Bombay High Court
Pr. Commissioner Of Income-Tax-1 vs Icici Securities Primary Dealership ... on 13 November, 2025
Author: R.I. Chagla
Bench: R.I. Chagla
2025:BHC-OS:21232-DB
Jayashri Lande 1-ITA-2259-2018.doc
JYOTI
Digitally signed
by JYOTI
PRAKASH
PAWAR
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
PRAKASH Date:
PAWAR 2025.11.18
12:16:01
+0530
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 2259 OF 2018
Pr. Commissioner of Income Tax-1 ...Appellant
V/s.
ICICI Securities Primary Dealership Limited
(Formerly Known as ("ICICI Securities Ltd.) ...Respondent
____________________________________
Mr. Suresh Kumar for Appellant
Mr. Madhur Agrawal i/b Mr. Atul K. Jasani for Respondent
___________________________________
CORAM : R.I. CHAGLA AND
FARHAN P. DUBASH, JJ.
DATE : 13TH NOVEMBER 2025
ORDER :
1. By this Income Tax Appeal the Appellant has impugned the
Order dated 13th September 2017 passed by the Income Tax Appellant
Tribunal (J) Bench, Mumbai (ITAT, Mumbai). The Appellant has raised the
Questions of law which are as under :-
(i) Whether on the facts and circumstances of the case, the
Hon'ble ITAT has erred in holding that only actual
expenditure can be deducted while calculating deduction
u/s.115BBB, in absence of details of actual expenditure
incurred provided by the assessee.
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(ii) Whether on the facts and circumstances of the case,
the Hon'ble ITAT has erred in not following the ratio
decidendi of the Supreme Court in Distributors (Baroda)
(P.) Ltd. v. Union of India (22 Taxman 49 (SC)) , holding
that the 'income' referred to in Section 80M would be as
calculated under the provisions of the Act and not the gross
amount.
(iii) Whether on the facts and circumstances of the case,
the Hon'ble ITAT has erred in holding that only actual
expenditure can be deducted while calculating deduction
u/S. 80M, in the absence of any details of actual
expenditure incurred provided by the assessee.
2. The findings of the Assessing Officer and the Commissioner of
Income-tax (Appeals) as well as the ITAT, Mumbai on Question of Law No. (i)
are as under :-
(i) The Assessing Officer in the Assessment Order for A. Y.
2003-2004 has held that the amount which is chargeable
to tax under Section 115BBB of the Income Tax Act, ("the
Act") is not the gross amount of dividend but the net
amount of dividend which is to be arrived at after reducing
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the expenses incurred for earning the said income. The
Assessing Officer has accordingly disallowed the expenses
on an estimate basis.
The Assessing Officer has held that the amount earned by
the Respondent-assessee from its stock in trade, taxable as
dividend under Section 115BBB of the Act is of Rs.34.48
crores. This is 11.97% of the total income from operation
and therefore out of a total interest expenditure, 11.97%
should be attributed towards earning the dividend income
and reduced from such dividend income. The Assessing
Officer has disallowed 10.46 crores of interest expenditure.
Further, the Assessing Officer has held that the Respondent
- Assessee had earned Rs. 123.17 crores as profit from
dealing in shares and therefore, dividend income from
units of UTI and mutual fund constituted 28% of income
from dealing in shares, units and securities. The Assessing
Officer accordingly disallowed Rs.0.91 crores being
custodial and brokerage expenses. For other expenses, the
Assessing Officer estimated 5% of the balance expenditure
and disallowed an amount of Rs. 3.05 crores.
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(ii) The Commissioner of Income Tax (Appeals) reduced
the interest disallowance to Rs. 7.37 crores by using a
different methodology to compute the disallowance. The
Commissioner of Income-tax (Appeals) has held that no
part of custodial or brokerage expenses related to income
earned from mutual fund as these expenses relate to
government bonds, securities or equity shares. Accordingly,
the Commissioner of Income-tax (Appeals) deleted the
addition of Rs. 91,80,000/-. The Commissioner of Income-
tax (Appeals) confirmed the disallowance of 5% of other
expenses.
(iii) The ITAT, Mumbai has set aside the orders of the
Assessing Officer and the Commissioner of Income-tax
(Appeals) by holding that the Assessing Officer/First
Appellate Authority did not have the benefit of the
judgments of this Court in the case of CIT vs. Reliance
Utilities and Power Ltd.,1 and CIT vs. HDFC Bank Ltd., 2 at
the time of the assessment/appellate proceedings. The
ITAT, Mumbai has held on the facts of the present case, the
assessee has sufficient own funds to make investment that
1 [2009] 179 Taxman 135, (Bom)
2 [2014] 49 Taxman.com 335, (Bom)
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yielded dividend income. Therefore, there was no
justification for the Appellate Authorities below to rework
the interest expenditure.
