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A: The allowability of legitimate business expenditure is a matter of constant dispute between assessees and the Department.  For a Corporate entity, in cases where income is assessed under the head “Income from House Property” or “Other Sources”, or where business has not been carried on in a particular year routine expenses including expenses incurred to preserve corporate status are disallowed. It is suggested that legitimate business expenditure must be allowed so as to reduce avoidable litigation. Deduction for premium on lease is also disputable & it should be allowed prorata over the tenure of the lease.

B: There exist statutory provisions under the current law which link allowability of expenditure with other statutes. For example, employees’ contribution to Provident Fund is disallowed under Sec. 36(1)(va) and treated as income under Sec.2(24)(x) in the hands of the employer if not paid by the due date of credit to the employee’s account prescribed under the relevant statute. Such allowability of Legitimate Expenditure should be Delinked from other Statutes.

C: Another area of dispute relates to the year of deductibility of legitimate business expenditure.  This is because under the Income Tax Act each assessment year is treated as independent year. The assessees continue to contest and litigate such issues so that the claim of legitimate deduction of business expenditure is not lost altogether as the time for claiming such expenditure has expired as per the department. It is suggested that necessary provision should be made in the Income Tax Act to provide that if the Assessing Officer/Court/appellate authority takes a view that the claim of deductible expenditure made by the assessee in one year relates to any other year, then, automatically the assessee becomes entitled to deduction of such expenditure in that year and the Assessing Officer should re-compute the Income of that year  allowing deduction of such expenditure within one month from the date of  passing the order for the assessment year in which the deduction claimed by the assessee has been disallowed. If such a provision is made, considerable litigation can be avoided.

D: Section 55 (2)(b) of the Income Tax Act, 1961 provides the option to the assesse to consider the fair market value of capital assets as on the 1st day of April , 1981 as the cost of acquisition where the same were acquired before April 1, 1981.  This base year has been in use since the last amendment made under the Finance Act, 1992.

Due to the significant changes in the economy, it is suggested that the base year to be considered should be 10 years prior to the date of transfer or April 1, 2001 whichever is later.

E: Proviso to section 112(1) states that where the long term capital gains tax payable in respect of any income arising from the transfer of listed securities exceeds ten percent of the amount of capital gains computed before giving effect to the provisions of the second proviso to section 48, then such excess shall be ignored.

As a result the concessional rate of 10% on transfer of listed securities by a non -resident investor is not being allowed as no reference is made to the first proviso to section 48.  This is leading to unnecessary litigation. Accordingly the proviso in section 112 should make a reference to both the first & second proviso

F: Till 31.3.1999, interest paid on a loan taken for buying or constructing a house was allowed as a deduction upto Rs.30,000/- per annum.  After 1.4.1999, the limit for deduction of interest paid on loans for acquisition or construction of a residential house was increased to Rs.1,50,000/-. This disparity should be removed. Also the deductible amount should be increased to at least  Rs.5,00,000/-.

G: Interest paid by the Government to an assessee is chargeable to tax.  However, interest paid by the assessee to the Government under various sections is not allowed as deduction. Being compensatory in nature it should be allowed as deduction under the head Business Income or Income from other sources (in absence of business income). Alternatively, the interest received by the assessee on refund should be exempt from tax.


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  1. Pritesh says:

    In the G. point it is specified that ” Tax is deducted at source from rental income @ 15% in the case of individual and HUFs and @ 20% in other cases”.

    In which case TDS is deducted at 15%????????

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July 2024