TaxTMI 
TaxTMI 
TaxTMI 
2014 (7) TMI 1219
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.... artisans and craftsmen, providing finance for dairy health care and cattle insurance, providing finance for low cost and affordable housing etc. On the basis of the studies carried out by the assessee trust, the trust incubates individuals and entities in various sectors, found feasible and sustainable. 3. The assessee trust filed its return for the impugned assessment year on a loss of Rs. 67,13,754/-. The assessee has, among other things claimed three deductions. The first one is incubation expenses of Rs. 3,71,40,545/-. The second one is consultancy charges of Rs. 1,32,60,807/-. The third one is legal and professional charges of Rs. 2,07,56,029/-. 4. When asked to explain, the assessee stated that the incubation expenses were incurred to promote certain entities in different sectors of rural markets, in accomplishment of the declared objects of the assessee trust. In respect of consultancy and legal and professional charges, it was explained that those expenses were incurred to support the activities required to promote new entities as per the objects of the assessee trust. The assessee has also furnished a list of 15 entities promoted by the assessee against which the above ....
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.... found to be incurred to promote new entities, which have not started their operations and therefore, the expenditure should be disallowed under sec.35D of the Act. Accordingly, the said expenditure was disallowed. Consultancy charges and legal and professional charges were also disallowed confirming his view that those expenses were capital in nature. He completed the assessment after making two additions of Rs. 3,71,40,545/- and Rs. 3,40,16,836/-. 8. This assessment was taken in appeal before the Commissioner of Income-tax(Appeals). The Commissioner of Income-tax(Appeals) examined the case in a detailed manner. He observed that the assessee trust is creating various subsidiary units for rural people and the assessee trust as such is not engaged in any business of financing, banking or money lending. The assessee trust does not have permission to carry on such business. But at the same time, the income earned by the assessee trust consisted of interest on loans and advances, interest on fixed deposits with banks, interest on debentures, document processing charges, guarantee fees and other charges etc. After considering the nature of activities carried on by the assessee trust an....
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....the assessee trust as staff costs, travelling expenses, other administration expenses etc. He held that the different components of income declared by the assessee in its profit and loss account were not earned, as a consequence of incurring those expenditure claimed by the assessee. The Commissioner of Income-tax(Appeals), in short, held that there is no link or nexus between the expenses claimed by the assessee as deductions and the income accounted by it in the profit and loss account. He further held that none of these expenses can be considered as incurred for the purpose of earning of the income. Therefore, he held that the expenditure claimed by the assessee under different heads cannot be allowed for the reason that the assessee is not carrying on any business of its own and those expenses are not incurred for earning "income from other sources". Accordingly, he disallowed all such expenditure incurred by the assessee trust. 11. On the other hand, in order to meet the reasonable expenditure of running the assessee trust, the Commissioner of Income-tax(Appeals) allowed deductions on an estimate basis. He allowed a deduction of a lump sum amount, at 2% of the income accounte....
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....ities and capital in nature. That is not a proper finding. As clear from the objects of the assessee trust, the assessee is carrying on the business. The business carried on by the assessee is setting up of new entities acceptable to the conditions of rural India, particularly in essential sectors useful for common man. It is very clear from the objects of the assessee trust that the assessee trust is not meant for running such micro units set up by it. On the other hand, the assessee trust is engaged in the business of setting up such micro organizations. In other words, the learned senior counsel contended that the business carried on by the assessee trust is the business of "setting up of business". 17. He, therefore, contended that once the nature of the business activity carried on by the assessee trust is well enshrined in the charter of the trust, it is not possible for the Revenue Authorities to hold a different view in respect of the nature of the activities carried on by the assessee trust. Once the assessee is authorized to carry on specific activities for which the trust is formed and when that activity is the business of the assessee trust, all expenses incurred by th....
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....e the Court held that in the case of a managing agency, expenses incurred in investigating several projects if not recovered, should be considered as expenditure incidental to the business of the assessee and allowable as revenue expenditure. He has also relied on the judgment of the same High Court in the case of CIT v. Tamilnadu Industrial Development Corporation Ltd. [215 CTR (Mad) 90], where the Court has held that where the main object of the assessee is to finance and promote industrial development through partnership with private enterprises, pre-project expenses written off by the assessee in respect of the projects being promoted by it are allowable as deduction. 20. Shri S. Das Gupta, the learned Joint Commissioner of Income-tax, appeared for the Revenue and argued the case. He contended that the Commissioner of Income-tax(Appeals) has rightly analyzed the characteristic features of different components of income accounted by the assessee. The income earned by the assessee are in the nature of interest on loans, interest from bank deposits, interest on debentures etc. None of these incomes could be held to be generated out of any business carried on by the assessee trust....
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....ish thereon. The assessee is not carrying on any other activities by themselves. The assessee is acting as a provider and a facilitator. The actual production / service activities are carried out by those micro individual units. When the assessee is creating such productive assets for the units set up by it, it is not possible to hold that those expenditure were incurred for the purpose of the business carried on by the assessee trust. In that way, we agree with the finding of the Commissioner of Income-tax(Appeals) that the assessee trust is not carrying on any business of its own. 24. It is also not possible to accept the argument of the learned senior counsel that the assessee is carrying on the business of "business of investment". The assessee is not carrying on any activities of investment as already stated. The assessee trust is carrying on its activities as an organizer, as a provider and as a facilitator. Its main objects are not corporeal / physical; rather its objects are supportive. The assessee is striving for financial inclusion and market inclusion. It does not carry out any business directly. It also does not act as partners of the micro units set up by it. When th....