TaxTMI 
TaxTMI 
2016 (6) TMI 639
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....um/2012. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") in ITA no. 7273/Mum/2012 for the assessment year 2007-08 reads as under:- "1. On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) has erred confirming the addition of Rs. 1,19,77,254/- being disallowance u/s 14A. Your appellant prays that the same be deleted. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in confirming the addition of Rs. 11,55,354/- being PMS Management Fee. Your appellant prays that the same be deleted.." 3. The brief facts of the case are that the assessee company is engaged in business of manufacturing of low ash metallurgical coke. 4. During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee company was asked by the AO to give details of expenses incurred for earning exempt income and also asked by the AO that why expenses incurred and claimed in respect of exempt income should not be disallowed as per provisions of Section 14A of the Act read with Rule 8D ....
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....The AO observed from the accounts of the assessee company that the assessee company has claimed an expenses of Rs. 11,55,354/- in its accounts as portfolio management services fee and income arising from portfolio management is offered as capital gains. The assessee company has paid money to the service provider to invest money on behalf of the assessee company in the stock market for which portfolio management fee has been charged by the service provider. It was further observed by the AO that the tax has not been deducted at source on these payments of professional fee. The assessee company was asked to explain by the AO that why these PMS management fees be not disallowed as it was incurred for earning capital gains. The assessee company submitted that payments were retained by the service provider without deduction of tax at source and also submitted that the same should be allowed against capital gains. The AO held that the expenses are not the business expenses of the assessee company as the gains on shares is taxable under the head capital gains. The expenditure is incurred in respect of service charges collected by the portfolio management service provider for doing transa....
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....he relevant facts and circumstances after furnishing a reasonable opportunity to the tax-payer to place all germane material on record. The Hon'ble Bombay High Court in Godrej and Boyce Manufacturing Company Limited(supra) remanded the proceedings for assessment year 2007-08 to the AO to determine whether the tax-payer has incurred any expenditure (direct or indirect) in relation to the dividend income /income from mutual funds which does not form part of the total income as contemplated u/s 14A of the Act for which the AO can adopt a reasonable basis for effecting the apportionment. The assessee company submitted that AO erred in making disallowance of Rs. 1,19,77,254/- u/s 14A of the Act. The AO erred in assuming that part of the interest of Rs. 22.98 crores has been paid to Banks on term loans, CC limit was relating to the acquisition of the investment in shares and mutual funds. The assessee company submitted that no borrowed funds have been utilized for the purposes of making investments in shares/mutual funds and no part of interest can be disallowed. The assessee company submitted that paid up capital and reserves of the assessee company as at 31-03-2006 was Rs. 77.16 crores....
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.... which include dividend income of Rs. 8.93 lacs which form 0.03% of total revenue. Thus, the assessee company submitted that disallowance of 0.03% of the indirect expenditure which comes to Rs. 16,621/- should be made. It was submitted that Rs. 17,000/- be considered for disallowance as expenses relatable to the earning of dividend income. The learned CIT(A) held that Rule 8D of Income Tax Rules, 1962 is applicable from the assessment year 2008-09 onwards and is not applicable for the instant assessment year 2007-08 under appeal, as held by Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited(supra). Thus, the directions were given to the AO by the learned CIT(A) to work out disallowance u/s 14A of the Act of the expenses incurred for earning exempt income in accordance with the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited(supra). The AO was directed by learned CIT(A) to verify the sources of investment in all such assets, which generate exempt income vis-à-vis the borrowed funds of the assessee company. The learned CIT(A) directed the AO to verify the cash flow statement of the assess....
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.... to transfer. Thus, the learned CIT(A) affirmed the orders of the AO and held that no deduction is permitted under the Act of PMS fee paid by the assessee company, vide learned CIT(A) appellate orders dated 26-09-2012. 7. Aggrieved by the appellate orders dated 26-09-2012 passed by the learned CIT(A) , the assessee company filed second appeal with the Tribunal. 8. The learned counsel for the assessee company reiterated its submissions before the Tribunal as were made before the authorities below, which are not repeated for sake of brevity. The learned counsel for the assessee company submitted that the assessee company has paid up capital and reserves of Rs. 58,35,86,981/- as at 31-03-2007 , while the share capital and reserves as at 31-03-2006 was Rs. 77,16,10,984/- . The learned counsel drew our attention to page 6 of paper book filed before the Tribunal which is an audited Balance Sheet of the assessee company . The learned counsel submitted that the investments were only Rs. 7,52,57,643/- as per audited Balance Sheet as at 31-03-2007(paper book/page 6) . The learned counsel submitted that net owned funds of the assessee company of Rs. 58.36 crores as at 31-03-2007 are more th....
