TaxTMI 
TaxTMI 
2012 (6) TMI 700
X X X X Extracts X X X X
X X X X Extracts X X X X
....investments yielding the tax exempt income was out of the own funds of the appellant and not out of the borrowed funds. 5. The CIT erred in not appreciating the fact that the appellant had not incurred any expenditure either directly or indirectly in earning the tax exempt income. 6. The CIT erred in not appreciating the fact, without prejudice to the above grounds, that the dividend income was to be categorized under the head income from other sources and that the appellant had no expenditure that would have been claimed deduction u/s. 57(iii) thereby non-applicability of the provisions of section 14A. 7. The CIT erred in not considering the well laid legal principle that when there are two views possible the one beneficial to the appellant ought to have been applied. This would result in the order of the LAO not being erroneous. On the above and such other grounds as may be urged at the time of hearing your appellant prays your Honour to consider the facts and circumstances of the case and render justice." 3. From the above grounds, it would be clear that the grievance of the assessee in this appeal relates to the action of the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oneous and also prejudicial to the interest of revenue. The assessment order in our case, as passed by the LAO is not erroneous for the following reasons: * Though during the course of the assessment proceedings the assessee was not confronted with a question of applicability of rule 81) read with section 14A, the LAO. after the completion of the assessment, did examine the position of the applicability of section 14A for the assessment year 2007-08. The assessee did not submit the detailed written arguments as to why Rule 8D would not apply for the assessment year 2007-08. The submissions were: "Though section 14A was introduced on the statute by the Finance Act, 2001, Rule 8D has been introduced with effect from 24-03-2008. Thus, the Rule is effective from the assessment year 2008-09 and would not apply to assessment year 2007-08. This proposition is also backed by the recent decision of the Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited 2010-TIOI.-564-HC-MUM-IT.] The Bombay High Court has held that Rule 8D is not retrospective but applies only from assessment year 2008-09 and onwards. Thus, the mistake you are proposing to rect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. This is also admitted by the assessee. 3.2 A perusal of the Return of income shows that the assessee claimed the entire dividend income of Rs. 80.14,144/- as exempt. As this income does not form part of total income, the assessee should have applied the provisions of Rule 8D read with sec I4A. Rule 8D visualizes a situation even where no expenditure is incurred directly or indirectly to earn the exempt income. Hence. the asscssee's argument is not acceptable. Moreover, the assessee's argument that no expenditure was incurred on the investment cannot be accepted for another reason that the investments flow from a common pool of funds, viz., the current or cash credit/overdraft accounts. The business receipts and payments as well as investments are made from these accounts. Therefore it cannot be said with any degree of certainty that the investments were made exclusively out of non-interest bearing or surplus funds. Considering the commonality of the expenses, I am satisfied that the assessee's claim that no expenditure is incurred, is not correct and therefore, the provisions of section 14A are to be applied. 3.3 With regard to the assessee's submission that Rule 8D is ef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions relates to imposition of penalty." 3.5 The language of section 14A read with Rule 81) does not give rise to "two reasonable constructions". The Act is clear and unambiguous. Further, it is a well-settled law of interpretation that when the provisions of an enactment are unambiguous, there is no need to look beyond the specific provision. This is evident from the case laws discussed below: (a) Karnataka Forest Plantations Corpn. Ltd. v CIT 156 ITR 275 Kar. In a taxing Act one has to look merely at what is said. There is no room for any intendment. There is no presumption as to tax. (b) Karnataka State Financial Corporation v CIT 174 ITR 206 Kar:. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. (c) Smt Tarulata Shyam & Ors. v. CIT 108 1TR 345 SC: There is no scope for importing into the statute words which are not there. Such importation would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation. All the above decisions, of the jurisdictional High Court and of the Apex Court, make it ver....