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2018 (7) TMI 935
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....r (AO), after giving due opportunity to assessee, has disallowed the finance costs invoking the provisions of Section 36(1)(iii) and also disallowed other operating costs. AO also did not allow set-off of business loss against the interest income earned. There was one more issue of not granting TDS which is not subject matter of appeal before us. 3. Assessee made detailed submissions before the Ld.CIT(A), which Ld.CIT(A) has extracted but agreed with the AO dismissing the appeal. Hence the present appeal. 4. Assessee has raised the following grounds: "1. On the facts and in the circumstances of the case and in law, the Learned Income Tax Officer Ward 2(2), Hyderabad (Ld.AO) erred in disallowing the finance costs of Rs. 1,64,08,45,837/- resulting into net addition of Rs. 1,64,08,45,837/- and the Learned Commissioner of Income-tax (Appeals)-2, Hyderabad [Ld.CIT(Appeals)] further erred in upholding the said action of the Ld.AO. 2. On the facts and in the circumstances of the case and in law, the Ld.AO erred in disallowing the other operating costs of Rs. 1,17,09,534/- resulting to net addition of Rs. 1,17,09,534/- and the Ld.CIT(Appeals) further erred in uphold....
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....erns in the following manner: * Part of the advances made to M/s.GVKAHPL have been utilised to make additional infusion of capital in MIAPL (level-3 company) which was utilised for its airport business and part of the funds were utilised by M/s. GVKAHPL to acquire additional stake of 13.50% in MIAPL from another existing shareholder. Such transaction enabled M/s.GVKAHPL to acquire controlling interest in MIAPL. * Similarly advances made to BAIDPL (level-2) was utilised to acquire stake of 43% in BIAL from the existing shareholder. Such transaction enabled BAIDPL to be shareholders with maximum stake in BIAL thus helping in getting a strategic control over BIAL. Assessee has raised the issue of commercial expediency and eligible business expenditure in claiming the deduction of finance costs u/s. 36(1)(iii) of the Act. 6.2. AO, however, disallowed the finance cost on the following contentions: * That the assessee is engaged in the business of advancing the interest-bearing funds to its sister concern as interest-free advances and not in construction and maintaining the airports; * That the borrowed money has not been utilised by the Assessee in....
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....t]; f. CIT Vs. Reliance Communication Infrastructure Ltd., [71 DTR 237] (Bombay High Court); g. CIT Vs. Tulip Star Hotels Ltd., [338 ITR 482] (Delhi High Court); h. CIT Vs. Bharti Televenture Limited [51 DTR 98] (Delhi High Court); i. CIT Vs. Modi Entertainment Limited [89 CCH 014] (Delhi High Court); j. M/s. Idea Cellular Limited Vs. Assistant CIT [ITA No. 3261/Mum/2008, dated 11th March, 2015]; k. Hero Cycles (P) Ltd., Vs. CIT [379 ITR 347] (SC); 6.5. Further, assessee also contended that contention of AO that there is no commercial expediency in advancing the funds is also not correct and relied on the case law in the Hon'ble Calcutta High Court in the case of CIT Vs. Kanoria Investments (P.) Ltd., [232 ITR 7] (Cal). It also relied on the principles laid down in the case of CIT Vs. Rajendra Prasad Moody [115 ITR 519] (SC). Assessee also relied on the Coordinate Bench decision in the case of M/s. Idea Cellular Limited Vs. Assistant CIT [ITA No. 3261/Mum/2008, dated 11th March, 2015] which in turn followed the Hon'ble Supreme Court judgment in the case of S.A. Builders Ltd., Vs. CIT [288 ITR 1) (SC) to submit that th....
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....velopment of airports and therefore the interest claim is allowable as 'business expenditure'. He relied on the following decisions: a. Madhav Prasad Jatia Vs. CIT [10 CTR 375] (SC); b. CIT Vs. Dalmia Cement (Bharat) Ltd., [174 CTR 188](Delhi High Court); c. CIT Vs. Kandagiri spinning Mills Ltd., [298 ITR 306] (Madras High Court); d. S.A. Builders Vs. CIT [288 ITR 1] (SC); e. CIT Vs. Marudhar Chemicals & Pharmaceuticals (P) Ltd., [319 ITR 75] ( Punjab & Haryana High Court]; f. CIT Vs. Reliance Communication Infrastructure Ltd., [71 DTR 237] (Bombay High Court); g. CIT Vs. Tulip Star Hotels Ltd., [338 ITR 482] (Delhi High Court); h. CIT Vs. Bharti Televenture Limited [51 DTR 98] (Delhi High Court); i. CIT Vs. Modi Entertainment Limited [89 CCH 014] (Delhi High Court); j. M/s. Idea Cellular Limited Vs. Assistant CIT [ITA No. 3261/Mum/2008, dated 11th March, 2015]; k. Hero Cycles (P) Ltd., Vs. CIT [379 ITR 347] (SC); and for the purpose of commercial expediency, the decision of the CIT Vs. United Breweries [89 ITR 17] CIT Vs. Tulip Star Hotels Ltd., [338 ITR 482] (Delhi High Court). L....
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....cy. It was further submitted that assessee has only invested in the sister concern and is not in the business of operating airports, therefore, the activity cannot be considered as a business activity. Referring to the Memorandum of Association and main objects, Ld.DR pointed out that assessee has only invested funds as a promoter. It was further submitted that there are no assets worth mentioning at all and there is no depreciation claimed. It was further submitted that the case law relied upon by the assessee does not apply as assessee has invested in sister concerns which are not in business, but in the SPVs which are doing business and there is only a remote investment and not a direct investment and so the principles does not apply. 6.11. In reply, Ld. Counsel submitted that all the assessees are directors on the companies of the other boards and referred to the financial statement to submit that assessee is in the business of promoting airports and therefore, the investments made by it in the form of loans are for commercial expediency and therefore, the expenditure incurred is to be allowed as a business deduction. 6.12. We have considered the rival contentions and per....
