TaxTMI 
TaxTMI 
2007 (10) TMI 446
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....e is engaged in the business of finance and investment in equity shares. While framing the assessment order Assessing Officer noticed that assessee paid interest amounting to Rs. 16,35,493 against unsecured loan of Rs. 1,75,44,902. This unsecured loan was seen as investment in acquiring unquoted shares of subsidiary company M/s. India Finance & Construction Co. Pvt. Ltd. (IFCCPL). Assessee invested Rs. 1,60,00,000 in acquiring 20,000 equity shares of above mentioned subsidiary company, IFCCPL of Rs. 1,000 each, Rs. 800 paid up. During the year under consideration assessees has no dividend income from the investment. Assessee credited interest of Rs. 1,67,000 from M/s. IFCCPL as loan. Assessee was asked, when there was no income from investment and if any income accrues at all as dividend which is exempt from income, then why not the disallowance of interest of loan acquiring such investment be made under section 14A. Assessee submitted that assessee has not claimed any income exempted. Hence, 14A could not be applied. It was submitted that for the year under consideration assessee was showing a loss of Rs. 13,22,494 mainly due to interest payment on loans taken. Assessee has taken ....
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....33) of the Act. It has been confessed by the assessee itself that the company has not received any dividend. It is noted that preconditions of invoked provisions of section 14A of the Act are that expenditure should be related to income and such income should not form part of the total income under this Act. Thus, the provision of section 14A are unambiguous inasmuch as it provides for the disallowance of any expenditure related to income which does not form part of the total income of the recipient. As pointed out above, there is no dispute that quantum of interest on borrowings of Rs. 1,75,44,902 is relatable to investment shares. Further, the fact that income from such investments does not form part of the total income of the recipient also cannot be disputed. 3.4 Further, if strict liberal construction leads to an absurd result i.e., result not intended to the sub-served, by object of the legislation ascertained from the scheme of the legislation, then, if another construction is possible apart from strict liberal construction, then that construction should be preferred to the strict construction. In case, if it is taken that no interest can be disallowed as assessee has not....
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....r accruing as a result of transfer of capital assets as per the explicit provision of section 48. Further under his head i.e., 'Capital gains' there is no provision whereby deduction of interest can be allowed similar to section 57(iii) which states that income chargeable under the head 'Income from other sources' shall be computed after making deduction for any expenditure (not being in the nature of the capital expenditure) made out of expended wholly and exclusively for the purpose of making or earning income." Aggrieved by the above order assessee approached the first appellate authority. 4. It was submitted before the CIT(A) that the Assessing Officer failed to appreciate that expenditure incurred by the assessee cannot be disallowed under section 14A of the Income-tax Act, 1961 as the assessee has no income which does not form part of the total income during the year under consideration. Assessee relied upon the decision of the Tribunal's Mumbai Bench in the case of Jt. CIT v. Holland Equipment Co. B.V. [2005] 3 SOT 810 wherein the Tribunal held that no disallowance can be made under section 14A if there is no income which is not to be included in the total income of th....
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....ppeal before the Tribunal. 5. The learned counsel for the assessee submitted that there is no dispute that for the year under consideration assessee has not received any dividend income. Hence, section 14A does not apply in the instant case of the assessee. Counsel further submitted that assessee is not claiming any exemption under section 10 or sub-sections, therefore applicability of section 10 does not arise. The learned counsel invited my attention to the head note to section 14A which reads as "Expenditure incurred in relation to income not includible in total income". The scope of total income is to be found out from section 5. The total income of any previous year of a person, who is a resident, includes all income from whatever sources derived. Hence the counsel submitted that as far as assessee is concerned no taxable income/dividend accrued for the year under consideration. None of the clause of section 5 has been satisfied as far as assessee is concerned. The learned counsel further submitted that no income deemed to be received so as to attract section 7. No income deemed to be accrued or arose to the assessee in India within the scope of section 9. In short, Counsel....
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....rom that part of the exempted income then only the expenditure could be disallowed which is attributable to this exempted income. In support of the above contention the learned counsel for the assessee brought my attention to the decision of the Tribunal in the case of Birla Group of Holdings Ltd. v. Dy. CIT [IT Appeal No. 2891 (Mum.) of 2004, dated 31-10-2006]. In this case the following two issues were agitated before the Tribunal : "1.The learned CIT(A) erred in upholding the disallowance of Rs. 4,12,57,221 being the net interest paid under section 14A of the Income-tax Act, 1961. Under the facts and circumstances of the matter, she ought not have upheld the said disallowance of Rs. 4,12,57,221. 2.The learned CIT(A) erred in upholding the disallowance of Rs. 60,220 being the administrative & other expenses under section 14A of the Act. Under the facts and circumstances of the matter she ought not to have upheld the said disallowance of Rs. 60,220." 10. After discussing the issue in detail the Tribunal found that the assessee was having income exempted under section 10(33) of the Income-tax Act and also some other income, i.e., it expended certain amount being interest p....
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....section 14A. Hence it is not necessary under section 10(33) to apply section 14A. Section 14A does not speak of any other sections. It is independent. Hence, he submitted that, the order of the revenue authorities may be confirmed. 13. In reply to the above the learned counsel submitted that the words in the section is specific. It does not support what the DR is arguing. It speaks in present it is very clear. Counsel submitted that the section talks of the expenditure incurred in relation to income not includible in the total income. 14. Hearing the rival submissions I am of the view that the order of the revenue authorities is liable to be reversed. 15. Section 14A inserted by the Finance Act, 2001 provided that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The scope and effect of the provision is explained by the Board in Circular No. 14/01, dated 12-12-2001. Board found that there have been cases where deduction have been claimed in respect of certain incomes which are not includible while computing the total income as they were exempted under various pr....
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.... retrospective effect from 11-5-2001 which reads as under :- "Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001." 20. By virtue of this insertion the Legislature made it clear that even though section 14A is retrospective in operation from 1-4-1962 onwards the Assessing Officer shall not reassess the case under section 147 or pass an order enhancing the assessment or reduce a refund already made or otherwise increasing the liability of the assessee under section 154 for any assessment year beginning on or before 1-4-2001. Reading of section 14A makes it clear that while computing the income under Chapter IV deduction will not be allowed with regard to expenditure incurred by the assessee in relation to an income which does not form part of the total income under the Income-tax Act. In other words, expenditure incurred by the assessee in relation to income which forms part of the total in....