Expenses Incurred for Earning Dividend Income including Finance Charges are allowable as Deduction: ITAT [Read Order]

The ITAT in the case of M/s. Asia Investments Private Limited vs revenue has said that expenses incurred for earning dividend income including finance charges are allowable as deduction.

Presently Asia Investments Private Limited is Non-government Company makes the investment in group companies for controlling interest. In instant case Assessee made an alternate plea by submitting that finance charges incurred shall be deductible under section 57(iii) of the Act, as its dividend income is taxable under the head “Income from other sources”. Advocate H.P. Mahajani & Prasad Bapat appeared for Assessee.

During the Assessment proceedings, AO noted that Assessee debited a sum under the head finance charges which represents interest payment made on borrowed funds, therefore called upon the assessee to explain why the finance charges should not be considered as expenses not relatable to the business, since no business was carried out for the year under consideration.

AO after considering the relevant submissions of the assessee and also analysis of provisions of section 36(1)(iii) and 57(iii) of the Act, AO disallowed the amount and added back to the total income of the assessee.

Upon appeal, first Appellate authority directed the AO to allow finance charges on the proportionate basis in respect of investments which earned dividend income after verifying the facts. Aggrieved by the order of CIT (A), the assessee as well as the Revenue is in appeal before the bench.

The assessee contended that investment in group companies like Anand Group of Companies for holding controlling interest cannot be considered as the main business activity of the assessee in the nature of trade or commerce and also added that such investment should be treated as long-term investment in its financial statements.

The same contention of Assessee was accepted by the Tribunal and reasoned that the assessee itself had admitted that all its investments are not earned dividend income and the statutory auditors of the company admitted the fact that the company is not engaged in carrying on any business or as part of its business activity of acquisition of shares except making long-term investments.

The bench including Joginder Singh, Judicial member and G. Manjunatha, Accountant Member had restored the decision of Appellate authority and allowed the finance charge as the deduction on the proportionate basis in respect of investments which earned dividend income.