Section 14A apportionment applies to Company Secretary salary where expenditure supports both taxable and exempt income.

Salary paid to a Company Secretary and related expenses were treated as expenditure having nexus with both taxable and exempt income where the company's income was substantially exempt under section 10. The compulsory nature of the Company Secretary's appointment under the Companies Act did not change the character of the expense for section 14A purposes. The expenditure could not be attributed wholly to taxable income, so it had to be apportioned between taxable and exempt streams.

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Issues: Whether expenditure on salary paid to a Company Secretary and allied expenses, incurred by a company whose substantial income was exempt, could be allowed in full or had to be apportioned between taxable and exempt income under section 14A of the Income-tax Act, 1961.

Analysis: The company's income was almost wholly exempt under section 10, with only a small taxable component. The expenditure claimed consisted principally of salary paid to the Company Secretary, who was engaged because the company was statutorily required to maintain such a position. The fact that the engagement was compulsory under the Companies Act did not alter the character of the expenditure for the purpose of section 14A. Once the salary was treated as part of the company's expenditure for carrying on its operations, and those operations yielded both taxable and exempt income, the expenditure could not be wholly attributed to the taxable income alone. The authorities were therefore justified in holding that the expenditure had a nexus with both streams of income and had to be apportioned.

Conclusion: The expenditure was rightly held to fall within section 14A and to require apportionment between taxable and exempt income. The issue was decided against the assessee.

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