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TMI Blog2007 (2) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, the Tribunal was right in granting investment allowance when it was never claimed at any earlier stage?" 2. The assessee is a non banking finance company. In respect of the assessment year 1992-93, it declared a net income of Rs.22,89,090 3. In the assessment for the assessment year 1992-93, the assessing authority worked out the relief under Section 80-M of the Act by making pro-rata allocation of the interest liability to funds invested in shares; thereby reduced the net dividend income available for deduction under Section 80-M of the Act. 4 . The assessing officer viewed that the borrowed moneys were used in making investments in units and shares. He held that the notional amount relatable to such borrowing was treated as not relatable to business expenditure, but could be considered only with reference to income from other sources. Thus, the officer viewed that in the absence of any nexus shown in the investment between the borrowed money and the investment made in the units and shares, notional interest was attributed to the borrowed capital used for investments in interest share and thereby allocated it to the dividend income, the officer held that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be in sufficient compliance of Section 32-A. Accordingly, the Tribunal allowed the relief. 7. Aggrieved by this view, the Revenue has preferred this appeal before this Court. 8 . Learned Senior Standing Counsel appearing for the Revenue submitted that the grant of relief under Section 80-M on the view that the investments in units were made to obey the directions of the Reserve Bank of India would not make the interest on the borrowed capital, to be taken as business expenditure as the dividend from shares would fall for consideration as income from other sources. She further pointed out that the amendment introduced under Section 14-A of the Finance Act, 2001, is retrospective from 1.4.1962; hence no deduction could be allowed in respect of the expenditure referable to the income, which would not form part of the business income. On the question of investment allowance, the Revenue submitted that it was not an issue at all before the Commissioner of Income Tax (Appeals). Consequently, the Tribunal ought not to have granted the relief without seeing whether such a claim was part of the assessment considered. 9. Considering the decision reported in (DISTRIBUTOR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t gross minus nil, will be the amount with reference to which the relief under Section 80 M will have to be computed." 12 The Gujarat High Court further held that the borrowing was for the purpose of business of the company. Consequently, the interest cannot be apportioned as between the business requirements and the monies borrowed for the purpose of investment in shares. The Gujarat High Court further held that no apportionment is possible when the shares held by the assesses are for the purpose of business and was assessable as such on profits and gains of business carried on by the assesses. 13 Learned counsel appearing for the respondent submitted that the investment in units and shares were made only to comply with the directions of the Reserve Bank of India. Once it was established that the amount principally borrowed was for a business purpose and the interest on borrowed capital was considered for deduction under Section 36(1)(iii) then it is not possible to bifurcate that interest for the purpose of working out the relief under Section 80-M. Hence, it being part of the business activity, the deduction was rightly allowed after deducting the interest on the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt held as follows: (Page 541) : "The income from dividend is regarded as income from other sources and forms a different head of income. This head of income is different from the head "profits and gains of business or profession". Where an assesses has income from other sources such as dividends, and also has income from the business or profession, and the deduction allowable under the respective heads is to be made in relation to the income realised under those heads, the expenditure laid out exclusively for the purpose of earning dividend income cannot, for the purpose of claiming a larger benefit under section 80M, be ignored and that amount excluded under section 37(3) in cases where an assesses has income from dividends as also from business, although section 37 provides for the deduction of the amount of interest paid in respect of the capital borrowed for the purpose of business or profession. To the extent the interest charged is capable of being regarded as expenditure laid out or expended wholly and exclusively for the purpose of making or earning dividend income, the interest so paid must be deducted under section 57(iii) before computing the benefit under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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