Tribunal grants relief on interest & property income but upholds denial of 80IA deduction

M/s SSPDL LTD Versus DEPUTY COMMISSIONER OF INCOME TAX

M/s SSPDL LTD Versus DEPUTY COMMISSIONER OF INCOME TAX - [2013] 24 ITR 290 Issues Involved:
1. Non-granting of deduction under section 80IA.
2. Disallowance of interest expenditure under section 14A.
3. Treatment of income from relinquishment of right in the property as business income instead of long-term capital gain.

Issue-wise Detailed Analysis:

1. Non-granting of Deduction under Section 80IA:
The primary issue revolves around the non-granting of the deduction under section 80IA due to the absence of approval from the Ministry of Commerce & Industry under the Industrial Park Scheme and subsequent notification by the CBDT. The assessee claimed a deduction of Rs. 9,90,34,561 under section 80IA for developing an IT Park. The application for approval was made on 8th January 2007, during a period when the applicable scheme had lapsed (ended on 31.3.2006). The new scheme was notified on 8.1.2008 but applied retrospectively from 1.4.2006. The assessee's application was returned, and the delay was attributed to procedural delays by government authorities. The Assessing Officer disallowed the deduction, and the CIT(A) upheld this decision, noting that the approval from the Ministry of Commerce & Industry and subsequent notification by the CBDT is a sine qua non for claiming any deduction under section 80IA. The Tribunal agreed, stating that mere submission of the application does not entitle the assessee to the deduction without the necessary approvals.

2. Disallowance of Interest Expenditure under Section 14A:
The next issue concerns the disallowance of Rs. 22,65,906 towards interest expenditure incurred by the assessee company by invoking the provisions of section 14A of the Act. The assessee had made substantial investments in subsidiary companies but did not offer any income from these investments while incurring significant interest liability on borrowed funds. The Assessing Officer, relying on the judgment of the Kerala High Court in CIT vs. V.I. Baby & Co., disallowed the proportionate interest. However, the Tribunal found that there was no clear finding that borrowed funds were used for making investments in the subsidiaries. The Tribunal emphasized that unless there is a clear nexus between the borrowed funds and the investments, the disallowance of notional interest is not justified. The Tribunal allowed the ground in favor of the assessee, citing the Supreme Court judgment in SA Builders and other relevant case laws.

3. Treatment of Income from Relinquishment of Right in Property:
The third issue pertains to treating the income from relinquishment of right in the property amounting to Rs. 17,46,79,200 as business income instead of long-term capital gain. The assessee entered into an MOU for purchasing land and later relinquished its rights for a substantial sum, which it offered as long-term capital gain. The Assessing Officer treated this as business income, and the CIT(A) confirmed this view. The Tribunal, however, examined the intention behind acquiring the asset and the nature of the right relinquished. It held that the right to obtain conveyance of immovable property is a capital asset under section 2(14) and that relinquishment of such a right constitutes a transfer under section 2(47). The Tribunal concluded that the income from relinquishment should be treated as capital gain, not business income, and directed the Assessing Officer to compute the income under the head of capital gain.

Conclusion:
The Tribunal partially allowed the appeal, granting relief to the assessee on the issues of interest expenditure disallowance and the treatment of income from relinquishment of property rights, while upholding the denial of deduction under section 80IA due to lack of necessary approvals.