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... therefore the assessee's argument that no expenditure was incurred to make the investment, by itself does not lead to an inference that no expenditure was incurred. It was held: "The reason is that the management has to take investment decisions in accordance with the rules and regulations of the company and make investments in bonds and units, as the case may be. The management has also to pay attention towards rise or fall in the value of investments with a view to suitably change the investment pattern. All these activities lead to expenditure, which will he in the nature of administrative expenditure". [Emphasis supplied] Thus, the fact of the matter is that when an investment is made, it will involve certain indirect expenses like administrative expenses as well. As decided by the Hon'ble ITAT in the decision cited above, it cannot be argued that there is no expenditure at all. This view also finds support in decision of the Apex Court in CIT v. Walfort Share & Stock Brokersk P Ltd. 326 ITR 0001. It was held: "The theory of apportionment of expenses between taxable and non-taxable, has, in principle, been now widened under section 14A. Reading section 14A in juxtapos....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... methodology prescribed in Rule 8D to quantify the disallowance also supports this view. According to the Rule, disallowance will be the direct expenditure as well as the indirect expenditure estimated in the manner laid down therein. Thus clearly, it is the intention of the section that even in the absence of identifiable direct expenditure, the indirect expenditure will have to be estimated and disallowed. In the light of the above discussion, I am satisfied that the order u/s. 143(3) dt 7-8-2009 is erroneous insofar as it is prejudicial to the interests of revenue. The Assessing Officer is directed to make the disallowance u/s 14A read with Rule 8D as discussed above." 7. Now the assessee is in appeal. The ld. counsel for the assessee reiterated the submissions made before the ld. CIT and further submitted that Rule 8D of the Income-tax Rules, 1962 was inserted by the Income-tax (5th Amendment) Rules, 2008 w.e.f. 24.3.2008, hence the same was applicable from assessment year 2008-09 and not the earlier assessment years. Reliance was placed upon the judgment of Hon'ble Bombay High court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [20l0] 328 ITR 81/194 Taxman 203 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccordance with such method as may be prescribed. In the present case, although neither the AO nor the CIT has established the nexus between the expenditure and the exempted income (dividend) to work out the expenditure but for making disallowance the ld. CIT directed the AO to invoke the provisions of Rule 8D of the Income-tax Rules, 1962 which are inserted by the Income-tax (Fifth Amendment) Rules, 2008, w.e.f. 24.3.2008. However, as per the ratio laid down by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co. Ltd. (supra), the provisions of Rule 8D are applicable prospectively and not retrospectively. In the said case, Their Lordships of the Hon'ble Bombay High Court, while interpreting the provisions of Section 14A of the Act and Rule 8D of the Income-tax Rules, 1962, observed at paras 66 & 67 of the aforesaid referred to order (Head Note) as under: "The first point to be noted about the provisions of s. 14A and r. 8D is that different dates have been provided in these provisions for their enforcement: (i) Sub-sec. (1) of s. 14A was inserted b\ the Finance Act of 2001 with retrospective effect from 1st April. 1962; (ii) Sub-ss. (2) and (3) were inserted in s.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ollow in determining the expenditure incurred in relation to income which does not form part of the total income, if the AO was not satisfied with the correctness of the claim of the assessee. The Memorandum provided that "this amendment will take effect from 1st April, 2007 and will, accordingly apply in relation to the assessment year 2007-08 and subsequent years". A circular was issued by the CBDT on 28th Dec., 2006 once again clarifying the position that the amendment would be applicable "from the assessment year 2007-08 onwards". At any rate this construction which has been placed on the amendment both in the Memorandum Explaining the Provisions of the Finance Bill of 2006 and in the circular of the CBDT dt. 28th Dec., 2006 can be regarded as a reasonable interpretation of the provision. The fourth aspect of the matter which would merit emphasis, is the principle of law that in determining as to whether a rule in a piece of subordinate legislation is to be regarded as prospective or retrospective, an important aspect is as to whether the rule embodies what is essentially a well-known, a well-settled or well-accepted method. As a matter of fact in the present case there can be ....