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....) 2. Garware Wall Ropes Limited v. ACIT 65 SOT 86, Mum-Trib. 3.JM Financial Limited v. ACIT (ITA no. 4521/Mum/2012) 4. Sh Jigar P. Shah v. ACIT in ITA no 4366/Mum/2014 dated 24-02-2016) The learned counsel has submitted written submissions before the Tribunal which we have gone through and taken note of while deciding instant appeal. PMS Management Fee The learned counsel reiterated its submissions as were made before the authorities below which are not repeated for sake of brevity. The learned counsel for the assessee company relied upon the written submissions filed before the Tribunal which we have gone through and taken note of while deciding this appeal. The learned counsel for the assessee company relied upon decision of Pune Tribunal KRA Holdings and Trading Private Limited (2012) 54 SOT 493-(Pune Trib.) to contend that the PMS management fee expenses are allowable while computing capital gains chargeable to tax. It was also submitted that Section 40 of the Act is not applicable for computing income chargeable to tax under the head capital gains. 9. Learned DR relied upon the orders of the learned CIT(A) and submitted that the learned CIT(A) has given directions t....
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....y as laid down u/s 14A(2) of the Act. So, far as the contentions of the assessee company are concerned with respect to the investment of Rs. 1,10,30,000/- made in foreign subsidiary company, we are in agreement with the assessee company that such investments in foreign subsidiaries shall not be included for computing disallowance u/s 14A of the Act, as the income by way of dividend is chargeable to tax and is not an exempt income under the provisions of the Act. Thus , the said investments of Rs. 1,10,30,000/- in foreign subsidiary shall not be included for computing disallowance of indirect expenditure under Section 14A of the Act. However, with respect to the contentions of the assessee company regarding other investments in shares and mutual funds, in our considered view, the same shall be included for computing disallowance u/s 14A of the Act having regards to the accounts of the assessee company as contemplated u/s 14A(2) of the Act . The contentions of the assessee company that the investments are made in subsidiaries companies and hence no disallowance of indirect expenditure be made under Section 14A of the Act cannot be accepted. It is also a matter of fact as emerging fro....
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....hese investments but normally strategic investments are made with long term horizon where objective is to set up business and growth of these business over a long period of time. In these type of strategic investments, the investor has to normally devote significant time to plan, execute and monitor these investments regularly and periodically to ensure that these strategic investments are turned viable and profitable. These Investment decisions are very complex in nature. They require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time. They require huge investment in shares and consequential blocking of funds. Besides, investment decisions are generally taken in the meetings of the Board of Directors / Shareholders for which administrative and management expenses are incurred and in some businesses regulatory approvals are required before setting up the same. There will be regular monitoring of these investments which also may require participation in the meetings of committees, Board of Director and Shareholder meetings. There will definitely be an expenditure incurr....
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....er" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further,section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in sections 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeabili....
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....under section 10(33), the interest on capital borrowed for acquisition of relevant shares yielding such dividend cannot be allowed deduction by operation of section 14A. In Dy. CIT v. SG Investments &Industries Ltd. (2004) 89 ITD 44 (Cal.), the Calcutta Bench of this Tribunal has laid down two propositions: one, in view of section 14A inserted in the Income Tax Act with retrospective effect from 1-4-1962, pro rata expenses on account of interest relatable to investment in shares for earning exempt income from dividend are to be disallowed against taxable income and only the net dividend income is to be allowed exemption after deducting the expenses; and two, the expression "expenditure incurred by the assessee in relation to income which does not form part of the total income" in section 14A has to be given a wider meaning and would include both direct and indirect relationship between expenditure and exempt income. Following the decision of the Hon'ble Supreme Court in CIT v. United General Trust Ltd. (1993) 200 ITR 488 (SC), the Calcutta Bench of the Tribunal has also held that the interest paid by the assessee being attributable to the money borrowed for the purpose of makin....
