pr of i t or l oss ar i si ngf r om such act i vi t i es i s l i abl e t o be shown ei t her as a busi nessi ncome or busi ness l oss f or t he pur poses of comput at i on of i ncomeunder t he Act . 10.Mr . Bansal r i ght l y cont ended t hat t he assessee i sengaged i n t he pur chase and sal e of shar es as a t r ader wi t h t heobj ect of ear ni ng pr of i t and not wi t h a vi ew t o ear n i nt er est ordi vi dend. The assessee does not have an i nvest ment por t f ol i o. Thesecur i t i es const i t ut e t he assessee’ s st ock- i n- t r ade.TheDepar t ment , i n f act ,r i ght l y accept ed, as a mat t er of f act , t hatt he di vi dend and i nt er est ear ned was f r om t he secur i t i es t hatconst i t ut ed t he assessee’ s st ock- i n- t r ade. The same i s, i n anyevent , est abl i shed. The assessee car r i ed on t he busi ness of sal eand pur chase of secur i t i es. 11.The submi ssi on i s f i r st l y suppor t ed by t he sai d Ci r cul arNo. 18, dat ed 02. 11. 2015, i ssued by t he CBDT, whi ch r eads as under : -“ Subj ect : I nt er est f r om Non- SLR secur i t i es of Banks –Reg. I t has been br ought t o t he not i ce of t he Boar d t hat i nt he case of Banks, f i el d of f i cer s ar e t aki ng a vi ewt hat , “ expenses r el at abl e t o i nvest ment i n non- SLRsecur i t i es need t o be di sal l owed u/ s 57( i ) of t he Actas i nt er est on non- SLR secur i t i es i s i ncome f r om ot hersour ces. ” 2. Cl ause ( i d) of sub- sect i on ( 1) of Sect i on 56 of t heAct pr ovi des t hat i ncome by way of i nt er est onsecur i t i es shal l be char geabl e t o i ncome- t ax under t hehead “ I ncome f r om Ot her Sour ces” , i f , t he i ncome i snot char geabl e t o i ncome- t ax under t he head “ Pr of i t sand Gai ns of Busi ness and Pr of essi on” . 3.The mat t er has been exami ned i n l i ght of t hej udi ci al deci si ons on t hi s i ssue. I n t he case of CI TVs Nawanshahar Cent r al Cooper at i ve Bank Lt d. [ 2007]160TAXMAN 48( SC) , t he Apex Cour t hel d t hat t hei nvest ment s made by a banki ng concer n ar e par t of t hebusi ness of banki ng. Ther ef or e, t hei ncome ar i si ngf r om such i nvest ment s i s at t r i but abl e t o t he busi nessof banki ng f al l i ng under t he head “ Pr of i t s and Gai ns”of Busi ness and Pr of essi on . 3. 2 Even t hough t he abovement i oned deci si on was i n t he-cont ext of co oper at i ve soci et i es/ Banks cl ai mi ngdeduct i on under sect i on 80P( 2) ( a) ( i ) of t he Act , t hepr i nci pl e i s equal l y appl i cabl e t o al lbanks/ commer ci al banks, t o whi ch Banki ng Regul at i onAct , 1949 appl i es. 3. 2 Even t hough t he abovement i oned deci si on was i n t he-cont ext of co oper at i ve soci et i es/ Banks cl ai mi ngdeduct i on under sect i on 80P( 2) ( a) ( i ) of t he Act , t hepr i nci pl e i s equal l y appl i cabl e t o al lbanks/ commer ci al banks, t o whi ch Banki ng Regul at i onAct , 1949 appl i es. 4. I n t he l i ght of t he Supr eme Cour t ’ s deci si on i n t hemat t er , t he i ssue i s wel l set t l ed. Accor di ngl y, t heBoar d has deci ded t hat no appeal s may hencef or t h bef i l ed on t hi s gr ound by t he of f i cer s of t he Depar t mentand appeal s al r eady f i l ed, i f any, on t hi s gr oundbef or e Cour t s/ Tr i bunal s may be wi t hdr awn/ not pr essedupon. Thi s may be br ought t o t henot i ce of al lconcer ned. ”( emphasi s suppl i ed) 12.The Ci r cul ar car ves out a di st i nct i on bet ween st ock- i n-t r ade and i nvest ment and pr ovi des t hat i f t he mot i ve behi ndpur chase and sal e of shar es i s t o ear n pr of i t t hen t he same woul dbe t r eat ed as t r adi ng pr of i t and i f t he obj ect i s t o der i ve i ncomeby way of di vi dend t hen t he pr of i t woul d be sai d t o have accr uedf r om t he i nvest ment . I f t he assessee i s f ound t o have t r eat ed t heshar es and secur i t i es as st ock- i n- t r ade, t he i ncome ar i si ngt her ef r om woul d be busi ness i ncome. A l oss woul d be a busi ness l oss. Thus, as submi t t ed by Mr . Bansal , an assessee may have t wopor t f ol i os, namel y, i nvest ment por t f ol i o and a t r adi ng por t f ol i o.I n t he case of t he f or mer , t he secur i t i es ar e t o be t r eat ed ascapi t al asset s and i n t he l at t er as t r adi ng asset s.We wi l ldemonst r at e l at er t hat sect i on 14A woul d be appl i cabl e onl y t oi ncome ar i si ng f r om t he i nvest ment por t