TaxTMI 
TaxTMI 
2020 (4) TMI 29
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.... Act on 25.01.17 by determining the total loss of Rs. 36,96,63,03,000/- under normal provisions of the Act and book profit of Rs. 3,90,02,85,750/- u/s 115JB of the Act. Subsequently, Ld. CIT invoked the provisions of section 263 of the Act and issued a notice with the observation that assessee has received dividend from specified foreign company as defined u/s 115BBD of Rs. 14,21,97,83,025/-. Ld. CIT further observed that as per the provision of section 115BBD, the dividend amount needed to be taxed separately @ 15% which was not done by AO resulting in short levy of tax and corresponding interest u/s 234B of the Act. Further, interest of Rs. 25,25,44,648/- u/s 244A already provided and MAT credit of Rs. 71,72,17,877/- also needed to be withdrawn. Accordingly, assessee was asked to submit the submission in this regard and in response, assessee filed a detail written submission on this matter and we are reproducing only relevant paragraphs:- 3. Exercise of powers u/s. 263 of the Act 3.1. Section 263 of the Act as amended by Finance Act, 2015, reads as follows......... 3.2. The Company respectfully submits before your honour that based on the reasons tabulated below, the condi....
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....sed by the Assessing Officer must be an erroneous one: and b) the. order must be prejudicial to the interests of the Revenue, * The Supreme Court in the case of Malabar Industrial Co. Ltd. (243 ITR 83) (copy enclosed as Exhibit A of the Case Laws Compilation) held that: "A bare reading of this provision makes it clear that the pre-requisite to the exercise of jurisdiction by the Commissioner suomoto under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous.' and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent- if the order of the. Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot tie had to 5. 263(1) of the act." Hence, it has to be ensured that both the conditions Have been satisfied before initiating the revision proceedings. The satisfaction must be one, which is objectively justifiable and cannot be the mere ipse 3.4, Meaning of....
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....ot apply his mind to come to a conclusion that the claims are. correct. In such circumstances, the supervisory or revisionary powers under section 263. of the Act cannot be wildly exercised 3.5: .In view of the above judicial precedents, the. Company respectfully submits that the order sought to be revised by your Honour is not 'erroneous'. An 'erroneous' order would be an order where there, is a wrong application of taw or an incorrect assumption of fact- In the assessing officer's order dated 25:01:2017, there, is no incorrect application of law, nor is there any incorrect assumption of fact: From the aforesaid details of the statutory documents and the proceedings u/s 143(3) of the: Act it is evidently dear that alt the information and documents were forming port of the record of the Ld. AO and considering the. fact that the company was specifically queried on dividend income, the id. AO has applied his mind and framed his opinion, the impugned order passed by the Ld. AO cannot be held to be erroneous in nature. AS mentioned above, the Supreme Court in Malabar Industrial Co lid. (supra) has observed that orders passed without applying the principle of nat....
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.... Depreciation and Business Loss which would have been available for set-off against Business Profits in future which would be taxable at maximum marginal rate of 30% (plus applicable surcharge and cess) against foreign dividend income which are taxable at 15% (plus applicable surcharge and cess). In view of the above, it is submitted that the Learned Assessing Officer has correctly allowed the set-off u/s 71 of the Act. If set-off of Business Loss for the year against Foreign Dividend Income is denied u/s 71 of the Act, by separately taxing Foreign dividend @ 15%, this would result in Loss to the Revenue as the corresponding Business Loss for the year is being a/lowed to be carried forward for set off in future which will result in tax credit at maximum marginal rate of 30% . Considering the above., it is respectfully submitted to your Honour that the manner of taxability of dividend received from specified foreign companies as referred in section 115BBD of the Act has been duly considered by the Ld. AO in the assessment order dated 25.01.2017 and the position adopted by AO on taxability in the Order u/s 143(3) rws 144C (3) dated 25.01.2017 is neither erroneous nor prejudicial ....
