TaxTMI 
TaxTMI 
2007 (1) TMI 284
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....e of sugar is capital receipt or revenue receipt. The assessee is engaged in the business of manufacture and sale of sugar. In para 3 of his Order, the ld. CIT(A) has referred to several orders of this Tribunal in which identical issue has been considered in the case of the assessee itself by the Tribunal and decided in favour of the assessee. Following the aforesaid orders of this Tribunal, the ld. CIT(A) has decided the issue in favour of the assessee. At the time of hearing, the ld. Sr. counsel for the assessee invited our attention to the orders of this Tribunal in the assessee's own case relating to assessment years 1991-92, 1992-93, 1993-94, 1995-96, 1996-97, 1997-98, 1998-99 and 1999-2000 in which this Tribunal has held that the amount received on free sale of additional quota was capital receipt. Following the aforesaid orders of the Tribunal, ground No. 1 taken by the Department is dismissed. 4. Ground No. 2 taken by the Department reads as under : "On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 10,34,730/- made by the Assessing Officer on account of disallowance of interest being the expen....
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.... which does not form part of the total income under the IT Act. Sub-sections (2) and (3) have been inserted in section 14A of the IT Act by the Finance Act, 2006. Sub-section (2) provides that the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the IT Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the IT Act. The prohibition for allowing the deduction under section 14A for and from assessment year 1962-63 is "in respect of expenditure incurred by the assessee in relation to income" which does not form part of the total income. The term "expenditure" has been defined at page 598 of Black's Law Dictionary (Seventh Edition) thus: "1. The act or process of paying out; disbursement. 2. A sum paid out." The term "expense" has been defined at the same page of the aforesaid dictionary as follows : "An expenditure of money, tim....
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....f income. The system postulates the existence of tax insofar as monies due and payable by the parties to whom they are debited. Therefore, under the mercantile system of accounting, in order to determine the net income of an accounting year, the revenue and other incomes are matched with the cost of resources consumed (expenses). Under the mercantile system of accounting, this matching is required to be done on accrual basis. Under this matching concept, revenue and income earned during an accounting period, irrespective of actual cash in-flow, is required to be compared with expenses incurred during the same period, irrespective of actual out-flow of cash. In this case, the assessee is following the mercantile system of accounting. This matching concept is very relevant to compute taxable income. . . ." 7. It is difficult to accept the hypothesis that one can earn substantial dividend income without incurring any expenses whatsoever including management or administrative expenses. By same logic, it is equally difficult to accept that the only expenses involved in earning the dividend income are those incurred on collection of dividend or on encashing a few dividend warrants. A ....
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....e Calcutta Bench of the Tribunal has also held that the interest paid by the assessee being attributable to the money borrowed for the purpose of making the investment which yielded the dividend and other expenses incurred in connection with or for making or earning the dividend income can be regarded as expenditure incurred in relation to dividend income. In Everplus Securities & Finance Ltd. v. Dy. CIT [2006] 101 ITD 151 , the Delhi Bench of this Tribunal has held that merely because the assessee did not earn the dividend out of investment in certain shares does not imply that the provisions of section 14A would not apply to that extent. In Asstt. CIT v. Premier Consolidated Capital Trust (I) Ltd. [2004] 83 TTJ (Mum.) 843, the Mumbai Bench of this Tribunal has held that the Assessing Officer is justified in attributing a part of the financial and administrative expenses as expenditure incurred in relation to exempt income and disallowing the same in view of the provisions of section 14A. 8. Keeping in view of provisions of section 14A as also the aforesaid decisions of the co-ordinate Benches of this Tribunal, we hold that all expenses connected with the exempt income have to ....
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....achinery in certain special cases for valuation of assets, and it is from the aggregate valuation of assets that the net wealth chargeable to tax may be ascertained.... This is an artificial rule adopted with a view to avoid investigation of a mass of evidence which it would be difficult to secure or, if secured, may require prolonged investigation." Though the aforesaid observation was part of the minority opinion, there is, however, nothing said to the contra in the majority view. In Associated Cement Co. Ltd. v. CTO [1981] 48 STC 466, the Hon'ble Supreme Court has held : "It is settled law that a distinction has to be made by courts while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax and the levying and collection of the tax so imposed. While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction. The courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated." Bennion's Statutory Interpretation (First edition, page 446, par....