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....ether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in applying the decision of the Bombay High Court in the case of CIT v. New Great Insurance Co. Ltd. (1973) 90 ITR 348 (Bom) to the assessment year in question without considering the effect of the amendment operative from Ist April, 1968, and in thus holding that the assessee would be entitled to the deduction under section 80M on the gross dividend before deduction of the proportionate management expenses ?" Thus, when the decision of the Honble Bombay High Court has been reversed, the proportionate management expenses are required to be deducted while computing the dividend income. In the decision of the Hon'ble Calcutta High Court, relied upon by the learned counsel for the assessee, Mr. Dastur, in the case of CIT v. United Collieries Ltd. (supra), it has been held that if the facts of a particular case so warrant, the allocation can be made towards expenses. In view of the aforementioned discussion and keeping in view the submissions of the learned Departmental Representative, we restore this matter to the assessing officer to verify the quantum of deduction claimed by the ass....
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....terest can be disallowed u/s 14A read with rule 8D of Income Tax Rules, 1962 because it can not be held that expenses/interest were incurred for earning exempted income. The Hon'ble Delhi High Court held that it is a question of fact and no question of law much less substantial question of law arises and the appeal was dismissed . In the instant case, it is not the case of the assessee company that it has got any business contracts from its strategic investments/subsidiary companies in which controlling interest were acquired and hence the case are distinguishable on facts. 2. Garware Wall Ropes Limited v. ACIT 65 SOT 86, Mum-Trib.- In this case, the tax-payer was holding old investments made long back and no new investments were made during the previous year and on facts of the case the Tribunal held that it could be concluded that the tax-payer did not incur any expenditure for earning income which does not form part of the total income and hence disallowance was deleted. In the instant appeal, the assessee company did made investments in the subsidiary company during the previous year relevant to the assessment year and further no finding of fact has been brought on record tha....
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....e matter to the file of AO to determine whether the assessee company has incurred any expenditure (direct or indirect) in relation to the dividend income /income from mutual funds which does not form part of the total income as contemplated u/s 14A of the Act having regards to the accounts of the assessee company as contemplated u/s 14A(2) of the Act for which the AO can adopt a reasonable basis for effecting the apportionment, excluding the interest expenditure incurred by the assessee company which shall not be disallowed as discussed above by us. 5. Daga Global Chemicals Private Limited v. ACIT in ITA No. 5592/Mum/2012 - The Tribunal has decided this appeal based on the facts of the case whereby it was established by the tax-payer that all the investments were made in the earlier years out of own funds and no expenditure was incurred and claimed by the tax-payer . In the instant appeal, the assessee company did made investments in the subsidiary company during the previous year relevant to the assessment year and further no finding of fact has been brought on record that the assesseee company did not incur any expenditure for earning exempt income. Hence, we are setting aside ....
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.... by us. We order accordingly. PMS Management fee We have observed that the assessee company has incurred PMS management fee of Rs. 11,55,354/- being paid to portfolio managers who were managing the portfolio of shares and mutual funds of the assessee company. The assessee company has claimed deductions of the afore-stated expenses from capital gains computed under the Act from sale of shares. The assessee company relied upon the decision of Pune Tribunal in the case of DCIT v. K.R.A. Holdings and Trading Private Limited (supra). We have observed that ITAT Mumbai has recently passed detailed orders in the case of Captain Avinash Chander Batra v. DCIT in ITA no 7407/Mum2011 vide orders dated 30-03-2016 ( (2016) 68 taxmann.com 366(Mum.Trib.)) ,which is authored by one of us (the Accountant Member) in which the decision of the Pune Bench of the ITAT in K.R.A. Holdings and Trading Private Limited(supra) was duly discussed. The order of the Mumbai Tribunal in the case of Captain Avinash Chander Batra v. DCIT in ITA no 7407/Mum2011 is reproduced hereunder: "9. We have considered the rival contentions and also perused the material available on record including case laws relied upon b....
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.... see whether the portfolio management charges of Rs. 22,64,272/- paid by the assessee can be allowed as deduction from the full value of consideration received or accruing to the assesse as a result of transfer of the capital asset being shares , provided the said PMS charges are either expenditure incurred wholly and exclusively in connection with the transfer of shares or PMS charges is a cost of acquisition or the cost of any improvement thereto of the capital asset being shares as per mandate of Section 48 of the Act. The assessee to support his contentions has relied on the Securities and Exchange Board of India (Portfolio Managers) (Amendment) Rules, 2002 to contend that these PMS charges are allowable expenditure as the portfolio managers are allowed to be paid fee on 'return based fee' meaning thereby that it is an expenditure incurred wholly and exclusively in connection with the transfer of shares as these PMS charges are connected with sale and purchase of shares. Before we proceed further to decide whether PMS charges paid by the assessee is allowable as deduction as per provisions of Section 48 of the Act, we must analyze the statutory and legal framework within whi....
