Salary, legal expenses, board meeting, Director fees not attributable to Fixed Deposit interest 

Employee Salary, legal expenses, board meeting expenses, Director sitting fees can not be attributed to Fixed Deposit interest – ITAT confirms disallowance u/s 57(iii)

ABCAUS Case Law Citation:
ABCAUS 3719 (2023) (04) ITAT

Important Case Laws relied upon:
Maruti Insurance Broking (P.) Ltd. vs DCIT 127 685
CIT vs. V. P. Gopinathan 248 ITR 449

In the instant case, the assessee had challenged the order passed by the CIT(A) in in not allowing expenses incurred during the course of its business operations.

The appellant assessee was a company incorporated one year earlier and during the relevant Assessment Year it carried no operations for the reason that it was waiting for a licence from IRDA

The case of the assessee was selected for limited scrutiny.

he Assessing Officer (AO) noted that the appellant had earned interest on Fixed Deposits against which it had claimed expenditure on account of various revenue expenditures i.e. Auditors fee, Salary of company Secretary, employee remuneration, Board Meeting expenses, Director sitting fees etc.

The interest income from fixed deposits had been claimed under the head “income from other sources” and the said expenditures ahd been claimed under section 57(iii) of the Income Tax Act, 1961 (the Act).

These expenses were disallowed by the AO and confirmed by the CIT(A).

Before the Tribunal it was argued that the employee remuneration and other expenses as claimed had been incurred which were statutory in nature and mandatorily require to be spent in order to maintain the corporate status of the company.

It was argued that the said expenses had a direct nexus with the earning of the interest income and thus been claimed u/s 57(iii) of the Act.

The ITAT observed that under the scheme of Income tax act, the total income of the company is chargeable to tax under section 4 of the Act. The total income has to be computed in accordance with the provisions of the Act. Section 14 of the Act enumerates that for the purpose of computation, income of an assessee has to be classified under five heads. The income of the assessee rightly fell under the head “Income from other sources”.

The Tribunal further observed that as per the provisions of Section 57(iii), all the expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income has to be allowed as deduction.

The Tribunal opined that employee remuneration, salary, legal expenses, board meeting expenses, Director sitting fees etc. cannot be attributable to the interest earned from the fixed deposits.

The Tribunal placed reliance on the judgment of the Hon’ble Supreme Court wherein it was held that there should be a nexus between the expenditure incurred and the income earned.

In view of the above, the ITAT affirmed the order of the CIT(A)and dismissed the appeal of the assessee.

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