TMI Blog2015 (7) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant assets (on an average). As such, raising a claim for a lower disallowance, i.e., than that as statutorily prescribed per r.8D(2)(iii), a constitutionally valid provision, would not obtain. The only exception, which would in fact be in terms of r. 8D itself, would be where the expenditure incurred is below that arrived at per the prescribed formula, so that following the same would lead to an absurdity, as observed by the tribunal in the case of disallowance of total interest attributable to shares held as stock-in-trade. In the facts of the present case, excluding the security transaction tax (STT), would yet leave indirect expenditure at ₹ 131.6 lacs, as against the disallowance of ₹ 18.57 lacs. There is, in our view, no scope for excluding the legal and professional expenses, details of which are absent, incurred as it is in the course of regular business, which gives rise to both taxable income as well as the tax free dividend income. In view of the foregoing, a ratio (1/5 or lower), i.e., as in the case of interest expenditure for indirect expenditure, thus, is not feasible for being prescribed or laid down on facts or in law. - ITA No. 122/Mum/2012 - - - D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng income, which is taxable, the entire interest attributable to the investment in shares could not be disallowed by mechanically applying r.8D(2)(ii) (or r.8D(2)(i) for that matter). Accordingly, it opined for a disallowance at 20% of the amount referable to such proportionate interest, considering that the predominant object of the share holding was to earn business profit through share trading activity, taking us through the relevant part of the said order (para 5.6, at pgs. 12, 13). The tribunal was, in so advocating, he would further continue, guided by the 'fact' that the turnover of the share trading activity would easily be four to four times the average share holding. That is, the tribunal while opining a restriction of the disallowance at 20% of the relevant interest, did not lay down any hard and fast rule, each fact situation, even as stated by it, being different. The assessee in the present case is in the business of trading in shares and securities, so that the said decision would squarely apply to it. Further, adducing a copy of the balancesheet (as on 31.03.2008), he pointed out that the sales in the instant case are at ₹ 2695.84 crores, about 72 time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A 'higher' turnover and, thus, turnover ratio, itself implies a 'lower' (average) investment in shares (stock-in-trade), with reference to which only, i.e., as relatable thereto, the interest expenditure stands to be disallowed. That is, funds are invested or utilized only to such 'lower' extent in stock-in-trade, and the interest expenditure is incurred only qua the funds so invested. The tribunal in fact made it abundantly clear that any income - and by necessary implication, any income attribute, as sales, or 'higher' sales - cannot be the basis for determining the indirect expenditure attributable to a particular activity. Also refer para 5.5 of the order. The argument, as canvassed, thus, rather than bolstering its case for further scaling down, only disproves it. 4.2 The tribunal, in the cited case, candidly admits to its prescription (of 1/5th) as being open to a charge of adhocism, further clarifying of having been guided principally, i.e., in so suggesting, by the fact that the predominant object of acquiring and holding shares - irrespective of the extent of income, was for share trading, income from which activity is liable to tax. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by the hon'ble court (at 116 of the report), on the 2% to 2.5% (of the investment) (fee) usually charged by the Portfolio Management Service (PMS) providers, of which around 1% (of the portfolio value) would be their profit. The nominal rate of 0.5% also eschews the charge of it being harsh, while being at the same time clarificatory of its purpose; the investment activity being essentially sporadic and episodic. In fact, the assessee itself explains of no change in its investment portfolio during the year except for one switch from a company share to units of a Mutual Fund (HDFC Liquid Fund). Our discussion is, however, only toward the nominality and purport of the charge, and does not in any manner imply of it being confined only to shares held as investment. This is as even though purchased with a short term perspective, the shares are purchased only with profit objective, i.e., as representing a good investment opportunity, so that it is perceived as underpriced, and its market price would appreciate in time, yielding 'good' return and, rather, in a shorter period of time. That is, the investment component or element is inbuilt in any purchase and toward wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck-in-trade. In the facts of the present case, excluding the security transaction tax (STT), would yet leave indirect expenditure at ₹ 131.6 lacs, as against the disallowance of ₹ 18.57 lacs. There is, in our view, no scope for excluding the legal and professional expenses, details of which are absent, incurred as it is in the course of regular business, which gives rise to both taxable income as well as the tax free dividend income. In view of the foregoing, a ratio (1/5 or lower), i.e., as in the case of interest expenditure for indirect expenditure, thus, is not feasible for being prescribed or laid down on facts or in law. 4.4 Before parting with our order, we may also clarify that it may appear that we have not adopted the decision by the tribunal in the case of Ramkumar Venugopal Investments Pvt. Ltd. (supra). However, the same is far from truth. The matter is firstly purely factual. Secondly, we have, as sought to be clarified, only followed and explained the decision by the larger benches of the tribunal, as in the case of ITO vs. Daga Capital Management Pvt. Ltd. [2009] 312 ITR (AT) 1 (Mum.) (SB); Cheminvest Ltd. (supra); D.H. Securities (P) Ltd. (supra), an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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