A.K. Sengupta, J.
1. At the instance of the Commissioner, West Bengal-IV, the following question of law has been referred to this court under Section 256(1) of the Income-tax Act, 1961 ('the Act'), for the assessment year 1973-74 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer was not justified in apportioning the total expenditure incurred by the assessee as between the several heads of income and treating the appropriate portion thereof as expenditure against the dividend income and in modifying the assessment accordingly?'
2. The facts of the case are that the assessee formerly known as 'Birds Investment Ltd.', is a limited company whose income was from interest on securities, business of purchase and sale of shares, dividends and interest, etc. The Income-tax Officer held that the interest paid and part of the other expenses which were claimed as a deduction against the business of purchase and sale of shares were attributable to the earning of dividend on shares of domestic companies. He, therefore, apportioned the expenses under different heads. The result of this was that the loans under the head 'Profits and gains of business or profession' were considerably reduced. Aggrieved by this order, the assessee took the matter in appeal to the Appellate Assistant Commissioner contending therein that there was noquestion of apportionment of the expenses because in the earlier years, the expenses were allowed entirely under the head 'Profits and gains of business or profession'. The Appellate Assistant Commissioner, following the order of the Tribunal for the earlier years, held that the Income-tax Officer was not justified in allocating any expenses claimed as a deduction in working out the loss from business in purchase and sale of shares towards the earning of income from dividends, etc.
3. Aggrieved by this order, the Revenue filed an appeal before the Tribunal. The Department raised the contention that the Appellate Assistant Commissioner erred in rejecting the Income-tax Officer's stand in allocating the expenditure towards the earning of dividend income and in directing the Income-tax Officer to enhance the loss computed under the head 'Profits and gains of business or profession' by Rs. 71,113 and also to enhance the income under the head 'Income from other sources' by Rs. 71,113. The Tribunal, however, following its earlier order in I.T. Appeal No. 5462 (Cal) of 1975-76, dated April 25, 1977, for the assessment year 1972-73, held that the Appellate Assistant Commissioner was justified in allowing all the expenses under the head 'Profits and gains of business or profession'.
4. This question is now concluded by several decisions of this court. In the case of the very assessee for the assessment years 1963-64 to 1965-66, an identical question came up for consideration before this court in CIT v. Birds Investment (Anniversary Investment Agency) (I. T. References Nos. 365, 367 and 369 of 1971 (Cal)).
5. There, this court answered the identical question in the affirmative and in favour of the assessee.
6. The said decision was considered by this court in the case of CIT v. New India Investment Corpn. Ltd. : 113ITR778(Cal) .
7. There, this court held as follows (at p. 784) :
'In view of the law as laid down by the Supreme Court, it appears to us that the expenditure in the instant case has been shown to be referable to the business activity carried on by the assessee and must be allowable under the head 'Business income'. Even assuming that the income of the assessee is solely referable to dividend, there can be no question of apportionment. The entire expenditure would then be allowable against the dividend earned. We had occasion to consider a similar question in Income-tax References Nos. 365, 367 and 369 of 1971 (CIT v. Birds Investment (Anniversary Investment Agency)), where we held that where the assessee was holding shares as its circulating capital and it was not possible to ascertain if any shares were held solely for the purpose of earning dividends, there was no justification for apportioning the expenditure incurredby the assessee against income arising under two separate heads, i.e., business and dividend'.
8. A similar question also arose in the case of CIT v. Devenport and Co. (P.) Ltd. : 158ITR348(Cal) . In that case, one of the questions was as follows (at p. 349) :
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the Income-tax Officer was not justified in apportioning the total expenditure incurred by the assessee as between the several heads of income and treating appropriate portion thereof as expenditure against the dividend income ?'
9. Relying on the decision in New India Investment Corpn. Ltd.'s case : 113ITR778(Cal) , the court answered the said question in the affirmative.
10. There is no dispute that the assessee was doing investment business and holding of stocks and shares partook of the nature of circulating capital. It was not possible to distinguish shares held solely for the purpose of earning dividend and to determine the borrowings made for the purpose of acquiring such shares and the interest paid thereon. It was not possible to attribute any particular item of expenditure for having been incurred solely for the purpose of earning dividend income. The shares being held as circulating capital for the business, the expenditure including the interest, has to be allowed as deduction in computing the business profits. In the premises, there is no question of allocation of such expenses between business income and dividend income. It is only for the purpose of income-tax assessment that the dividend is shown under a separate head. The entire income has to be treated as business income and no part of the expenditure can be apportioned under the head 'Income from other sources'. The whole of the expenditure should be allowed under business income.
11. For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee.
12. There will be no order as to costs.
K.M. Yusuf, J.
13. I agree.