3. The ITAT, Mumbai with respect to attribution of indirect
expenditure to the extent of Rs. 3.04 crores has referred to its earlier
order for the assessment year 2005-06 stating that in that year the issue
has been sent back to compute disallowance of other expenditure under
Section 14A of the Act to the file of the Assessing Officer. The ITAT,
Mumbai has accordingly followed the said order and directed the
Assessing Officer to decide the case afresh after affording a reasonable
opportunity of hearing to the assessee.
4. The findings of the Assessing Officer, the Commissioner of
Income-tax (Appeals) and the ITAT, Mumbai on Question of Law Nos. 2 & 3
are as under :-
(i) The Assessing Officer in the assessment order held that
deduction under Section 80M of the Act which provides for
deduction from the gross total income of the assesse if a
gross total income of the assessee includes any dividend
income earned from any domestic company as in the present
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case is allowable on net dividend and not on gross dividend.
The Assessing Officer has accordingly taken the proportion
of dividend income allowable as deduction under Section
80M to the total income earned by the Respondent -
assessee and disallowed interest expenditure to the extent of
Rs. 11.3 lakhs. Further, the proportion of the total profit
earned by the Respondent - assessee from dealing in shares
and securities to the dividend income eligible for deduction
under Section 80M disallowed Rs. 10,000/- as custodial and
brokerage expenses and Rs. 12,20,000/- as other expenses.
(ii) The Commissioner of Income-tax (Appeals) has allowed
the Appeal filed by the Assessee by following the decision in
the case of CIT vs. Emrald Co. Ltd.,3 wherein this Court has
held that once the shares are held as stock-in-trade dividend
from which is eligible for deduction under section 80M of
the Act, all expenses incurred by the assessee with respect to
such shares are allowable while computing profits and gains
of business and profession. Therefore, the said expenses
cannot once again be deducted while computing dividend
income under the head 'income from other sources'. The
3 284 ITR 586, (Bom)
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Commissioner of Income-tax (Appeals) has accordingly held
that when dividend income is earned on shares held as
stock-in-trade, no expenditure is attributable to earning
dividend income and hence, cannot be reduced while
computing deduction under Section 80M of the Act.
(iii) The ITAT, Mumbai has dismissed the appeal filed by the
Revenue after referring to the decision of this Court in CIT
vs. Emrald Co. Ltd. (Supra) at para 6.1. The ITAT, Mumbai
has held that this Court in the case of CIT vs. Modern Terry
Towers Ltd.4 has held that though deduction under section
80M of the Act is allowable on net dividend basis, the same
has to be arrived at after taking into account only the actual
expenditure incurred for earning such dividend and not on
estimated basis. The ITAT, Mumbai after noting that the
Assessing Officer has not disallowed actual expenditure but
has disallowed expenditure based on estimate, confirmed
the order of the Commissioner of Income-tax (Appeals).
5. Mr. Suresh Kumar has submitted that the Assessing Officer has
disallowed the expenses on an estimate basis by considering that the
Respondent during the relevant assessment year had earned an amount of
4 357 ITR 750
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Rs. 34.489 crores as and by way of dividend income which is 11.97% of the
total income from operation and therefore out of the total interest
expenditure, 11.97% should be attributed towards the earning the dividend
income and reduce from such dividend income. He has submitted that the
Assessing Officer has rightly disallowed an amount of Rs. 10.46 crores of
interest expenditure. He has submitted that the Assessing Officer had further
considered that the Respondent - assessee had earned Rs. 123.17 crores as
profit from dealing in shares and therefore, dividend income from units of
UTI and mutual fund constituted 28% of income from dealing in shares,
units and securities. Accordingly there has been disallowance of Rs. 0.91
crores being custodial and brokerage expenses which are the expenses for
the earning of dividend income.
6. Mr. Suresh Kumar has submitted that the Commissioner of
Income-tax (Appeals), though reducing interest disallowance to Rs.7.37
crores, has deleted addition of Rs. 91,80,000/-. Further, the disallowance of
5% of other expenses was confirmed.
