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2005 (5) TMI 280 - ITAT MADRAS-BChargeable As capital nature - Share brokerage receipt - Nature and character of the receipt - Exigible to tax - tax treatment of incentive received from the under writer on the purchase of TNPL shares - deduction towards construction of noon-meal center and school building. HELD THAT:- The receipt bears clear nexus with the investment. Income was not earned on investment, but on account of investment. Funds were deployed through a particular broker and the broker agreed to part with brokerage in consideration of deployment of such funds through him. In a way assessee acquired the shares at a lesser value. The cost to the assessee was the amount paid for the shares minus brokerage received in the form of incentive. Such incentive cannot be construed to be revenue receipt. It was adjusted towards the cost of shares. It is of capital nature. In CIT v. UP State Industrial Development Corpn.[1997 (4) TMI 2 - SUPREME COURT], the Supreme Court held that in order to determine the question of taxability, well settled legal principles as well as principles of accountancy have to be taken into account. It is a well accepted proposition that for the purpose of ascertaining profits and gains, the ordinary principles of commercial accounting should be applied, as long as they do not conflict with any express provision of the relevant statutes. Underwriting commission not taken to P&L account but adjusted to reduce cost of shares is not exigible to tax. The facts of the present case are different. Here the assessee is not under writer. It received a part of the commission given to the under writers. The amount of commission was adjusted to reduce cost or shares. This was in accordance with the principles of account. As such the amount is not exigible to tax. We, therefore, decide this issue in favour of the assessee and against the Revenue. Construction of noon-meal center and school building - In the case of Trichy Distilleries & Chemicals Ltd. v. ITO [1990 (2) TMI 144 - ITAT MADRAS-D] the expenditure was incurred out of commercial consideration. The assessee was carrying on business in industrial alcohol. It had to depend upon Government for supply of its raw materials to its factory. To gain favour of the officials the assessee incurred expenditure. In the present case the assessee in a State Government undertaking. It is not expected that to gain favour of the officials expenses are required to be made. There is absolutely nothing on record to indicate that the assessee did acquire any business advantage out of such expenses. It transpires from the perusal of letters submitted that assessee was required to contribute to renovate noon-meal centres before the Chief Minister's birthday, besides the Hon'ble Chief Minister had ordered to take up the question of exemption of this expenditure under the Income-tax Act to those who made the contribution. There is absolutely no business nexus with these expenses. As such, it cannot be allowed u/s 37(1). In the result, the appeal of the assessee stands partly allowed.
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