Section 36(1)(viii) of the Income Tax Act
The decision most relied on for Section 36(1)(viii) is Maxopp Investment Ltd. v. CIT (347 ITR 272), cited in 516 of the 104 judgments on BharatTax that turn on this section.
Leading authorities on Section 36(1)(viii)
The application of Rule 8D of the Income Tax Rules is not mandatory for disallowing expenditure incurred to earn exempt income under Section 14A. The Assessing Officer must first record objective satisfaction explaining why the assessee's own computation of such disallowance is incorrect before applying Rule 8D.
Liabilities accrued on a notional basis are allowable as deductions under the mercantile system of accounting even if their exact quantification or discharge is deferred to a future date or if the demand itself is disputed.
For a bad debt deduction under Section 36(1)(vii), the debt must be actually written off as irrecoverable in the assessee's accounts, distinct from merely making a provision for bad and doubtful debts. The assessee bears the onus to satisfy the conditions under both Section 36(1)(vii) and Section 36(2) of the Income-tax Act.
Rule 8D of the Income Tax Rules, read with Section 14A, applies prospectively. It cannot be applied to any assessment year prior to Assessment Year 2008-09.
The Supreme Court holds that interest paid under Section 201(1A) of the Income-tax Act, for failure to deduct tax at source, is not an allowable business expenditure under Section 37(1) of the Act.
Circulars and instructions issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the Income Tax Act have the force of law and are binding on all income tax authorities. These circulars can mitigate the rigour of statutory provisions, provide administrative relief, and ensure uniform application of the Act for the benefit of the assessee.
The object clause in a partnership deed is not determinative of the head under which rental income is to be assessed; income from letting out shops and stalls developed by the assessee may still be classified as 'Income from House Property' rather than 'Profits and Gains of Business'.
Expenditure incurred by an assessee in relation to income not forming part of the total income is not deductible under Section 14A(1). The disallowance must be restricted to direct and indirect expenses having an approximate connection with the earning of such exempt income, and Rule 8D applies from Assessment Year 2008-09.
Interest received by an assessee on loans and advances provided to its employees is assessable as 'business income' under the Income Tax Act.
The 20% tax rate under Section 112 applies to capital gains arising from the transfer of a depreciable asset, even if it is deemed a short-term capital gain under Section 50, provided the asset was held for more than 36 months. The fiction created by Section 50 for treating such gains as short-term does not alter the long-term nature of the asset for applying the tax rate under Section 112.
Judgments on Section 36(1)(viii)
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