f ol i o and not f r om st ock- i n-t r ade i . e. t he t r adi ng por t f ol i o. The assessee di d not have ani nvest ment por t f ol i o. 13.Mr . Bansal t hen r el i ed upon t he j udgment of t he Supr emeCour t i n Commi ssi oner of I ncome- t ax v. Nawanshahar Cent r al Co-oper at i ve Bank Lt d. , [ 2007] 289 I TR 6 ( SC) , whi ch r eads as under : - “ 1. Del ay condoned. Leave gr ant ed. 2. Thi s Cour t has consi st ent l y hel d t hat i nvest ment smade by a banki ng concer n ar e par t of t he busi ness ofbanki ng. The i ncome ar i si ng f r om such i nvest ment swoul d, t her ef or e, be at t r i but abl e t o t he busi ness ofbank f al l i ng under t he head “ Pr of i t s and gai ns ofbusi ness” and t hus deduct i bl e under Sect i on 80-P( 2) ( a) ( i ) of t he I ncome Tax Act , 1961. Thi s has beenso hel d i n Bi har St at e Coop. Bank Lt d. v.CI T [ AI R1960 SC 789 : ( 1960) 3 SCR 58 : ( 1960) 39 I TR 114: ] ,CI T v.Kar nat aka St at e Coop. Apex Bank [ ( 2001) 7 SCC654 : 2001 Supp ( 2) SCR 35] and CI T v.Ramanat hapur amDi st t . Coop. Cent r al Bank Lt d. [ ( 2009) 17 SCC 620:( 2002) 255 I TR 423]3. The pr i nci pl e i n t hese cases woul d al so cover asi t uat i on wher e a cooper at i ve bank car r yi ng on t hebusi ness of banki ng i s st at ut or i l y r equi r ed t o pl ace apar t of i t s f unds i n appr oved secur i t i es. The appeal sar e accor di ngl y di smi ssed wi t hout cost s. ” 14.The i nvest ment s made by t he assessee i n t he case bef or eus ar e par t of i t s banki ng busi ness and t he i ncome ar i si ng f r omt r adi ng i n t he secur i t i es i s at t r i but abl e t o t he busi ness of t hebank/ assessee f al l i ng under t he head “ Pr of i t s and gai ns ofbusi ness” . Fur t her t he secur i t i es deal t wi t h i n t he cour se of sucht r adi ng const i t ut es t he assessee’ s st ock- i n- t r ade. 15.Mr . Bansalt hen cont ended t hatas t he shar es, bonds,debent ur es, et c. pur chased by t he assessee const i t ut ed i t s st ock-i n- t r ade, t he pr ovi si ons of sect i on 14A wer e not appl i cabl e. Thesubmi ssi on i s wel l f ounded. 14.The i nvest ment s made by t he assessee i n t he case bef or eus ar e par t of i t s banki ng busi ness and t he i ncome ar i si ng f r omt r adi ng i n t he secur i t i es i s at t r i but abl e t o t he busi ness of t hebank/ assessee f al l i ng under t he head “ Pr of i t s and gai ns ofbusi ness” . Fur t her t he secur i t i es deal t wi t h i n t he cour se of sucht r adi ng const i t ut es t he assessee’ s st ock- i n- t r ade. 15.Mr . Bansalt hen cont ended t hatas t he shar es, bonds,debent ur es, et c. pur chased by t he assessee const i t ut ed i t s st ock-i n- t r ade, t he pr ovi si ons of sect i on 14A wer e not appl i cabl e. Thesubmi ssi on i s wel l f ounded. 16.Sect i on 14A, i n so f ar as i t i s r el evant , r eads as under : - “ 14- A. Expendi t ur e i ncur r ed i n r el at i on t o i ncome noti ncl udi bl e i n t ot al i ncome. —For t he pur poses ofcomput i ng t he t ot al i ncome under t hi s Chapt er , nodeduct i on shal l be al l owed i n r espect of expendi t ur ei ncur r ed by t he assessee i n r el at i on t o i ncome whi chdoes not f or m par t of t he t ot al i ncome under t hi s Act : Pr ovi ded t hat not hi ng cont ai ned i n t hi s sect i on shal lempower t he assessi ng of f i cer ei t her t o r eassess underSect i on 147 or pass an or der enhanci ng t he assessmentor r educi ng a r ef und al r eady made or ot her wi sei ncr easi ng t he l i abi l i t y of t he assessee under Sect i on154, f or any assessment year begi nni ng on or bef or et he 1st day of Apr i l , 2001. ” 17.Under sect i on 14A, an expendi t ur e can be di sal l owed onl yi f i t i s i ncur r ed by t he assessee i n r el at i on t o i ncome exempt f r omt ax.The di vi dend or i nt er est f r om t he assessee’ s st ock- i n- t r adei . e. t he secur i t i es was exempt f r om t ax i n vi ew ofsect i ons10( 15) ( i v) ( h) , ( 34) and ( 35) . Thi s was i nci dent al t o i t s busi ness ofbanki ng.The busi ness i ncome on account of t he assessee t r adi ng i nt he secur i t i es i s assessabl e under t he head “ Pr of i t s and gai ns ofbusi ness and pr of essi on” . The expendi t ur e i ncur r ed i n r el at i on t ost ock- i n- t r ade ar i si ng as a r esul t of i nvest ment i n shar es anddebent ur es i s deduct i bl e under sect i ons 28 t o 37. Ther e i s a di st i nct i on bet ween st ock- i n- t r ade andi nvest ment . The obj ect of ear ni ng pr of i t f r om t r adi ng i n secur i t i esi s di f f er ent f r om t he obj ect of ear ni ng i ncome, such as, di vi dendand i nt er est ar i si ng t her ef r om. The obj ect of t r adi ng i n secur i t i es does not const i t ut e t he act i vi t y of i nvest ment wher e t he obj ect i st o ear n di vi dend or i nt er est . 