Law: Income Tax Act, 1961

Section: 37

(a) Income-tax---Heads of income---General principles relating to deduction under various heads of income---Indian Income Tax Act, 1961. The following principles may be laid down; (i) if the income of an assessee is derived from various heads of income; he is entitled to claim deduction permissible under the respective head, whether or not computation under each head results in taxable income; (ii) if the income of an assessee arises under any of the heads of income but from different items, e.g., different house properties or different securities, etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from that head is deductible; and (iii) in computing the "profits and gains of business or profession" when an assessee is carrying on business in various ventures and some among them yield taxable income and the others do not, the question of allow ability of the expenditure under section 37 of the Income Tax Act, 1961, will depend on: (a) fulfilment of requirements of that provision, namely, that (i) the expenditure should not be in the nature of capital expenditure or personal expenses of the assessee; (ii) it should have been laid out or expended wholly and exclusively for the purposes of the business or profession; and (iii) it should have been expended in the previous year; and (b) on the facts whether all the ventures carried on by him constituted one indivisible business or not; if they do the entire expenditure will be a permissible deduction, but if they do not, the principle of apportionment of the expenditure will apply, because there will be no nexus between the expenditure attributable to the venture not forming an integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee. (b) Income-Tax--- ----Business expenditure---Income, part of which is exempt---If business is one and indivisible, expenditure cannot be apportioned and part relating to income which is exempt cannot be disallowed---Indian Income Tax Act, 1961, S.37---[Rajasthan State Warehousing Corporation v. CIT (1994)…

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