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TMI Blog2011 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs 9,000 to Rotary Club is concerned, we find that deduction has been claimed under section 37(1) of the Act and, therefore, one has to proceed on the basis that these expenses are in the nature of business expenditure - disallowance under section 14A is restricted to Rs. 36,348 - In the result, appeal is partly allowed - ITA No. 3567/Mum/07 - - - Dated:- 18-3-2011 - Shri R V Easwar, Shri Pramod Kumar, JJ. S E Dastur and Nishant Thakkar, for the appellant R S Srivastava , for the respondent O R D E R Per Pramod Kumar : 1. The short issue that we are required to adjudicate in this appeal is whether or not the CIT(A) was justified in upholding disallowance of Rs 1,01,265, under section 14 A of the Income Tax Act, 1961, for the assessment year 2003-04. 2. The issue in appeal lies in a narrow compass of material facts. The assessee, an advocate and solicitor by profession, is a partner in a law firm by the name of Mulla Mulla Craigie Blunt and Caroe. During the relevant previous year, the assessee received Rs 14,43,000, towards remuneration as a working partner, and Rs 46,17,600, towards share of profit in the partnership, from the said law firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firmly believes that the assessee deserves to succeed on this preliminary issue itself. He, however, hastens to add that even as he does not press this grievance, it should not be construed as his having conceding the appeal on this issue. 4. Learned counsel then submits that depreciation, which has been included in disallowance under section 14A, is not an expenditure but an allowance , and, for this reason, disallowance under section 14A cannot be invoked in respect of depreciation. He invites our attention to Hon ble Supreme Court s judgment in the case of Nectar Beverages P. Ltd. v. Deputy Commissioner of Income-tax (314 ITR 314), wherein, Their Lordships have, inter alia, observed that depreciation is neither a loss nor an expenditure nor a trading liability . . It is then pointed out in terms of the provisions of section 14A, what can be disallowed is only an expenditure incurred by the assessee in relation to an income which does not form part of the total income under this Act . It is thus pleaded that since depreciation is not an expenditure and since the disallowance under section 14A is confined to expenditure alone, no disallowance can be made in respect of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned disallowance under section 14 A of the Act. Learned Departmental Representative submits that there is no dispute that these are distinct stream of receipts, i.e. receipt on remuneration and the profit receipt from partnership firm, and that some allocation has to be done for the expenses incurred to earn these incomes. He also points out that details were not furnished before the Assessing Officer as is evident from the observations made by the Assessing Officer in paragraph 4.3 of the assessment order. Learned Departmental Representative takes us through the orders of the authorities below to justify and support the same. It is his contention that only practical method of apportioning of common expenses, between expenses incurred to earn profit share form the firm and the remuneration from the firm, is to apportion the expenses incurred by the assessee is in the ratio of earning of the assessee from these distinct source and once the exercise is carried out, it would not be appropriate to exclude some items of expenditure. Learned Departmental Representative submits that there is no dispute that car is used for the purpose of earning the profit share as also remuneration fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as depreciation allowance. This principle, which was applied by Their Lordships in respect of taxability under section 41(1), applies to the facts situation before us as well. Depreciation is admittedly in the nature of allowance and, therefore, it cannot be subject matter of disallowance under section 14A, which must remain confined to expenditure incurred by the assessee. Similarly, as far as deduction under section 80D is concerned, it cannot be subject matter of disallowance under section 14A either. The deduction under section 80D is not admissible because it is an expenditure for the purpose of earning an income but because, by virtue of specific provision under section 80D, payment of premium of health insurance, which is inherently personal expenses of the assessee, is admissible as deduction. This deduction cannot, therefore, be subject matter of disallowance under section 14A, which, as we have noted earlier, is confined to expenditure incurred for the purpose of an income which is not includible in total income of the assessee. As far as question of payment of Rs 9,000 to Rotary Club is concerned, we find that deduction has been claimed under section 37(1) of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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