“Section 3(2)(h)”
The decision most relied on for Section 3(2)(h) is Indian Molasses Co. Pvt. Ltd. v. CIT (37 ITR 66), cited in 206 judgments on BharatTax.
Leading authorities on Section 3(2)(h)
Expenditure is defined as money paid out or away, which is gone irretrievably. To be deductible under Section 37(1), expenditure must be wholly and exclusively for business, not capital or personal, and not fall under specific provisions of Sections 30 to 36, often justifiable on grounds of commercial expediency.
The Assessing Officer must first record satisfaction that the assessee’s claim regarding expenditure incurred for earning exempt income is incorrect or unreasonable before applying the provisions of Rule 8D to determine such disallowance under Section 14A(2) of the Income Tax Act.
CBDT administrative instructions and circulars are binding on income tax authorities and departmental officers, who must follow them during the assessment process and cannot act in contravention, even though these instructions are not binding on courts or assessees.
No interest disallowance can be made if interest-free funds available are sufficient for interest-free loans and advances.
The selection of cases for scrutiny must be completed within the time prescribed by CBDT instructions. The department is bound by its own standards and cannot act with discrimination or selectively apply them.
Shares held as corpus by a trust, which were a precondition for notification under Section 10(23C), cannot be deemed to forfeit exemption under Section 13(1)(d) and Section 13(2)(h).
A trust is entitled to the benefit of Section 11(2) of the Act if the notice of accumulation is furnished before the completion of assessment.
For income applied by a donor trust to another charitable organization to be considered application of income by the donor trust, the recipient organization must advance the same cause as the donor trust. This is particularly relevant when there are common trustees.