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....management or administration of a portfolio of securities or the funds of the client, as the case may be;] "Clause 14 of the Securities and Exchange Board of India (Portfolio Managers) Regulation,1993 , it is stipulated as to contract which portfolio manager is required to enter with client and disclosures to be made as under:- "[14. Contract with clients and disclosures.─(1) (a) The portfolio manager shall, before taking up an assignment of management of funds or portfolio of securities on behalf of a client, enter into an agreement in writing with such client clearly defining the inter se relationship, and setting out their mutual rights, liabilities and obligations relating to management of funds or portfolio of securities containing the details as specified in Schedule IV. (b) The agreement between the portfolio manager and the client shall, inter alia, contain: (i) the investment objectives and the services to be provided; (ii) areas of investment and restrictions, if any, imposed by the client with regard to the investment in a particular company or industry; (iii) type of instruments and proportion of exposure; (iv) tenure of portfolio investments; ....
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....of 1934). (4) The portfolio manager shall not derive any direct or indirect benefit out of the client's funds or securities. [(4A) The portfolio manager shall not borrow funds or securities on behalf of the client.] [(5) The portfolio manager shall not lend securities held on behalf of clients to a third person except as provided under these regulations.] (6) The portfolio manager shall ensure proper and timely handling of complaints from his clients and take appropriate action immediately". These Securities and Exchange Board of India (Portfolio Managers) Regulation,1993 were amended from time to time and the relevant amendments so far concerning issue's under this appeal are reproduced below : " These Regulations may be called the Securities and Exchange Board of India (Portfolio Managers) (Amendment) Regulations, 2006. ******* 3. In the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993: (i) in regulation 2, clause (d) shall be substituted with the following, namely: "(d) 'principal officer' means an employee of the portfolio manager who has been designated as such by the portfolio manager;" (ii) in regulation 6, in sub-regula....
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....curities or fund portfolio's of the client which is managed by experienced, specialized, skilled and qualified professionals who act as portfolio managers to render their expertise, skill and specialized knowledge to the investor's client for a fee with an objective to create wealth for the investor client's and maximizing gains for these investors client. The highly specialized and skill services are rendered by these qualified and experienced portfolio managers on continuous basis to clients in a highly volatile and complex securities market with an objective of wealth creation and maximizing gains for the investor's clients and are not rendering merely services connected with the transfer of shares nor are they connected with cost of acquisition or sale of shares even if these PMS charges are paid based and calculated on purchases and sales of shares or even if these PMS charges are return based fees. These fees have a major component towards advisory charges being highly skilled and specialized knowledge and expertise based services being managerial and consultancy services of experienced and qualified professionals acting as portfolio managers who render these specialized and ....
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....pital gains. As provided in section 48, expenditure incurred wholly and exclusively in connection with transfer and the cost of acquisition of the asset and cost of any improvement thereto are deductible from the full value of the consideration received or accruing to the assessee as a result of transfer of the capital assets. 13. In the present case, the deduction on account of fees paid for PMS has been claimed by the assessee as deduction in computing capital gains arising from sale of shares and securities. He however has failed to explain as to how the said fees could be considered as cost of acquisition of the shares and securities or the cost of any improvement thereto. He has also failed to explain as to how the said fees could be treated as expenditure incurred wholly and exclusively in connection with sale of shares and securities. On the other hand, the basis on which the said fees was paid by the assessee show that it had no direct nexus with the purchase and sale of shares and as rightly contended by the Ld. DR, the said fees was payable by the assessee going by the basis thereof even without there being any purchase or sale of shares in a particular period. As a mat....
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....al gains, there was a diversion of income from capital gain by an overriding title to the extent of the amount of such fees and the same therefore was not the income belonging to the assessee which was chargeable to tax under the head "capital gains". In this regard, we may observe that even though the assessee was under an obligation to pay the fees for PMS, the mere existence of such obligation to pay the said amount was not enough for the application of the rule of diversion of income by an overriding title. The true test for applicability of the said rule is whether such obligation is in the nature of a charge on source i.e. the profit earning apparatus itself and only in such cases where the source of earning income is charged by an overriding title, the same can be considered as diversion of income by an overriding title. 16. In the case of Sitaldas Tirathdas (supra), it was held by the Hon'ble Supreme Court that the true test for the application of the rule of diversion of income by an overriding title is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, are there in every case, but it is the nature of ....
