State Bank of Indore v. CIT - Taxpublishers.in

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The Tax Publishers2005 TaxPub(DT) 0764 (MP-HC) : (2006) 007 (I) ITCL 0198 : (2005) 275 ITR 0023 : (2005) 193 CTR 0062 : (2005) 144 TAXMAN 0072 State Bank of Indore v. CIT () INCOME TAX --Deduction under s. 80M----Inter corporate dividendDeduction of notional expenditure-- Catch Note: The assessee-banking company claimed deduction under section 80M. The revenue authorities as well as the Tribunal allowed the same after deducting 10 paise per Rs. 100 as collection charges out of gross dividend income. Held : If the revenue authorities were able to prove that a particular amount has been actually incurred by the assessee, the same would be deducted but no notional expenditure would be deducted from gross dividend income. Ratio: Notional expenditure could not be deducted from gross dividend income to arrive at deduction under section 80M. Held: There lies a distinction between what we call notional expenditure and actual expenditure. If it is proved to be a case of actual expenditure incurred by an assessee while earning/depositing the dividend, then certainly the amount actually incurred by way of expenditure has got to be deducted in accordance with the procedure prescribed under the Act. But when there is nothing on record to show that any expenditure is incurred by an assessee while earning/depositing the dividend, then it is difficult to hold that some hypothetical and/or notional expenditure can be made basis for deduction. In other words, there is no provision which may entitle the taxing authorities to work out by way of expenditure any notional figure for the purpose of section 80M though, in fact, it has not been so incurred by an assessee while encashing the dividend. [Para 13] In case if the taxing authorities or assessee, as the case may be, is able to prove or show that a particular amount was actually incurred by an assessee in-earning dividend income, then certainly to the extent the amount actually incurred has got to be deducted from gross dividend income and then the same is to be taken into consideration under section 80M. [Para 15] Since, in this case, the taxing authorities have not taken into consideration the actual expenditure incurred by an assessee while earning the dividend, but has only proceeded to take notional expenditure, the same cannot be held to be sustainable in law. Such view, thus needs to be overruled. [Para 16] In view of foregoing discussion, Tribunal was not right in confirming the order of lower authorities and was further not right in holding that expenditure at 10 paise per Rs. 100 of dividend income be taken for deduction under section 80M. [Para 17] Case Law Analysis: Concurred with :CIT v. National & Grindlays Bank (1993) 202 ITR 559 (Cal), CIT v. Enemour Investment (1994) 72 Taxinan 370 (Cal) and CIT v. United Collieries Ltd. (1993) 203 ITR 857 (Cal). Explained :Distributors (Baroda) (P) Ltd. v. Union of India AlR 1985 SC 1585 : (1985) 155 ITR 120 (SC) Decision: In assessee's favour. Date of Judgment: 11 October 2004 Assessment Year: 1985-86 & 1986-87 Cases Referred: Addl. CIT v. Cloth Traders (P) Ltd. (1974) 97 ITR 140 (Guj) and Cloth Traders (P) Ltd. v. CIT AIR 1979 SC 1691. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 0764 (MP-HC) : (2006) 007 (I) ITCL 0198 : (2005) 275 ITR 0023 : (2005) 193 CTR 0062 : (2005) 144 TAXMAN 0072

State Bank of Indore v. CIT ()

INCOME TAX

--Deduction under s. 80M----Inter corporate dividendDeduction of notional expenditure--

Catch Note:

The assessee-banking company claimed deduction under section 80M. The revenue authorities as well as the Tribunal allowed the same after deducting 10 paise per Rs. 100 as collection charges out of gross dividend income. Held : If the revenue authorities were able to prove that a particular amount has been actually incurred by the assessee, the same would be deducted but no notional expenditure would be deducted from gross dividend income.

Ratio:

Notional expenditure could not be deducted from gross dividend income to arrive at deduction under section 80M.

Held:

There lies a distinction between what we call notional expenditure and actual expenditure. If it is proved to be a case of actual expenditure incurred by an assessee while earning/depositing the dividend, then certainly the amount actually incurred by way of expenditure has got to be deducted in accordance with the procedure prescribed under the Act. But when there is nothing on record to show that any expenditure is incurred by an assessee while earning/depositing the dividend, then it is difficult to hold that some hypothetical and/or notional expenditure can be made basis for deduction. In other words, there is no provision which may entitle the taxing authorities to work out by way of expenditure any notional figure for the purpose of section 80M though, in fact, it has not been so incurred by an assessee while encashing the dividend. [Para 13] In case if the taxing authorities or assessee, as the case may be, is able to prove or show that a particular amount was actually incurred by an assessee in-earning dividend income, then certainly to the extent the amount actually incurred has got to be deducted from gross dividend income and then the same is to be taken into consideration under section 80M. [Para 15] Since, in this case, the taxing authorities have not taken into consideration the actual expenditure incurred by an assessee while earning the dividend, but has only proceeded to take notional expenditure, the same cannot be held to be sustainable in law. Such view, thus needs to be overruled. [Para 16] In view of foregoing discussion, Tribunal was not right in confirming the order of lower authorities and was further not right in holding that expenditure at 10 paise per Rs. 100 of dividend income be taken for deduction under section 80M. [Para 17]

Case Law Analysis:

Concurred with :CIT v. National & Grindlays Bank (1993) 202 ITR 559 (Cal), CIT v. Enemour Investment (1994) 72 Taxinan 370 (Cal) and CIT v. United Collieries Ltd. (1993) 203 ITR 857 (Cal). Explained :Distributors (Baroda) (P) Ltd. v. Union of India AlR 1985 SC 1585 : (1985) 155 ITR 120 (SC)

Decision:

In assessee's favour.

Date of Judgment:

11 October 2004

Assessment Year:

1985-86 & 1986-87

Cases Referred:

Addl. CIT v. Cloth Traders (P) Ltd. (1974) 97 ITR 140 (Guj) and Cloth Traders (P) Ltd. v. CIT AIR 1979 SC 1691.