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Commissioner of Income Tax (Central) Ludhiana Versus M/s Hero Cycles Limited, Ludhiana

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

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 be for any business purpose whatsoever. The decision of th .....

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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. If the Appellate Authorities find that the expenses liable .....

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ct 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 No. 44 of 2003 (O&M) - Dated:- 19-9-2016 - MR. S.J.VAZIFDA .....

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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 arise in this appeal:- (i) Whether on the facts and in the c .....

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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 facts and in the circumstances of the case, the Income T .....

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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 Tax [1999] 238 ITR 85 and the judgment dated 30.01.2015 .....

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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, that the order of the Tribunal setting-aside the disallowanc .....

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mmissioner 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 appellant- Department agreed that the traveling expenses of a .....

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curred 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 rightly observed that whether the expenditure incurred is .....

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ion 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 respect of the assessment year 1990-91, would be different fro .....

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er 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 inter-corporate dividends:- 1. Where the gross total inco .....

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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 dividends from a domestic company which is included in the gro .....

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eme 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 dividend. In other words, the benefit under section 80M wo .....

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et 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 (P&H). Question (iii) and the answer of the Division B .....

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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 debited under the head administrative expenses (Annexure XV .....

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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 by the Assessee ₹ 61,90,068/-) ₹ 19,09,753 20. .....

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e 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 deductions mentioned therein. In the case of dividends, sect .....

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at 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, there is no bifurcation of expenses for the investment. T .....

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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. Assuming that some portion of the expenditure is attrib .....

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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 cases such as this, the Assessing Officer is justified i .....

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pplication 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 investment would serve this purpose; whether the investm .....

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ult 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 expenditure towards earning the said dividend. The assessee .....

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ad 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 management expenses. In other words it was not contended that .....

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