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TMI Blog2016 (3) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... s for maintaining its very corporate existence cannot be allowed completely and the same has to be apportioned between the taxable and exempted income of the assessee ?" 2. This question arises in the following background. The assessee is a company registered under the Companies Act. For the assessment year 20012002, the company filed its return of income on 5.10.2001 declaring loss of Rs. 2.67 lacs (rounded off). The return was taken in scrutiny. The Assessing Officer wanted to inquire into the assessee's claim of loss. From the materials produced before the Assessing Officer, it was noticed that the company during the previous year relevant to the assessment year 20012002, had shown a total income of Rs. 73.75 lacs(rounded off). Only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of apportionment of the expenditure between taxable and exempt income, making following observations : "I have considered the order of the A0 and the submission of the appellant. It is seen that the only salary paid by the appellant company was to the Company Secretary as he was only employee on the role and other expenses included audit fee, consultancy fee, etc as pointed out by the appellant. So far as the audit fee is concerned, I agree with the contention of the appellant that the same are required to be spent for the very existence of the company and hence audit fee can be considered as incurred for the purpose of business. However, salary paid to the employee i.e. Company Secretary, Consultancy fees, rates and taxes and other expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There were two business activities of the assessee company one of pertaining to exempt income and other is pertaining to taxable income. The expenditure incurred is indivisible between exempted income and taxable income. In the case of Water Fall Estates Ltd. vs..CIT 219 ITR 563 the Supreme Court has laid down the principle of apportionment of expenditure. The judgement of Hon'ble Caclutta High Court in the case of CIT Vs. Ganga Properties Ltd. cites supra by the 1d. AR is distinguishable on facts as the Hon'ble Court had no occasion to examine sec. 14A which has been inserted subsequently to that judgment. Further in that case the expenditure was incurred to comply with the statutory obligation of the company whereas in the case under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt under section 10 of the Act. The assessee had incurred expenditure by way of salary paid to the Company Secretary. Merely because it was compulsory to engage such a Company Secretary would not mean that such expenditure was not relatable to earning exempt income. 10. Having heard learned counsel for the parties and having perused the materials on record, short question that calls for consideration is, whether the expenditure in question would be hit by Section 14A of the Act. As is well known, as per section 14A of the Act for the purpose of computing the total income under ChapterIV, no deduction would be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. In s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earning of income. Expression used in subsection( 1) of section 14A of the Act is "in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income". Therefore, merely because it was compulsory in law to engage the Company Secretary would not in any manner change this position. The fact of the matter is that the company did engage a Company Secretary and incurred expenditure of Rs. 2.91 lacs by way of salary. 12. The act of engagement of Company Secretary was clearly for the purpose of carrying on activities of the company, in absence of which, the company would be breaching the legal requirement. That being the position, the expenditure had to be apportioned between the taxable inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gar and Gur Refining company limited (supra) before the Division Bench of Calcutta High Court, the question was entirely different and related to claim of deduction of expenditure under section 37 of the Act. 15. In case of Ganga Properties Limited(supra), the Division Bench of Calcutta High Court in relation to claim of the assessee company for deduction of the expenditure, observed that such expenditure was incurred by the company for retaining the status. It was observed that even if the company does not carry on business but derives income from other sources, the company has to maintain its establishment for complying with statutory obligations. Expenditure incurred in the process would be deductable. We do not see that this ratio in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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