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2016 (9) TMI 953 - PUNJAB AND HARYANA HIGH COURT

2016 (9) TMI 953 - PUNJAB AND HARYANA HIGH COURT - TMI - Expenses on foreign travel of Directors wives - Held that:- The issue cannot be decided on the basis of the result of the assessment proceedings relating to the same question in another assessment year. Whether a Director’s spouse has traveled with him for business purpose or not, is essentially a question of fact not only in respect of each year but in respect of each tour. One visit may be for business purpose and another visit may not b .....

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case. The burden of proving the same is, however, on the assessee. The respondent has not established such a case. Question is, therefore, answered in favour of the appellant/Department. The decision of the Assessing Officer to delete the disallowance is upheld. - Proportionate management expenses allocated against dividend income for purpose of computation of deduction u/s 80M - Held that:- The deductions under section 80M must be computed in accordance with the provisions of section 80M. I .....

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esh assessment order after considering it under the correct head for all purposes including for the purpose of computation of income for deductions under section 80HHC. It would follow then that the same rule ought to apply also to expenses which are entitled to be deducted. They must be deducted qua/in respect of the correct head of income. In the present case the expenditure incurred to yield dividend under section 80M must be deducted under section 57(i)(iii) of the Act. - Income Tax Appeal N .....

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ed under section 143(3) of the Income Tax Act, 1961 (for short the Act ). The Assessing Officer made several additions. The Commissioner of Income Tax (Appeals) sustained the additions in some respects and deleted certain other additions. The Department and the assessee filed appeals before the Tribunal. The Tribunal by the impugned order allowed the assessee s appeal and dismissed the appeal filed by the revenue. 3. According to the appellant, the following substantial questions of law have ari .....

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AT was right in law in holding that interest from others and also from IDBI constitute profit of the business for the purpose of computing deduction under section 80HHC? (iv) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the addition of ₹ 77,85,059/- made on account of advances of interest free loans to the associated concerns whereas the assessee company was paying huge interest on the borrowed? (v) Whether on the .....

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der dated 07.03.2003. We presume, therefore, that it was admitted on all the questions of law raised by the appellant. We will deal with each of them separately. We will deal with questions (ii) and (v) at the end. Re; Question No. (i) 5. It was agreed that this question is liable to be answered in favour of the assessee in view of the judgments of this Court in Commissioner of Income Tax v. Avery Cycle Industries Ltd. [2008] 296 ITR 393 (P&H), Avon Cycles Pvt. Ltd. v. Commissioner of Income .....

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is accordingly answered in favour of the department. The Assessing Officer is directed to pass a fresh assessment order considering the interest under the head Income from other sources for all purposes. Re: Question No. (iv) 7. It is agreed that the answer to this question follows the decision of this Court dated 30.01.2015 in ITA No. 119 of 2004 Commissioner of Income Tax (Central) Ludhiana v. M/s Hero Cycles Ltd. Ludhiana. 8. The question is, therefore, answered in the same terms, namely, tha .....

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f this Court dated 30.01.2015 in ITA No. 68 of 2001 in Commissioner of Income Tax (Central) v. M/s Highways Cycle Indus. Ltd. Ludhiana. It is clarified, however, that the assessee shall be entitled for any adjustment or benefit on account thereof. Re: Question No. (ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting expenses on foreign travel of Directors wives? 10. Mr. Klar, learned counsel appearing on behalf of the appe .....

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note in the auditors report that this expenditure was incurred under the contractual obligations and under normal business practice. The Assessing Officer rejected the same as being unsatisfactory. The CIT(A) noted that the assessee had not furnished any details as to the tour on which the Directors wives had accompanied them, as to which of the Director s wife had undertaken the tour and whether or not the business of the assessee necessitated the Directors wives undertaking the tour. It was r .....

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of the assessment proceedings relating to the same question in another assessment year. Whether a Director s spouse has traveled with him for business purpose or not, is essentially a question of fact not only in respect of each year but in respect of each tour. One visit may be for business purpose and another visit may not be for any business purpose whatsoever. The decision of the Tribunal, therefore, is incorrect for the nature and purpose of the visits that the Tribunal considered in respe .....

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appellant/Department. The decision of the Assessing Officer to delete the disallowance is upheld. Re: Question No.(v) (v) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the proportionate management expenses allocated against dividend income for purpose of computation of deduction u/s 80M? 15. Section 80(M)(1)(ii) and 80AA of the Act, as they stood at the relevant time, read as under:- 80M. Deduction in respect of certain .....

