TMI Blog2006 (7) TMI 357X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustodial charges in relation to such shares are to be proportionately disallowed on the basis of various components of income. 2.3 The learned counsel for assessee Shri V.P. Gupta submitted that the assessee being an investment and finance company in accordance with its Memorandum and Articles of Association was carrying on the business of financing, investments as well as trading/dealing in shares and securities. It had raised interest bearing loans and advances, which were utilized in financing business as well as in the business of trading/dealing in shares and securities. The purposes of raising the interest bearing loans was to use the money in the business of trading/dealing in shares and securities to earn profits therefrom. The profits and gains derived from such trading are chargeable to tax under the head 'Profits and gains of business or profession'. It is well accepted in the trading business that dominant purpose of a trader is to sell goods at a higher price than his purchase price to earn profits from such buying and selling. The same is true to a trader in shares and securities. A trader in share and securities does not hold stock-in-trade to earn dividend w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.4 The learned DR, on the other hand, strongly relied upon appellate order. He submitted that since the assessee is earning the dividend income which is exempt under the provisions of section 10(33) of the Income-tax Act and since the total expenses are composite which are not bifurcated by the assessee either for the purpose of business or for earning dividend income, the Assessing Officer was justified in allocating the same in proportion to the income received. Thus, the action of the Assessing Officer as upheld by learned CIT(A) is required to be confirmed. 2.5 We have considered the relevant facts, arguments advances and the decisions relied upon. From the facts, it is seen that the assessee has major activity in share trading, financing and leasing etc. For assessment year 1999-2000, turnover in trading in shares exceeds Rs. 1,200 crores. The interest earned on advances is exceeding Rs. 23.78 crores whereas the dividend on investment on shares held as stock-in-trade is merely Rs. 13.49 lakhs. The Assessing Officer as well as learned CIT(A) has found as a matter of fact that earning profit by trading in shares and earning dividend are inseparable. We find that the dividend i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 2.7 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. The Delhi Bench of the Tribunal in the case of Eicher Ltd. held as under : A look at the language of section 14A shows that the Assessing Officer can disallow only expenditure incurred by the assessee in relation to the exempt income. The word incurred clearly implies that it must be shown as a fact that some expenditure was in fact incurred by the assessee to produce exempted income. It was open to the Legislature to confer power upon the Assessing Officer to assume that a part of the expenditure must have necessarily been incurred to produce exempted income which the Assessing Officer can estimate and disallow and accordingly use suitable expressions in the section conferring such power upon the Assessing Officer. One such instance is section 38(2) which gives the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability statutorily, however, does not ipso facto authorize him to assume that a part of the expenditure has been incurred by the assessee in relation to the exempted income and to proceed to disallow the same on estimate. The section does not relieve the Assessing Officer of the burden of proving, on the basis of evidence or material on record that the assessee has in fact incurred expenditure which has relation to the exempted income. 2.8 We are in agreement with the above view. For the reasons stated above, 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. 3. The next ground of appeal for assessment year 1999-2000 is against disallowance of depreciation on the addition to the aircraft owned by the assessee and leased in the course of leasing business. 3.1 The Assessing Officer held that as per the annual accounts, depreciation is not charged on such addition to assets as the same were not put to use. Since the assessee has failed to furnish any evidence regarding user of assets, the depreciation claimed cannot be allowed. The learned CIT(A) endorsed the view by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 1999 but after installation, the aircraft was subjected to test flights to check the operation of GPWS in various modes and after having standard air worthiness practices issued by the DGCA, a formal installation certificate was issued on 8th April, 1999. He submitted that the assets are not used by the assessee himself but the aircraft has been leased and since the assets acquired is handed to the lessee before the end of the relevant financial year, so far as assessee is concerned, in the course of its leasing business, it should have been treated as used for the purpose of business so as to claim depreciation thereon. For this proposition, he relied on the decision of Hon'ble Supreme Court in the case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308. 3.3 The learned DR, on the other hand, relied upon appellate order. He submitted that when the auditors' themselves certified that the assets were not put to use, the assessee on the basis of tax audit report itself cannot claim the depreciation. The certificate was issued by Director General of Civil Aviation (DGCA) on 8-4-1999 i.e., after the end of relevant financial year. Thus, it is clear that the asset was n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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