TaxTMI 
TaxTMI 
2016 (6) TMI 639
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.... the assessment year 2007-08 in ITA no. 7273/Mum/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 no....
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....115JB of the Act by the AO , vide assessment orders dated 26.10.2009 passed u/s 143(3) of the Act. PMS Management Fee 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....
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....gh Court that even for the assessment years prior to 2008-09, the AO must adopt a reasonable basis or method consistent with all the 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 disallow....
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....direct administrative expenses. It was submitted that none of these expenses can be considered to be incurred for earning dividend income . The total revenue of the assessee company is Rs. 314.32 crores 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....
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....PMS charges paid by the assessee company as the Section 48 of the Act contemplate only two deductions namely, i) Cost of acquisition and cost of improvements and ii) cost incurred wholly and exclusively related 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....
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.... of interest expenditure under provisions of Section 14A of the Act. The learned counsel relied upon the following decisions : 1. CIT v. Oriental Structures Engineers Private Limited , 35 taxmann.com 210 (Del. HC) 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 al....
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....y Limited(supra). However, there is a reasonable disallowance to be made u/s 14A of the Act for administrative and other indirect expenses incurred by the assessee company for earning exempt income having regards to the accounts of the assessee company 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 A....
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....aid profit / returns will come by way of dividend(s) when the companies come into profit and declare dividend to the shareholders . Such dividends in the hands of shareholders shall be exempt from tax. No doubt , the returns can also come by way of divestments of these 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 regulator....
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....ture. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. Insection 14A, the first phrase is "for the purposes of computing the total income under this Chapter" 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 inc....
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....volved and therefore proportionate management expenses are required to be deducted while computing the exempt income from dividend. In Harish Krishnakant Bhatt v. Income Tax Officer (2004) 91 ITD 311 (Ahd.), the Ahmedabad Bench of this Tribunal has held that, the dividend income being exempt 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 expendit....
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....ing the decision oi Hon'ble Supreme Court in the case of Distributors (Baroda) (P) Ltd. v. Union of India (1985) 47 CTR (SC) 349: (1985) 155 ITR 120 (SC), reversed the decision of the Hon'ble Bombay High Court in CIT v. United General Trust (P) Ltd. (supra), wherein the question was as under: "Whether, 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 he....
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....it was observed by the Tribunal, there was SPV created to obtain contracts from NHAI and the SPV so formed engaged the tax-payer as contract to execute the works awarded to them(SPV) by the NHAI . The tax-payer has shown turnover from these contracts awarded by SPV in its Profit and Loss Account and hence it was held by the Tribunal on the facts of the case that no interest 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 ....
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....ld investments and that no new investments were made during the year. . 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 assessee 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 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 ....
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....end 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. 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 o....
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....uisition of the asset and the cost of any improvement thereto: ********** **********" Thus, as could be observed from provisions of Section 48 of the Act , for computing capital gains, it is required to deduct from full value of consideration, the expenditure incurred wholly and exclusively in connection with such transfer and also the cost of acquisition of the capital asset and cost of any improvement thereto. With the above background, we have to 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 all....
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....ia by promulgating 'Securities and Exchange Board of India (Portfolio Managers) Regulation,1993' which were amended from time to time . Under clause 2(cb) of Securities and Exchange Board of India (Portfolio Managers) Regulation,1993 , the portfolio manager is defined as under: "(cb) "portfolio manager" means any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the 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 oblig....
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....e portfolio manager shall act in a fiduciary capacity with regard to the client's funds. [(2A) The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank. Explanation.─For the purposes of this sub- regulation, the expression 'Scheduled Commercial Bank' means any bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934).] (3) The portfolio manager shall transact in securities within the limitation placed by the client himself with regard to dealing in securities under the provisions of the Reserve Bank of India Act, 1934 (2 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". ....
