Apportionment of Expenses against dividend

[LapTop]

----S.67---Income Tax Rules, 2002, R.13 (3) (a)---Apportionment of deductions---Dividend income---Allocation of administrative expenses to dividend income proportionately---Validity---Section 67 of the Income Tax Ordinance, 2001 specifically required that the expenditure shall be apportioned on any reasonable basis taking account of the relative nature and size of activity to which the amount relate---Catch provided in law was determination of nature and size of activity involved for earning an income and incurrence of expense in relation to size and nature of the activity---Earning of dividend needed no hectic activity---Formula provided in R.13(3)(a) of the Income Tax Rules, 2002 could not be applied blindly---Rule 13(4) of the Income Tax Rules, 2002 specifically draws attention of the Authority to consider the nature and source of each class of income---While earning dividend income, a very little activity was required as compared to earning of business income; both could be taken or considered on equal footing---Having announced dividend the dividend warrants were dispatched to the share-holders, which was deposited into bank and the amount was realized by bank itself---Even tax was deducted before issuance of warrant---Practically, a very little expenditure was involved---Taxation Officer without consideration of nature and source of income had unilaterally reckoned the activity involved for earning dividend income and unilaterally applied the formula given in R.13(3)(a) of the Income Tax Rules, 2002---Apportionment of administrative expenses was found not on reasonable basis and could not be sustained in the eyes of law---Addition was not upheld by the Appellate Tribunal in toto and was maintained to the extent of Rs.5000, 000.

2009 PTD (Trib.) 869 and 2005 PTD (Trib.) 2161 ref.

Shahbaz Butt and Hamid Masood, F.C.A. for Appellants.

M. Asif, D.R. and Sajjad Haider Rizvi, LA for Respondents.