TaxTMI 
TaxTMI 
2018 (5) TMI 795
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....the total income is fully justifiable. 1.1 Commissioner of Income Tax (Appeals) has also not appreciated the fact that certain class of assets may not earn income in a certain year viz., investment in unlisted equities and foreign investments and that this fact will not hamper the allowability of the expenditure incurred to manage and maintain the portfolio. Since some of the income may be exempt under the Income Tax Act, the assessee has voluntarily disallowed expenditure to an extent of income notincludible in total income as computed below: Investments Amount in Rs. Investments as on 1/4/11 41,04,43,249 Investments as on 31/3/12 38,36,65,330 Total Investments 79,41,08,579 Average Investments 39,70,54,289 0.5% of Average Investments u/s 14A (foreign securities and unlisted securities from which no income has been earned has been excluded) 19,85,271 1.2 The above amount of Rs. 19,85,271/- is the amount computed under section 14A of theIncome Tax Act, 1961. While claiming the deduction u/s 57, the above amount has been reduced as under: Total Direct Expenses 53,05,732 Less : 0.5% of average investment 19,85....
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....f authorities below. He also drawn our attention to para no. 1.9 of the assessment order available on page no. 7 of the assessment order and pointed out that as per the provisions of section 57(iii) of IT Act, the expenditure is allowable only in respect of those expenditure for which it is proved that amount has been spent for exclusive purpose of making or earning interest and dividend admitted by the assessee but in spite of several opportunities having been provided to ld. AR of assessee to produce the details of expenses exclusively incurred or the purpose of earning taxable interest and dividend, no such evidence was produced. He also drawn our attention to para 6.2 of the order of CIT(A) and it was pointed out that a categorical finding is given by CIT(A) in this Para of his order that allowability of expenses against income offered to tax under the head 'income from other sources' is governed by the specific provisions of section 57 of IT Act which provides that in respect of dividend and interest on securities, the assessee may claim any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realizing such dividend or in....
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....an companies (both listed and unlisted), shares in foreign entities, domestic and overseas mutual funds, tax free bonds. fixed deposits in banks, loans to a company where he is an investor. The assessee is assisted by certain service providers - portfolio managers, wealth advisors and chartered accountants in making investment decisions and to choose the best yielding portfolios. Along with this they assist the assessee in maintaining the historical data in the form of archives to assist him in making investment decisions in the future. As can be sees from table 2 below the major expenses are in the form of PMS charges, salaries and professional fees. Each head of expense is discussed as under: PMS charges: The portfolio managers provide services like management of funds, making investment decisions, switch in and switch out of various securities, acting as custodians' and other fund related services. For these services they charge management fees called as PMS charges from time to time based on the market value of the portfolio managed by them based on certain formulae agreed upon. Such charges collected by the PMS is directly attributable to the inv....
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....isting investments etc. On account of the reasons provided above in case of various expenses incurred by the assessee. the assessee is of the view that the services received from the above service provider is integral to the investment activity undertaken by him and to earn the income returned in the return of income for the previous year. In view of this, the assessee believes that the expenses claimed under Section 57 as a deduction from the total income is fully justifiable. The assessee would like to bring to your kind notice that, certain class of assets may not earn income in a certain year viz., investment in unlisted equities and foreign investments (investment value of such investments as at March 31, 2016 is Rs. 26.88 crores). This fact will not hamper the allowability of the expenditure incurred to manage and maintain the portfolio. Since some of the income may be exempt under the Income Tax Act, the assessee has voluntarily disallowed expenditure to an extent of income not includible in total income as computed below: Investments Amount in Rs. Investments as on 1/4/11 41,04,43,249 Investments as on 31/3/12 38,36,65,330 Tot....