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....also specified in the afore-stated regulations so that only professional, skilled, specialized and experienced persons are engaged in the activities of portfolio management . The roles and responsibilities of portfolio managers covers a vast spectrum of activities provided to clients for fee ranging from providing advises , or direct or undertake on behalf of client the management or administration of a portfolio of securities or funds of the client meaning thereby that the portfolio managers does not act merely as a stock-broker to buy and sell shares of the clients in execution of the instructions of the client's for a brokerage/commission , but portfolio manager renders a vast spectrum of activities which involves giving advises to clients and/or management and administration of securities 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 ....
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....deduction in computing such income or not. In this regard, it is observed that the charge of Income-tax is created by virtue of the provisions contained in section 4 according to which the Income-tax is charged for the relevant assessment year in accordance with and subject to the provisions of Income-tax Act in respect of the total income of the relevant previous year of every person. As per the scheme of the Act, income is broadly classified under five different heads and the income chargeable to tax under these heads has to be computed as per the relevant provisions applicable to respective heads of income section 45 to section 55A falling under Chapter IV-E deal with assessment of income under the head 'capital gains' and section 48 in particular prescribes the mode of computation of capital 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 ....
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....of land and the interest paid thereon thus was held to the forming part of the cost of acquisition of the land. In other cases also, the brokerage expenses incurred by the assessee were in respect of particular sale of capital assets and the same therefore were held to be deductable while computing capital gain being expenditure incurred wholly and exclusively in connection with such transfer/sale. 15. At the time of hearing before us, the Ld, Counsel for the assessee has raised an alternative contention in support of the assessee's claim for deduction on account of fees paid for PMS in computing the capital gains relying on the theory of real income and the rule of diversion of income by an overriding title. He has contended that the fees for PMS being contractual liability directly relatable to the capital 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....
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.... 18. As regards the contention of the Ld. Counsel for the assessee in support of assessee's claim for deduction on account of fees paid for PMS based on real income theory, we agree with the ld. DR that the theory of real income cannot be applied to allow deduction to the assessee which is otherwise not permissible under the Income-tax Act. In the case of CIT v. Udayan Chinubhai [1996] 222 ITR 456 / 88 Taxman 114 (SC) it was held by the Hon'ble Supreme Court in the similar context that what is not permissible in law as deduction under any of the heads cannot be allowed as a deduction on the principle of real income theory. 19. For the reasons given above, we find no merit in the arguments raised by the Ld. Counsel for the assessee in support of the assessee's case on the issue under consideration and rejecting the same, 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 r....
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....ses incurred with respect to securities / funds of the assesse being managed by portfolio managers , being disallowed by the AO and confirmed by the CIT(A), are not allowable as deduction u/s 48 of the Act from the full value of consideration on sale of securities received or accruing to the assessee . Accordingly, we dismiss this appeal filed by the assessee. We order accordingly. 10. In the result, the appeal filed by the assessee in ITA N0. 7407/Mum/2011 for the assessment year 2008-09 is dismissed." Respectfully following the orders of the Mumbai Tribunal in the case of Captain Avinash Chander Batra v. DCIT in ITA no 7407/Mum2011 , we hold that the assessee company is not entitled for deductions of PMS Management fee of Rs. 11,55,354/- paid to portfolio managers from the income computed under the head capital gains. We order accordingly. 11. In the result, the appeal filed by the 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 gr....
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.... if the matter is remitted back to the file of AO for making necessaries enquiries and examination with these parties about the interest income reflected in AIR information and what is reported by the assessee company as per its books of accounts. We have heard rival contentions and perused the material on record and in our considered view, this issue of reconciliation of the difference in the interest income earned by the assessee company vide ITS database of the Revenue and the books of accounts of the assessee company needs to be set aside and remitted back to the file of the AO for denovo determination of the issue after making necessary enquiries and verifications with both the parties who have supposedly given interest to the assessee company as to the grant of interest in favour of the asssessee company as reflected in the AIR information database ITS. Needless to say the AO shall grant proper and adequate opportunity of being heard to the assessee company in accordance with principles 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 i....
