TMI Blog2004 (4) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had appealed to the CIT(A) against several additions made by the AO. Some of the issues have been decided in favour of the assessee and some in favour of the Revenue that is how the cross appeals have been filed by the respective parties. 3. We first take up the appeal of the assessee. 4. The first issue is relating to the disallowance of Rs. 7,322 made under r. 6B. The issue is covered in favour of the assessee by the decision of the Tribunal for asst. yrs. 1991-92 to 1993-94 in ITA Nos. 26/1996, 867/1995, 656/Chd/1997 and ITA Nos. 155/1996, 906/1995, 711/Chd/1997, order dt. 30th July, 2003. Respectfully following the aforementioned decision of the Tribunal, we delete the disallowance made by the AO under r. 6B. 5. The 3rd and 4th grounds of appeal are as under: "3. That the learned CIT(A) has erred in law and on the facts while sustaining the disallowance under s. 37(4) of the Act on account of guest-house expenses amounting to Rs. 3,64,213, completely ignoring the binding decision of Hon'ble Tribunal Bench, Chandigarh, in the case of Vardhman Spg. Genl. Mills Ltd. vs. IAC for the asst. yr. 1982-83. 4. That the learned CIT(A) has erred in law and on the facts while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern, the managerial cost is solely attributable to the manufacturing activities. 8. The learned Departmental Representative for the Revenue, on the other hand, contended that the issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. United General Trust Ltd. as also in the case of CIT vs. P.K. Jhaveri. It was accordingly, pleaded that the appeal of the assessee may be dismissed and that of the Revenue may be accepted. 9. We have given our careful consideration to the rival contentions and have also perused the orders of the Tribunal and other relevant material relied upon on behalf of the parties. The AO has made the assessment under s. 143(3) vide order dt. 19th Dec., 1996. The dividend income has been assessed at Rs. 65,34,792 as disclosed. However, deduction under Chapter VI-A has been restricted to Rs. 53,52,198. The working of deduction under s. 80M has been made by the AO in the assessment order as under: ------------------------------------------------ (i) Personal expenses Rs. 17.02 crores (ii) Administrative and Rs. 7.48 crores other expenses (iii) Financial expenses Rs. 14.47 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts but computation under s. 56/57 has not been given. The Hon'ble Supreme Court in the case of Brook Bond Co. Ltd. vs. CIT (1986) 57 CTR (SC) 25 : (1986) 162 ITR 373 (SC) held as under: "Held, (i) that the mere circumstance that the appellant had shown the dividend income under the head 'Income from other sources' in its returns could not in law decide the nature of the dividend income. It had to be determined from the evidence whether, having regard to the true nature and character of the income, it could be described as income from business, even though it fell for computation under another head." So, however, it is open to us to examine the correctness of the determination of the dividend income by the AO out of the gross total income. 13. The assessee is a company mainly engaged in the business of manufacturing of articles and things. Substantial investment has also been made in equities from which dividend income has been derived. Deduction on account of interest/financial charges has been claimed by the assessee in the P L a/c. The question for consideration is as to whether the financial charges attributable to the investment in securities/shares are to be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re or the class of such income, for the deductions permissible under the law in computing the income under each head bear a particular relevance to the nature of the income. The statute operates on the principle that it is the net income under each head which should be considered as a component of the total income. The statute permits specified deductions from gross receipts in order to compute the net income. The net income under the different heads is then pooled together to constitute the total income. The process of computation at this stage takes in the provisions relating to the carry forward and setting off of losses and of unabsorbed depreciation. On the conclusion of the entire process of assessment, what emerges is the figure of taxable income, i.e., the quantum of income which is assessed to tax." It is evident from the above decision of the Supreme Court that the net income from dividend shall have to be worked out on the basis of other receipts of business income and dividend vis-a-vis the total expenditure that will give the extent of dividend income included in the gross total income. In this case the dividend income is not claimed to be business income. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. We have elsewhere pointed out that in working out deduction under s. 80M, the interest paid on borrowed money utilised for acquisition of shares has got to be deducted. So, however, if the assessee has not utilised the borrowed money but has utilised its own capital for the purchase of shares, then proportionate disallowance on account of financial charges will not be justified. Let the AO consider this issue afresh after giving reasonable opportunity of being heard to the assessee. It will be for the assessee to establish that the borrowed money was not invested for the purchase of shares. In the event of failure of the assessee to establish the same, the AO would be at liberty to disallow the interest on proportionate basis. It is, however, clarified that the proportionate disallowance shall be resorted to only if the assessee fails to establish that the borrowed money was not utilised for investment in shares. 17. The only other issue that remains for consideration is as to whether proportionate expenses out of personal expenses, administrative and other expenses have rightly been excluded by the AO in working out the net dividend income for the purpose of deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handigarh) Bench may appear to be correct. But, when we read the judgment in the context in which it was rendered and the judgment of the High Court which has been upheld by the Supreme Court, it becomes abundantly clear that the issue relating to deduction of proportionate management expenses was decided by the Supreme Court in favour of the Revenue. 18. The issue had been decided by the High Court in favour of the assessee but the reference application of the Revenue was allowed and answered in favour of the Revenue by the Supreme Court. It is, therefore, evident from aforementioned decision of the Supreme Court that the issue relating to deduction of proportionate management expenses stands decided in favour of the Revenue. As rightly observed by the Bench, the decision of the Court has got to be read in the context in which it has been rendered. When we see the context in which the decision of the Supreme Court in the case of United General Trust Ltd. has been rendered, there does not remain any doubt that the issue about the deduction of proportionate management expenses stands decided in favour of the Revenue. Therefore, the decision of the co-ordinate Bench, with due respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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