Judgment Ajit K. Sengupta, J. 1. AT the instance of the Commissioner of Income-tax, West Bengal-IV, the following questions of law were referred to this court under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1968-69 : "(i) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 80B(5) of the Income-tax Act, 1961, defining the term gross total income, the Tribunal was justified in holding that the relief under Section 80M of the said Act was admissible on the gross amount of the dividend without deducting therefrom the proportionate management expenses and interest paid for earning the dividend ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to change the method of valuation of its closing stock and in that view allowing the deduction of Rs. 23,06,452 claimed by the assessee ? (iii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the cash payments on account of reimbursement of medical expenses of the employees could not be included in the value of benefit, amenity or perquisite for the purpose of disallowance in excess of the limits laid down under Section 40(c)(iii) or 40(a)(v) of the Income-tax Act, 1961 ?" 2. THE second and third questions had been referred by the Tribunal under Section 256(1) of the Income-tax Act, 1961. THE said reference came up before this court and was decided in favour of the assessee. THE said decision is reported in CIT v. National and Grindlays Bank Ltd. It appears that, by mistake, the aforesaid questions have been again referred to this court under Section 256(2) of the Act. It further appears that there is some typographical mistake in the amount mentioned in question No. 1 in the earlier reference which is question No. 2 in the present reference. However, to avoid any controversy, we answer the second and third questions in the affirmative and in favour of the assessee. So far as the first question is concerned, the facts are briefly as under : The assessee received a gross dividend during the accounting year relevant to the assessment year 1968-69 amounting to Rs. 3,02,662. However, to avoid any controversy, we answer the second and third questions in the affirmative and in favour of the assessee. So far as the first question is concerned, the facts are briefly as under : The assessee received a gross dividend during the accounting year relevant to the assessment year 1968-69 amounting to Rs. 3,02,662. Following the same basis as adopted in calculating the expenses and interest under Section 21 attributable to interest on securities, the proportionate expenses and interest to earn the dividend income was worked out at Rs. 1,25,529 and Rs. 1,20,933 respectively. Thus the net dividend left for the purpose of giving relief under Section 80M was only Rs. 56,200. The Income-tax Officer took the figure at Rs. 55,700 after deducting Rs. 500 under Section 80L of the Income-tax Act. The assessee went in appeal to the Appellate Assistant Commissioner. He held that there was no justification for apportioning any part of the expenses or interest payments against the income of the assessee from dividend and held that the assessee was entitled to deduction under Section 80M on the gross dividend amounting to Rs. 3,02,662. The Department went in appeal to the Tribunal. The Tribunal considered several decisions of the Supreme Court and this court and came to the conclusion that the Appellate Assistant Commissioner rightly allowed the relief under Section 80M on the gross amount of the dividend. 3. MR. B.K. Naha, the learned advocate on behalf of the Revenue, has contended that the controversy as raised in the first question is now concluded by Section 80AA which was inserted with retrospective effect from April 1, 1968. He, therefore, submits that, in view of the provisions contained in Section 80AA, the relief under Section 80M is to be computed with reference to the amount included in the assessment. The Tribunal was, therefore, not right in allowing the relief on the gross amount of dividend. 4. DR. Pal, on the other hand, has submitted that Section 80AA makes no difference so far as the provisions of Section 80M are concerned. Since the entire amount of dividend earned by the assessee-company from the domestic company is assessable as profits of the business carried on by the assessee, there cannot be any deduction for proportionate management expenses and interest paid for earning the dividend. DR. Pal mainly relied on two decisions of the Gujarat High Court. Since the entire amount of dividend earned by the assessee-company from the domestic company is assessable as profits of the business carried on by the assessee, there cannot be any deduction for proportionate management expenses and interest paid for earning the dividend. DR. Pal mainly relied on two decisions of the Gujarat High Court. The first decision is in the case of Addl. CIT v. Laxmi Agents P. Ltd. reported in [1980] 125 ITR 227. In that case, the income of the assessee comprised (1) managing agency business, (2) income from trading in shares, and (3) income from other sources, i.e., dividends. The assessee paid interest on the borrowings made by it. The assessee claimed payment of interest as deduction from its business income. The assessee also claimed deduction of tax on intercorporate dividends, contemplated by