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mestic company, so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first mentioned domestic company on or before the due date. …… …… ….. ….. …… …… …… ……. 80-AA. Computation of deduction under Section 80-M Where any deduction is required to be allowed under Section 80-M in respect of any income by way of divid .....

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e counsel agreed that in view of the judgment of the Supreme Court in Distributors (Baroda) P. Ltd. vs. Union of India and others, [1985] 155 ITR 120, it is the net dividend on which the deduction is to be determined for the purpose of Section 80M. Therefore, in the first instance, the assessee s dividend income would have to be computed under section 56. From that the deductions permissible under sections 57 to 59 would have to be determined. The difference between the two would yield the net d .....

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present case the assessee s gross dividend is also the net dividend as the assessee has not incurred any expenses for earning the dividend received. No amount had been borrowed and no interest was paid in connection therewith. 18. The Assessing Officer s decision to deduct the proportionate management expenses for the purpose of section 80M must be upheld in view of the judgment of a Division Bench of this Court in Commissioner of Income-Tax vs. Mahavir Spinning Mills Ltd., [2009] 308 ITR 445 ( .....

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ip; ……. 9. In view of the judgments of the hon ble Supreme Court in Distributors (Baroda) P. Ltd. [1985] 155 ITR 120 and United General Trust Ltd. [1993] 200 ITR 488 (SC) Question No.(iii) has to be answered in the favour of the Revenue. 19. The Assessing Officer enumerated under a table the management expenses incurred by the assessee debited under the head Administrative expenses . The computation in this regard reads as under:- The management expenses incurred by the assessee de .....

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re ₹ 32,59,658/- Proportionate management expenses incurred for earning dividend income are as under:- 32,59,658 x 6,59,96,415 = Rs.4,11,647/- 522598252 32,59,658 x 6,59,96,415 = Rs.4,11,647/- 52,25,98,252 Deduction us. 80M is computed as under:- Gross dividend received Rs.23,21,400 Less: Proportionate management expenses as per the Hon ble Supreme Court judgment in the case CIT vs. United General Trust Ltd. (200 ITR 488) ₹ 4,11,647 19,09,753 Deduction us. 80M (Dividend distributed b .....

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puted under different heads; that deduction of expenditure allowable under each head of income had been provided for separately under the respective heads of income in Chapter IV; that dividend income is assessable under the head income from other sources as per section 56(1) and that deductions under this head are allowable under section 57. Section 57(1) as it stood at the relevant time provided that the income chargeable under the head from other sources shall be computed after making the ded .....

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or earning such income. 22. The Tribunal then observed that the assessee had not incurred any expenditure to earn the dividend income and that it had not even incurred any expenditure for the purpose of realizing the dividend. It was further observed that the assessee had not claimed any deduction under section 57 of the Act and that the Assessing Officer had not allowed any deduction while computing income by way of dividend. This observation is without any basis. In the computation of income, .....

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at section 80(M) does not authorize an Assessing Officer to estimate the expenditure and recompute the income by way of dividend for the purpose of deduction allowable under section 80(M) of the Act. 24. Where the assessee does not provide any bifurcation of the expenditure incurred in respect of its income, the Assessing Officer has no option but to estimate the expenditure and to recompute the income by way of dividend to arrive at the deduction that may be allowed under section 80M of the Act .....

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observation that when an assessee claims that it has not incurred any expenditure for earning the dividend income, the onus of proof lies on the Assessing Officer to prove otherwise namely that the assessee has incurred the expenditure is correct. The Tribunal s further observation that the Assessing Officer had not brought out any material or evidence on record which may establish that the assessee had incurred any expenditure for the purpose of earning the dividend, is, however, incorrect. In .....

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hether or not to invest in the group companies requires application of mind. If the investment is merely to yield the dividend the management of the investing company is bound to apply its mind as to whether it would be a prudent investment or not. Even if an investment is only for the larger benefit of the group itself or for the benefit of the particular company in the group, the management of the investing company would have to apply its mind on a variety of issues including as to whether the .....

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ing at any given point of time. Indeed it would be difficult to envisage such a situation. In cases such as this, therefore, there would arise a justifiable presumption that some expenditure would be required for the purpose of earning dividend on such investments. The onus would then shift to the assessee to establish that no expenditure whatsoever was incurred for earning the dividend. The Assessing Officer was, therefore, justified in coming to the conclusion that the assessee had incurred ex .....

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management expenses incurred by the assessee under the head administrative expenses (Annexure XVII) which relate to dividend income also are as under:-………………. . He has then tabulated such expenses. We set out the table earlier while referring to the assessment order. The assessment order at the foot of the table states that the total management expenses are ₹ 32,59,658/-. It was not contended on behalf of the assessee that these are the total manag .....

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