18.Mr . Kl ar , t he l ear ned counsel appear i ng on behal f of t heappel l ant , agr eed t hat t he sai d secur i t i es wer e hel d by t her espondent as st ock- i n- t r ade. He, however , submi t t ed t hat t he pl ai nl anguage of sect i on 14A makes i t appl i cabl e t o any i ncome whi chdoes not f or m par t of t he t ot al i ncome.Accor di ng t o hi m,t her ef or e, i t i s i mmat er i al whi ch head of i ncome of sect i on 14 t hei ncome f al l s under , namel y, sal ar i es, i ncome f r om house pr oper t i es,pr of i t s and gai ns of busi ness or pr of essi on, capi t al gai ns ori ncome f r om any ot her sour ces.Under sect i on 14A, no deduct i on i st o be al l owed i n r espect of t he expendi t ur e i ncur r ed by t heassessee i n r el at i on t o “ i ncome” whi ch does not f or m par t of t het ot al i ncome under t he Act .He emphasi sed t he t er m “ i ncome” andsubmi t t ed t hat t he nat ur e of t he “ i ncome” i s not speci f i ed. 19.The assessee showed i t s di vi dend i ncome exempt undersect i ons 10( 34) and 10( 35) .I t i s t r ue t hat di vi dend and i nt er estal so const i t ut e i ncome. Sect i ons 10( 34) and 10( 35) r ead as under : - 19.The assessee showed i t s di vi dend i ncome exempt undersect i ons 10( 34) and 10( 35) .I t i s t r ue t hat di vi dend and i nt er estal so const i t ut e i ncome. Sect i ons 10( 34) and 10( 35) r ead as under : - “ 10. I ncomes not i ncl uded i n t ot al i ncome. —I n comput i ngt he t ot al i ncome of a pr evi ous year of any per son, anyi ncome f al l i ng wi t hi n any of t he f ol l owi ng cl ausesshal l not be i ncl uded—…… …. . …. . …… …… ………….( 34)any i ncome by way of di vi dends r ef er r ed t o i nsect i on 115- O;…… …. . …. . …… …… ………….( 35)any i ncome by way of —( a)I ncome r ecei ved i n r espect of t he uni t s ofa Mut ual Fund speci f i ed under cl ause( 23D) ; or( b)i ncome r ecei ved i n r espect of uni t s f r omt he Admi ni st r at or of t he speci f i edunder t aki ng; or ( c)i ncome r ecei ved i n r espect of uni t s f r omt he speci f i ed company: Sect i on 10 pr ovi des,i nt er al i a, t hat i ncome by way of di vi dend,r ef er r ed t o i n sect i on 115- O, i s not t o be i ncl uded i n comput i ngt he t ot al i ncome. Thus, t he l anguage of sect i on 10 i t sel f i ndi cat est hat di vi dend r ef er r ed t o t her ei n, i s i ncome and f or t hat r easonsect i on 10 pr ovi des t hat such i ncome shal l not be i ncl uded i ncomput i ng t he t ot al i ncome of t he pr evi ous year . 20.Thus,di vi dend and i nt er est ar i si ng out of t hesecur i t i es i s i ncome and i f expendi t ur e i s i ncur r ed i n r el at i on t osuch i ncome, no deduct i on can be al l owed i n r espect t her eof .Thequest i on, however , i s whet her any expendi t ur e was i ncur r ed by t heassessee t o ear n t hi s exempt i ncome. 21.Bef or e goi ng f ur t her , i t woul d be usef ul t o r ef er t o t hej udgment of t he Supr eme Cour t r el i ed upon by Mr . Kl ar and Mr .Bansal .Bot h t he l ear ned counsel submi t t ed t hat t he poi ntst andsconcl uded i n t hei r f avour by t he j udgment of t he Supr eme Cour t i nCommi ssi oner of I ncome- Tax vs. Wal f or t Shar e and St ock Br oker s P.Lt d. , [ 2010] 326 I TR 1 ( SC) .The j udgment we f i nd suppor t s t heassessee, al t hough i t deal t wi t h an ent i r el y di f f er ent t ype ofcase. I n t hat case, t he assessee ear ned i ncome mai nl y f r omshar e t r adi ng and br oker age. I t pur chased t he mut ual f unds on24. 03. 2000 whi ch was shor t l y bef or e t he r ecor d dat e and ear neddi vi dend of about Rs. 1. 82 cr or es. The NAV st ood r educed f r omRs. 17. 23 t o Rs. 13. 23 per uni tt hr ee days l at eron 27. 03. 2000 onaccount of t he di vi dend payment . The assessee t hen sol d t he uni t s f or an amount of about Rs. 5. 90 cr or es and r ecei ved i ncent i ve ofabout Rs. 23. 77 l acs. The assessee cl ai med t he di vi dend r ecei ved byi t of about Rs. 1. 82 cr or es t o be exempt f r om t ax under sect i on10( 33) and al so cl ai med a set of f of about Rs. 2. 