Expenditure attributable to exempt income: Madras HC upheld a 2% estimate as a reasonable and consistent judicial proxy.

The Madras HC addressed the quantification of expenditure attributable to exempt income and upheld the Tribunal's estimate of 2% of such income as a reasonable proxy for the incurred in earning it. The Court relied on earlier Division Bench rulings that had accepted the same percentage as a fair and consistent estimate, and it rejected the Revenue's objection that no standard percentage could be applied. The Revenue's challenge therefore failed, and the Tribunal's view was sustained.

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Issues: Whether the Tribunal was justified in treating 2% of the exempt income as expenditure incurred for earning such income and in rejecting the Revenue's challenge to that estimate.

Analysis: The appeal concerned the quantification of expenditure attributable to exempt income. The Court noted that earlier Division Bench decisions had accepted 2% of the exempt income as a fair and reasonable estimate of the expenditure that may be incurred for earning such income. In view of the consistent judicial approach, the Revenue's objection that no standardized percentage could be adopted was not accepted in this case.

Conclusion: The Tribunal's view was upheld and the Revenue's appeal was dismissed.

Ratio Decidendi: Where a consistent line of binding precedent has accepted a reasonable percentage estimate of expenditure attributable to exempt income, the Court may uphold that estimation in the absence of a stronger reason to depart from it.

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