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....based on facts and circumstances of the case. The AO has not made any disallowance under Section 14A read Rule 8D(2)(i) of Income Tax Rules, 1962 in his impugned assessment order passed u/s 143(3) of the Act , which has also attained finality. We have noted the same. However. The AO has made disallowance of 0.5% of the average value of investments under Section 14A of the Act read with Rule 8D (2)(iii) of the Income Tax Rules, 1962. The learned CIT(A) confirmed the same vide his appellate orders . 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 read with Rule 8D(2)(iii) of Income Tax Rules, 1962 , as the income by way of dividend is chargeable to tax and is not exempt from tax. Thus , the said investments of Rs. 1,10,30,000/- in 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....
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....by the assessee company includes the investment of Rs. 19.37 crores made in 100% subsidiary company. 13. Coming to the submission of assessee that these are strategic investments and no disallowance made towards the administrative expenses. We would like to mention that under normal circumstances strategic investment are made for the purposes of doing business with a long term horizon and in that case no doubt that the objective is to earn profits/returns from the investment but normally the said profit / returns will come by way of dividend(s) when the companies come into profit and declare dividend to the shareholders . Such dividends in the hands of shareholders shall be exempt from tax. No doubt , the returns can also come by way of divestments of these 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....
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.... includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. Insection 14A, the first phrase is "for the purposes of computing the total income under this Chapter" 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 incom....
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....It is therefore not correct to say that dividend income can be earned by incurring no or nominal expenditure. This aspect of the matter has also received careful attention of Chennai Bench of this Tribunal in Southern Petro Chemical Industries v. Dy. CIT (2005) 3 SOT 157 (Chennai- Trib). After comprehensive consideration of all the relevant aspects of the case including the provisions of law, the Chennai Bench has held that investment decisions are very strategic decisions in which top management is involved and therefore proportionate management expenses are required to be deducted while computing the exempt income from dividend. In Harish Krishnakant Bhatt v. Income Tax Officer (2004) 91 ITD 311 (Ahd.), the Ahmedabad Bench of this Tribunal has held that, the dividend income being exempt 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....
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....involved in taking these decisions. This decision making process is very complicated and requires very careful analysis. Moreover, the assessee has to keep track of various dividend incomes declared by the investee companies and also to keep track of the dividend income having been regularly received by the assessee. This activity itself calls for considerable management attention and cannot be left to a junior clerk. The Hon'ble Supreme Court in the case of United General Trust Ltd. (supra), applying the decision oi Hon'ble Supreme Court in the case of Distributors (Baroda) (P) Ltd. v. Union of India (1985) 47 CTR (SC) 349: (1985) 155 ITR 120 (SC), reversed the decision of the Hon'ble Bombay High Court in CIT v. United General Trust (P) Ltd. (supra), wherein the question was as under: "Whether, 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....
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.... decisions to contend that no disallowance should be made u/s 14A of the Act with respect of strategic investment / controlling interest investments made by the assessee company: 1. CIT v. Oriental Structures Engineers Private Limited , 35 taxmann.com 210 (Del. HC) - This case was decided by Hon'ble Delhi High Court on facts.The Tribunal gave finding that only interest of Rs. 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further it was observed by the Tribunal, there was SPV created to obtain contracts from NHAI and the SPV so formed engaged the tax-payer as contract to execute the works awarded to them(SPV) by the NHAI . The tax-payer has shown turnover from these contracts awarded by SPV in its Profit and Loss Account and hence it was held by the Tribunal that no interest can be disallowed u/s 14A read with rule 8D of Income Tax Rules, 1962 because it cannot be held that expenses/interest 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....
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....company as contemplated u/s 14A(2) of the Act , excluding the interest expenditure incurred by the assessee company which shall not be disallowed as discussed above by us. 4. Sh Jigar P. Shah v. ACIT in ITA no 4366/Mum/2014 dated 24-02-2016)-In this case also there is a finding of fact that the tax-payer has made investments which were old investments and that no new investments were made during the year. . 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 interest expenditure incurred by the a....