7. Mr. Suresh Kumar has submitted that the Supreme Court in
Distributors (Baroda) (P.) Ltd. (Supra) has held that the deduction under
Section 80M has to be allowed on net basis and not on gross basis. This is
precisely what the Assessing Officer as well as the Commissioner of Income-
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tax (Appeals) has done. He has submitted that accordingly the ITAT, Mumbai
has erred in setting aside the orders of the Assessing Officer and the
Commissioner of Income-tax (Appeals).
8. Mr. Suresh Kumar has further submitted that the ITAT, Mumbai
has erroneously held that only actual expenditure can be deducted while
calculating deduction under Section 80M and that in the absence of details
of actual expenditure incurred, there can be no such deduction. He has
placed reliance upon Section 14A of the Act. He has submitted that reduction
of estimated expenditure based on proportion of dividend income to total
income earned by the Respondent-assessee is permissible.
9. Mr. Madhur Agrawal, learned Counsel appearing for the
Respondent has submitted that the Question of law No. 1 as framed by the
Appellant - Revenue is required to be dismissed as Section 115BBB of the Act
is not a provision for deduction but a provision which provides for a rate of
tax. The ITAT, Mumbai has no where held that only actual expenditure can be
deducted while calculating deduction under Section 115BBB of the Act. The
finding of the ITAT, Mumbai is only with respect to the claim of deduction
under Section 80M of the Act and not under Section 115BBB of the Act.
Jayashri Lande 1-ITA-2259-2018.doc
10. Mr. Agrawal has submitted that without prejudice to the above
submission, the ITAT, Mumbai after recording a factual finding that sufficient
own funds are available to make the investments which have resulted in the
dividend income has followed the decision of this Court in CIT vs. Reliance
Utilities and Power Ltd. (Supra) and CIT vs HDFC Bank Ltd., (Supra). These
decisions have also been affirmed by the Supreme Court in South India Bank
Ltd V/s. CIT5. This issue is also concluded by the decision of this Court in the
assessee's own case in PCIT vs. ICICI Securities Primary Dealership Limited 6.
Therefore, no question of law arises for consideration.
11. Mr. Agarwal has submitted that in so far as Question Nos. 2 and
3 are concerned, the ITAT Mumbai has concluded that as no expenditure is
attributable to earning dividend income, the question of disallowance of any
expenditure does not arise. The Assessing Officer had in paragraph 4 of its
Order accepted that shares and securities on which dividend income is
earned is held as stock-in-trade. He has submitted that once the shares and
securities are held at stock-in-trade this issue gets concluded by the decision
of this Court in the case of CIT vs. Emrald Co. Ltd. (Supra). In the said case,
this Court has considered the identical facts situation and held that if profit
from shares and securities are taxable, under the Head "Profits and Gains of
5 438 ITR 1 (SC)
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Business and Profession", all expenses with respect to dealing in shares and
securities including interest expenditure is allowed while computing profits
and gains under the said head. Therefore, there is no question of claiming
the said expenditure again while computing dividend income under the Head
"Income from Other Sources".
12. Mr. Agrawal has submitted that in such a situation no
expenditure is required to be reduced while computing deduction under
Section 80M of the Act. This Court in CIT vs. Emrald Co. Ltd. (Supra) has
considered the decision of the Supreme Court in Distributors (Baroda) (P.)
Ltd. (Supra) and held that the Supreme Court was not concerned with a case
wherein the assess was trading in shares and hence the said decision will not
be applicable to a case where shares are held in stock-in-trade.
13. Mr. Agrawal has submitted that the question raised by the
Appellant-Revenue as to whether ITAT, Mumbai has erred in holding that
only actual expenditure can be deducted while computing deduction under
Section 80M of the Act is a question which has been decided by this Court in
the case of CIT vs. Modern Terry Towers Ltd. . This Court has held that
though deduction under Section 80M is allowable on net dividend basis, the
same has to be arrived at after taking into account only the actual
expenditure incurred for such dividend and not on estimated basis. In the
7 357 ITR 750
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present case, the Assessing Officer has not disallowed the actual expenditure
incurred for earning dividend income but has reduced the estimated
expenditure based on the proportionate of the dividend income to total
income earned by the Respondent-Assessee.
14. Mr. Agrawal has submitted that during the arguments of
Mr. Suresh Kumar reference has been made to Section 14A of the Act. He has
submitted that Section 14-A of the Act has not been invoked by the Assessing
Officer while passing the Assessing Order. Section 14-A applies with respect
to expenditure incurred in relation to "Income which does not from part of
total Income" under the Act. This is covered in Chapter-III of the Act, which
deals with income which has been exempted from Tax. Section 80M of the
Act, which provides for the deduction is part of Chapter-VI-A which is
different from an exemption as provided in Chapter-III and therefore Section
14-A is not applicable.
