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TMI Blog2014 (5) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be expenditure qualified for deduction - The language of the section does not admit of a construction that the expenditure shall be debited only if any income is made or earned - the Tribunal in the facts and circumstances had allowed the deduction, then, the appeal does not raise any substantial question of law – Decided against Revenue. - Income Tax Appeal No. 2627 of 2011, Income Tax Appeal No. 2628 of 2011 - - - Dated:- 7-5-2014 - S. C. Dharmadhikari And G. S. Kulkarni,JJ. For the Appellant : Mr. Vimal Gupta, Ms. Padma Divakar For the Respondent : Mr. J. D. Mistry, Mr. Madhur Agarwal With Shabnam Shaikh ORDER P. C. 1. These appeals by the revenue challenge the order passed in Income Tax Appeal Nos.135/Mum/2009 and 733/Mum/2009 which have been disposed of by an order of the Income Tax Appellate Tribunal on 23rd February, 2011. 2. Mr. Gupta, the learned senior counsel appearing on behalf of the appellant submits that the appeal raises substantial questions of law and which have been formulated for this Court's consideration at paragraph 4, page 4 of the paper book. 3. Mr.Gupta submits that the questions of law framed as substantial are aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bonds. The assessee may have been paying interest on the borrowings. However, so long as the assessee held the bonds and for the purposes of eventual benefits on their same being redeemed together with interest, that the subject deduction was permissible. The moment the assets have been sold, the deduction as claimed was rightly disallowed. The section therefore requires purposive interpretation. The purpose of the expenditure therefore cannot be lost sight of. For all these reasons, it is submitted that the present appeals be admitted as they raise substantial question of law. 5. Mr.Mistry, learned senior counsel appearing on behalf of the assessee submits that same contentions were raised by the revenue in two appeals being Income Tax Appeal Nos.2620 of 2010 and 5571 of 2010. These appeals concern the same assessee. Four questions of law formulated in its order dated 22nd July, 2011 in Income Tax Appeal No.2620 of 2010 reveal that identical issue and controversy was raised. The Division Bench of this Court following the judgment of the Supreme court in the case of Commissioner of Income Tax, West Bengal-III v/s Rajendra Prasad Moody, reported in 115 ITR 519, held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot raised about the fact that there is interest which is payable on these borrowings. The only question raised is that, for the purposes of Section 57(iii), the bonds being disposed of, the deduction as claimed was not allowable. The deduction was allowable so long as the bonds and shares were held for their eventual benefit. The benefit was that the bonds would be redeemed together with interest. The Tribunal noted these contentions and found that there is no merit in the revenue's stand. The Tribunal referred to the judgment cited by Mr.Mistry before us. 7. We must, for the purpose of appreciation of the contentions refer to two provisions which have been brought to our notice by the learned senior counsel. Mr.Gupta would rely on Section 36 as also Section 57. Section 36 insofar as it is relevant, states that the deductions provided in the clauses following sub-section (1) shall be allowed in respect of matters dealt with therein in computing the income referred to in Section 28. The learned senior counsel appearing for the revenue submits that Clause (iii) in this subsection provides for the amount of interest paid in respect of capital borrowed for the purpose of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head Income from other sources and subsection (2) includes in such income various items, one of which is dividends . Dividend on shares is thus income chargeable under the head Income from other sources . Section 57 provides for certain deductions to be made in computing the income chargeable under the head Income from other sources and one of such deductions is that set out in Cl.(iii), which reads as follows: Any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income . The expenditure to be deductible under Section 57(iii) must be laid out or expended wholly and exclusively for the purpose of making or earning such income. The argument of the revenue was that unless the expenditure sought to be deducted resulted in the making or earning of income, it could not be said to be laid out or expended for the purpose of making or earning such income. The making or earning of income, said the revenue, was a sine qua non to the admissibility of the expenditure under Section 57(iii) and, therefore, if in a particular assessment year there was no income, the expenditure woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaking on behalf of the Court, observed : It is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned. It is indeed difficult to see how, after this observation of the Court, there can be any scope for controversy in regard to the interpretation of Section 57(iii). It is interesting to note that, according to the revenue, the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. This means that in a case where the expenditure is Rs.1000/-, if there is income of even Rs.1/-, the expenditure would be deductible and there would be resulting loss of Rs.999/-under the head income from other sources . But if there is no income, then, on the argument of the revenue, the expenditure would have to be ignored as it would not be liable to be deducted. This would indeed be a strange and highly anomalous result and it is difficult to believe that the legislature could have ever intended to produce such illogicality. Moreover, it must be remembered that when a prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of Mr.Gupta is that the purpose of the expenditure and in the present case, has a relation with the income that is to be eventually earned from the MSRDS bonds. That the bonds were disposed of means the income by way of interest thereon would not accrue any longer. Therefore, the deduction by way of interest on borrowings and which is stated to be a liability was not a permissible deduction. That is the precise argument which has been dealt with and the Hon'ble Supreme Court has clarified that the argument of the revenue that the expenditure would disqualify for deduction only if no income results from such expenditure in a particular assessment year, but if there is some income, howsoever small or meagre, the expenditure would be eligible for deduction. The Hon'ble Supreme Court gave an illustration in that regard and held that the when a profit and loss account is cast in respect of any source of income, what is allowed by the statute as proper expenditure would be debited as an outgoing and income would be credited as a receipt and the resulting income or loss would be determined. The Hon'ble Supreme Court held that how expenditure which is otherwise a proper ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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