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TMI Blog2004 (4) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 143(3). The assessee had appealed to the CIT(A) against several additions made by the AO. Some of the issues have been decided in favour of the assessee and some in favour of the Revenue that is how the cross appeals have been filed by the respective parties. 3. We first take up the appeal of the assessee. 4. The first issue is relating to the disallowance of Rs. 7,322 made under r. 6B. The issue is covered in favour of the assessee by the decision of the Tribunal for asst. yrs. 1991-92 to 1993-94 in ITA Nos. 26/1996, 867/1995, 656/Chd/1997 and ITA Nos. 155/1996, 906/1995, 711/Chd/1997, order dt. 30th July, 2003. Respectfully following the aforementioned decision of the Tribunal, we delete the disallowance made by the AO under r. 6B. 5. The 3rd and 4th grounds of appeal are as under: "3. That the learned CIT(A) has erred in law and on the facts while sustaining the disallowance under s. 37(4) of the Act on account of guest-house expenses amounting to Rs. 3,64,213, completely ignoring the binding decision of Hon'ble Tribunal Bench, Chandigarh, in the case of Vardhman Spg. & Genl. Mills Ltd. vs. IAC for the asst. yr. 1982-83. 4. That the learned CIT(A) has erred in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of manufacturing concern, the managerial cost is solely attributable to the manufacturing activities. 8. The learned Departmental Representative for the Revenue, on the other hand, contended that the issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT vs. United General Trust Ltd. as also in the case of CIT vs. P.K. Jhaveri. It was accordingly, pleaded that the appeal of the assessee may be dismissed and that of the Revenue may be accepted. 9. We have given our careful consideration to the rival contentions and have also perused the orders of the Tribunal and other relevant material relied upon on behalf of the parties. The AO has made the assessment under s. 143(3) vide order dt. 19th Dec., 1996. The dividend income has been assessed at Rs. 65,34,792 as disclosed. However, deduction under Chapter VI-A has been restricted to Rs. 53,52,198. The working of deduction under s. 80M has been made by the AO in the assessment order as under: ------------------------------------------------ (i) Personal expenses Rs. 17.02 crores (ii) Administrative and Rs. 7.48 crores &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 230/Chd/1996 has not doubted the well-settled proposition of law that deduction under s. 80M is permissible with reference to net income from dividends computed in accordance with the provisions of the Act. Thus, we hold that deduction under s. 80M is not permissible with reference to the gross dividend income but with reference to the net dividend income. 12. The next issue that arises for consideration is as to what is the net dividend income assessable under the provisions of IT Act, 1961, that qualifies for deduction under s. 80M. A perusal of the assessment order reveals that the AO has not computed the net dividend income under s. 56/57 separately but deduction under s. 80M has been calculated. The assessee has included the gross dividend in the receipts but computation under s. 56/57 has not been given. The Hon'ble Supreme Court in the case of Brook Bond & Co. Ltd. vs. CIT (1986) 57 CTR (SC) 25 : (1986) 162 ITR 373 (SC) held as under: "Held, (i) that the mere circumstance that the appellant had shown the dividend income under the head 'Income from other sources' in its returns could not in law decide the nature of the dividend income. It had to be determined from the evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dividend income as well. In such a case, it cannot be said that the gross dividend included in the gross receipts, is the amount included in the gross total income in comparison to the net dividend income. The principle is supported by the decision of the Hon'ble Supreme Court in the case of Brooke Bond & Co. Ltd. where it was held as under: "It is a cardinal principle of the law relating to income-tax that income-tax is a single charge on the total income of an assessee. For the purpose of computation, the statute recognises different classes of income which it classifies under different heads of income. For each head of income, the statute has provided the mode of computing the quantum of such income. The mode of computation varies with the nature or the class of such income, for the deductions permissible under the law in computing the income under each head bear a particular relevance to the nature of the income. The statute operates on the principle that it is the net income under each head which should be considered as a component of the total income. The statute permits specified deductions from gross receipts in order to compute the net income. The net income under the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has not given details of the borrowings utilized for purposes of acquisition of shares, securities, etc., the AO has attributed proportionate interest to the investments in equities/securities. We have carefully gone through the decision of the Supreme Court in the case of CIT vs. United General Trust (P) Ltd. 16. The learned counsel for the assessee contended that no disallowance is warranted in this case on account of financial charges insofar as the assessee has not invested borrowed money for the purchase of shares. It was, however, suggested that the AO may be directed to consider the issue, afresh in accordance with law after considering the claim of the assessee that the borrowed money was not utilised for the purchase of shares. We have elsewhere pointed out that in working out deduction under s. 80M, the interest paid on borrowed money utilised for acquisition of shares has got to be deducted. So, however, if the assessee has not utilised the borrowed money but has utilised its own capital for the purchase of shares, then proportionate disallowance on account of financial charges will not be justified. Let the AO consider this issue afresh after giving reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Members of the Bench have been misled by reading only the decision of the Hon'ble Supreme Court which is as under: Both counsel for the Revenue and the assessee are agreed that the only question which was sought to be raised by the Revenue, but which was not allowed by the High Court is concluded against the assessee and in favour of the Revenue by the decision of this Court in Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC). Indeed, the same result follows from s. 80M introduced by the Finance (No.2) Act, 1980, with retrospective effect from 1st April, 1968." If one reads the decision of the Supreme Court without the context in which it was rendered, the observation of the (Chandigarh) Bench may appear to be correct. But, when we read the judgment in the context in which it was rendered and the judgment of the High Court which has been upheld by the Supreme Court, it becomes abundantly clear that the issue relating to deduction of proportionate management expenses was decided by the Supreme Court in favour of the Revenue. 18. The issue had been decided by the High Court in favour of the assessee but the reference a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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