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TMI Blog2016 (9) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... hed such a case. Question is, therefore, answered in favour of the appellant/Department. The decision of the Assessing Officer to delete the disallowance is upheld. Proportionate management expenses allocated against dividend income for purpose of computation of deduction u/s 80M - Held that:- The deductions under section 80M must be computed in accordance with the provisions of section 80M. If the Appellate Authorities find that the expenses liable to be deducted have been considered under the wrong head, they must direct the Assessing Officer to rectify that error for all purposes. We have by our judgment passed in Commissioner of Income Tax (Central) Ludhiana v. M/s Hero Cycles Ltd. Ludhiana [2016 (9) TMI 901 - PUNJAB AND HARYANA HIGH COURT ], held that where income is considered under the wrong head in the computation of income, the Assessing Officer must be directed to pass a fresh assessment order after considering it under the correct head for all purposes including for the purpose of computation of income for deductions under section 80HHC. It would follow then that the same rule ought to apply also to expenses which are entitled to be deducted. They must be deducted qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted against dividend income for purpose of computation of deduction u/s 80M? (vi) Whether on the facts and in the circumstances of the case, the ITAT was right in law in confirming the order of the learned CIT(A) in deleting the addition of ₹ 8,79,145/- made on account of closing stock, spares, tools etc. 4. The appeal was admitted by an order dated 07.03.2003. We presume, therefore, that it was admitted on all the questions of law raised by the appellant. We will deal with each of them separately. We will deal with questions (ii) and (v) at the end. Re; Question No. (i) 5. It was agreed that this question is liable to be answered in favour of the assessee in view of the judgments of this Court in Commissioner of Income Tax v. Avery Cycle Industries Ltd. [2008] 296 ITR 393 (P H), Avon Cycles Pvt. Ltd. v. Commissioner of Income Tax [1999] 238 ITR 85 and the judgment dated 30.01.2015 passed by a Division Bench of this Court in ITA No. 192 of 2001 Commissioner of Income Tax (Central) Ludhiana v. M/s Hero Cycles Ltd. Ludhiana. Question No. (i) is accordingly answered in favour of the assessee. Re: Question No. (iii) 6. It was agreed that the an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the same as being unsatisfactory. The CIT(A) noted that the assessee had not furnished any details as to the tour on which the Directors wives had accompanied them, as to which of the Director s wife had undertaken the tour and whether or not the business of the assessee necessitated the Directors wives undertaking the tour. It was rightly observed that whether the expenditure incurred is for the purpose of the business or not would depend on the facts of each case. The Tribunal reversed this decision and directed the Assessing Officer to delete the disallowance on the ground that it had dealt with the similar issue in ITA Nos. 990 of 1993 and 1054 of 1993 in respect of the assessment year 1990-91. 12. We are unable to uphold the decision of the Tribunal in this regard. The issue cannot be decided on the basis of the result of the assessment proceedings relating to the same question in another assessment year. Whether a Director s spouse has traveled with him for business purpose or not, is essentially a question of fact not only in respect of each year but in respect of each tour. One visit may be for business purpose and another visit may not be for any business p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the gross amount of such dividends. 16. Admittedly, Section 80M applies only to income from other sources. Both the counsel agreed that in view of the judgment of the Supreme Court in Distributors (Baroda) P. Ltd. vs. Union of India and others, [1985] 155 ITR 120, it is the net dividend on which the deduction is to be determined for the purpose of Section 80M. Therefore, in the first instance, the assessee s dividend income would have to be computed under section 56. From that the deductions permissible under sections 57 to 59 would have to be determined. The difference between the two would yield the net dividend. In other words, the benefit under section 80M would be to the extent that the net dividend received by the assessee does not exceed the dividend distributed. 17. The assessee received dividend of ₹ 6,60,000/- from M/s Munjal Showa Ltd and ₹ 16,61,398/- from M/s Hero Honda Motors Ltd. According to the assessee, no interest had been paid in the assessment year in question, namely, 1991-92 as the loans had been repaid before 1st April, 1990. 18. Mr. Mittal contended that in the present case the assessee s gross dividend is also the net dividend a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion fee 30,000 1,17,037 Total: 32,59,658 Total Management expenses as worked out above are ₹ 32,59,658/- Proportionate management expenses incurred for earning dividend income are as under:- 32,59,658 x 6,59,96,415 = Rs.4,11,647/- 522598252 32,59,658 x 6,59,96,415 = Rs.4,11,647/- 52,25,98,252 Deduction us. 80M is computed as under:- Gross dividend received Rs.23,21,400 Less: Proportionate management expenses as per the Hon ble Supreme Court judgment in the case CIT vs. United General Trust Ltd. (200 ITR 488) ₹ 4,11,647 19,09,753 Deduction us. 80M (Dividend distributed by the Assessee ₹ 61,90,068/-) ₹ 19,09,753 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A are noted. The assessment order does not indicate any bifurcation of the expenses for the investments. 23. The Tribunal thereafter held that section 80(M) does not authorize an Assessing Officer to estimate the expenditure and recompute the income by way of dividend for the purpose of deduction allowable under section 80(M) of the Act. 24. Where the assessee does not provide any bifurcation of the expenditure incurred in respect of its income, the Assessing Officer has no option but to estimate the expenditure and to recompute the income by way of dividend to arrive at the deduction that may be allowed under section 80M of the Act. Assuming that some portion of the expenditure is attributable to the dividend earned, the Assessing Officer must estimate the extent thereof. If the assessee furnishes proof or details of such expenditure to the satisfaction of the the Assessing Officer he may accept the same. however, the assessee does not furnish a bifurcation of the expenses or any reasonable basis for arriving at the same, the Assessing Officer has no option but to make a reasonable estimate of the same. 25. The Tribunal s observation that when an assessee claims that it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion that the assessee had incurred expenditure towards earning the said dividend. The assessee has not furnished any material in this regard. As we observed earlier, the Assessing Officer must, therefore, estimate the same if he satisfied that some expenditure for earning the dividend had been incurred. 26. The manner in which the expenditure is computed by the Assessing Officer cannot be faulted. The only question is whether the management expenses incurred were correctly computed. For this purpose the Assessing Officer noted the management expenses incurred by the assessee under the head administrative expenses (Annexure XVII) which relate to dividend income also are as under:- . . He has then tabulated such expenses. We set out the table earlier while referring to the assessment order. The assessment order at the foot of the table states that the total management expenses are ₹ 32,59,658/-. It was not contended on behalf of the assessee that these are the total management expenses. In other words it was not contended that the assessee did not incur any management expenses other than in the sum of ₹ 32,59,658/-. We presume, therefore, that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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