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2006 (7) TMI 357 - AT - Income TaxDisallowance out of interest expenditure and out of depository and custodial charges - Expenditure incurred in relation to income not includible in total income - disallowance of Depreciation claimed on leased assets - assets were actually used by the lessee so as to entitle the lessor to claim depreciation thereon? - HELD THAT:- The facts narrated clearly shows the intention to earn the profit on share trading and not to earn dividend income. Thus, the provisions of section 14A cannot be invoked to hold that the expanses by way of interest and depository/custodial charges were incurred in relation to dividend income which does not form part of the total income. We find that even but for the provisions of section 14A, the expenses incurred in relation to income which does not form part of the total income cannot be allowed. The expenses are allowable while computing the income chargeable to tax. If the income itself is not formed part of total income, the expenses cannot be said to have been incurred for anything else than the earning of the income and in such a situation the expenses could not have been allowed. Thus, in our opinion, the introduction of provisions of section 14A by Finance Act, 2001 with retrospective effect from 1-4-1962 has not material altered the situation. That is why section 14A has been amended by introducing sub-section (2) and sub-section (3) thereon by Finance Act, 2006 with effect from 1-4-2007. Thus, from the aforesaid amendment is clear that but for the prescribed method, the Assessing Officer cannot merely allocate the expenses in relation to trading results by proportionately disallowing the same. The provisions of sub-sections (2) and (3) to section 14A are to take effect from assessment year 2007-08 onwards and we do not find any implication to hold the same to be retrospective in nature. Thus, we hold that no part of the interest expenses and depository/custodial charges can be disallowed by holding the same as incurred in relation to earning as exempt income. Depreciation on Lease assets - HELD THAT:- In the present case, the facts show that the assets were acquired prior to 23rd March, 1999 and were made available to the lessee. As per requirement of DGCA, the assessee had to obtain installation of such system. But this will not determine the date of assets being put to use. So far as appellant lessor is concerned the same can be considered as having been put to use for the purpose of its leasing business once the same are handed over to the lessee. We accordingly hold that the provisions of section 32 has been complied with and the claim of depreciation by such addition to the asset is allowable. In the result, all the appeals are allowed.
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