Section 85A of the Income-tax Act, 1961, without deducting the interest paid on borrowings made for the purpose of purchasing shares because, according to the assessee, the interest paid on these borrowings should be deducted from its business income. The Income-tax Officer refused to deduct the interest paid on the borrowings from the assessee's business income, but deducted the same from its dividend income from shares. He, accordingly, computed the deduction contemplated by Section 85A on the dividend income reduced by the amount of interest paid on the borrowings. Being aggrieved by this decision of the Income-tax Officer, the assessee approached the Appellate Assistant Commissioner in appeal. In that appeal, it was held by the Appellate Assistant Commissioner that the investment made for the purpose of purchasing the shares of the managed company was for the purpose of the business of managing agency and, therefore, the interest paid on borrowings was deductible from the business income and not from dividend income. In view of this finding, the assessee got deduction of tax on inter-corporate dividends as desired by it. The Tribunal found, after referring to the balance-sheet of the assessee-company, that investments made by the assessee were all trade investments, and related to the business activities of the assessee. They were for the purpose of the business of the assessee. According to the view taken by the Tribunal, the interest paid on borrowings was deductible as against the profits and gains of the business of the assessee and not against the dividend income. They were for the purpose of the business of the assessee. According to the view taken by the Tribunal, the interest paid on borrowings was deductible as against the profits and gains of the business of the assessee and not against the dividend income. On the question whether deduction contemplated by Section 85A should be deducted from the gross dividend income or the net dividend income, the Tribunal was of the view that it should be deducted from the amount of gross dividend income. Being aggrieved by the said decision of the Tribunal, the Revenue preferred the reference in which the following four questions had been referred to the Gujarat High Court (at page 229 of 125 ITR) : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income arising out of the investments made by the assessee must be held to be income from the business of the assessee ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that though the income from dividend has to be assessed under a separate head, the payment of interest by the assessee on amounts borrowed for purposes of investments must be allowed as business expenditure ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to tax deduction in accordance with Section 85A of the Act calculated on the amount of gross dividend income and not on the net amount of dividends after deducting any amount of expenses by way of interest ? (4) Whether, on the facts and in the circumstances of the case, the income from dividend must be assessed under the head ' Income from other sources' as laid down in Sections 56 and 57 ?" 5. THE Gujarat High Court, after considering various decisions, held that the Tribunal was not right in holding that the income arising out of the share investment made by the assessee should be held to be income from business. It should be charged under the head "Other sources" as dividends as laid down in Section 56. THE Gujarat High Court, after considering various decisions, held that the Tribunal was not right in holding that the income arising out of the share investment made by the assessee should be held to be income from business. It should be charged under the head "Other sources" as dividends as laid down in Section 56. So far as the second question is concerned, the Gujarat High Court held thus (at page 238) : "It is thus clear that even though an item of income falls under a specific head, in spite of the fact that that item is earned for the purpose of business, for purposes other than the computation of income, the commercial character of that income can be taken into account. In the case before us, the commercial character of that income becomes helpful to us in determining whether the borrowing on which the interest is paid was for the purpose of business. We, therefore, conclude on the second question that the Tribunal was right in holding that though the income from dividend has to be assessed under a separate head, payment of interest by the assessee on amounts borrowed for purpose of investments must be allowed as business expenditure, and not as expenditure incurred for earning dividends." 