09 cr or es as l ossi ncur r ed on t he sal e of t he uni t s. The quest i on was whet her “ r et ur n of i nvest ment ” or “ costr ecover y” woul d f al l wi t hi n t he expr essi on “ expendi t ur e i ncur r ed”i n sect i on 14A. The mai n i ssue, as st at ed i n t he j udgment , waswhet her i n a di vi dend st r i ppi ng t r ansact i on ( al l eged t o be acol our abl e devi ce by t he Depar t ment ) , t he l oss on sal e of uni t scoul d be consi der ed as expendi t ur e i n r el at i on t o ear ni ng ofdi vi dend i ncome exempt under sect i on 10( 33) , di sal l owabl e undersect i on 14A of t he Act . The quest i on was whet her “ r et ur n of i nvest ment ” or “ costr ecover y” woul d f al l wi t hi n t he expr essi on “ expendi t ur e i ncur r ed”i n sect i on 14A. The mai n i ssue, as st at ed i n t he j udgment , waswhet her i n a di vi dend st r i ppi ng t r ansact i on ( al l eged t o be acol our abl e devi ce by t he Depar t ment ) , t he l oss on sal e of uni t scoul d be consi der ed as expendi t ur e i n r el at i on t o ear ni ng ofdi vi dend i ncome exempt under sect i on 10( 33) , di sal l owabl e undersect i on 14A of t he Act . On behal f of t he Revenue, i t was cl ai med, i n t heal t er nat i ve, t hat si nce t he pr i ce of uni t s necessar i l y i ncl uded t hepr i ce of di vi dend as an i dent i f i abl e el ement embedded t her ei n t owhi ch a def i ni t e val ue coul d be assi gned at t he t i me of pur chase,t he so cal l ed di vi dend i s, i nef f ect , pai d f or . I n suchci r cumst ances, t hat par t of t he pr i ce of uni t s whi ch r epr esent edt he cost of di vi dend i s t he expendi t ur e i ncur r ed f or obt ai ni ngexempt i ncome and i f t hat i s t he case t hen sect i on 14A r equi r est hat such expendi t ur e shoul d be net t ed agai nst t he r ecei pt ofdi vi dend. Al t hough t he f act s of t he case wer e di f f er ent f r om t hosebef or e us, t he Supr eme Cour t deal t wi t h t he scope of sect i on 14A.The Supr eme Cour t hel d as f ol l ows: - “ The mai n i ssue i nvol ved i n t hi s bat ch of cases i s—whet her i n di vi dend st r i ppi ng t r ansact i on ( al l egedt o be a col our abl e devi ce by t he Depar t ment ) t hel oss on sal e of uni t s coul d be consi der ed asexpendi t ur e i n r el at i on t o ear ni ng of di vi dendwhet her i n di vi dend st r i ppi ng t r ansact i on ( al l egedt o be a col our abl e devi ce by t he Depar t ment ) t hel oss on sal e of uni t s coul d be consi der ed asexpendi t ur e i n r el at i on t o ear ni ng of di vi dend i ncome exempt under Sect i on 10( 33) , di sal l owabl eunder Sect i on 14- A of t he Act ? Accor di ng t o t heDepar t ment , t he di f f er ent i al amount bet ween t hepur chase and sal e pr i ce of t he uni t s const i t ut ed“ expendi t ur e i ncur r ed” by t he assessee f or ear ni ngt ax- f r ee i ncome, hence, l i abl e t o be di sal l owedunder Sect i on 14- A. As a r esul t of t he di vi dendpayout , accor di ng t o t he Depar t ment , t he NAV of t hemut ual f und, whi ch was Rs. 17. 23 per uni t on t her ecor d dat e, f el l t o Rs. 13. 23 on 27- 3- 2000 ( t henext t r adi ng dat e) and, t hus, Rs. 4 per uni t ,accor di ng t o t he Depar t ment , const i t ut ed“ expendi t ur e i ncur r ed” i n t er ms of Sect i on 14- A oft he Act . I n i t s r et ur n, t he assessee, t hus, cl ai medt he di vi dend r ecei ved as exempt under Sect i on 10( 33)and al so cl ai med set - of f f or t he l oss agai nst i t st axabl e i ncome, t her eby seeki ng t o r educe i t s t axl i abi l i t y and gai n t ax advant age. The i nser t i on of Sect i on 14- A wi t h r et r ospect i veef f ect i s a ser i ous at t empt on t he par t ofPar l i ament not t o al l ow deduct i on i n r espect of anyexpendi t ur e i ncur r ed by t he assessee i n r el at i on t oi ncome, whi ch does not f or m par t of t he t ot al i ncomeunder t he Act agai nst t he t axabl e i ncome ( seeCi r cul ar No. 14 of 2001 dat ed 22- 11- 2001) .I n ot her-wor ds, Sect i on 14 A cl ar i f i es t hat expenses i ncur r edcan be al l owed onl y t o t he ext ent t hey ar e r el at abl et o t he ear ni ng of t axabl e i ncome. I n many cases t henat ur e of expenses i ncur r ed by t he assessee may ber el at abl e par t l y t o t he exempt i ncome and par t l y t ot he t axabl e i ncome. I n t he absence of Sect i on 14- A,t he expendi t ur e i ncur r ed i n r espect of exempt i ncomewas bei ng cl ai