2018 (5) TMI 795 - AT - Income Tax

Deduction allowable u/s 57 (iii) - expenses allowed against income from capital gain in the present year or later year - deduction not allowable against income from other sources - Held that - It is seen that there is no claim regarding any expenses specified in clause (i) of section 57 i.e. commission or remuneration to banker or any other person for the purpose of realising dividend or interest income because the assessee has claimed deduction on account of PMS charges Salaries Professional charges vehicle maintenance travel computer maintenance printing and stationery telephone charges and bank charges. Hence no deduction is allowable in the present case under clause (i) of section 57. The nature of expenses in dispute in that case are noted by the Tribunal in the form of a table and from the same it is seen that the expenses claimed in that case were regarding the personal expenses of Directors travelling expenses of others Motor car expenses security charges printing and stationery staff welfare flowers and plants AGM expenses 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.

Summary

Issues Involved:
1. Disallowance of expenses claimed under Section 57 of the Income Tax Act, 1961.
2. Alternative claim for expenses as cost of acquisition or improvement under Section 48 of the Income Tax Act, 1961.

Detailed Analysis:

Disallowance of Expenses Claimed Under Section 57:

The appellant argued that various expenses incurred, such as PMS charges, professional fees, and salaries, were integral to the investment activity and should be deductible under Section 57 of the Income Tax Act, 1961. The appellant believed these expenses were justifiable as they were incurred to manage and maintain the investment portfolio, which included equities, mutual funds, and bonds.

The CIT (A) and AO disallowed the expenses, stating that under Section 57(iii), only expenses laid out or expended wholly and exclusively for the purpose of making or earning income from other sources are deductible. The authorities noted that the appellant failed to provide specific details linking the expenses directly to the earning of taxable income from other sources. The CIT (A) emphasized that Section 57 allows deductions for specific expenses such as commission or remuneration paid for realizing income, provided there is a direct linkage between the expenditure and the income earned. The appellant did not furnish necessary details to substantiate the claim.

The Tribunal upheld the disallowance, agreeing with the CIT (A) that no specific details were provided to establish that the expenses were incurred exclusively for earning income from other sources. The Tribunal also noted that the appellant's reliance on the judgment in CIT Vs. Rajendra Prasad Moody (115 ITR 519) was misplaced as the disallowance was not due to the absence of income but due to the lack of necessary details as required under Section 57(iii).

The Tribunal also distinguished the case from East West Hotels Ltd. vs. ACIT (9 SOT 48), where the expenses were related to statutory obligations of a company. Since the appellant was not a company, there was no legal compulsion to incur such expenses, making the cited case inapplicable.

Alternative Claim for Expenses Under Section 48:

The appellant alternatively argued that if the expenses were not allowable under Section 57, they should be considered as cost of acquisition or improvement under Section 48 for the purpose of computing capital gains. The Tribunal rejected this argument, stating that Section 48 allows deductions only for expenses incurred wholly and exclusively in connection with the transfer of the asset, or for the cost of acquisition or improvement of the asset. The expenses claimed by the appellant did not fall under these categories, and thus, the alternative claim was also without merit.

Conclusion:

The Tribunal dismissed the appeal, confirming that the expenses claimed under Section 57 were not allowable due to the lack of specific details linking them to the earning of income from other sources. The alternative claim under Section 48 was also rejected as the expenses did not qualify as cost of acquisition, improvement, or transfer-related expenses.