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.... Income Tax Appellate Tribunal. Bangalore bench in the case of East West Hotels Limited vs. Assistant Commissioner of Income-tax. Circle- 11(2), Bangalore ([2006] 9 SOT 48 (BANG.). In this case, the assesse ''as not carrying on any business but had let out its hotel premises to Taj Hotels Limited and earned lease rental income which was taxed.by the Assessing Officer under the head 'Income from other sources'. It also claimed deduction of certain expenses such as managing director's perquisites, travelling expenses, security charges, power/fuel/water charges, repairs and renewals, printing and stationery, garden expenses, flowers and plants, entertainment, motor car maintenance, subscription to clubs, rent paid on executive residence, legal expenses. advertisement etc. The Assessing Officer disallowed all expenses claimed. The honourable tribunal held where expenses were incurred either under compulsion or were obligatory on ground of commercial expediency, it was not for Assessing Officer to decide as to what could bereasonability or necessity for same, what was to be seen was whether such expenses were incurred wholly and exclusively for purpose of earning income. The....
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.... event of your honor not considering the claim as above the said amount have to be capitalized on the various investments that he is holding so that the necessary claim can be made when the said investment are transferred and tax liability arises in accordance with the scheme of the Act. Table 1: Amount in Rs. Particulars As at March 31,2012 As at March 31, 2011 1. INVESTMENT IN INDIAN SECURITIES INVESTMENT IN EQUITY Portfolio equity Shares 5,74,14,016 4,58.64,189 Direct Investment in Shares 15,40,24,962 15,37,00,062 INVESTMENT IN MUTUAL a) Portfolio Mutual Fund . 13,19,24,559 15.68,16,906 b) Direct Investment 1,20,05,673 1,50,75,789 INVESTMENT IN TAX FREE BONDS 20,90,99,000 16,59.08,446 II. INVESTMENT IN FOREIGN SECURITIES 11,48,15.543 1036....
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....e of realizing such dividend or interest income. Therefore it is very much evident that Sec.57 provides for deduction of specific expenses such as commission or remuneration paid for realizing the income, provided there is a direct linkage between the expenditure incurred with the earning of such income. However in the case of the appellant, it is very much evident that no such expenditure would have been incurred by the appellant for earning the income by way of interest on bank deposits and interest on securities. Even if some expenditure would have been incurred in this regard, it is necessary for the appellant to furnish the details of the same providing direct co-relation of such expenses with the income from other sources earned during the year. However, no such specific details were furnished by the appellant. Therefore the claim of the appellant that an amount of Rs. 33,20,460/- is the expenditure relatable to the earning of the income from other sources has not been substantiated and is also not found to be legally correct. Accordingly the disallowance of Rs. 33,20,460/- made by the AO is found to be correct and is accordingly confirmed. The ground of appeal raised in this....
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....the assessee is correct. Since the claim is not made as per the law, the entire amount of expenses claimed u/s 57 of the Act is disallowed and added to the income from other sources." 8. As per the provisions of section 57(iii) of IT Act, any expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income under the head 'income from other sources' is allowable. In addition to that, in respect of income excluding exempt income being interest on securities, any reasonable sum paid by way of commission or remuneration to banker or any other person for the purpose of realising such dividend or interest on behalf of the assessee is allowable as per clause (i) of section 57. Apart from these two clauses i.e. clause (i) & (iii), other clauses of section 57 are not applicable in the present case. The assessee's claim is this that as per section 14A of IT Act, ½% of the investments has to be disallowed and the balance has to be allowed and the assessee computed the disallowance in that manner and claimed balance amount as deduction. In this regard, we observe that section 14A comes into picture....
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.... earned in the present year. The reason for disallowance made by the AO and confirmed by CIT(A) is this that the assessee has not furnished necessary details and hence, this judgment renders no help to the assessee in the present case. 11. Reliance has been placed by ld. AR of assessee on the Tribunal order rendered in the case of East West Hotels Ltd. vs. ACIT (supra). In that case, lease rent income was to be assessed as income from other sources and the assessing officer held that expenditure allowable is restricted to only such payment, which is separately binding on the employer and legal entity, i.e., company, such as salaries, PF, ESI and other inevitable expenses. In that case, the assessee was a company and the Tribunal has followed the judgment of Hon'ble Calcutta High Court rendered in the case of CIT Vs. Ganga Properties Ltd. as reported in 199 ITR 94 in which it was held that expenditure incurred in complying with statutory obligations is deductible u/s. 57(iii) of IT Act. As per the relevant para of judgment reproduced by the Tribunal, it was noted that even if a company derives income from 'other sources', it has to maintain its establishment for complying with st....