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TMI Blog2002 (8) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... nses to be part of entertainment expenses and disallowed the same. In first appeal, learned CIT(A) rejected the contention of the assessee that these expenses relate to articles of presentation and did not have any logo and are not in the nature of advertisement and thus not entertainment expenses. Learned CIT(A) confirmed the order of AO, relying on the decision in the case of CIT vs. Khem Chand Bahadur Chand (1981) 23 CTR (P H)(FB) 319 : (1981) 131 ITR 336 (P H)(FB) and treated them within the purview of entertainment expenditure. Before us, details of these expenses have been filed at pp. 1-6 of the paper book. Learned Authorised Representative relied on the order dt. 12th May, 1998, in ITA Nos. 835 and 1056/1992 for asst. yr. 1988-89. It is submitted that the issue is no more res integra, in view of the decision in the case of CIT vs. Escorts Employees Ancillaries Ltd. (1997) 138 CTR (P H) 347 : (1997) 224 ITR 28 (P H) on the same issue. Learned Departmental Representative, on the other hand, relied on the orders of tax authorities. After hearing the parties to the dispute, we find it as a fact that the articles of presentation did not have logo of the company and it has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of business income or not, both the parties agreed to accept the decision rendered for asst. yr. 1990-91. For detailed reasons given in para 6 in ITA Nos. 990 and 1054/1993, we have held that in view of s. 80HHC(3), as in existence during the relevant assessment year, profit computed under the head 'income from business' will be taken as business profits for the purpose of computation of deduction under s. 80HHC. For asst. yr. 1990-91, there was no dispute that interest and royalty have been assessed as income under the head 'income from business'. Therefore, we allow this ground relying on the decision in the case of CIT vs. Isher Dass Mahajan Sons (2001) 170 CTR (P H) 271 : (2002) 253 ITR 284 (P H). During the year under appeal, we do not known whether interest income and royalty have been assessed under the head 'income from business' or under any other head of income. If interest and royalty is assessed under the head 'income from business', interest and royalty will form part of profit which may be taken for the purpose of computation of deduction under s. 80HHC. Since this information is not clear from the assessment order, we set aside this issue to the file of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of Rs. 77,85,059, in respect of interest not charged from GCL and MAL. In first appeal, learned CIT(A) confirmed the action of the AO. The assessee submitted that GCL and MAL were in bad shape. Funds were advanced to GCL for rescheduling of their loan installments with ICICI. Under an agreement, the assessee was a promoter and, therefore, interest-free loan was given out of own funds. Similarly, loan was advanced to MAL for the purposes of business. Condition of MAL was also not good and to save the company and also own funds invested in the company, loan was advanced. Loans were advanced for business purposes. AO has not established any nexus between the loan and borrowed funds. Loans were given out of own funds and no loan has been given out of borrowed funds. Therefore, no addition can be made. AO has not disallowed interest but added income assuming notional income on loan advanced. Reliance is placed on order dt. 28th Feb., 2000, in ITA No. 1504/1994 for asst. yr. 1991-92 in the case of Highway Cycles Industries Ltd. by which similar addition was deleted by the Tribunal under the similar facts. Reliance is also placed on the order dt. 19th April, 2002, in ITA No. 1131/19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for computing eligibility of deduction under s. 80M. AO relied on the decision in the case of CIT vs. United General Trust Ltd. (1994) 116 CTR (SC) 194 : (1993) 200 ITR 488 (SC) in this regard. Before learned CIT(A), it was contended that the assessee received dividend warrants from two companies and it did not incur any expenditure which can be deducted under s. 57 for computation of dividend income. AO presumed that the assessee has incurred certain expenses for the purpose of earning dividend income and, therefore, picked up total management expenses incurred by the assessee in its business amounting to Rs. 32,59,658 and apportioned the same on the basis of investment made in shares and total investment as on 1st April, 1990, and thus deducted a sum of Rs. 4,11,647, out of dividend income only for the purposes of deduction allowable under 80M. Learned CIT(A) did not agree with the contention that the assessee had not incurred any expenditure and confirmed the action of the AO, presuming that the assessee had incurred expenses for earning of dividend and management expenses incurred consisted of common expenditure. 9.1 Before us, learned Authorised Representative submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure. The ratio of this decision is, therefore, not applicable to the facts of the case because here the assessee had not incurred any expenditure and has not claimed any expenditure under s. 57, out of dividend income. Further, reliance is also placed on the following decisions (i) Shaw Wallace Co. vs. Dy. CIT (2001) 71 TTJ (Cal) 478 (ii) Western Metal Caps Ltd. vs. Asstt. CIT (2000) 110 Taxman 231 (Ahd)(Mag) (iii) Tata Fertilizers Ltd. vs. Dy. CIT (1997) 92 Taxman 423 (Mumbai)(Mag) (iv) CIT vs. V. Ramakrishna Sons (1989) 76 CTR (Mad) 158 : (1989) 179 ITR 638 (Mad) (v) CIT vs. Jardine Henderson Ltd. (1979) 10 CTR (SC) 102 : (1979) 117 ITR 568 (SC) (vi) CIT vs. United Collieries Ltd. (1993) 203 ITR 857 (Cal) The assessee being the largest manufacture of bicycles in the world, producing about 20,000 bicycles a day, expenditure has been incurred for carrying on of its business and