TMI Blog2018 (5) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... , Board meeting expenses, miscellaneous expenses, rent paid, subscription to club, Interest on purchase of car, legal expenses etc. Hence it is seen that as per the nature of expenses involved in that case, the expenses were in relation to the fulfilling the requirements of company law to have directors and to have AGM, Board meeting and to maintain the office etc. which are necessary for fulfilling the legal requirements of a company under the Companies Act. Hence we hold that this Tribunal order is also not applicable in the present case because the assessee in the present case is not a company and therefore, there is no such legal compulsion to incur the expenses which are claimed in the present case. Hence we find that the claim of assessee for allowing deduction of expenses against income from other sources is not allowable because the assessee has not established that the expenses are allowable u/s. 57(iii) of IT Act. - Decided against assessee. - ITA No. 1991/Bang/2016 - - - Dated:- 20-4-2018 - SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER Appellant by : Shri Shyam Ramadhyani, CA Respondent by : Shri B.R. Ramesh, JCIT (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,460/- has been claimed as deduction from Income from Other Sources to arrive at the taxable value of Income from Other Sources. In view of above grounds, the assessee believes that the expenses claimed under Section 57 as a deduction from the total income is fully justifiable and learned Commissioner of Income Tax (Appeals) has erred in disallowing the said claim under Section 57. 2. Without prejudice to the foregoing contentions even assuming but without admitting that the action of the learned Commissioner of Income Tax (Appeals) upholding the disallowance of a sum of ₹ 33,20,460/- to be in order, he ought to have either considered an appropriate sum as cost of acquisition of securities for the purposes of computation of capital gains in the event of sale or as expenditure incurred wholly and exclusively in connection with the transfer of securities during the year thereby entitling the assessee relief under section 48 of the Income Tax Act, 1961. The assessee also wishes to state that the expenses claimed are clearly outgoings and in the most unlikely event of your honor not considering the claim as above the said amount have to be capitalized on the various i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration paid for realizing the income, provided there is a direct linkage between the expenditure incurred with the earning of such income. But in the present case, it is evident that no such expenditure would have been incurred by assessee on bank and securities and even if any such expenditure would have been incurred in this regard, the assessee was asked for furnishing the details of the same for all such expenses incurred to earn the income from other sources earned during the year but no such details were furnished by the assessee and therefore, the disallowance made by the AO is justified. He strongly supported the order of CIT(A). 4. In the rejoinder it was submitted by ld. AR of the assessee that even if it is held that deduction is not allowable against income from other sources, it should be held that such expenses should be allowed against income from capital gain in the present year or later year. 5. We have considered the rival submissions. First of all, we reproduce written submissions by assessee before CIT (A) which are available on pages 1 to 7 of paper book. The same read as under. In connection with the above subject and- as instructed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital role in actual execution of the investment. They are directly connected with income derived by the assessee. Professional fees: Services from wealth advisors and chartered accountants constitute professional charges. 1. The wealth advisors assist the assessee in planning and maintaining the investment portfolio based on risk assessment of each investment. They also understand the risk taking capabilities of the assessee and monitor the investment in risk (in the form of securities and mutual funds both domestic and foreign) and no risk investments (in the form of Government bonds) respectively. They also help the assessee in analysing various investment options available and to guide and select the right investment based on assessee needs. They provide periodical reports on the performance of various portfolio investments. Overall they form an integral part of the investment function of the assessee. 2. The chartered accountants hired by the assessee assist them in maintaining the books of accounts up to date apart from providing monthly MIS on performance of various investment portfolios, developing charts and tables depicting the historical and current po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79,41,08,579 Average Investments 39,70,54,289 0.5% of Average Investments u/s 14A (foreign securities and unlisted securities from which no income has been earned has been 19,85.271 The above amount of ₹ 19,85,271/- is the amount computed under section 14A of the Income Tax Act 1961. While claiming the deduction u/s 57. the above amount has been reduced as under. Total Direct Expenses 53,05,732 Less : 0.5% of average investment 19,85,271 Balance expense claimed u/s 57 33,20,460 The balance amount of ₹ 3.3.20,460!