med agai nst t he t axabl e i ncome. Themandat e of Sect i on 14- A i s cl ear . I t desi r es t o cur bt he pr act i ce t o cl ai m deduct i on of expenses i ncur r edi n r el at i on t o exempt i ncome agai nst t axabl e i ncomeand at t he same t i me avai l t he t ax i ncent i ve by wayof exempt i on of exempt i ncome wi t hout maki ng anyappor t i onment of expenses i ncur r ed i n r el at i on t oexempt i ncome.The basi c r eason f or i nser t i on ofSect i on 14- A i s t hat cer t ai n i ncomes ar e noti ncl udi bl e whi l e comput i ng t ot al i ncome as t hese ar eexempt under cer t ai n pr ovi si ons of t he Act . I n t hepast , t her e have been cases i n whi ch deduct i on hasbeen sought i n r espect of such i ncomes whi ch i nef f ect woul d mean t hat t ax i ncent i ves t o cer t ai ni ncomes wer e bei ng used t o r educe t he t ax payabl e ont he non- exempt i ncome by debi t i ng t he expenses,i ncur r ed t o ear n t he exempt i ncome, agai nst t axabl ei ncome. The basi c pr i nci pl e of t axat i on i s t o t axt he net i ncome i . e. gr oss i ncome mi nus t heexpendi t ur e. On t he same anal ogy t he exempt i on i s al so i n r espect of net i ncome. Expenses al l owed canonl y be i n r espect of ear ni ng of t axabl e i ncome.Thi s i s t he pur por t of Sect i on 14- A. I n Sect i on 14-A, t he f i r st phr ase i s “ [ f ] or t he pur poses ofcomput i ng t he t ot al i ncome under t hi s Chapt er ” whi chmakes i t cl ear t hat var i ous heads of i ncome aspr escr i bed under Chapt er I V woul d f al l wi t hi nSect i on 14- A. The next phr ase i s, “ i n r el at i on t oi ncome whi ch does not f or m par t of t he t ot al i ncomeunder t hi s Act ” . I t means t hat i f an i ncome does notf or m par t of t ot al i ncome, t hen t he r el at edexpendi t ur e i s out si de t he ambi t of t he-appl i cabi l i t y of Sect i on 14 A. Fur t her , Sect i on 14speci f i es f i ve heads of i ncome whi ch ar e char geabl et o t ax. I n or der t o be char geabl e, an i ncome has t obe br ought under one of t he f i ve heads. Sect i ons 15t o 59 l ay down t he r ul es f or comput i ng i ncome f ort he pur pose of char geabi l i t y t o t ax under t hoseheads. Sect i ons 15 t o 59 quant i f y t he t ot al i ncomechar geabl e t o t ax. The per mi ssi bl e deduct i onsenumer at ed i n Sect i ons 15 t o 59 ar e now t o beal l owed onl y wi t h r ef er ence t o i ncome whi ch i sbr ought under one of t he above heads and i schar geabl e t o t ax. I f an i ncome l i ke di vi dend i ncomei s not a par t of t he t ot al i ncome, t heexpendi t ur e/ deduct i on t hough of t he nat ur e speci f i edi n Sect i ons 15 t o 59 but r el at ed t o t he i ncome notf or mi ng par t of t ot al i ncome coul d not be al l owedagai nst ot her i ncome i ncl udi bl e i n t he t ot al i ncomef or t he pur pose of char geabi l i t y t o t ax. The t heor yof appor t i onment of expendi t ur es bet ween t axabl e andnon- t axabl e ( si c i ncome) has, i n pr i nci pl e, been nowwi dened under Sect i on 14- A. Readi ng Sect i on 14 i nj uxt aposi t i on wi t h Sect i ons 15 t o 59, i t i s cl eart hat t he wor ds “ expendi t ur e i ncur r ed” i n Sect i on 14-A r ef er t o expendi t ur e on r ent , t axes, sal ar i es,i nt er est , et c. i n r espect of whi ch al l owances ar epr ovi ded f or ( see Sect i ons 30 t o 37) . Ever y payouti s not ent i t l ed t o al l owances f or deduct i on. Theseal l owances ar e admi ssi bl e t o qual i f i ed deduct i ons.These deduct i ons ar e f or debi t s i n t he r eal sense. ( emphasi s suppl i ed) 22.As not ed by t he Supr eme Cour t , t he i nt ent i on of t hePar l i ament , t her ef or e, was not t o al l ow deduct i on i n r espect of anyexpendi t ur e by t he assessee i n r el at i on t o i ncome whi ch does notf or m par t of t he t ot al i ncome under t he Act . Sect i on 14A cl ar i f i est hat expenses i ncur r ed can be al l owed onl y t o t he ext ent t hey ar er el at abl e t o t he ear ni ng of t axabl e i ncome.As al so hel d by t he ( emphasi s suppl i ed) 22.As not ed by t he Supr eme Cour t , t he i nt ent i on of t hePar l i ament , t her ef or e, was not t o al l ow deduct i on i n r espect of anyexpendi t ur e by t he assessee i n r el at i on t o i ncome whi ch does notf or m par t of t he t ot al i ncome under t he Act . Sect i on 14A cl ar i f i est hat expenses i ncur r ed can be al l owed onl y t o t he ext ent t hey ar er el at abl e t o t