6. IN dealing with the third question, the court observed thus (at pages 238 and 239) : "What remains now to be considered is question No. 3 which is with reference to deduction on inter-corporate dividends contemplated by Section 85A of the Act. This question arises in view of the fact that the revenue sought to deduct interest on the borrowings as against the dividend income. Now, as we are of the opinion that this disputed amount of interest should be deducted from the business income of the assessee, strictly speaking question No. 3 does not arise for our consideration. However, since the Tribunal has taken the view that the deduction contemplated by Section 85A should be from the gross dividend, we may point out that this court has held in Addl. CIT v. Cloth Traders (P) Ltd. [1974] 97 ITR 140 (Guj) that the deduction in question should be made not from the gross amount of dividend but from the net amount thereof. CIT v. Cloth Traders (P) Ltd. [1974] 97 ITR 140 (Guj) that the deduction in question should be made not from the gross amount of dividend but from the net amount thereof. Therefore, if this question is required to be answered, we would say that the Tribunal was not right in holding that the assessee was entitled to tax deduction in accordance with Section 85A of the Act calculated on the amount of gross income and not on the amount of dividend, as reduced by any amount of expenditure on the same by way of interest." Thus the third question was answered in the negative and in favour of the Revenue. 7. THE next decision relied on by Dr. Pal is in the case of CIT v. Cotton Fabrics Ltd. reported in. There, the assessee was a dealer in shares in the previous year relevant to the assessment year 1969-70. THE Income-tax Officer separately computed income from dividends chargeable under the head "Other sources" and set off against the same, interest amounting to Rs. 37,961 as the amount of interest attributable to and liable to be set off against the dividend income out of the total interest paid by the assessee on loans obtained or monies borrowed for the purpose of the assessee's business. THE amount of loss determined by the assessee under the head "Profits and gains from business" was accordingly reduced by the sum of Rs. 37,961 which was apportioned against the dividend income. On appeal, the Appellate Assistant Commissioner held that the Income-tax Officer had erred in bifurcating interest payment between the heads "Business" and "Other sources" and as the assessee was a dealer in shares, the entire interest paid on overdraft and other loan accounts should be deducted in computing the income or loss under the head "Profits and gains of business" and that, while considering the deduction admissible under Section 80M of the Income-tax Act, 1961, the Income-tax Officer should have taken into consideration the amount of gross dividend without deduction of interest. On further appeal, the Tribunal affirmed the order of the Appellate Assistant Commissioner. On further appeal, the Tribunal affirmed the order of the Appellate Assistant Commissioner. On those facts, the following two questions were referred to the High Court (at page 100) : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the entire amount of interest paid by the assessee on money borrowed on overdraft and employed in the business of dealing in shares has to be deducted in arriving at the profits or loss under the head 'Profits and gains of business' or a part thereof should be apportioned and allowed against the income assessable as dividend under the head 'Other sources'? (2) Whether the relief under Section 80M is to be granted on the gross amount of dividend received by the assessee or on the net amount as reduced by the interest attributable thereto ?" 8. THE court, in answering the said questions, observed (at page 104) : "It is thus clear that in the case of the present assessee, though the total income, of the assessee is in the course of its business, it gets part of its income from dividends and computation of that income from dividends is to be done in accordance with the provisions of Sections 56 and 57 of the Income-tax Act. But the computation having been so done, ultimately, it still forms part of the income of the business of the assessee and it is assessable as such as profits and gains of business carried on by the assessee. Under Section 36 of the Income-tax Act, interest paid by an assessee for the purpose of carrying on its business is deducted in its entirety while computing profits and gains of the business and, therefore, it is not possible to allocate a portion of that interest as against income from dividends by stating that the interest had to be paid for the purpose of investing in shares held by the assessee. It is clear, therefore, that, reading the scheme of Section 80AA with specific emphasis now on the words 'in connection with that income which goes to form a component of the total income of the assessee computed in accordance with the provisions of the Act', the real answer to the problem posed by the Revenue is that, when the income from other sources is computed in accordance with the provisions of Sections 56 and 57, there is no deduction to be made by way of interest paid in respect of the income from dividends because the interest is paid by the assessee-company for the purpose of carrying on its business and the entire interest is deductible under Section 36(1)(iii) of the Act. Therefore, the entire amount of dividend, call it gross or call it gross minus nil, will be the amount with reference to which the relief under Section 80M will have to be computed. (emphasis supplied) Thus Section 80AA makes no difference so far as the provisions of Section 80M are concerned, on the facts of this particular case. We find that the facts of the case are similar to the facts as were before the Division Bench in Laxmi