JAGANNATHA SHETTY J. ( 1 ) THESE tax reference cases shall stand disposed of by the following order. ( 2 ) THE Income Tax Appellate tribunal, Bangalore Bench has referred the following questions under S 256 (1) of the. I. T. Act, 1961. ITRC. No. 108/1980: "whether on the facts and in the circumstances of the case the Tribunal was justified in upholding the disallowance expenses amounting to Rs. 3,990/- ?" itrc. Nos. 179 and 11980/1980. "whether on the facts and circumstances of the case, Tribunal is justified in law in holding that the expenses towards, audit fees, establishment charges filing fees maintenance of building etc. , is an allowable deduction even though the expenses have no direct nexus in earning the income. " ( 3 ) THE Common assessee in these cases is a private limited company. Its income during the relevant years was only by way of rents payable for stables let out for house owners. For the assessment year 1975-76 the issessee had collected Rs. 20,0001/ as rent. The assessee claimed certain deductions under S. 57 (iii ). The I. T. O. , held that none of the expenses claimed was attributable to the earning of the said income and so he disallowed the entire claim for deduction. ( 4 ) UPON appeal, the Appellate assistant Commissioner (AAC) allowed the claim of the assessee except the legal fees written of amounting to Rs. 1500/ -. The Department challenged that order of the AAC before the Tribunal. The Tribunal held that the expenses on maintenance of buildings, garden, tractor maintenance and rates and taxes should be allowed since they had direct nexus to the income. Accordingly, these expenses claimed by the assfsee were allowed. The Tribunal, however, agreed with the AAC for disallowing the said legal fees written off. Out of the office establishment expenses amounting to Rs. 6, 479/- claimed by the assessee, the Tribunal allowed only a sum of Rs. 4000/- as being reasonable and having a clear next is with the earning of the income. ( 5 ) AT the instance of the assessee the Tribunal in ITRC. No. 108|1980 referred the question as to the disallowance expenses amounting to Rs. 3,990|- pertaining to the assessment year 1975-76. ( 6 ) ITRC Nos. 179 and 11980/1980 pertain to the assessment years 1976-77 and 1977-78. ( 5 ) AT the instance of the assessee the Tribunal in ITRC. No. 108|1980 referred the question as to the disallowance expenses amounting to Rs. 3,990|- pertaining to the assessment year 1975-76. ( 6 ) ITRC Nos. 179 and 11980/1980 pertain to the assessment years 1976-77 and 1977-78. The question referred in these cases was at the instance of the revenue. The assessee has claimed deductions under S. 57 (iii) towards office establishment, filing fees, audit fees, maintenance of buildings, gardens, rates and taxes, telephone charges, etc. The income Tax Officer declined to give any relief and brought to tax the entire receipt under the head 'other sources'. The assessee appealed to the AAC. The AAC following his order for the earlier assessment year held that the assessee would be entitled to all expenses except legal expenses amounting to rs. 2500/- and preliminary expenses amounting to Rs. 4,154 for the assessment year 1976-77. 'likewise for the year 1977-78 the AAC allowed the other expenses claimed except the legal fees to the extent of Rs. 750/ -. ( 7 ) THE Department being aggrieved by the order of AAC preferred appeals to the Tribunal. The assessee complaining the disallowance of the legal expenses also appealed to the Tribunal. The tribunal allowed the assessee's appeal and remitted the case back to the AAC for fresh disposal to consider the details of the expenses 09 record, while dismissing the appeals preferred by the department. ( 8 ) THE reasons given by the Tribunal for allowing or disallowing certain expenses under S. 57 (iii) for tone three assessment years appear to be inconsistent. For the assessment year 1975-76 the Tribunal has stated that the assessee is not entitled to legal fees written off, travel conveyance, depreciation of electrical fittings, audit fees, bank charges, miscellaneous expenses and filing fees. So far as office establishment is concerned it has allowed part of the amount claimed. It has allowed Rs. 4000/- as against Rs. 6479-46 ps on the ground that Rs. 4000/- alone may be said to be having a clear nexus in the earning of income. In other words the entire order of the Tribunal proceeded on the basis that what could be allowed under S. 57 (iii) are only such of those expenses which have direct nexus for the purpose of earning the income. But while dealing with the case pertaining to the years. In other words the entire order of the Tribunal proceeded on the basis that what could be allowed under S. 57 (iii) are only such of those expenses which have direct nexus for the purpose of earning the income. But while dealing with the case pertaining to the years. 