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TMI Blog1985 (11) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 54,000 (iii) Interest on debenture 1,875 The assessee-company incurred total expenditure of Rs. 1,918 on printing and stationery, postage, audit fees, professional tax and general charges. An amount of Rs. 15 was allowed as depreciation on the written down value of furniture. Thus, the total debit was Rs. 1,933 which was deducted from the gross income in order to arrive at net income. The assessee claimed deduction under section 80M of the Income-tax Act, 1961 ('the Act') on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Act (before making any deduction under Chapter VI-A of the Act) and not with reference to the gross amount of such dividends. In the computation of income by way of dividends, in accordance with the provisions of the Act, deductions admissible are those contained in clauses (i) and (iii) of section 57 of the Act. Clause (i) is not applicable in this case. Clause (iii) refers to expenditure (not being in the nature of capital expenditure) laid out or expended, wholly and exclusively for the purpose of making or earning the income. 3. The contention before us on behalf of the assessee was that none of the items comprised in the amount of Rs. 1,933, referred to above, represented expenditure laid out or expended wholly and exclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that none of the item pertains to earning of dividend income apply equally to earning of interest income and as such, the assessee's contention was to be accepted, the amount in question would not be deductible at all. This indicates that contention raised by the assessee is unsound. 5. It was then contended that the assessee should be deemed to carry on business of investment and financing and that the said amount of Rs. 1,933 should be deemed to have been allowed as business expenses under section 37(1) of the Act, with the result that no expenses were attributable to dividend income. We are unable to accept this contention. As already stated, there are only two sources of income. One source is dividend and the other source is interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest income to the exclusion of dividend income. Reliance was placed on certain decisions of the Tribunal in which the scope of section 70(2)(i) of the Act was considered and it was held that the assessee had option to set off the short-term capital loss under particular head of income. The principle laid down in the said decision would not be applicable in this case. In the present case, we have to ascertain the expenses laid out wholly and exclusively for the purpose of earning the dividend income. When the total expenses are laid out wholly and exclusively for earning interest income as well as dividend income, the assessing authority has to bifurcate the expenses by estimating and ascertaining the expense which could be attributed to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in any professions, trade or callings. Consequently, even if the only income of the assessee-company had been from dividends, professional tax would have been payable. 8. Strong reliance was placed by the learned representative for the assessee on the decision of the Gujarat High Court in CIT v. Cotton Fabrics Ltd. [1981] 131 ITR 99. In that case, the assessee was dealer in shares and had derived income in the course of business from dividends also. The assessee had paid interest on borrowings. It was held that the entire amount of interest was liable to be deducted under section 36(1)(iii) of the Act, while computing profits under the head 'Profits and gains of business or profession' and that no apportion could be made from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucture of the assessee-company and in that ground also the expenses would be deemed to have been laid out wholly and exclusively for earning dividend income and interest income. 9. Another decision on which reliance was placed was K. Mahesh v. CIT [1968] 70 ITR 240 (Mad.). The dictum on which the learned representative for the assessee relies is that for an expenditure to come within the ambit of section 57(iii), it must be incidental to the making or earning of the income and there must be nexus between the character of the expenditure and the making or earning of the income. If the sum laid out is in a capacity different from that in making or earning income, that will be outside the scope of section 57(iii). The above dictum is not of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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