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....following'- a. Assessed Unabsorbed Depreciation - Rs. 13,60,51,30,779'/- fa. Assessed Unabsorbed Business Loss to be carry forward- Rs. 21,13,98,18,221/- I. Set-off of loss i/A. 71 falling under Chapter VI of the Act is a mandatory provision and in the absence of any restriction under the Act, the same cannot be ignored 4.4. In this regard, at the outset, we would like to invite your Honour's kind attention to the provisions of section 71 of the. Act, based on which the Company had computed the Income for the year and filed Return of Income. Section 71 of the Act as relevant for the year under reference reads as under:- "71. (1) Where in respect of any assessment year the net result of the computation under any head of income, other than "Capita! gains", is a loss and the assesses has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head. (2) Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and th....
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....r Income / Business Profits in future. In the assessment order dated 25.01.2017 the same has been examined and after giving effect to the additions and disallowances the loss for the year was assessed at Rs. 3,474.49 crores which comprises of Unabsorbed depreciation - Rs. 1,360.51 crores and Unabsorbed Business Loss - Rs. 2,113.98 crores 4.7. It is submitted that even 'Long term Capital Gains' is taxable at the rate of 20% or 10%, as the case may be, whereas business income is taxable at marginal rate of 30%, however, still set-off of such loss is permissible as per the provisions of section 71 of the Act. 4.8. In this regard, we would like to draw your Honour's kind attention to the decision of the Hon'ble Bombay High Court in the case of British Insulated Calenders' Ltd. (202 ITR 354) (refer Exhibit H of Case Laws Compilation'), wherein it has been held that though dividend income was taxable at concessional rate of tax, the assessee is liable to first set off its loss under one head of income against income from other head of income u/s. 71 of the Act and only the balance loss available after set-off is allowed to be carried forward in subsequent year....
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....ax at 15% (plus applicable surcharge, and cess) and balance part of total income., i.e. as reduced by above foreign dividend income would be subjected to the prevailing rate of tax had there been no income by way of foreign dividend income. 4.14. The term 'total income' is defined in section 2(25) of the Act, which reads as under "Total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act' [Emphasis supplied]" From the above, your Honour will appreciate that here the reference to section 5 is only for inclusion of income from whatever source derived which is received or deemed to be received, accrued or arises or is deemed to accrue or arise or accrues outside India for a person who is resident/ non-resident, as the case may be. 4.15. Apart from reference to Income u/s. 5 of the Act (as discussed above), total income t's required to be computed in the manner laid down in this Act. It thus, follows that income under various heads included in total income are required to be computed independently, as per the provisions guiding the same as per Chapter IV of the Act, which deals with Computation of Total....
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....ds any expenditure or allowance in relation to that dividend will be allowed. 4.20 It is submitted that the Company has not claimed any expenditure or allowance in computing its Foreign dividend income offered to tax under the head "Income from Other Sources "which is set-off against "Profits and Gains of Business or Profession" as provided u/s. 71 of the Act. 4.21. In light of the above discussion on the provisions of the Act, we submit that sub-section (2) to section 115BBC) of the Act only provides that no deduction of any expenditure or allowance shall be allowed while computing Foreign Dividend Income and working out tax thereon. While it does not prohibit set-off of losses against the said dividend income. 4.22.The provisions of sub-section (2) of section 115BBD of the Act expressly deals with non-allowability of deduction of any 'expenditure' or 'allowance' against dividend income, however the Act does not prohibit set-off of losses against the said dividend income. It is settled legal position that the term 'expenditure or 'allowance' is different from loss' and it cannot be used interchangeably. 4.23.In this regard, we would like to ....
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....xpenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1)." 4.26. The Legislature observed that there was uncertainty prevailing on the issue of set-off of losses against income referred in section 115BBE of the Act and the judicial forums and courts in some cases took a view that losses shall not be allowed to be set-off against income referred in section 115BBE of the Act. Also the then prevailing language of the above section did not convey the desired intention, resulting in the. matter being litigated, as can be seen in the following judicial pronouncements: ACIT v. MA. Rah/7 Agencies (ITA No. 4413/M/2014) (Mum. TTAT); > ACIT v. Sanjay Bairathi Gems Ltd. (166 ITO 445) (Jaipur ITAT); Satish Kumar Goyal v. JCIT (ITA No. 143/Ag/2014) 4.27 In order to avoid unnecessary litigation, sub-section (2) of section 115BBE was amended by Taxation Laws (Second Amendment) Act. 2016 (w.e.f. 01.04.2017) as under: (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set-off of any loss (emphasis supplied) shall be allowed to the as....
