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TMI Blog1985 (11) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and general charges. An amount of Rs. 15 was allowed as depreciation on the written down value of furniture. Thus, the total debit was Rs. 1,933 which was deducted from the gross income in order to arrive at net income. The assessee claimed deduction under section 80M of the Income-tax Act, 1961 ('the Act') on the gross dividends of Rs. 15,039. The contention of the assessee before the ITO was that the assessee had not incurred any expenditure in earning dividend income and as such, gross dividends of Rs. 15,039 were also net dividends with the result deduction on that amount was admissible under section 80M. This contention was not accepted by the ITO. He apportioned the deductible expenses of Rs. 1,933 between income from dividends a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital expenditure) laid out or expended, wholly and exclusively for the purpose of making or earning the income. 3. The contention before us on behalf of the assessee was that none of the items comprised in the amount of Rs. 1,933, referred to above, represented expenditure laid out or expended wholly and exclusively for the purpose of making or earning the income by way of dividends and as such, none of the amounts or part thereof comprised in the total amount of Rs. 1,933 was liable to be deducted from the amount of income by way of dividends for computing that income in accordance with the provisions of law, with the result that 60 per cent deduction under section 80M was allowable on the gross dividend income of Rs. 15,039. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,933 should be deemed to have been allowed as business expenses under section 37(1) of the Act, with the result that no expenses were attributable to dividend income. We are unable to accept this contention. As already stated, there are only two sources of income. One source is dividend and the other source is interest. Dividend is admittedly assessable under the head 'Income from other sources'. Similarly, in the present case, interest which has been received from one party, viz., Gaekwar Mills Ltd., would be assessable under the head 'Income from other sources'. The other small amount of interest of Rs. 1,875 received on debenture would also be assessable under the head 'Income from other sources'. The business contemplates repetition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laid out wholly and exclusively for the purpose of earning the dividend income. When the total expenses are laid out wholly and exclusively for earning interest income as well as dividend income, the assessing authority has to bifurcate the expenses by estimating and ascertaining the expense which could be attributed to dividend income. There is no question of any choice with the assessee in such matters. Consequently, we reject this first alternate submission. The second alternate submission was that the expenses attributable to dividend income would be Rs. 2 on account of stationery and Rs. 10 on account of audit fees making in all Rs. 12. We are unable to accept this contention also. The assessee has counted the words of the audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of business from dividends also. The assessee had paid interest on borrowings. It was held that the entire amount of interest was liable to be deducted under section 36(1)(iii) of the Act, while computing profits under the head 'Profits and gains of business or profession' and that no apportion could be made from the said amount of interest against income assessable as dividend under the head 'Income from other sources', with the result that deduction under section 80M was allowable on gross amount of dividends without deduction of interest. The ratio of this decision is of no assistance to the assessee. In that case, the assessee was dealing in shares and the only amount to be deducted from gross dividends was interest paid on borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be incidental to the making or earning of the income and there must be nexus between the character of the expenditure and the making or earning of the income. If the sum laid out is in a capacity different from that in making or earning income, that will be outside the scope of section 57(iii). The above dictum is not of any assistance to the present case. As already stated, most of the expenses were for maintaining the corporate structure of the assessee. Those expenses had direct nexus with the earning of the income. If it is held that they had no such direct nexus, they would be wholly disallowable. It is not the assessee's case that these expenses are wholly disallowable. As already stated, the argument which the learned representati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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