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TMI Blog2005 (5) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... part with brokerage in consideration of deployment of such funds through him. In a way assessee acquired the shares at a lesser value. The cost to the assessee was the amount paid for the shares minus brokerage received in the form of incentive. Such incentive cannot be construed to be revenue receipt. It was adjusted towards the cost of shares. It is of capital nature. In CIT v. UP State Industrial Development Corpn.[ 1997 (4) TMI 2 - SUPREME COURT] , the Supreme Court held that in order to determine the question of taxability, well settled legal principles as well as principles of accountancy have to be taken into account. It is a well accepted proposition that for the purpose of ascertaining profits and gains, the ordinary principles of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esides the Hon'ble Chief Minister had ordered to take up the question of exemption of this expenditure under the Income-tax Act to those who made the contribution. There is absolutely no business nexus with these expenses. As such, it cannot be allowed u/s 37(1). In the result, the appeal of the assessee stands partly allowed. - HON'BLE M.K. CHATURVEDI, VICE PRESIDENT AND CHANDRA POOJARI, A.M. For the Appellant : G.N. Gopalarathinam, Adv For the Respondent : K. Srinivasan, Adv. ORDER Per M.K. Chaturvedi, Vice President. 1. This appeal by the assessee is directed against the order of the ld. CIT(A) XIII, Chennai and relates to the assessment year 1996-97. The first issue relates to the tax treatment of incentive received by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell two lakh shares and capital gains on it, was offered for taxation and the gain was computed on the basis of reduced acquisition cost. 4. The remaining five lakh shares were retained by the assessee as investment. The share of brokerage received by the assessee attributable to those shares comes to Rs. 8,25,000. The Assessing Officer treated this as the income of the assessee. The CIT(A) confirmed the order of the Assessing Officer on this count. 5. Taxability of an amount would depend on the nature and character of the receipt at the initial stage. If the amount initially received partakes the character of a trading receipt, the amount would necessarily be exigible to tax as such. However, if the amounts are initially not taxable, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the question of taxability, well settled legal principles as well as principles of accountancy have to be taken into account. It is a well accepted proposition that for the purpose of ascertaining profits and gains, the ordinary principles of commercial accounting should be applied, as long as they do not conflict with any express provision of the relevant statutes. Underwriting commission not taken to P L account but adjusted to reduce cost of shares is not exigible to tax. The facts of the present case are different. Here the assessee is not under writer. It received a part of the commission given to the under writers. The amount of commission was adjusted to reduce cost or shares. This was in accordance with the principles of account. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erruption I request you to contribute Rs. 10.00 lakhs as first instalment, I would like to express my thanks to all those have contributed to renovate all the noon meal centres before the Hon'ble Chief Minister birth day on 24-2-1992. Further, the Hon'ble Chief Minister has ordered to take up the question of exemption of this expenditure under the Income-tax Act to these who made the contribution. I know very well that you have more anxiety and TAMIN is leading in this cause than other public sector undertakings. I also know that you have been interested in the welfare of childrens' development. 8. The ld. Counsel for the assessee invited our attention to the decision of the Apex Court rendered in the case of Sri Venkata Satyana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a polluting industry. It has spent amounts on bringing drinking water to the locality and aiding local school. The expenditure was incurred to earn goodwill of local community. It was to safeguard the interest of the business. As such, the expenditure was held to be allowable. In the case of Trichy Distilleries Chemicals Ltd. v. ITO [1990] 33 ITD 249 (Mad.) the expenditure was incurred out of commercial consideration. The assessee was carrying on business in industrial alcohol. It had to depend upon Government for supply of its raw materials to its factory. To gain favour of the officials the assessee incurred expenditure. In the present case the assessee in a State Government undertaking. It is not expected that to gain favour of the offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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