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....me, we hold that the fees paid by the assessee for PMS was not deductible in computing the capital gains as rightly held by the Assessing Officer The impugned order of the Ld. CIT(A) confirming the disallowance made by the Assessing Officer on this issue is therefore upheld dismissing this appeal filed by the Assessee. 20. In the result, the assessee's appeal is dismissed" The assesseee has placed reliance on decision's of Pune benches of the Tribunal including in the case of KRA Holding and Trading Private Limited (supra) which is distinguished by the Mumbai Tribunal in the case of Pradeep Kumar Harlalka(supra ) as under:- "13. Coming to the decision of Pune Bench of the Tribunal in the case of KRA Holding & Trading (P.) Ltd. (supra), after perusing the judgment very carefully we find that in that decision the decision of co-ordinate Bench of Mumbai Tribunal in the case of Devendra Motilal Kothari (supra) was distinguished mainly on the basis of decision of Hon'ble Bombay High Court in the case of Smt. Shakuntala Kantilal (supra). The Pune Bench referred to various paras of Hon'ble Bombay High Court's decision in para-22 and ultimately concluded in para-23 th....
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.... assessee company in ITA N0. 7273/Mum/2012 for the assessment year 2007-08 is partly allowed. ITA No. 7274/Mum/2012-Assessee's Appeal for assessment year 2009-10 12. Now, we will take up assessee company's appeal in ITA No. 7274/Mum/2012 for the assessment year 2009-10 13. The grounds of appeal raised by the assessee company in Memo of appeal filed with the Tribunal read as under: 1. On the facts & in the circumstances of the case and in law the learned CIT(A) has erred in confirming the addition of Rs. 2,58,415/- being Interest Income as per the AIR information. Your appellant pray that the same be deleted. 2. On the facts & in circumstance of the case and in law the learned CIT(A) has erred in confirming the addition of Rs. 97,51,158/- being Disallowance u/s. 14A. Your appellant pray that the same be deleted." 14. During assessment proceedings it was observed by the AO on verification of ITS details of Revenue data base with the accounts of the assessee company that the assessee company failed to reconcile the ITS details vide AIR information with books of accounts of the assessee company and there was difference as under: S.No. Name of Party from whom sum received ....
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....nciples of natural justice in accordance with law. The assessee company will be allowed to produce relevant evidences and explanation by the AO in its defense. We order accordingly. The second issue is with respect to disallowance u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962. The facts are identical to the facts in the ITA No. 7273/Mum/2012 for assessment year 2007-08 with only exception that the instant year is assessment year 2009-10 and Rule 8D of Income Tax Rules, 1962 is applicable w.e.f. 2008-09 , while the appeal in ITA No. 7273/Mum/2012 was for assessment year 2007-08 whereby Rule 8D of Income Tax Rules, 1962 was not applicable. We are not repeating the facts for the sake of brevity which are para materia except the assessment year being 2009-10. The investment as made by the assessee company as at 31-03-2009 was Rs. 37.45 crores while the investment were at Rs. 11.09 crores as at 31- 03-2008 while on the other hand net owned funds as at 31-03-2009 were 55.87 crores and net owned funds as at 31-03-2008 were Rs. 102.09 crores, as borne out from the audited financial statement for the financial year 2008- 09 in the paper book filed with the Tribunal . In ou....
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.... foreign subsidiary shall not be included for computing disallowance of indirect expenditure under Rule 8D(2)(iii) of Income Tax Rules, 1962 read with Section 14A of the Act. However, with respect to the contentions of the assessee company regarding other investments in shares and mutual funds, in our considered view, the same shall be included for computing disallowance u/s 14A of the Act having regards to the accounts of the assessee company as contemplated u/s 14A(2) of the Act keeping in view the provisions of Rule 8D (2)(iii) of Income Tax Rules, 1962 to work out disallowance u/s 14A of the Act. The contentions of the assessee company that the investments are made in subsidiary companies and hence no disallowance of indirect expenditure be made under Rule 8D(2)(iii) of Income Tax Rules, 1962 read with Section 14A of the Act be made cannot be accepted.It is a matter of fact as borne out from the Schedule F to the audited financial statements (paper book /page 8) that the investments as at 31-03-2008 were to the tune of Rs. 11.09 crores while the investments as at 31-03-2009 were Rs. 37.45 crores, thereby the assessee company made net investments of Rs. 26.36 crores during the ....
