TaxTMI 
TaxTMI 
1985 (11) TMI 79
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....dit fees, professional tax and general charges. An amount of Rs. 15 was allowed as depreciation on the written down value of furniture. Thus, the total debit was Rs. 1,933 which was deducted from the gross income in order to arrive at net income. The assessee claimed deduction under section 80M of the Income-tax Act, 1961 ('the Act') on the gross dividends of Rs. 15,039. The contention of the assessee before the ITO was that the assessee had not incurred any expenditure in earning dividend income and as such, gross dividends of Rs. 15,039 were also net dividends with the result deduction on that amount was admissible under section 80M. This contention was not accepted by the ITO. He apportioned the deductible expenses of Rs. 1,933 between income from dividends and income from, interest in the proportion in which particular income bore to the total income. By this method he attributed Rs. 409 out of Rs. 1,933 towards expenses for earning dividend income. He deducted Rs. 409 from the gross dividends of Rs. 15,039 and the balance of Rs. 14,630 was treated by him as net dividend. He allowed deduction of Rs. 8,778 being 60 per cent of Rs. 14,630 under section 80M in place of Rs. 9,023.4....
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.... of Rs. 1,933 stating as to what portion was spent for earning dividend income and what portion for earning interest income. The assessee asserts that no portion of Rs. 1,933 was spent for earning dividend income. It would follow from this contention that the whole of Rs. 1,933 was spent for earning interest income. For this, there is no clinching evidence. We have already enumerated the items comprised in the amount of Rs. 1,933. The reasons given by the assessee in support of the assertion that none of the item pertains to earning of dividend income apply equally to earning of interest income and as such, the assessee's contention was to be accepted, the amount in question would not be deductible at all. This indicates that contention raised by the assessee is unsound. 5. It was then contended that the assessee should be deemed to carry on business of investment and financing and that the said amount of Rs. 1,933 should be deemed to have been allowed as business expenses under section 37(1) of the Act, with the result that no expenses were attributable to dividend income. We are unable to accept this contention. As already stated, there are only two sources of income. One sour....
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....we reject this first alternate submission. The second alternate submission was that the expenses attributable to dividend income would be Rs. 2 on account of stationery and Rs. 10 on account of audit fees making in all Rs. 12. We are unable to accept this contention also. The assessee has counted the words of the audit report and has ascertained the number of words attributable to dividend income and the ratio of these two figures has been applied to the amount of audit fees in order to ascertain the amount of audit fees attributable to dividend income. This method of allocation cannot be accepted. The allocation should be fair and reasonable. Looking to the quantum of income under the heads and also looking to the surrounding circumstances, the allocation made by the ITO and confirmed by the Commissioner (Appeals), appears to be wholly fair and reasonable and we see no justification in interfering in the same. The second alternate submission is, therefore, rejected. 7. It may be mentioned here that one of the submissions before us was that no portion of professional tax of Rs. 250 was attributable to the dividend income. We are unable to accept this contention. The professional....
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....nses are necessary for keeping intact the corporate structure of the assessee-company and in that ground also the expenses would be deemed to have been laid out wholly and exclusively for earning dividend income and interest income. 9. Another decision on which reliance was placed was K. Mahesh v. CIT [1968] 70 ITR 240 (Mad.). The dictum on which the learned representative for the assessee relies is that for an expenditure to come within the ambit of section 57(iii), it must be incidental to the making or earning of the income and there must be nexus between the character of the expenditure and the making or earning of the income. If the sum laid out is in a capacity different from that in making or earning income, that will be outside the scope of section 57(iii). The above dictum is not of any assistance to the present case. As already stated, most of the expenses were for maintaining the corporate structure of the assessee. Those expenses had direct nexus with the earning of the income. If it is held that they had no such direct nexus, they would be wholly disallowable. It is not the assessee's case that these expenses are wholly disallowable. As already stated, the argument ....