he ear ni ng of t axabl e i ncome.As al so hel d by t he Supr eme Cour t , t he mandat e of sect i on 14A cl ear l y i s t o cur b t hepr act i ce t o cl ai m deduct i on of expenses i ncur r ed i n r el at i on t oexempt i ncome agai nst t axabl e i ncome and, at t he same t i me, avai lt he t ax i ncent i ve by way of exempt i on of exempt i ncome wi t houtmaki ng any appor t i onment of expenses i ncur r ed i n r el at i on t o exempti ncome.The Supr eme Cour t hel d t hat i f an i ncome l i ke di vi dendi ncome i s not a par t of t he t ot al i ncome, t heexpendi t ur e/ deduct i on, t hough of t he nat ur e speci f i ed i n sect i ons15 t o 59 but r el at ed t o t he i ncome not f or mi ng par t of t ot ali ncome, coul d not be al l owed agai nst ot her i ncome i ncl udabl e i n t het ot al i ncome f or t he pur pose of char geabi l i t y t o t ax. The i ncome byway of di vi dend and i nt er est r ecei ved on t he secur i t i es hel d by t her espondent / assessee bef or e us i s, admi t t edl y, not t axabl e i ncomeand an exempt i on i n r espect t her eof was, i n f act , cl ai med by t heassessee under sect i on 10( 34) and ( 35) . Had any expendi t ur e beeni ncur r ed i n ear ni ng such i ncome, i t woul d have t o be di sal l owed i nvi ew of sect i on 14A. 23.Ther e i s no quar r el wi t h t hese aspect s.The quest i onbef or e us, however , i s whet her t he assessee i ncur r ed anyexpendi t ur e t o ear n t he di vi dend or i nt er est ar i si ng f r om suchsecur i t i es. 24.The Supr eme Cour t t her eaf t er deal t wi t h t he f act s oft he case bef or e i t whi ch, as we ment i oned ear l i er , r el at ed t odi vi dend st r i ppi ng. Af t er t he above obser vat i ons, t heSupr emeCour t pr oceeded t o hol d as under : - “ A payback does not const i t ut e an “ expendi t ur ei ncur r ed” i n t er ms of Sect i on 14- A. Even appl yi ngt he pr i nci pl es of account ancy, a payback i n t hest r i ct sense does not const i t ut e an “ expendi t ur e” asi t does not i mpact t he pr of i t and l oss account .i ncur r ed” i n t er ms of Sect i on 14- A. Even appl yi ngt he pr i nci pl es of account ancy, a payback i n t hest r i ct sense does not const i t ut e an “ expendi t ur e” asi t does not i mpact t he pr of i t and l oss account . 24.The Supr eme Cour t t her eaf t er deal t wi t h t he f act s oft he case bef or e i t whi ch, as we ment i oned ear l i er , r el at ed t odi vi dend st r i ppi ng. Af t er t he above obser vat i ons, t heSupr emeCour t pr oceeded t o hol d as under : - “ A payback does not const i t ut e an “ expendi t ur ei ncur r ed” i n t er ms of Sect i on 14- A. Even appl yi ngt he pr i nci pl es of account ancy, a payback i n t hest r i ct sense does not const i t ut e an “ expendi t ur e” asi t does not i mpact t he pr of i t and l oss account .i ncur r ed” i n t er ms of Sect i on 14- A. Even appl yi ngt he pr i nci pl es of account ancy, a payback i n t hest r i ct sense does not const i t ut e an “ expendi t ur e” asi t does not i mpact t he pr of i t and l oss account . Payback or r et ur n of i nvest ment wi l l i mpact t hebal ance sheet wher eas r et ur n on i nvest ment wi l li mpact t he pr of i t and l oss account . Cost ofacqui si t i on of an asset i mpact s t he bal ance sheet .Ret ur n of i nvest ment br i ngs down t he cost . I t wi l lnot i ncr ease t he expendi t ur e. Hence, expendi t ur e,r et ur n on i nvest ment , r et ur n of i nvest ment and costof acqui si t i on ar e di st i nct concept s. Ther ef or e, oneneeds t o r ead t he wor ds “ expendi t ur e i ncur r ed” i n-Sect i on 14 A i n t he cont ext of t he scheme of t he Actand, i f so r ead, i t i s cl ear t hat i t di sal l owscer t ai n expendi t ur es i ncur r ed t o ear n exempt i ncomef r om bei ng deduct edf r om ot her i ncome whi ch i si ncl udi bl e i n t he “ t ot al i ncome” f or t he pur pose ofchar geabi l i t y t o t ax. As st at ed above, t he scheme ofSect i ons 30 t o 37 i s t hat pr of i t s and gai ns must becomput ed subj ect t o cer t ai nal l owances f ordeduct i ons/ expendi t ur e. The char ge i s not on gr ossr ecei pt s, i t i s on pr of i t s and gai ns. Pr of i t s havet o be comput ed af t er deduct i ng l osses and expensesi ncur r ed f or busi ness. A deduct i on f or expendi t ur eor l oss whi ch i s not wi t hi n t he pr ohi bi t i on must beal l owed i f i t i s on t he f act s of t he case a pr operdebi t i t em t o be char ged