2006 (2) TMI 131

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..... ng the claim for deductions while considering the deduction under section 80M of the Act?" The facts leading to this reference are as hereunder: The assessee made a total investment in shares as to the value of Rs. 57,60,164 on December 31, 1983, and Rs. 66,42,372 on December 31, 1984. The assessee received a sum of Rs. 11,05,432 and Rs. 8,82,208 as dividend income and claimed deduction under section 80M of the Act. The assessing authority deducted 10 per cent, out of the gross dividend received towards expenditure under section 57(iii). Aggrieved by the same the assessee preferred an appeal which came to be dismissed. In the second appeal filed by the assessee before the Tribunal, the Tribunal held that the authorities were in error in d .....

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..... ned by the assessee, it was held that it is not possible to accept the contention of the assessee that the entire amount invested in the shares is only from the profit earned. However, the said finding recorded by the assessing authority which was confirmed by the first appellate authority was rightly set aside by the Tribunal. However, it took the view that the deduction should be notionally to the extent of 2Vi per cent, of the gross dividend income, towards expenditure like salary, stationery, rent, electricity, etc. That is not a case pleaded by any of the parties and there is no provision for grant of notional expenditure under section 80M. In this regard, it is useful to refer to some of the judgments relied on by learned counsel for .....

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..... mplated by section 80M refer to actual expenditure, whereas, deductions contemplated by section 20(1) are estimated on proportionate expenses and interest, the deduction under section 80M is allowable on net dividend arrived at after taking into account the actual expenditure incurred by the assessee in earning the dividend and there is no scope for any estimate of expenditure being made and there was no allocation for notional expenditure unless the facts of a particular case so warranted. Therefore, from the discussion made above, it is clear that when no expenditure is incurred by an assessee in earning the dividend income, no notional expenditure could be deducted from the said income. Though the benefit under section 80M is posed on a .....

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