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TMI Blog2003 (1) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as a business expenditure, the assessee stated that the fund was set up in July, 1977, in pursuance of the statutory role and function of the assessee, IDBI, and, therefore, the expenditure from this fund is eligible as a business expenditure of the assessee ; that from this explanation, it was seen that the assessee has set up the T.A.F. to fulfil its statutory obligation ; that annual contribution to the T.A.F. is made from the profit and loss appropriation account, and that however, expenses incurred from the T. A. F. for the support of management upgradation programmes, seminars, studies towards various industrial issues, energy conservation and grants to voluntary organizations, etc., are debited in the profit and loss account. It was held that the assessee's contention that these expenses are business expenses was not acceptable ; that whatever expenses the assessee is incurring for fulfilling its statutory obligation is, in fact, application of the assessee's income ; that the fact that the assessee is not debiting the contribution to the T. A. F. clearly indicates that the activity of the T.A.F. is not the business activity of the assessee ; that since the setting u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present assessee is to give loans to industries by way of contribution to shares, debentures, etc. that the assistance given by the assessee is not on account of any business necessity, but a voluntary assistance given by the assessee to other agencies, that the amount of assistance without any business connection cannot be deducted out of the taxable income of the assessee, that there is no evidence to show any business necessity for giving assistance to various agencies and, therefore, the deduction claimed by the assessee on account of technical assistance to various agencies is not admissible, that it is a voluntary expenditure incurred by the assessee ; and that it might have been incurred in view of the enabling provisions of the IDBI Act, but since there is no business connection with the expenditure incurred by the assessee, it is not admissible under section 37(1) of the Income-tax Act. So, the claim was rejected. Challenging the findings of the learned Commissioner (Appeals), the learned Authorised Representative of the assessee, besides broadly reiterating the stand of the assessee before the learned lower authorities, has largely placed reliance on the order of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of industries (section 9(1)(h)) : Providing technical (legal, marketing) and administrative assistance to any industrial concern or any person for promotion, management or expansion of any industry (section 9(1)(i)). Section 9A of the IDBI Act prohibits the bank from, subject to the proviso to that section, entering into any kind of business with any industrial concern, of which any of the directors of the bank is a proprietor, partner, director, manager, agent, employee or guarantor, or in which one or more directors of the bank together hold substantial interest ( substantial interest within the meaning of the Explanation to section 9A, in relation to an industrial concern, being a beneficial interest held by one or more of the directors of the bank or by any relative of such director, whether singly or taken together, in the shares of the industrial concern, the aggregate amount paid up on which either exceeds five lakh rupees or five per cent. of the paid-up capital of the industrial concern, whichever is lesser). This, clearly, is in consonance with the intent of the Legislature in forbidding allowance of capital and/or personal expenditure as a deduction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 9 of the IDBI Act enjoin upon the assessee to carry on the business envisaged therein, and once the nexus of the expenditure from the T.A.F. with the said business is established by the assessee, and not subverted by the authorities below, the observation of the learned Commissioner (Appeals) that there is no evidence to show any business necessity for giving assistance to various agencies is rendered but a result of complete misreading and non-reading of the material cogent evidence on record, besides being merely conjectural and surmisical. The expenditure in question thus, is an expenditure incurred by the assessee wholly and exclusively for the purposes of its business by reason of overriding enablement of statute, warranting allowance under section 37(1) of the Income-tax Act. So far as regards the objection of the Department to the activities indicated in the assessment year 1993-94 the order of the learned Commissioner (Appeals), it has been held in that order that it would be difficult to decide whether the expenditure incurred from the T.A.F. would definitely bring in benefits for the business in future, for such a possibility is too remote ; that at the same time, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the Income-tax Act, or in the bond scheme framed by the IDBI, that the IDBI as a taxpayer cannot avail of the exemption under capital gain, by investment in this Scheme. The learned Assessing Officer held that in view of the provisions of section 54E(1) of the Income-tax Act, for claiming any exemption thereunder, investment or deposit is an essential ingredient. In the case of the assessee, it has merely transferred the amount from one of its own accounts to another. Such a book entry cannot be treated as an investment, even if a certificate/bond is issued in respect thereof. The plain and simple meaning of investment or deposit is withdrawal of fund from one person and transfer of the same to another person. A person cannot invest or deposit money with himself. In the case of the assessee, there is no transfer of fund. The assessee has merely issued a certificate that so much amount is deposited. Therefore, the assessee is not entitled for exemption under section 54E, on the strength of such book entries. The claim was, hence, disallowed. Before the learned Commissioner (Appeals), it was contended that if an assessee invests capital gain earned in the capital bonds, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative of the assessee submits that if capital gains are invested or deposited in the specified assets, exemption can be claimed. An IDBI capital bond is a specified asset. There is no prohibition in law on the assessee investing in its own bonds. Though there is a prohibition under section 77 of the Companies Act on buy-back of shares of a company, there is no such bar in law on the assessee investing in its own bonds. Even in the Companies Act, by virtue of section 77A, inserted by an amendment brought about in 1999, buy-back of shares by a company is now permitted. Moreover, the instant transaction is not a buy-back of shares by a company. Also, under section 54E, the assessee is not in control of the fund. Words have been added to section 54E, which is impermissible in law. On the other hand, the learned Departmental Representative, relying on the impugned orders, says that what is to be considered is as to whether the tran saction involved is a deposit or an investment . Section 54E of the Income-tax Act provides, inter alia, that in a case where the capital gain arises from the transfer of a long-term capital asset, and an assessee has invested or deposited the whole or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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