Allowed

The C.I.T.B.C.-. v. M/S.Tata Fertilizers Ltd.

Bombay HC24 Sept 2014ITR/498/1997

Case brief

AI extract

What is this about?

The High Court disposed of an income tax reference regarding section 80M deductions. Holding that only expenses directly incurred to earn dividend qualify, the court ruled against revenue's claim to reduce claims based on notional establishment charges, following prior Bombay High Court precedents.

What did the court decide?

The reference is answered against the Revenue and in favour of the Assessee.

The C.I.T.B.C.-. Vs M/S.Tata Fertilizers Ltd. — Income Tax | Bombay HC (2014)

3.itr498.97

sbw

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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INCOME TAX REFERENCE NO.498 OF 1997

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Commissioner of Income Tax, Mumbai City I. ..Appellant - Versus - M/s. Tata Fertilizers Ltd. ..Respondent

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Mr. Suresh Kumar for the Appellant.

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CORAM: S.C. DHARMADHIKARI AND

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A. K. MENON, JJ.

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DATE :- 24^th SEPTEMBER, 2014

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P.C.:

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1] This reference has been forwarded for opinion of this Court on the following question:-

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“Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that general establishment charges like audit fees, salary etc. could not be reduced from the dividend income for the purpose of allowing deduction under section 80M of the Income Tax Act?”

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2] The details of the Income Tax Reference and extent for the assessment year in question, namely, 1987-88 and 1988-89 have been set

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out in para 2 of the statement of case. On examination and scrutiny of the

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same, the Assessing Officer noticed that the expenses have been incurred mainly on establishment by way of salary, audit fees, accounts writing fees etc. There was no business income during the year. In these circumstances, he concluded that whatever expenses have been incurred and to the extent, they have been not capitalized towards the project but claimed on revenue account. They will have to be apportioned towards dividend as well. Therefore, proportionate expenses amounting to Rs.85,668/- and Rs.2,92,592/- were considered as the expenses incurred for earning dividend during the assessment years in question respectively. Accordingly, the deduction claimed by the Assessee under section 80M of the Income Tax Act, 1961 was reduced. This action of the Assessing Officer was confirmed in Appeal by the Commissioner of Income Tax (Appeals).

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3] The Tribunal in the further Appeal recorded the statement of the Assessee's counsel that there are no expenses incurred by the Assessee for earning the dividend. The Assessing Officer was not justified in reducing the claim on some notional expenses. Reliance was placed upon a judgment of the Calcutta High Court in Commissioner of Income Tax V/s. United Collieries Ltd. reported in 203 ITR 857 . The Tribunal, therefore, concluded that no expenses were incurred for earning the dividend

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income, is a position which could not be controverted by the Revenue by bringing any material on record. In these circumstances, the Assessee's claim for deduction under section 80M could not have been reduced.

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4] With this background and on such a factual position, the above question has been referred.

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5] We have heard the learned counsel for both sides. Fairly speaking, we do not find any necessity for referring such a question for our opinion. If the issue has been essentially answered on the basis of a uncontroverted factual position against the Revenue and in favour of the Assessee, then, we do not see any justification for a question of law being formulated and referred for our opinion. Be that as it may, since Reference is pending before us from 1997, we have proceeded to hear both sides. We have perused the relevant statutory provisions and the recent judgment of this Court in the case of Commissioner of Income Tax V/s. Modern Terry Towels Ltd. reported in (2013) 357 ITR 750 . The Division Bench judgment in this case of Modern Terry Towels Ltd. takes into consideration the relevant statutory provisions. There was a similar deduction and which was reduced relying upon the stand of notional expenses. In that regard, the Division Bench noted the arguments of the Assessee as also the Revenue and proceeded to hold that the question is covered by the

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judgment of this Court in the case of Commissioner of Income Tax V/s. Central Bank of India reported in (2003) 264 ITR 522 and Commissioner of Income Tax V/s. City Finance India Ltd. in Income Tax Appeal No.6780 of 2010 decided on 1^st December, 2011. The view taken is that only expenses directly incurred to earn dividend ought to be reduced while computing deduction under section 80M and the Revenue cannot proceed to deduct some amount as expenses on notional basis.

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6] In view of these authoritative pronouncements by this Court, we are of the opinion that the question which has been proposed by the Revenue and forwarded for our opinion by the Tribunal, needs to be answered against the Revenue and in favour of the Assessee. The same is answered accordingly and in the light of the law laid down by this Court in two Division Bench judgments noted above. The Reference is, accordingly, disposed of. No costs.

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wadhwa

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The C.I.T.B.C.-. v. M/S.Tata Fertilizers Ltd.

Case brief

What is this about?

What did the court decide?

The C.I.T.B.C.-. v. M/S.Tata Fertilizers Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

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