Nautilus Premise Owners Association Vs ITO (ITAT Ahmedabad)
Deduction of expense u/s 57 (iii) was allowable if a direct nexus between the expense and the income was proven by the taxpayer
Conclusion: Proportionate expenditure against interest income might be allowed to assessee subject to assessee establishing connection between incurring of such expenditure towards earning of interest income from nationalized banks, which was a specific requirement for claim of such expenditure u/s section 57. Therefore, the matter was remanded back to give assessee a fresh opportunity to provide this specific evidence and for AO to re-examine the claim based on this strict requirement.
Held: Assessee was an Association of Persons (AOP), declared income from two sources:interest on deposits and rental income. Against the same, it claimed a deduction for a wide variety of maintenance and operational expenses, including security services, DG set maintenance, housekeeping, salaries, repairs, and even swimming pool maintenance. AO disallowed the entire claim for these expenses. The sole reason provided was that the assessee had failed to establish a direct nexus between these general expenses and the specific act of earning either the interest or the rental income. It was held that Tribunal remanded the matter back to AO for a fresh decision. As the plain language of Section 57(iii) was very clear: an expenditure can be deducted only if it is incurred wholly and exclusively for the purpose of earning the specific income. The court affirmed that while a proportionate expenditure could potentially be allowed, the onus was squarely on the assessee to establish and prove the connection or nexus between each expense claimed and the income earned. The purpose of the remand was to give the assessee a fresh opportunity to provide this specific evidence and for the AO to re-examine the claim based on this strict requirement.
