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2015 (5) TMI 685 - DELHI HIGH COURT

2015 (5) TMI 685 - DELHI HIGH COURT - [2015] 378 ITR 28 (Del) - Expenditure under Section 36 (1) (iii) - whether was not linked to earning of dividend income? Entitlment to deduction under Section 80M in respect of net dividend and not gross dividend - Held that:- This Court, therefore, is of the opinion that the law as declared by the Supreme Court in Cocanada Radhaswami Bank and United Commercial Bank [1965 (4) TMI 11 - SUPREME Court], Western States Trading (P) Ltd. v. CIT [1971 (1) TMI 11 - .....

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ituation and findings in the light of our conclusions. If, as a result of the AOs determination, it is found that such expenditure is incurred, the net expenditure is obviously to be taken into consideration under Section 80M of the Act in the facts of the present case. - Decided in favour of assesse for statistical purposes. - ITA 54/2000 - Dated:- 14-5-2015 - S. Ravindra Bhat And R. K. Gauba,JJ. For the Appellant : Mr. Ajay Vohra, Sr. Advocate with Ms. Kavita Jha and Ms. Shraddha, Advocates. .....

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ether the Tribunal was correct in holding that expenditure under Section 36 (1) (iii) of the Act was not linked to earning of dividend income? ITA 54/2000 Page 2 2. In view of the developments which have occurred during the pendency of the appeal, i.e., the order passed by the Assessing Officer for AY 1993-94 and 1994-95 where the assessee s contentions have been dealt with and accepted in part so far as the administrative expenditure is concerned and in view of the order that we propose, the de .....

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ontention that such interest by itself amounted to business expenditure and was properly admissible under Section 36 (1) (iii) of the Income Tax Act, 1961. 4. It is agreed by counsel for the parties that the decision of the Supreme Court in Distributors (Baroda) Pvt. Ltd. v. Union of India & Ors., 155 ITR 120 concludes the first issue inasmuch as it is the net dividend which is required to be taken into account under Section 80M read with Section 80AA of the Income Tax Act, 1961. 5. The seco .....

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im for interest. The assessee s argument more specifically in this case is that it had to borrow ₹ 6.5 Crores for the purpose of retaining control and interest in Eicher Tractors Ltd. Learned counsel argued that Eicher Tractors Ltd. is a company closely related to the assessee and has business nexus inasmuch as the assessee provides managerial personnel for which it receives service fee as well as technical support by way of providing access to its R&D facilities. The assessee, besides .....

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ot been subscribed to, the assessee claims that its shareholdings would have diminished or been diluted. 7. Learned counsel relied upon the decision of the Gujarat High Court in Addl. CIT v. Laxmi Agents P. Ltd. (1980) 125 ITR 227 to say that in such circumstances even though the head of income derived, i.e., dividend would have to be dealt with and assessed under Section 56 (2) (i) of the Act, nevertheless the character of the income being essentially business in nature, the expenditure incurre .....

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also notice that this approach of recognizing the need to deal with such expenses as business expenditure under Section 36 (1) (iii) had been approved and adopted by two Division Bench rulings of this Court in CIT v. Tulip Star Hotels Ltd., (2011) 16 Taxmann 335, Commissioner of Income Tax v. Excellent Commercial Enterprises & Investments Ltd. (2005) 147 Taxman 558 and Commissioner of Income Tax v. Oriental Structural Engineers (P) Ltd. (2013) 35 Taxmann 210. 8. Learned counsel for the Reve .....

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80M. It was submitted that in these circumstances, it would not be proper for this Court to render findings that the investments in this case made from the borrowings were in fact on account of strategic compulsions and not merely to derive income by way of dividends. 9. The judgments in Cocanada Radhaswami Bank and United Commercial Bank (supra) and the subsequent judgments in Western States Trading (P) Ltd. v. CIT (1971) 80 ITR 21 and Brooke Bond & Co. Ltd. v.CIT (1986) 162 ITR 372 are au .....

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