TaxTMI 
TaxTMI 
2019 (1) TMI 1723
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....-tax Act ?" 3. The controversy involved in this appeal is about disallowance under section 14A of the Act of the expenditure incurred in relation to the income not includible in total income. 4. The facts, as found by the assessing authority in the present case for the assessment year 2001-02, are that the assessee-company made a total investment of Rs. 137 crores in equity shares in PPN-Power Generating Co. Ltd. and the assessee, during the year in question, paid total debenture interest and finance charges of Rs. 6,46,21,000, on the debentures issued by the company, the debenture interest component being to the extent of Rs. 5,35,47,000 and the finance charges were to the extent of Rs. 1,10,74,000. 5. The assessing authority disallowed the entire debenture interest and finance charges to the extent of Rs. 6,46,20,719 on the premise that the equity shares were purchased by the assessee out of the borrowed money and, therefore, the entire interest on such debentures and the finance charges were required to be disallowed under section 14A of the Act. Section 14A(1) of the Act reads as under : "14A. Expenditure incurred in relation to income not includible in total ....
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....subject matter of T. C. A. No. 520 of 2016. 11.1 A Co-ordinate Bench of this court, vide judgment dated December 23, 2016, rejected the plea of the Revenue advanced in that behalf. 11.2 As a matter of fact, a perusal of the judgment would show that the Revenue had sought to argue that because exempt income could be earned in future years, therefore, recourse could be taken to the provisions of section 14A of the Act, to disallow expenditure. In other words the stand taken by the Revenue was irrespective of the fact whether or not income was earned in the concerned assessment year expenditure under section 14A could be disallowed against antici pated income. 11.3 Pertinently, the Division Bench in Redington (India) Ltd. (supra) case has repelled this precise argument. 12. The Division Bench, in our view, quiet correctly held that, the computation of total income, in terms of section 5 of the Act, is made qua real income and not, vis-a-vis, notional income. 12.1 The Division Bench went on to hold that section 4 of the Act brings to tax, that income, which is relatable to the assessment year in issue. The Division Bench, thus, held that whe....
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....isapplied the same in the present case. 10. Though it was so, the learned Commissioner of Income-tax (Appeals), in the first appeal, restricted the disallowance of such expenditure to the extent of 2 per cent. of the expenditure. The assessee did not, however, file any further appeal against the said order of the Commissioner of Income-tax (Appeals), but, the Revenue took an appeal before the learned Income-tax Appellate Tribunal, which dismissed the appeal of the Revenue by the order, dated October 23, 2007, which is impugned in this appeal. 11. Learned counsel for the Revenue, however, relying on a judgment of the Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 402 ITR 640 (SC), rendered on February 12, 2018, has submitted that since the equity shares in question were purchased out of the borrowed funds, the assessing authority was justified in disallowing the debenture interest and finance charges. The observations of the hon'ble Supreme Court in the factual context of the assessee, viz., Maxopp Investment Ltd. are quoted below to the extent relevant, besides giving a brief of the facts as well (page 647 of 402 ITR) : "Though, it is clear fro....
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....39;in relation to income', i.e., dividend income which does not form part of the total income. To put it differently, is the dominant or main object would be a relevant con sideration in determining as to whether expenditure incurred is 'in relation to' the dividend income. In most of the appeals, including in Civil Appeal Nos. 104-109 of 2015, aforesaid is the scenario. Though, in some other cases, there may be little difference in fact situation. However, all these cases pertain to dividend income, whether it was for the purpose of investment in order to retain controlling interest in a company or in group of companies or the dominant purpose was to have it as stock-in-trade. . . . We note from the facts in the State Bank of Patiala case that the Assessing Officer, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the Assessing Officer, Commissioner of Income-tax (Appeals) dis allowed the entire d....
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....on that there is no merit in this appeal filed by the Revenue and the entire edifice of the argument of the Revenue is without any foundation. The assessing authority misapplied the provisions of section 14A of the Act, which, in clear terms, stipulates that no deduction can be allowed in respect of expenditure incurred in relation to income, which does not form part of total income under the Act. 14. In view of the clear fact found in the present case that the assessee did not earn any exempted income or dividend income on the equity shares held by it during this year, there was no question of disallowing any part of the debenture interest or finance charges, since the provisions under section 14A of the Act were not attracted at all. 15. The facts of the judgments cited at the Bar by the learned counsel for the Revenue are totally distinguishable. The assessee, i.e., Maxopp Investment Ltd. invested the borrowed funds in Maxopp India for gaining and retaining the control over the investee company and held the shares in question as a stock-in-trade. No such facts are available in the present case. While dealing with that peculiar situation, the observation was made by the hon....