TMI Blog2006 (12) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... ls by way of assistance which is taken into account while disposing of the appeals. Department s Appeal : 3. The first ground is that the CIT (Appeals) erred in deleting the addition of Rs. 50,000 apportioned by the Assessing Officer for expenses relatable to dividend income which is exempt under section 10(33), after invoking the provisions of section 14A. 4. While completing the assessment the Assessing Officer estimated a sum of Rs. 50,000 as expenditure towards administrative and management activities attributable to the earning of the dividend income and disallowed the same under section 14A. On appeal, the CIT (Appeals) deleted the disallowance on the ground that beyond making the investment, there was nothing further that the assessee had to do for earning the dividend and also on the ground that the Assessing Officer could not point out any specific item of expenditure, which the assessee incurred for earning the dividend income. 5. The revenue is in appeal and we have considered the facts and the rival submissions. The learned Senior DR, Shri L.K.S. Dahiya submitted that nothing can be earned without spending any monies for earning the same and that at least ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director s remuneration could be, if at all, said to have been incurred in part towards earning of the dividend income. Normally apart from mere investment in the shares there is nothing which the assessee possibly does to earn the dividend income. The investments in the shares have not been shown to have come out of borrowed funds so that any interest (finance charges) can be said to have been incurred in relation to the dividend income. So far as the employee s remuneration, administrative expenses and director s remuneration are concerned, it is a matter of speculation as to how much of these expenses could be attributed to the earning of the dividend income. Normally the effort required to realise the dividend income is merely to send some employee to the bank to deposit the dividend warrant. He would possibly go to the bank as many times as there are dividend warrants. In such a case, the effort made by him has to be evaluated in monetary terms and may constitute expenditure incurred in relation to the earning of the dividend income together with the conveyance expenses incurred to go to the bank. It could also be argued that some expenditure has to be attributed to the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of Rs. 5 lakhs. On appeal by the department, the Tribunal in its order dated 25-8-2006 held that there is no finding suggesting that any of the expenses incurred by the Head Office pertained to the software division and that whenever such expenses were incurred they were claimed against the income of the software division or recoveries were made by the Head Office from the software division. On the basis of these findings, the Tribunal upheld the decision of the CIT (Appeals). For the year under appeal, the assessee had pointed out before the Assessing Officer by letter dated 19-3-2002 that as per the accounts and the Head Office account appearing in the books of STP unit, in all the months there was a debit balance of Rs. 92.24 lakhs as on 1-4-1998 and Rs. 245.62 lakhs as on 31-3-1999, which means that it was the STP unit that had provided funds to the Head Office out of the profit generated by it after meeting its own financial requirements and, therefore, no funds were provided by the Head Office to the STP unit (at Noida) and, therefore, there is no justification for attributing any expenses of the Head Office to the STP unit. This plea was accepted by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as income exempt under section 10A of the Act. Section 10A contains special provisions for newly established undertakings in free trade zone etc. Under sub-section (1), such an undertaking is eligible for a deduction of the profits and gains derived by it from the export of articles or things or computer software for a period of 10 consecutive assessment years commencing with the assessment year relevant to the previous year in which it begins to manufacture or produce such articles or things etc. While dealing with the assessee s claim for exemption under section 10A, the Assessing Officer held that the interest received by the assessee cannot be treated as profits derived by the undertaking from the export of articles or things or computer software. He referred to several authorities in support of his stand including the judgment of Supreme Court in the case of Sterling Foods ( supra ). The CIT (Appeals) held that the proximate source for the interest income was the fixed deposit and not the export of articles or things or computer software and agreed with the Assessing Officer. In the further appeal before us, it is contended on behalf of the assessee that the amended sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits having been made out of the surplus funds can only be looked upon as an investment of the business and if that is the correct position, then the interest cannot be treated as profits and gains derived by the industrial undertaking. Therefore, even if it is assumed for the sake of argument that the word "any" qualifying the words "profits and gains" gives a wider scope to the exemption, it is still required to be established by the assessee that the income was derived from the industrial undertaking by showing that the industrial undertaking was the direct and immediate source of the income as laid down by the Supreme Court in Sterling Foods ( supra ). In the present case, this requirement has not been established. Reliance was placed on the judgment of Supreme Court in the case of Orissa State Warehousing Corpn. ( supra ) and the other authorities compiled in the paper book to contend that the word "any" means "all" and therefore all profits earned by the unit or the undertaking must be exempt. But even if one were to construe the word "any" as meaning "all" as contended, it is to be noted that the ambit and sweep of the words "any profits and gains" are restricted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess compulsions or exigencies but still it was held by the Tribunal that there was no direct nexus between the interest income and the EOU. The present case is weaker on facts where the interest is earned on fixed deposits made out of surplus fund and not due to business exigencies or compulsions. Thus, even under the un-amended sub-section (1) which is applicable to the year under appeal, as rightly pointed out by the learned counsel for the assessee, the interest cannot be considered to have been derived from the industrial undertaking. 14. For the above reasons, we dismiss ground No. 2. 15. The third ground is that the CIT (Appeal s) erred on facts and in law in taking the loss of Rs. 16,77,065 on valuation of shares held as stock-in-trade as speculation loss as against business loss as claimed by the assessee. This is discussed in paragraph 5 of the assessment order as follows : "5. The assessee holds certain shares in stock-in-trade. The closing stock of such shares was valued at Rs. 1,33,66,415 as against the opening stock of Rs. 1,50,43,480. Thus, the assessee has booked a loss of Rs. 16,77,065 on account of fall in market value of the share. As per the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consists in the purchase and sale of shares of other companies, such companies shall, for the purposes of the section, be "deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares". The argument is that since the loss has not arisen in the purchase and sale of shares but has arisen merely on account of the fall in the valuation of closing stock, the deeming provisions of the above Explanation are not attracted. It is further contended that the deeming provisions have to be construed strictly. We find that in respect of the same controversy, the Calcutta Bench of the Tribunal has taken the view that even if the loss was only on account of fall in the value of stock it was still in the nature of loss incurred in the business. The Bench has considered the judgment of the Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481, cited before it, where the propositions laid down were ( a ) that it is a misconception to think that any profit arises out of valuation of the closing stock ( b ) that valuation of the unsold stock at the close of the year is a necessary part of the process of det ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