agai nst t he i ncomi ngs oft he busi ness i n ascer t ai ni ng t he t r ue pr of i t s. Ar et ur n of i nvest ment or a payback i s not such adebi t i t em as expl ai ned above, hence, i t i s not“ expendi t ur e i ncur r ed” i n t er ms of Sect i on 14- A.Expendi t ur e i s a payout . I t r el at es t o di sbur sement .A payback i s not an expendi t ur e i n t he scheme ofSect i on 14- A. For at t r act i ng Sect i on 14- A, t her e hast o be a pr oxi mat e cause f or di sal l owance, whi ch i si t s r el at i onshi p wi t h t he t ax exempt i ncome. Paybackor r et ur n of i nvest ment i s not such pr oxi mat e cause,hence, Sect i on 14- A i s not appl i cabl e i n t he pr esentcase. Thus, i n t he absence of such pr oxi mat e causef or di sal l owance, Sect i on 14- A cannot be i nvoked. I nour vi ew, r et ur n of i nvest ment cannot be const r uedt o mean “ expendi t ur e” and i f i t i s const r ued t o mean“ expendi t ur e” i n t he sense of physi cal spendi ngst i l l t he expendi t ur e was not such as coul d becl ai med as an “ al l owance” agai nst t he pr of i t s of t her el evant account i ng year under Sect i ons 30 t o 37 oft he Act and, t her ef or e, Sect i on 14- A cannot bei nvoked. Hence, t he t wo asset t heor y i s notappl i cabl e i n t hi s case as t her e i s no expendi t ur ei ncur r ed i n t er ms of Sect i on 14- A. ” ( emphasi s suppl i ed) 25.Thus, what t he Supr eme Cour t hel d was t hat a payback i nt he scheme of sect i on 14A i s not an expendi t ur e i ncur r ed i n t er ms ( emphasi s suppl i ed) 25.Thus, what t he Supr eme Cour t hel d was t hat a payback i nt he scheme of sect i on 14A i s not an expendi t ur e i ncur r ed i n t er ms of sect i on 14A. Expendi t ur e i s a payout . I t i s i n t he f act s of t hatcase, t her ef or e, t hat t heSupr eme Cour t hel d t hat t he amountr ecei ved cannot const i t ut e expendi t ur e. As t heSupr eme Cour ti t sel f not ed, t he quest i on waswhet her “ r et ur nof i nvest ment ”( emphasi s suppl i ed) or “ cost r ecover y” woul d f al l wi t hi n t heexpr essi on “ expendi t ur e i ncur r ed” . That quest i on does not ar i sebef or e us and t he r esul t i n t hat case i s not r el evant t o t he i ssuebef or e us. What i s r el evant t o t hi s appeal ar e t he obser vat i onsr egar di ng t he ambi t of sect i on 14A whi ch we have deal t wi t hear l i er . 26.What i s of vi t al i mpor t ance i n t he above j udgment ar et he obser vat i ons emphasi sed by us. Each of t hem expr essl y st at est hat what i s di sal l owed i s expendi t ur e i ncur r ed t o “ ear n” exempti ncome. The wor ds “ i n r el at i on t o” i n sect i on 14A must be const r uedaccor di ngl y. Thus, t he wor ds “ i n r el at i on t o” appl y t o ear ni ngexempt i ncome. The i mpor t ance of t he obser vat i on i s t hi s. We have hel d t hat t he secur i t i es i n quest i on const i t ut edt he assessee’ s st ock- i n- t r ade and t he i ncome t hat ar i ses on accountof t he pur chase and sal e of t he secur i t i es i s i t s busi ness i ncomeand i s br ought t o t ax as such. That i ncome i s not exempt f r om t axand, t her ef or e,t he expendi t ur e i ncur r ed i n r el at i on t her et o doesnot f al l wi t hi n t he ambi t of sect i on 14A. Now, t he di vi dend and i nt er est ar e i ncome. The quest i ont hen i s whet her t he assessee can be sai d t o have i ncur r ed anyexpendi t ur e at al lor any par t of t he sai d expendi t ur e i n r espectof t he exempt i ncome vi z. di vi dend and i nt er est t hat ar ose out oft he secur i t i es t hat const i t ut ed t he assessee’ s st ock- i n- t r ade. Theanswer must be i n t he negat i ve. The pur pose of t he pur chase of t hesai d secur i t i es was not t o ear n i ncome ar i si ng t her ef r om, namel y, di vi dend and i nt er est , but t o ear n pr of i t s f r om t r adi ng i n i . e.pur chasi ng and sel l i ng t he same. I t i s axi omat i c, t her ef or e, t hatt he ent i r e expendi t ur e i ncl udi ng admi ni st r at i ve cost s was i ncur r edf or t he pur chase and sal e of t he st ock- i n- t r ade and, t her ef or e,t owar ds ear ni ng t he busi ness i ncome f r om t he t r adi ng act i vi t y ofpur chasi ng and sel l i ng t he secur i t i es. I r r espect i ve of whet her t hesecur i t i es yi el ded any i ncome ar i si ng t her ef r om, such as, di vi dendor i nt er est , no expendi t ur e was i ncur r ed i n r el at i on t o t he same. 27.The secur i