Hoshang D. Nanavati v. Asstt. CIT

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The Tax Publishers2012 TaxPub(DT) 2537 (Mum-Trib) : (2012) 016 ITR (Trib) 0614 INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt incomeDepreciation--Assessee, an advocate was a partner of law firm. It had received remuneration and share of profit from the firm in the relevant year. Assessing officer did not allow deductions claimed by assessee from the remuneration in entirety on the ground that share of profit received from partnership-firm was exempt in the hands of assessee and expenses incurred in relation to such income were to be disallowed under section 14A. Assessee contended that depreciation which had been included in disallownace under section 14A was not an expenditure but an allowance and, for this reason, disallowance under section 124A could not be invoked in respect of depreciation. Held: The expression 'expenditure' will not include allowances such as depreciation allowance. Therefore, depreciation being in nature of allowance cannot be a subject-matter of disallowance under section 14A, which must remain confined to expenditure incurred by the assessee Income Tax Act, 1961 Section 14A INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt incomededuction under section 80D in ..... of health insurnace premium--The issue under consideration was whether AO was justified in making disallowance under section 14A in respect of deduction under section 80D claimed towards health insurance premium paid by assessee. Assessee artued that this deduction could not be hit by disallowance under section 14A as it was not an expenditure for earning any income but a permissible deduction from the gross total income under Chapter VI-A. Held: The deduction under section 80D was not an expenditure for the purpose of earning an income but by virtue of specific provision under section 80D, payment of premium of health insurance, which was inherently personal expenses of the assessee, was admissible as deduction. This deduction could not, therefore, be subject-matter of disallowance under section 14A. [Para 5] Income Tax Act, 1961 Section 14A INCOME TAX ACT, 1961 --Disallowance under section 14A--Expenditure against exempt income Allocation of expenses--Assessee, an advocate, a partner of law firm had received remuneration and share of profit from the firm in the relevant eyar. AO did not allow deductions claimed by assessee from the remuneration in entirety on the ground that share of profit received from partnership-firm was exempt in te ands of assessee and expenses incurred in relation to such income were to be disallowed under section 14A. Ao disallowed the total expenses in the same ratio which the profit share in the firm bears to total receipt from the firm, i.e., profit share and remneration. Assessee contended that he had paid certain amount to a service clb which was primarily a contribution for expenditure on the public good and the expenditure so incurred could not be said to be for the purpose of earning any income, therefore, same should not be disallowed under section 14A. As regards remaining expenses, i.e, expenses relating to car, books and reading material, assessee contended that as per section 16(1(), expenditure of Rs. 20,000 which was allowed as standard deduction at the relevant time, was considered to be reasonable expenditure incurred to earn salary income and, accordingly, the same should be treated as attributable to earning of salary income. As for the amount left out after the said deduction expenditure could be attributed on principle of proportionate allocation. Held: ,/i>Payment to club had been claimed as deduction under section 37(1), therefore, it was in nature of business expenditure and there swas no material on record to support the plea that such expnse was incurred on social cause therefore, it would remain included in disallowances of expenses under section 14A. The purpose of standard deduction under section 16(1) was to grant deduction in respect of incidental expenditure incurred in connection with earning the salary income, which involved attending office or place of employment. However, in the present case, since the assessee earned remuneration income as also profit share from the same activity of attending office, it would not be fair to treat all such incidental expenditure only for the purpose of earning remuneration income. Therefore, particularly having regard to the smallness of the amount involved it would be justified to allocate these expenses in the same ratio in which these expenses were allocated by the AO. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2537 (Mum-Trib) : (2012) 016 ITR (Trib) 0614

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomeDepreciation--Assessee, an advocate was a partner of law firm. It had received remuneration and share of profit from the firm in the relevant year. Assessing officer did not allow deductions claimed by assessee from the remuneration in entirety on the ground that share of profit received from partnership-firm was exempt in the hands of assessee and expenses incurred in relation to such income were to be disallowed under section 14A. Assessee contended that depreciation which had been included in disallownace under section 14A was not an expenditure but an allowance and, for this reason, disallowance under section 124A could not be invoked in respect of depreciation. Held: The expression 'expenditure' will not include allowances such as depreciation allowance. Therefore, depreciation being in nature of allowance cannot be a subject-matter of disallowance under section 14A, which must remain confined to expenditure incurred by the assessee

Income Tax Act, 1961 Section 14A

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomededuction under section 80D in ..... of health insurnace premium--The issue under consideration was whether AO was justified in making disallowance under section 14A in respect of deduction under section 80D claimed towards health insurance premium paid by assessee. Assessee artued that this deduction could not be hit by disallowance under section 14A as it was not an expenditure for earning any income but a permissible deduction from the gross total income under Chapter VI-A. Held: The deduction under section 80D was not an expenditure for the purpose of earning an income but by virtue of specific provision under section 80D, payment of premium of health insurance, which was inherently personal expenses of the assessee, was admissible as deduction. This deduction could not, therefore, be subject-matter of disallowance under section 14A. [Para 5]

Income Tax Act, 1961 Section 14A

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt income Allocation of expenses--Assessee, an advocate, a partner of law firm had received remuneration and share of profit from the firm in the relevant eyar. AO did not allow deductions claimed by assessee from the remuneration in entirety on the ground that share of profit received from partnership-firm was exempt in te ands of assessee and expenses incurred in relation to such income were to be disallowed under section 14A. Ao disallowed the total expenses in the same ratio which the profit share in the firm bears to total receipt from the firm, i.e., profit share and remneration. Assessee contended that he had paid certain amount to a service clb which was primarily a contribution for expenditure on the public good and the expenditure so incurred could not be said to be for the purpose of earning any income, therefore, same should not be disallowed under section 14A. As regards remaining expenses, i.e, expenses relating to car, books and reading material, assessee contended that as per section 16(1(), expenditure of Rs. 20,000 which was allowed as standard deduction at the relevant time, was considered to be reasonable expenditure incurred to earn salary income and, accordingly, the same should be treated as attributable to earning of salary income. As for the amount left out after the said deduction expenditure could be attributed on principle of proportionate allocation. Held: ,/i>Payment to club had been claimed as deduction under section 37(1), therefore, it was in nature of business expenditure and there swas no material on record to support the plea that such expnse was incurred on social cause therefore, it would remain included in disallowances of expenses under section 14A. The purpose of standard deduction under section 16(1) was to grant deduction in respect of incidental expenditure incurred in connection with earning the salary income, which involved attending office or place of employment. However, in the present case, since the assessee earned remuneration income as also profit share from the same activity of attending office, it would not be fair to treat all such incidental expenditure only for the purpose of earning remuneration income. Therefore, particularly having regard to the smallness of the amount involved it would be justified to allocate these expenses in the same ratio in which these expenses were allocated by the AO.