1983 (7) TMI 65 - AT - Income Tax

Summary

Issues:
1. Allocation of expenditure against business income and income from other sources.
2. Bifurcation of expenditure between income from business and income from dividend.
3. Allocation of income from interest against business income and dividend.
4. Deduction of fees paid to the Chartered Accountant.

Analysis:

1. Allocation of Expenditure:
The appeals involved the allocation of expenditure by the assessee against its business income and income from other sources for the assessment years 1976-77 and 1977-78. The dispute centered around the justification of allocating the expenditure incurred by the assessee on a proportionate basis against the two sources of income. The ITO disallowed the claimed expenditure, stating that only interest-related expenditure was allowable for computing income from dividend. However, the CIT (A) allowed a portion of the expenditure to be bifurcated between business income and income from dividend. The tribunal held that the entire expenditure should be allowed against income from business as the investment company's business activity included setting up various companies and financing them through share purchases. The tribunal disagreed with the bifurcation done by the CIT (A) as the income from dividend did not necessitate significant expenditure, and the expenditure towards staff and administration was wholly deductible against income from business.

2. Bifurcation of Expenditure:
The assessee contended that the entire expenditure should be allowed against income from business to avail full relief under section 80M of the Act, without deduction of expenses allocated by the CIT (A). The tribunal agreed with the assessee, emphasizing that the expenditure towards maintenance of staff and administration was essential for carrying on the business of the investment company. The tribunal held that the bifurcation of expenditure against business income and income from dividend was unjustified, as the income from dividend resulted from investments and did not require extensive expenditure.

3. Allocation of Income from Interest:
Regarding the allocation of income from interest against business income and dividend, the tribunal noted that the issue was settled in previous decisions of the Tribunal in the assessee's own case. Following the precedent set by earlier judgments, the tribunal declined to interfere with the decisions of the lower authorities on this ground.

4. Deduction of Fees Paid to Chartered Accountant:
The final contention related to the deduction of fees paid to the Chartered Accountant for both years. The ITO allowed a portion of the fees under section 80VV, while the CIT (A) further restricted the deduction. The assessee argued that the remaining amount should be allowed under section 37 of the Act as the Chartered Accountant provided services beyond taxation work. The tribunal found the CIT (A)'s decision reasonable and declined further interference, upholding the allowance of a sum of Rs. 2,000 for each year.

In conclusion, the appeals were partly allowed, with the tribunal ruling in favor of the assessee on the allocation of expenditure against business income and income from other sources, while upholding the decisions on the allocation of income from interest and deduction of fees paid to the Chartered Accountant.