Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2006 (2) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2006 (2) TMI 131 - HC - Income TaxDeduction under section 80M - it is clear that when no expenditure is incurred by an assessee in earning the dividend income, no notional expenditure could be deducted from the said income. Though the benefit under section 80M is posed on a net income, when no expenditure is incurred in earning the dividend income, the gross income would become the net income. Thus, there is no scope for any estimate of expenditure being made, or any amount being deducted as notional expenditure. It is not the case of the Revenue that the assessee has actually incurred any amount, much less 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
Issues:
- Deduction under section 80M of the Income-tax Act, 1961 Analysis: The High Court of Karnataka was presented with a reference by the Tribunal regarding the justification of allowing a claim for deductions under section 80M of the Income-tax Act. The case revolved around the treatment of expenditure related to dividend income. The assessee had made investments in shares and received dividend income, claiming deductions under section 80M. The assessing authority initially deducted 10% of the gross dividend received towards expenditure, which was later modified by the Tribunal to 2 1/2%. The Tribunal considered certain expenditures like salary, stationery, rent, and electricity as attributable to the dividend income and made a notional deduction. The assessee challenged this decision, arguing that notional deductions are not permissible under the law. The Court analyzed the facts and found that the assessing authority's initial deduction of 10% towards expenditure was not justified. The Tribunal's decision to notionally deduct 2 1/2% for certain expenditures was also deemed incorrect. The Court referred to relevant judgments, such as CIT v. United Collieries Ltd. and CIT v. General Insurance Corporation of India, which emphasized that deductions under section 80M should be based on actual expenditure incurred in earning dividend income, not on estimates or notional amounts. The Court highlighted that when no actual expenditure is incurred, no notional expenditure can be deducted from the dividend income. Ultimately, the Court concluded that as the assessee had not actually incurred any expenditure, the Tribunal's decision to allow a deduction based on notional expenditure was erroneous. The Court ruled in favor of the assessee, stating that no estimate or notional deduction should be made when no actual expenditure is involved in earning dividend income. The question of law was answered in the negative against the Revenue and in favor of the assessee, leading to the disposal of the reference with no costs awarded.
|