t i es wer e t he assessee’ s st ock- i n- t r ade.Mr .Bansal , as not ed ear l i er , submi t t ed t hat t he assessee di d not hol dt he secur i t i es t o ear n di vi dend or i nt er est , but t r aded i n t hem andt he di vi dend or i nt er est accr ui ng t her eon was onl y a by- pr oductt her eof or an i nci dent al benef i t ar i si ng t her ef r om and woul d not ,t her ef or e, be subj ect t o t he pr ovi si ons of sect i on 14A. Mr . Bansal ’ sr el i ance on a j udgment of t he Kar nat aka Hi gh Cour t i n CCI Lt d. vs.Joi nt Commi ssi oner of I ncome- t ax, Udupi Range, [ 2012] 250 CTR 291( Kar nat aka) i s wel l f ounded. Par agr aph- 5 t her eof r eads as f ol l ows: - 27.The secur i t i es wer e t he assessee’ s st ock- i n- t r ade.Mr .Bansal , as not ed ear l i er , submi t t ed t hat t he assessee di d not hol dt he secur i t i es t o ear n di vi dend or i nt er est , but t r aded i n t hem andt he di vi dend or i nt er est accr ui ng t her eon was onl y a by- pr oductt her eof or an i nci dent al benef i t ar i si ng t her ef r om and woul d not ,t her ef or e, be subj ect t o t he pr ovi si ons of sect i on 14A. Mr . Bansal ’ sr el i ance on a j udgment of t he Kar nat aka Hi gh Cour t i n CCI Lt d. vs.Joi nt Commi ssi oner of I ncome- t ax, Udupi Range, [ 2012] 250 CTR 291( Kar nat aka) i s wel l f ounded. Par agr aph- 5 t her eof r eads as f ol l ows: - “ 5. When no expendi t ur e i s i ncur r ed by t he assessee i near ni ng t he di vi dend i ncome, no not i onal expendi t ur ecoul d be deduct ed f r om t he sai d i ncome. I t i s not t hecase of t he assessee r et ai ni ng any shar es so as t ohave t he benef i t of di vi dend. 63% of t he shar es, whi chwer e pur chased, ar e sol d and t he i ncome der i vedt her ef r om i s of f er ed t o t ax as busi ness i ncome. Ther emai ni ng 37% of t he shar es ar e r et ai ned. I t hasr emai ned unsol d wi t h t he assessee. I t i s t hose unsol dshar es have yi el ded di vi dend, f or whi ch, t he assesseehas not i ncur r ed any expendi t ur e atal l . Though t hedi vi dend i ncome i s exempt ed f r om payment of t ax, i fany expendi t ur e i s i ncur r ed i n ear ni ng t he sai di ncome, t he sai d expendi t ur e al so cannot be deduct ed.But i n t hi s case, when t he assessee has not r et ai nedshar es wi t h t he i nt ent i on of ear ni ng di vi dend i ncomeand t he di vi dend i ncome i s i nci dent al t o hi s busi nessof sal e of shar es, whi ch r emai ned unsol d by t heassessee, i t cannot be sai d t hat t he expendi t ur ei ncur r ed i n acqui r i ng t he shar es has t o be appor t i onedt o t he ext ent of di vi dend i ncome and t hat shoul d bedi sal l owed f r om deduct i ons. I n t hat vi ew of t he mat t er , t he appr oach of t he aut hor i t i es i s not i nconf or mi t y wi t h t he st at ut or y pr ovi si ons cont ai nedunder t he Act . Ther ef or e, t he i mpugned or der s ar e notsust ai nabl e and r equi r e t o be set asi de. Accor di ngl y,we pass t he f ol l owi ng: …. . …. . …”( emphasi s suppl i ed) We ar e,i n r espect f ul agr eement wi t h t he j udgment and, i n par t i cul ar , t he obser vat i ons emphasi sed by us. The Di vi si onBench hel d t hat when t he assessee has not r et ai ned shar es wi t h t hei nt ent i on of ear ni ng di vi dend i ncome and t hat t he di vi dend i ncomei s i nci dent al t o t he busi ness of sal e of shar es i t cannot be sai dt hat t he expendi t ur e i ncur r ed i n acqui r i ng t he shar es has t o beappor t i oned t o t he ext ent of di vi dend i ncome and t hat shoul d bedi sal l owed f r om deduct i on. 28.A f i nanci al deci si on of an assessee t hat t r ades i nsecur i t i es may and, i n f act , woul d f act or i n t he di vi dend ori nt er est t hat t he secur i t i es i t acqui r es as i t s st ock- i n- t r adeyi el ds ori s l i kel y t o yi el d. Such a deci si on woul d be t aken f oracqui si t i on, r et ent i on and di sposal of t he secur i t i es. That ,however , i s a f i nanci al consi der at i on not wi t h a vi ew t o ear ni ngt he di vi dend or i nt er est but wi t h a vi ew t o assessi ng t he pr i ce atwhi ch t he secur i t y ought t o be acqui r ed, r et ai ned and sol d.I not her wor ds, such di vi dendor i nt er est i s an aspect t hat t heassessee t akes i nt o consi der at i on f or i ncur r i ng t he expendi t ur e f ort he pur pose of acqui r i ng t he st ock- i n- t r ade and deal i ng wi t h i tt her eaf t er as wel l as f