TMI Blog2009 (12) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... ched up to the ITAT and the same was sent back to the file of the Assessing Officer vide ITA Nos. 2311/M/2000 678/M/2000 order dated 30-4-2005 with a direction to decide the issue afresh. In compliance to that the Assessing Officer proceeded to decide the issue afresh. The Assessing Officer noticed that in the year under consideration, the assessee had no receipts which could be taxed under the head Business and profession . The incomes credited to the profit loss account had been separately consi-dered and offered for taxation under different heads. The Assessing Officer examined the allowability of the expenditure under section 37 of the Act and held that the assessee had incurred expenditure but the same could not be said to have been directly attributable to the business receipt within the meaning of section 28 of the Act. The Assessing Officer was of the belief that there is no nexus between the expenditure claimed and elements of income offered under the head Business and profession . The Assessing Officer had also relied upon the provisions of section 14A of the Act, and he was of the view that no deduction shall be allowed in respect of expenditure incurred by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd investee have separate identity and legal status. Particularly, when share-holding is not the majority shareholding. The business purpose of the appellant is not the same as the business purpose of REPL Engg. Ltd. even if appellant has made substantial investment in REPL Engg. Ltd. by way of share purchase. The concept for the purpose of business should not be confused with purpose of earning income. Millions of shareholders enter into share transaction daily. Holding a share would not entitle a shareholder to claim that his business interest has merged with the business interest of the company. Business interest for the purpose of the Act has also to be understood as legal concept. The appellant has filed the Minutes of Board of Directors of the company regarding deployment of personnel for the work of investee company. However, this is a self-serving document in the sense that it does not prove that the business of REPL Engg. Ltd. is the business of appellant-company. The expenditure can only be allowed if the expenditure has been incurred for the purpose of business wholly and exclusively and, therefore, the claim of the appellant is not justifiable. The appellant has empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Second Company to participate in the Board meetings and all other ventures will be to the cost of the First Company." 4.1 The learned AR further submitted that in accordance with the MoU 23,00,000 of shares of REPL Engg. Ltd. has been allotted to the assessee-company on 10-1-1995. It is also the submission of the learned AR that in this regards the assessee-company has passed a resolution in its meeting of Board of Director. A Photocopy of the resolution taken from Minutes book has been placed on record and the same is reproduced below : "Item 5: Approval of investment by REPL Enterprises Ltd. The Board took on record the proposal of REPL Enterpises Ltd. (an existing investor) to subscribe to additional 23,00,000 (Twenty Three lakh) shares of the company, wherein certain rights have been demanded by REPL Enterprises Ltd. including a seat on the Board of Directors. The Board noted that the investors existing holdings together with the proposed investment shall take the total investment of REPL Enterprises Ltd. to 11.78 per cent of share capital of the company. The Board after discussions approved the proposal of investment by REPL Enterprises Ltd. The Board after thorough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances it should incur that expenditure. Every businessman knows his interest best. In support of his contention, the learned AR relied upon the judgment in the case of CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 (SC). The learned AR has also relied upon the following decisions: (1) Sasson J. David Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC) (2) Jayshree Tea Industries Ltd. v. CIT [2005] 272 ITR 193 (Cal.) (3) CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) (4) CIT v. Express Newspapers Ltd. [1964] 53 ITR 250 (SC) (5) CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC). 5. The learned DR, on the other hand, relied upon the order of Assessing Officer, especially Para 16 of his order, and submitted that the assessee did not furnish any further evidence during the present assessment proceed-ings. The assessee relied upon the submission made during the course of original assessment proceedings as well as during appellate proceedings. The learned DR further submitted that relevant copy of Minutes was neither filed before the Assessing Officer nor before the CIT(A). The learned DR submitted that the expenditure was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure. Every businessman knows his interest best. The expression wholly and exclusively used in the section does not mean necessarily . Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee is entitled to deduction even though there was no compelling necessity to incur such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction if it satisfies otherwise the test laid down by law. Once it is found that the expenditure incurred wholly and exclusively for the purpose of business, the assessee is entitled for the deduction of expenses. One of the grounds of disallowance of expenditure is that dividend income has been assessed under the head Income from other sources and not Income from business . In this regard, let us see what section 57( iii ) requires is that the expenditure must be laid out or expended wholly and exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 held that business income is broken up under different heads only for the purpose of computation of the total income : by that break up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Indian Income-tax Act for computation of income. The genuineness of impugned expenditure is not in doubt. The expenditure incurred wholly and exclusively for the purpose of business is allowable expenses; we, accordingly, allow the claim of the assessee. 7. Now we take up the other grounds of appeal raised in assessment year 1996-97 which are as under. 8. 2nd ground is in respect of disallowance of interest of Rs. 1,20,385. 9. Briefly the facts of the case are that the assessee claimed interest expenses of Rs. 1,20,385 towards interest expenses on the basis that the assessee had undertaken the placement of preferential shares of REPL Engg. Ltd. for which the assessee-company had accepted advances against share application money from business associates and friends. However, the assessee-company could not procure the committed allotment of shares and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id was for the purpose of business or funds were utilised for the purpose of business. The assessee has also failed to furnish necessary material and evidence that the said application money was collected is a part of assessee s business. Therefore, interest is not allowable under section 36( iii ) or section 37(1) of the Act. We, therefore, do not find any error in the order of the CIT(A) on this issue, hence, the order of CIT(A) is hereby confirmed. 12. Ground No. 3 is in respect of disallowance of club expenses of Rs. 50,000. 13. During the course of assessment proceedings, the Assessing Officer noticed that the assessee-company had paid an amount of Rs. 50,000 to MIG Club for life membership of Shri D.H. Kothari, the President of the assessee-company. The Assessing Officer rejected the assessee s claim on the ground that it was not a corporate membership for which the club fees had been paid but for the life membership of the President of the Company as it was a personal expenditure of the President. Before the CIT(A), the assessee filed a written submission in which he stated that the said expenditure was incurred for the promotion and development of the business and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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