Apportionment by Turnover accepted as basis to allocate common salary expenses and recompute business-specific tax deduction.

The article explains that salary charged to profit and loss was accepted in full as properly substantiated by audit records, and that where common expenses pertain to distinct undertakings the correct method to allocate such salaries for computing business-specific deductions is apportionment by relative turnover; accordingly the salary must be split between the power generation unit and the share trading business in the ratio of their turnovers and the relevant tax deduction recomputed on that basis, producing a partly favourable result for the taxpayer.

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Issues: (i) Whether the salary expenditure debited to profit and loss account of Rs. 41,27,199 is allowable in full for the assessment year; (ii) If allowable, the correct method to apportion the salary expenditure between the power generation unit and the share trading business for computing deduction under Section 80IA of the Income-tax Act, 1961.

Issue (i): Whether the salary expenditure of Rs. 41,27,199 is allowable.

Analysis: The Tribunal examined the tax audit report and supporting details which showed the salary debited in the profit and loss account. The Tribunal accepted the assessee's audit-backed figure as properly substantiated.

Conclusion: The salary expenditure of Rs. 41,27,199 is allowable in full in favour of the assessee.

Issue (ii): The proper basis for apportioning the salary between the power generation unit and the share trading business for computation of deduction under Section 80IA of the Income-tax Act, 1961.

Analysis: The Tribunal considered the competing approaches adopted by the Assessing Officer (50:50), the CIT(A) (allocation of one-fourth to power generation), and the assessee (apportionment by turnover). The Tribunal found apportionment by turnover to be a rational and scientific method to allocate common salary expenses between distinct business undertakings.

Conclusion: The salary expenditure shall be apportioned between the power generation unit and the share trading business in the ratio of their respective turnovers; direction given to the Assessing Officer to recompute deduction under Section 80IA accordingly, which is partly in favour of the assessee.

Final Conclusion: The appeal is partly allowed by accepting the full salary claim and directing recomputation of Section 80IA deduction after apportioning salary between businesses on turnover basis.

Ratio Decidendi: Where common expenses relate to distinct businesses, apportionment by the relative turnover of each business is an acceptable method for allocating such expenses for the purpose of computing business-specific deductions under the Income-tax Act, 1961.

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