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....objects indicate: i. That assessee is to carry on the business of construction and development of domestic and international airports within or outside India, properties management, operating and maintenance of activities. It is to be admitted that assessee is not doing this business of construction and development of domestic and international airports by itself. The other object is ii. To invest in all kinds of infrastructure companies as promoter, sponsor, developer, advisor, operator or otherwise by way of equity or otherwise and also to carryon such acts as are required to participate, float or acquire through bidding or negotiated process for any project. Thus, the two objects indicate that assessee-company carry on the business on itself [object-1] or to invest in other companies as promoter etc., [object-2]. 6.14. As seen from the activities of assessee, it has only carried out the object-2 and has not done any business of construction or development of domestic or international airports by itself as provided in object-1. The activity undertaken by assessee is to promote other companies involved in construction and development of and operation of dom....
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....he company has relied on various case law as stated in the submissions before the CIT(A) as well as before us in the arguments. It is to be noted that assessee has not directly invested either in the share capital or as an interest free loan in the SPVs. It has advanced funds to another level-2 sister concerns, which in turn is also not in the activity of construction and development of domestic or international airports. As admitted they are also considered as promoter, sponsor and developer, who invested further funds in acquiring the stake in two SPVs as stated in the facts of the case. Thus, there is a remote connection between assessee's investment in level-2 company and business activity conducted by level-3 company. Most of the case law relied upon by assessee is that those companies are in the business and have also advanced funds to its sister concern as the part of business activity. Here neither assessee is in the business of construction or development of domestic or international airports on its own nor its level-2 companies are involved in the same activity. As the facts indicate, assessee invested funds in level-2 companies, who in turn invested in level-3 companies.....
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....on "in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments" in the main section 23A and the expression "in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments" in clause (i) of Explanation 2 to section 23A. The Act contains many mind-twisting formulas but section 23A along with some other sections takes the place of pride amongst them. Section 109 of the 1961 Income-tax Act which has taken the place of the old section 23A of the Act is more understandable and less abstruse. But in these appeals we are left with section 23A of the Act. Clause (i) of Explanation 2 to section 23A concerns itself with a company whose business consists" wholly or mainly in the dealing in or holding of investments". The word" mainly" in that clause as well as in the main section 23A must necessarily take its colour from the word "wholly" preceding that word, in those provisions. In other words, the company which comes within the scope of those provisions must be one whose primary business must be "in the dealing in or holding of investments". If a company engages itself in two or more eq....
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....his court proceeded on the basis that no one can make a business of investing. But then section 23A speaks of the business of "holding of investments". We were told by the counsel for the assessee that that expression is an incongruous one and that we should, following the decision of this court in Bengal and Assam Investors Ltd. hold that there is nothing like a business of "holding of investments". We feel unable to accede to that contention. We cannot say that the legislature did not know its own mind when it used that expression in Section 23A. We must give some reasonable meaning to that expression. No part of a provision of a statute can be just ignored by saying that the legislature enacted the same not knowing what it was saying. We must assume that the legislature deliberately used that expression and it intended to convey some meaning thereby. The expression "business" is a well-known expression in income-tax law. It means, as observed by this court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax : "some real, substantial and systematic or organised course of activity or conduct with a set purpose". This is also the meaning given to that expression ....
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....tire interest income has to be considered for disallowance u/s. 14A under Rule 8D2(i)/(ii) for the impugned assessment year. Since the direct nexus is available for investment in share capital of sister concern or further investment in level-3 SPVs, the direct nexus of the borrowed funds to that of investment certainly attract the provisions of Section 14A and on that reason also the deduction claimed by assessee cannot be allowed. For these reasons, we agree with the orders of AO and CIT(A) on this issue. Ground is dismissed. Ground No. 2: 7. This ground is with reference to allowance of operating cost of Rs. 1,17,09,534/-. This issue is also linked to the above issue and since we have taken the decision about the nature of activity the expenditure per se can not be allowed as business expenditure. Since assessee is not considered to be in the business of construction of airports per se on its own and is only investing as a promoter, it cannot be considered as business activity of assessee. However, necessary expenditure for running day to day activity of the company has to be allowed as a deduction accordingly either u/s. 37(1) or under the head 'other sources'. Such expend....
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....its business operations is not warranted, since, u/s. 3 of the Act, the date of setting-up of business is relevant and not the commencement date for claiming deduction of business expenditure. Reliance in this regard can be placed on the following judicial precedents: * Western India Vegetable Products Ltd Vs. CIT (l954) [26 ITR 151] (Bombay High Court). The Hon'ble High Court held that there is a distinction between a person commencing a business and a person setting up a business and for the purpose of the Act, the 'setting-up' of business has to be considered. * Similar views were also held in the following case laws: - CIT Vs. LG Electronics (India) Limited (2005) (2006) [282 ITR 545] (Delhi High Court); - CIT Vs. Hughes Escorts Communication Limited (2009) [311 ITR 253] (Delhi High Court); - CIT Vs. Samsung India Electronics Limited (2013) [356 ITR 354] (Delhi High Court) Given the above, it was contended that action of AO that the business of assessee has not commenced and not allowing the set-off of business loss with the interest income earned during the year under consideration is without appreciating the fact tha....