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2005 (3) TMI 715 - AT - Income TaxDeductions u/s 80M - Intercorporate dividends - expenses incurred on employees of the company - HELD THAT - The learned counsel for assessee submitted that as there is no expenses at all have been incurred in the earning of dividend income the Assessing Officer has to compute the deduction on the entire gross dividend. The Assessing Officer should not have restricted it to 95% of the gross dividend. At the time of hearing learned counsel for assessee also relied on the decision of the Tribunal in the case of Canbank Financial Services Ltd. Applying the same we allow the ground raised by the assessee on this issue. The case of the assessee is that the Hon ble Supreme Court in the case of Mysore Minerals Ltd. v. CIT 1999 (9) TMI 1 - SUPREME COURT held that for the purpose of allowance of depreciation in income-tax assessment the assessee need not be registered owner of the property in question. From the records it is seen that in fact the assessee had raised the ground before the CIT(A) but in view of the decision of the Karnataka High Court in the case of CIT v. Bharath Gold Mines Ltd. 1991 (2) TMI 56 - KARNATAKA HIGH COURT assessee seriously did not contest this issue. However as of now the decision of the Hon ble Supreme Court will hold the field. We are of the view that the additional ground has to be taken on file. Further in view of the decision of the Hon ble Supreme Court we find force in the stand taken by the assessee and therefore the additional ground raised by the assessee is allowed. It is ordered accordingly. In the result the appeal filed by the assessee is allowed.
Issues Involved:
1. Disallowance of loss on revaluation of securities classified as permanent assets. 2. Claim of allowance of bad debts under section 36(1)(vii) of the IT Act. 3. Claim of deduction under section 80M of the IT Act. 4. Deduction under section 37(2A) for expenses incurred on employees. 5. Additional ground regarding reduction of depreciation claim due to non-registration of property ownership. Issue-wise Detailed Analysis: 1. Disallowance of Loss on Revaluation of Securities Classified as Permanent Assets: The assessee claimed a loss of Rs. 1,09,10,252 due to the revaluation of securities classified as permanent assets, which was disallowed by the Assessing Officer based on RBI instructions. The instructions stated that securities classified as permanent assets must be held until maturity, and depreciation on revaluation need not be provided for. The Tribunal referred to a previous decision in the case of Karnataka Bank Ltd., where it was held that securities must be regarded as stock-in-trade by banks, and any loss debited in the books of account should be treated as such. Consequently, the Tribunal allowed the ground of the assessee on this issue, applying the same principle. 2. Claim of Allowance of Bad Debts under Section 36(1)(vii) of the IT Act: The assessee had written off bad debts amounting to Rs. 7,21,45,770. The Assessing Officer allowed only Rs. 5,24,74,740, considering the credit balance in the reserve account. The Tribunal noted that for the assessment year 1992-93, there was no balance to be carried forward, supporting the assessee's claim. Additionally, the Tribunal referred to a similar case of Canara Bank, which clarified that deductions under sections 36(1)(vii) and 36(1)(viia) are distinct and separate, and the opening balance in the bad debts reserve account should be considered. The Tribunal allowed the assessee's claim in full. 3. Claim of Deduction under Section 80M of the IT Act: The Assessing Officer allowed only 95% of the gross dividends as deduction under section 80M, estimating 5% as expenses for collecting dividends. The Tribunal referred to a previous decision in the case of Canbank Financial Services Ltd., which held that it is not permissible to estimate expenses for the purpose of limiting the allowance under section 80M. The Tribunal directed the Assessing Officer to allow the deduction on the entire gross dividend, thus allowing the ground raised by the assessee. 4. Deduction under Section 37(2A) for Expenses Incurred on Employees: The assessee claimed 50% of the expenses incurred on employees. The CIT(A) agreed with the assessee but remanded the issue back to the Assessing Officer. The Tribunal referred to its earlier decision for the assessment year 1992-93, where it upheld the CIT(A)'s decision to allow 50% of the entertainment expenditure incurred on employees. The Tribunal confirmed the order of the CIT(A) and dismissed the revenue's appeal on this point. 5. Additional Ground Regarding Reduction of Depreciation Claim Due to Non-Registration of Property Ownership: The assessee raised an additional ground concerning the reduction of the depreciation claim by Rs. 63,27,715, as the assessee was not the registered owner of the properties. The Tribunal noted the Supreme Court's decision in Mysore Minerals Ltd. v. CIT, which held that for depreciation allowance, the assessee need not be the registered owner. The Tribunal found merit in the assessee's claim and allowed the additional ground, directing the Assessing Officer to allow the depreciation claim. Conclusion: The Tribunal allowed the appeal filed by the assessee, addressing each issue comprehensively and applying relevant legal principles and precedents.
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