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....rally 4.33. We would like to draw your Honour's attention to the Explanatory Memorandum to Finance Act, 2011 for the rationale behind introducing section 115BBD of the Act for taxing certain dividends received from foreign companies. "Under the existing provisions of the Income-tax Act, dividend received from foreign companies is taxable in the hands of the resident shareholder at his applicable marginal rate of tax. Therefore, in case of Indian companies which receive foreign dividend, such dividend is taxable at the rate of thirty per cent plus applicable surcharge and cess. 'It is proposed to insert a new section 115BBD to provide that where total income of an Indian company fair the previous year relevant to the assessment year 2012-13 includes any income by way of dividends received from a foreign subsidiary company, then such dividends shall be taxable at the rate of fifteen per cent (plus applicable surcharge and cess) on the gross amount of dividends. No expenditure in respect of such dividends shall be allowed under the Act. This amendment is proposed to take, effect from 1st April, 2012 and will accordingly, apply in relation to the assessment year ZO12-13."....
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....nting incentives for promoting growth and development should be construed liberally: since the provision for promoting economic growth has to be interpreted liberally, restrictions on it too has to be construed so as to advance the objective of the provisions and not to frustrate it." 4. 39. Considering the above, we humbly submit that the said provisions of section U58BD of the Act be interpreted liberally and the assesses be allowed to set-off the Business Loss during the year against the foreign dividend income offered to tax under Income from Other sources. 4. 40. Thus, it is submitted that the Ld. AO in the assessment order dated 25.01.2017 has corrected taxed the dividend income received form specified foreign companies as referred in section 115BBC) of the Act in conformity with section 71 of the Act. 3. After considering the detail submission of the assessee, Ld. CIT rejected the contentions of the assessee and he observed that proceedings u/s 263 are proper and as per the provisions. According to his opinion, the assessment has been completed without proper application of mind to the existing statutory provisions and judicial position on this issue. The mere fact that....
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....ceedings u/s. 263 of the Act being invalid and bad in law. 2. Taxation of Dividend income received from specified foreign companies u/s. 115BBD of the Act: Rs. 1422.11.14.053/- a.1 The learned CIT erred in separately taxing the foreign dividend income at the specified rate as per section 115BBD of the Act inasmuch as in the absence of any positive income after set-off of loss from one head of income against another head of income u/s. 71 of the Act, the chargeability provision as per section 115BBD of the Act fails to apply; 3^2 The learned CIT ought to have appreciated the fact that provisions of section 115BBD(2) of the Act which begins with non-obstante clause restricts allowability of only 'expenditure' or 'allowance' and thus, in the absence of any express provision for restriction on allowability of 'loss', the said business loss of current year is allowable to be set-off against such foreign dividend income as per provisions of section 71 of the Act; 3.3 The learned CIT ought to have appreciated that it is settled legal position that the term 'expenditure' and 'loss' are conceptually different and cannot be used interchangeably....
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....essee has provided all the relevant information. Assessee in its reply to the notice u/s 263 of the Act submitted before Ld. CIT that AO has already verified the information relating to dividend receipt and rational of applying section 71 before him and further assessee submitted that the order passed by the AO is not erroneous and also not prejudicial to the interest of revenue for the reasons that if the assessee asked to carry forward loss without adjusting the dividend income, erstwhile profit earned by the assessee is chargeable @ 30%, whereas the department will tax the dividend only @ 15%. He further brought to our notice that income has to be determined chapter wise i.e. from 4 to 7 and only after determining the taxable income rates of tax will be applied subsequently. Since assessee has incurred huge loss, the provision of section 71 has to be applied before application of section 115BBD. He further submitted that the provision of section 115BBD does not contain restriction to exclude the dividend received from specified foreign company in order to determine the taxable income and further it is submitted that 115BBD talks only to expenditure relating to earning of dividen....