TMI Blog2006 (2) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 1/2 per cent. as expenditure. Therefore, the Tribunal committed a serious error in passing the impugned order granting deduction to the extent of 2 1/2 per cent. on the basis of notional expenditure. – Tribunal was not justified in allowing the claim for deductions while considering the deduction under section 80M - - - - - Dated:- 7-2-2006 - Judge(s) : P. VISHWANATHA SHETTY., N. KUMAR. JUDGMENT The judgment of the court was delivered by N. Kumar J.- This reference is made by the Tribunal in pursuance of the order dated January 27, 1997, passed in Civil Petition Nos. 564 and 565 of 1996 by this court under section 256(2) of the Income-tax Act, 1961 ("the Act") to consider the following question of law: "Whether, on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing authority and the appellate authority, insofar as deduction of 10 per cent, of the gross dividend income towards expenditure, the Tribunal committed a serious error in directing deduction of 2 1/2 per cent. as expenditure notionally. According to the learned counsel, no such notional deduction is permissible in law and, therefore, the question referred for our opinion is to be answered in the negative. However, learned counsel appearing for the respondent supported the impugned orders. The material on record discloses that the assessing authority in coming to the conclusion that 10 per cent. is the expenditure incurred in securing the dividend income, has taken note of the fact that the assessee had borrowed loan for its bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be allowable also for the purpose of earning income unless the facts of a particular case warrant such allocation. Thus, reducing the dividend income on the basis of notional expenditure was held to be illegal. The Bombay High Court in the case of CIT v. General Insurance Corporation of India (No. 2) [2002] 254 ITR 204 has held that the expenses incurred by the assessee on account of salary paid to the staff of the investment department was not directly relatable to the earning of dividend income for the purpose of computing special deduction under section 80M of the Act. Again in the case of CIT v. Central Bank of India [2003] 264 ITR 522, the Bombay High Court has held that the rule of proportionality of interest and expenses was appl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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