AO has also allowed this expenditure while computing business income. Thus, he submitted that no expenses on presumption basis can be deducted out of dividend income, merely for the purpose of reducing deduction under s. 80M. At the most, the one clerk have devoted 1 to 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the AO. AO has included this income in gross total income of the assessee. Sec. 80M allows deduction in respect of certain inter-corporate dividends. This section lays down as under: " 80M. Deduction in respect of certain inter-corporate dividends—(1) Where the gross total income of a domestic company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to— (i) in the case of a schedule bank or a public financial institution or a State financial corporation or a State industrial investment corporation or a company registered under s. 25 of the Companies Act, 1956 (1 of 1956), sixty per cent of the income by way of dividends from another domestic company; (ii) in the case of any other domestic company, so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first-mentioned domestic company on or before the due date." From the above, it is clear that where the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any expenditure for earning dividend only for the purposes of deduction eligible under s. 80M, in our view, is not permitted under the law. We agree with learned Authorised Representative that in the case of United General Trust Ltd. there was no dispute that the assessee has not incurred any expenditure for earning of dividend. The issue involved was whether deduction under s. 80M will be available on gross dividend or dividend income, which is derived after deducting the expenses. Hon'ble Supreme Court followed the decision in the case of Distributors (Baroda) (P) Ltd., where also similar question of law has arisen. It is held by the apex Court that deduction under s. 80M is not available on gross dividend. In this regard, we rely on the decision in the case of Supreme Court in the case of CIT vs. Sun Engg. Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC), in which it has been laid down how a judgment of the apex Court has to be interpreted. At p. 299, it has been laid down: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from other sources' and the assessee was eligible for deductions in respect of expenditure incurred wholly and exclusively for earning of such income as laid down under s. 57. There is no provision for making deduction for expenses under s. 80M. What is exempt under s. 80M is the income by way of dividend income from the domestic company included in the gross total income of the assessee vide s. 80AA. Therefore, the gross total income should be properly computed before applying the provisions of s. 80M. 3. Tata Fertilizer Ltd.: During the previous year relevant to asst. yrs. 1987-88 and 1988-89, the assessee-company had no business income. It had earned income from dividends. The expenses incurred were mainly on establishment by way of salary, audit fee, accounts, writing fees, etc. The AO apportioned these expenses towards dividend and thereby reduced the claim for deduction under s. 80M. The assessee's contention was that no expenses were incurred for earning dividend income and this was not controverted by the AO by bringing any material on record. Held, that the Revenue authorities, therefore, erred in reducing the assessee's claim for deduction under s. 80M. 4. United Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first effective ground is against deletion of addition of Rs. 8,79,145 made by the AO on account of closing stock of stores, spare parts, tools, etc. AO, on the basis of earlier year's order, estimated the figures of closing stock of these items at Rs. 8,79,145 and made the impugned addition, which learned CIT(A) deleted, following order for earlier assessment year. The order of learned CIT(A) was confirmed by the Tribunal, vide order dt. 23rd Nov., 2000, in ITA No. 1688/1992 for asst. yr. 1989-90. The order of learned CIT(A) for asst. yr. 1990-91 is also confirmed by the Tribunal, vide order in ITA No. 1054/1993. Following the aforesaid orders of the Tribunal, we do not find any merit in this ground of the Revenue and the same stands rejected. 13. Grounds Nos. 2 and 3 are against deletion of disallowance of Rs. 30,12,150 made by the AO on account of interest due and claimed to have been written off. AO noted that the assessee had supplied and exported goods to M/s Iraqi Bicycles and Metal Tools of Iraq during asst. yrs. 1989-90, 1990-91 and earlier years. When the amount due from the said party was not received, the assessee unilaterlly debited a sum of Rs. 30,12,150 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 46,740 Travelling Exp. Staff 2,46,377 Oil and lubricants 2,17,467 Depreciation 1,309 Directors remuneration 1,28,116 1,19,13,654" The assessee submitted that this was merely an expansion of business and management and finance of both the units was common and interrelated and mixed, therefore, these expenses should be allowed as revenue in nature. Number of cases, as mentioned in para 11.3 of the impugned order, were relied upon. Learned CIT(A) held that the expenditure on technical consultancy fee and other expenses, financial expenses and insurance expenses are in the nature of capital expenses. With regard to salary, PF and other benefits as also administration and other expenses, learned CIT(A) directed that the appellate order for earlier asst. yr. 1990-91 should be followed, in which part of these expenses was allowed as revenue expenditure. With regard to the directors remuneration, the issue was sent back to the file of the AO with a direction that the remuneration which relate to the directors who had specifically been appointed to look after the setting up of the new unit, be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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