1976-77 and 1977-78, the Tribunal followed the decision of the Bombay High court in CIT v. H. H. Maharani Shri vijayakuverba Saheb of Morvi, Vol. 100 (1975) ITR 67. The Tribunal held that the expenses claimed by the assessee must be allowed although it has no direct nexus and it is sufficient if the deductions claimed have only indirect nexus for the earning of the income. There also the tribunal appears to have committed an error in allowing the full office establishment charges. The Tribunal has allowed Rs. 4000[- as agaiast rs. 6479/- for the year 1975-76. Fol the years 1976-77 and 1977-78 the AAC allowed the entire claim of the assessee for the office establishment. It was a little over Rs. 9000/- for the year 1976-77. For the year 1977-78 one does not know the real expenses claimed by the assessee under that head and yet the Tribunal did not interfere with the order of the AAC. ( 9 ) THE primary question for consideration is whether the expenses claimed by the assessee fall under S 57 (iii) of the I. T. Act. S. 57 (iii) provides :-"57, The income chargeable under the head "income from other sources"shall be computed after making deductions, namely- *** *** (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income" the above clause no doubt states that expenses laid out or expended wholly and exclusively for the purpose of making or earning the income are liable to be deducted. But the Courts have held that the expenses which have a direct or endirect connection for earning the income are also entitled to be deducted under S. 57 (iii ). ( 10 ) THE Tribunal has not considered every item claimed by the assessee under S. 57 (iii ). In a case like this, there must be a closer scrutiny of each and every item claimed by the assessee for the purpose of deduction. ( 10 ) THE Tribunal has not considered every item claimed by the assessee under S. 57 (iii ). In a case like this, there must be a closer scrutiny of each and every item claimed by the assessee for the purpose of deduction. It is necessary to examine whether there has beer a connection or an nexus between the expenditure incurred and the income earned, and whether any other expense is necessary for maintaining the source of income. It is only such expenditure that could be allowed under S. 57 (iii) and no other. ( 11 ) IN C1t v. H. H. Maharani Shri vijayakuverba Saheb of Morvi 1975 vol. 100 ITR 67, the Bombay High court while examining the scope of S. 12 (2) of the I. T. Act 1922 observed that there shall be a connection between the expenditure and the earning of the income and that connection need not be direct. The connection may be indirect but there must be a nexus between the expenses incurred and the income earned. In Traco Cable Company Ltd. v. CIT, (1969) 72 ITR. 503, the Kerala high Court while examining the scope of S. 57 (iii) observed at page 506 :-"office and establishment expenses unconnected with the earning of the company or keeping the company alive are not permissible deductions under S. 57 of the Act: vide the decision of the Calcutta High Court in cit v. Bihar Spinning and Weaving mills Ltd. "in CIT v. Bihar Spinning and Weaving mills Ltd. . (1953) 24 ITR 108 , the calcutta High Court observed at page-115:-"consideration such as the necessity of keeping the company alive or such as the necessity of maintaining an establishment for the purposes of the prospective business are wholly extraneous and cannot be utilised for enlarging the amount of the deduction nor can any allowance which is claimable only under sec. 10 be allowed or claimed before a business income assessable under the Act has emerged. " ( 12 ) IT is clear from these principles that if there is a nexus between the expenditure incurred and the income earned the assessee would be entitled to deduct such expenditure under S. 57 (iii ). The assessee is also entitled to deduct such expenses incurred for maintaining the source of income. " ( 12 ) IT is clear from these principles that if there is a nexus between the expenditure incurred and the income earned the assessee would be entitled to deduct such expenditure under S. 57 (iii ). The assessee is also entitled to deduct such expenses incurred for maintaining the source of income. But he is not entitled to claim deduction in regard to expenses required for the purpose of keeping the corporate nature of the assessee or keeping the company alive. In view of the infirmity in the order of the Tribunal the question referred to us cannot be answered. The matter must go back for fresh disposal in the light of the observations made. ( 13 ) IN the result, ITRC Nos. 108, 179 and 11980/1980 stated disposed off. --- *** --- .