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....e significant time to plan, execute and monitor these investments regularly and periodically to ensure that these strategic investments are turned viable and profitable. These Investment decisions are very complex in nature. They require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time. They require huge investment in shares and consequential blocking of funds. Besides, investment decisions are generally taken in the meetings of the Board of Directors / Shareholders for which administrative and management expenses are incurred and in some businesses regulatory approvals are required before setting up the same. There will be regular monitoring of these investments which also may require participation in the meetings of committees, Board of Director and Shareholder meetings. There will definitely be an expenditure incurred towards administrative and management cost etc. towards planning, executing and maintaining these investments . Our view is fortified by the following decisions : 1. The observation made by Hon'ble Supreme Court in the case of CIT v. Walfort Sh....
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....orm part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further,section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in sections 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditures between taxable and non-taxable has, in principle, been now widened under section 14A. Reading section 14 in juxtaposition with sections 15 to 59, it is clear that the words "expenditure incurred" i....
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.... Bench of this Tribunal has laid down two propositions: one, in view of section 14A inserted in the Income Tax Act with retrospective effect from 1-4-1962, pro rata expenses on account of interest relatable to investment in shares for earning exempt income from dividend are to be disallowed against taxable income and only the net dividend income is to be allowed exemption after deducting the expenses; and two, the expression "expenditure incurred by the assessee in relation to income which does not form part of the total income" in section 14A has to be given a wider meaning and would include both direct and indirect relationship between expenditure and exempt income. Following the decision of the Hon'ble Supreme Court in CIT v. United General Trust Ltd. (1993) 200 ITR 488 (SC), the Calcutta Bench of the Tribunal has also held that the interest paid by the assessee being attributable to the money borrowed for the purpose of making the investment which yielded the dividend and other expenses incurred in connection with or for making or earning the dividend income can be regarded as expenditure incurred in relation to dividend income. In Everplus Securities & Finance Ltd. v. Dy. ....
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....on without considering the effect of the amendment operative from Ist April, 1968, and in thus holding that the assessee would be entitled to the deduction under section 80M on the gross dividend before deduction of the proportionate management expenses ?" Thus, when the decision of the Honble Bombay High Court has been reversed, the proportionate management expenses are required to be deducted while computing the dividend income. In the decision of the Hon'ble Calcutta High Court, relied upon by the learned counsel for the assessee, Mr. Dastur, in the case of CIT v. United Collieries Ltd. (supra), it has been held that if the facts of a particular case so warrant, the allocation can be made towards expenses. In view of the aforementioned discussion and keeping in view the submissions of the learned Departmental Representative, we restore this matter to the assessing officer to verify the quantum of deduction claimed by the assessee in earlier years under section 57(i) from the dividend income (when it was taxable) and make a pro rata adjustment on the basis of subsequent investments made, inflation, etc. This ground is, accordingly, allowed for statistical purposes 4. The ....
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....n of law arises and the appeal was dismissed . In the instant case, it is not the case of the assessee company that it has got any business contracts from its strategic investments/subsidiary companies in which controlling interest were acquired and hence the case are distinguishable on facts. 2. Garware Wall Ropes Limited v. ACIT 65 SOT 86, Mum-Trib.- In this case, the tax-payer was holding old investments made long back and no new investments were made during the previous year and on facts the Tribunal held that it could be concluded that the tax-payer did not incur any expenditure for earning income which does not form part of the total income and hence disallowance was deleted. In the instant appeal, the assessee company did made investments in the subsidiary company during the previous year relevant to the assessment year and further no finding of fact has been brought on record that the assesseee company did not incur any expenditure for earning exempt income. Hence, we are setting aside the matter to the file of AO to determine whether the assessee company has incurred any expenditure (direct or indirect) in relation to the dividend income /income from mutual funds which d....
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....t , excluding the interest expenditure incurred by the assessee company which shall not be disallowed as discussed above by us. 5. Daga Global Chemicals Private Limited v. ACIT in ITA No. 5592/Mum/2012 - The Tribunal has decided this appeal based on the facts of the case whereby it was established by the tax-payer that all the investments were made in the earlier years out of own funds and no expenditure was incurred and claimed by the tax-payer . In the instant appeal, the assessee company did made investments in the subsidiary company during the previous year relevant to the assessment year and further no finding of fact has been brought on record that the assesseee company did not incur any expenditure for earning exempt income.Hence, we are setting aside the matter to the file of AO to determine whether the assessee company has incurred any expenditure (direct or indirect) in relation to the dividend income /income from mutual funds which does not form part of the total income as contemplated u/s 14A of the Act read with Rule 8D(2)((iii) of Income Tax Rules, 1962 having regards to the accounts of the assessee company as contemplated u/s 14A(2) of the Act , excluding the inter....