15. Mr. Agrawal has submitted that accordingly the Question of law
Nos. 2 and 3 as framed by the Revenue does not give rise to any substantial
question of law.
16. We have considered the submissions of the parties. The Question
of Law No.1 raised by the Appellant-Revenue has in our view been
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erroneously raised. This is in view of the Question of Law No.1, although
framed in the context of Section 115BBB, proceeds on the premise that the
ITAT, Mumbai has erred in holding that only actual expenditure is to be
deducted while calculating deduction under this provision. Section 115BBB
as submitted by Mr. Agrawal for the Respondent-assessee is not a provision
for deduction but provides for a rate of tax. Section 115BBB provides that
Income earned by an assessee from units of our open-ended equity oriented
fund of the Unit Trust of India (UTI) or of a mutual fund shall be taxable @
10%. The ITAT, Mumbai has nowhere held that only actual expenditure can
be deducted while calculating deduction under Section 115BBB of the Act.
The finding of the ITAT, Mumbai is only with respect to the deduction under
Section 80M of the Act and not under the said provision. Accordingly, this
Question of Law No. 1 does not raise a substantial question of law.
17. In any event, it has been held by this Court in CIT vs. Reliance
Utilities and Power Ltd. (Supra) and CIT vs. HDFC Bank Ltd. (Supra) that
where the assessee has sufficient own funds to make the investment, which
have resulted in dividend income as in the present case then, the dividend
income is treated as arising from the assessees's own funds. These decisions
have also been affirmed by the Supreme Court in South India Bank Ltd. vs.
CIT (Supra) and in the assesses's own case in PCIT vs. ICICI Securities
Primary Dealership Ltd. (Supra).
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18. In so far as Question of Law Nos. 2 and 3, these Questions have
been raised and considered by this Court in CIT vs. Emrald Co. Ltd. (Supra).
That case as in the present case, the shares and securities of the Assessee
were held as stock-in-trade. It has been held that if profit from shares and
securities are taxable, under the head 'profits and gains of business and
profession', all expenses with respect to dealing in shares and securities
including interest expenditure is allowed while computing profits and gains
under the said head. Therefore, there is no question of claiming the said
expenditure again while computing dividend income under the head 'income
from other sources'. Thus, no expenditure is required to be reduced while
computing deduction under Section 80M of the Act. This Court in CIT vs.
Emrald Co. Ltd. (Supra) has also considered the decision of the Supreme
Court in Distributors (Baroda) (P.) Ltd. (Supra) and held that the Supreme
Court was not concerned with a case where the assessee was trading in
shares and hence, the said decision was not applicable to a case where shares
are held as stock-in-trade.
19. The Appellant - Revenue had during the course of arguments
contended that estimated expenditure can also be considered while
computing deduction under Section 80M of the Act. Their contention being
that the deduction under Section 80M is allowable on net dividend basis.
Although it is undisputed that deduction under Section 80M is allowed on
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net dividend basis, it has been held in CIT vs. Modern Terry Towers Ltd.
(Supra) that the deduction under Section 80M has to be arrived at after
taking into account actual expenditure incurred for earning such dividend
and not on estimated basis. In the present case, the Assessing Officer has not
disallowed the actual expenditure incurred for earning dividend income but
has reduced the estimated expenditure which is based on the proportionate
of dividend income to total income earned by the Respondent Assessee which
as per settled law is impermissible.
20. In so far as the contention of the Appellant-Revenue that Section
14-A is applicable, we find no merit in such contention. Section 14-A has not
even been invoked by the Assessing Officer. In any event, Section 14-A is
inapplicable in the present case as it pertains to income which does not form
part of total income and is covered under Chapter-III of the Act, whereas
Section 80M provides for a deduction and is part of Chapter VI-A of the Act.
21. It is pertinent to note that attribution of indirect expenditure to
the extent of Rs.3.05 Crores has been remanded back by ITAT, Mumbai to the
Assessing Officer to decide afresh by referring to an earlier Order for A.Y.
2005-06 where the Issue had been sent back to compute disallowance of the
other expenditure u/s 14-A of the Act to the file of the Assessing Officer.
Jayashri Lande 1-ITA-2259-2018.doc
22. Accordingly, we find that no substantial Questions of Law have
been raised in present Tax Appeal.
23. The Income Tax Appeal is dismissed.
24. There shall be no order as to costs.
( FARHAN P. DUBASH, J. ) ( R.I. CHAGLA J. )