Agents P. Ltd. [1980] 125 ITR 227 (Guj) and we entirely agree with the reasoning of the Division Bench decision in that case and we hold that in the instant case also, it is the entire amount of dividends earned by the assessee-company from inter-corporate dividends which will be the amount with reference to which relief under Section 80M will have to be worked out. Section 80AA makes no difference because in the instant case, there is no expenditure which is incurred for the purpose of earning the amount of dividends. THE expenditure incurred by way of payment of interest was incurred for the purpose of carrying on the business of the assessee and that has been deducted under Section 36(1)(iii) while computing the income of the assessee, for the purpose of profits and gains from business." (emphasis supplied) The contention of Dr. Pal appears to be that, since the dividend received by the assessee is from a trading asset in the course of business, there cannot be any further deduction for earning the dividend under Section 56 of the Act. Pal appears to be that, since the dividend received by the assessee is from a trading asset in the course of business, there cannot be any further deduction for earning the dividend under Section 56 of the Act. It is true that the dividend income arising from investment in shares is income from business but such income must necessarily be computed in accordance with the provisions of the Income-tax Act, 1961, Even though it may be business income in the sense that the dividend is realised from a trading asset, but, none the less, if it falls under a specific head it has to be assessed only under that specific head. Even though income from dividend is not assessable under Section 28 of the Income-tax Act, 1961, it does not detract from its character as business income. It is no doubt true that dividend income has to be computed as income from other sources under Section 56 of the Income-tax Act, 1961. Section 14 classifies income under different heads for the purpose of providing for each head appropriate rules for the purpose of computing the total income. The provisions of Section 14 are mandatory. Where an item of income falls specifically under one head, it has to be charged under that head and none other. Whatever be the nature of the activity or the nature of the income, the income of an assessee is to be classified and computed under the specific head enumerated in Section 14. Even if such income arising in the course of the assessee's business falls clearly under some other heads or satisfies the test of any specific head, then such income has to be classified and computed only under such head. 9. THE question of allocation of expenditure may arise when different activities do not constitute one and the same business and income from some of the activities is not taxable. In such a case, composite business expenditure has to be allocated to each one of the activities. If the business of the assessee is one and, in pursuance of various activities, the assessee incurs expenditures wholly or exclusively for the purpose of the business irrespective of the fact that income from one or more parts of the activities is not liable to income-tax, the entire expenditure incurred by the assessee in connection with the business has to be allowed. 10. 10. WE are not, however, here concerned with the computation of income as such but with regard to the allowance of expenditure. A similar question came up for consideration before a Division Bench of this court in CIT v. Anniversary Investments Agencies Ltd. reported in [1989] 175 ITR 199. There, the assessee was 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 the heads "Business" and "Other sources". The Appellate Assistant Commissioner and the Tribunal, however, held that the entire expenditure was allowable as business expenditure. The Division Bench held as follows (at page 202) : "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. IN our view, therefore, where the entire dividend income is attributable to the business activity of the assessee, even if such income is assessed under the head "Other sources", the nature and quality of such income would not thereby be affected. The whole of the expenditure should be allowed under business income." 11. IN our view, therefore, where the entire dividend income is attributable to the business activity of the assessee, even if such income is assessed under the head "Other sources", the nature and quality of such income would not thereby be affected. The expenditure laid out wholly and exclusively for the purpose of business which includes the earning of dividend from stocks and shares held by the assessee is allowable as business expenditure. Merely because a part of the income earned from business activity because of the label it carries has to be assessed under a different head, it cannot be a valid ground for apportionment of a part of business expenditure to the earning of dividend income and thereby reducing the amount of dividend income without, however, affecting the total allowable expenditure and consequently the total assessable income. 12. FOR the reasons aforesaid, the first question is answered in the affirmative and in favour of the assessee. There will be no order as to costs.