TaxTMI 
TaxTMI 
2026 (6) TMI 611
X X X X Extracts X X X X
X X X X Extracts X X X X
....we decide each question of law indicating alongside the assessment years and Tax Case (appeal) numbers in which that issue arises for consideration. 3. Substantial question of law arising in TC(A).Nos.290 of 2010 (A.Y.1996-97), 291 of 2010 (A.Y.1997-98) and 292 of 2010 (A.Y.1998-99) and admitted on 28.06.2010: Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the deduction u/s 80M should be worked out applying Rule 80D read with Section 14A without appreciating that it was not applicable for the dividend income for the Assessment Year under consideration, instead of upholding the Assessing Officer's action in working out the expenditure to be deducted on the basis of the Supreme Court's decision in 200 ITR 478? 4. The Assessing Authority, while considering the grant of deduction under Section 80M of the Act, proceeded on net basis, in granting deduction of expenditure proportionate to the total income. The total income determined as taxable was a sum of Rs. 63.22 Crores (approx.), and dividend received from Corporate Companies was Rs. 37,06,331/-. Relief under Section 80M was allowed on net income a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Hon'ble Court in the above case was whether any portion of the managerial expenses could be attributed to dividends and accordingly could be deducted from the gross dividends in order to arrive at the net dividends. The court did not have any occasion to look into the other expenses. It was only in this context that the Hon'ble Court had ruled on the deductibility of managerial expenses alone. 12.4. In view of the foregoing, I would hold that the Assessing Officer was perfectly justified in considering disallowance of expenses with reference to the dividends claimed for deduction u/s 80M. However, the moot question is how much of the expenses could be said to have been incurred by the appellant for earning the dividends. Only such expenditure as could be related to the dividends on the ground of having been wholly and exclusively laid out could be disallowed u/s 57(iii). Earlier on, while dealing with the subject of proportionate disallowance of expenses relatable to interest on tax-free securities, it has been seen that the appellant had substantial interest-free funds at its disposal and, therefore, no part of the interest-bearing borrowals could be said to have been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equity and demand deposits was more than the investment in exempted investments. Hence, no disallowance is warranted on proportionate expenses on earning exempted income as held by Hon'ble Supreme Court verdicts in South Indian Bank case and requested to delete the addition made. Out of the total disallowance of Rs. 22,23,799/-, already an amount of Rs. 21,79,323/- was given relief in the giving effect order. Hence, the balance of Rs. 44,476/- is to be allowed.' 10. The grant of relief as sought for by the assessee under order dated 29.06.2022 has attained finality and no proceedings for either revision or re-assessment have been initiated by the Department. Technically, therefore, the present appeals are infructuous as the connected revenue appeals have been dismissed as withdrawn on 21.08.2025 on the ground of low tax effect. 11. As far as Section 80M is concerned, the position that deduction is to be computed on net basis only is settled by the judgment of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd vs Union Of India [(155 ITR 120)]. This is also clear from the scheme of Chapter VIA of the Income Tax Act 1961. Section 80A provides for computation of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entitled to a deduction, in the computation of taxable profits, of the amount of any debt which is established to have become a bad debt during the previous year, subject to certain conditions. However, a mere provision for bad and doubtful debt(s) is not allowed as a deduction in the computation of taxable profits. In order to promote rural banking and in order to assist the scheduled commercial banks in making adequate provisions from their current profits to provide for risks in relation to their rural advances, the Finance Act, inserted clause (viia) in subsection (1) of Section 36 to provide for a deduction, in the computation of taxable profits of all scheduled commercial banks, in respect of provisions made by them for bad and doubtful debt(s) relating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(1)(vii) rela....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plies. Clause (viia) applies only to rural advances. This has been explained by the Circulars issued by CBDT. Thus, the proviso indicates that it is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii). 3. Accordingly, the above question is answered in the affirmative, i.e., in favour of the assessee(s). For the above reasons, I agree that the appeals filed by the assessee's stand allowed and the appeals filed by the Revenue stand dismissed with no order as to costs. This question of law is answered in the affirmative and in favour of the assessee. 16. Substantial question arising in TCA.Nos.293, 294 & 295 of 2010 (AY 1996-97, 1997-98, 1998-99) and admitted on 16.08.2010: Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the interest paid on purchase of securities amounting to [as follows] should be al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ature and the Tribunal by following the decision of this Court reported in (2005) 273 ITR 510 (Mad) (supra) and by following the Hon'ble Supreme Court decision reported in (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC) (supra) has arrived at the conclusion that the interest paid will not be a capital expenditure and only a revenue expenditure. Hence, we hold that the Tribunal's finding is legal, valid and correct. Therefore, this question is also answered against the Revenue and in favour of the assessee following the above decisions of this Court and the Hon'ble Supreme Court.' Accordingly, this substantial question is answered in favour of the assessee. 18. Substantial question arising in TCA.Nos.293, 294 & 295 of 2010 (AY 1996-97, 1997-98, 1998-99) and admitted on 16.08.2010: Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in not dealing with the disallowance of a sum of [as follows] as proportionate expenditure related to tax-free bonds deleted by the Commissioner of Income Tax (Appeals)? A.Y. 1996-97 :Rs.2,24,38,091/- A.Y. 1997-98 :Rs.3,35,46,751/- A.Y. 1998-99 :Rs.7,38,81,028/- 19. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ofits and Gains of Business and Profession". 3.2 Even though the abovementioned decision was in the context of co-operative societies / Banks claiming deduction under section 80P (2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 4. In the light of the Supreme Court's decision in the matter, the issue is well settled. Accordingly, the Board has decided that no appeals may henceforth be filed on this ground by the officers of the Department and appeals already filed, if any, on this ground before Courts/Tribunals may be withdrawn/ not pressed upon. This may be brought to the notice of all concerned.' 23. Question No. 2 relating to the treatment of broken period interest is to answered in favour of the assessee in light of the judgement of the decision dated 01.02.2017 of this Court in TC(A). Nos. 82 to 828 of 2008 in the assessee's own case, the relevant portion of which reads as under: "5. The following question of law, though raised, has not been admitted :- "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is righ....