- has been claimed as deduction from Income from Other Sources to arrive at the taxable value of Income from Other Sources. We would like to draw your attention to below case laws in this regard: a) It is settled position of law that in computation of the income all expenses incurred have to be allowed. The apex court in the case of Rajendra moody 1 I 5 1TR 519 has held that it is not n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to what could bereasonability or necessity for same, what was to be seen was whether such expenses were incurred wholly and exclusively for purpose of earning income. They also held that there was some connection, direct or indirect, between expenses incurred and income earned and, therefore, entire expenses claimed by assessee were to be allowed. It is thus clear that there had to be some connection, direct or indirect, between expenses incurred and income earned and, therefore, entire expenses claimed by assessee were to he allowed. Applying the ratio of this decision, all expenses incurred by Mr Aravind (subject to section 14A) have a direct or indirect connection with the income earned by him and relate to no other purpose. The assessee believes that all expenditure incurred are allowable under section 57 in connection with earning the income. The AO's argument that application of rule 8D is purely his prerogative and cannot be done by the assessee is at best technical. If this were to be the case, there would have been no question of a chartered accountant certifying the amount disallowable in terms of section 14A for assesses to whom tax audit is applicable ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,19,24,559 15.68,16,906 b) Direct Investment 1,20,05,673 1,50,75,789 INVESTMENT IN TAX FREE BONDS 20,90,99,000 16,59.08,446 II. INVESTMENT IN FOREIGN SECURITIES 11,48,15.543 1036,41,926 Ill. Loan and advances 78,81,694 1,56,47,557 IV. Cash and Bank 1,02,91,926 1,76,04,533 TOTAL INVESTMENT 69,74,57,373 67,42,59,408 Table 2: Nature of expenses Amount in PMS Charges 21,18,485 Salaries bonus 17,14,498 Professional Charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. However in the case of the appellant, it is very much evident that no such expenditure would have been incurred by the appellant for earning the income by way of interest on bank deposits and interest on securities. Even if some expenditure would have been incurred in this regard, it is necessary for the appellant to furnish the details of the same providing direct co-relation of such expenses with the income from other sources earned during the year. However, no such specific details were furnished by the appellant. Therefore the claim of the appellant that an amount of ₹ 33,20,460/- is the expenditure relatable to the earning of the income from other sources has not been substantiated and is also not found to be legally correct. Accordingly the disallowance of ₹ 33,20,460/- made by the AO is found to be correct and is accordingly confirmed. The ground of appeal raised in this regard is dismissed. 7. We also reproduce para 1.9 from the assessment order on pages 7 and 8 of the assessment order. The same reads as under. 1.9 (a) Since assessee is failed to produce the evidence to show that he has incurred expenditure exclusively to earn the receipts offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly and exclusively for the purpose of making or earning such income under the head income from other sources is allowable. In addition to that, in respect of income excluding exempt income being interest on securities, any reasonable sum paid by way of commission or remuneration to banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee is allowable as per clause (i) of section 57. Apart from these two clauses i.e. clause (i) (iii), other clauses of section 57 are not applicable in the present case. The assessee s claim is this that as per section 14A of IT Act, % of the investments has to be disallowed and the balance has to be allowed and the assessee computed the disallowance in that manner and claimed balance amount as deduction. In this regard, we observe that section 14A comes into picture in respect of those expenses which are otherwise allowable and therefore, the assessee has to first establish this that the expenses claimed by the assessee is allowable under any provisions of the law. For that, the assessee has to show that the claim of the assessee is allowable u/s. 57 of IT Act because the expenses are incurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... East West Hotels Ltd. vs. ACIT (supra). In that case, lease rent income was to be assessed as income from other sources and the assessing officer held that expenditure allowable is restricted to only such payment, which is separately binding on the employer and legal entity, i.e., company, such as salaries, PF, ESI and other inevitable expenses. In that case, the assessee was a company and the Tribunal has followed the judgment of Hon ble Calcutta High Court rendered in the case of CIT Vs. Ganga Properties Ltd. as reported in 199 ITR 94 in which it was held that expenditure incurred in complying with statutory obligations is deductible u/s. 57(iii) of IT Act. As per the relevant para of judgment reproduced by the Tribunal, it was noted that even if a company derives income from other sources , it has to maintain its establishment for complying with statutory obligations so long it is in operation and its name is not struck off the register of companies or unless the company is dissolved which means cessation of all corporate activities of the company for all practical purposes and so long as it is in operation, it has to maintain its status as a company and it has to discharge cer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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