TaxTMI 
TaxTMI 
2020 (4) TMI 29
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....as completed u/s 143(3) r.w..s 144C(3) of the 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interest of Rs. 25,25,44,648/- u/s 244A already provided and MAT credit of Rs. 71,72,17,877/- also needed to be withdrawn.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 bef....
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....only if the following two conditions are satisfied simultaneously': a) the order passed 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 revis....
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.... regarding the nature and character of the claim, lack of any discussion on this in the assessment order cannot lead to the assumption that the assessing officer did not 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 ....
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....e, the assessed business lass for the current year has been set-off against the dividend income received from the specified foreign companies. The effect of the aforesaid set-off is that the assesses company has foregone the carry forward of Unabsorbed 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 ....
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....) 14,94.20.70,830 14,94.20.70,830 Gross Total Income (39,39,43,41,524) (34,74,49,49,000 Total Income (39,39.43,41.524 (34,74,49,49,000 4.3. There being Total Loss, the assesses Company has not claimed any deduction under Chapter VI-A of the Act. The total assessed Loss of Rs. 34,74,49,49,000/- comprises of the 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....
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....n its return of income accordingly, set-off the loss of Rs. 5,482. 39 crores against Income from House Property - Rs. 4.83 crores, Capital Gains - Ks.43.92 crores and Income from Other Sources Rs. 1,494.21 crores, thereby resulting in Total Loss of Rs. 3,939.43 crores which comprises of Unabsorbed Depreciation - Rs. 1,424.18 crores and Unabsorbed Business Loss -Rs. 2,215. 26 crores; which is carried forward for set-off against Other 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 Co....
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....ng as is given to "dividend" in clause (22) of section 2 but shall not include sub-clause (e) thereof; (ii) "specified foreign company" means a foreign company in which the Indian company holds twenty-six per cent or more in nominal value of the equity share capital of the company." 4.13. The above section clearly provides that where the total income of the assessee includes income by way of dividend declared, distributed or paid by a specified foreign company, then such dividend income shall be. subject to tax 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 recei....
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....ividend income, does not arise. II. Express provision for restriction for set-off of loss wherever intended has been specifically provided in the Act. In the absence of any express provision u/s. 115BBD of the Act, the set-off of loss against the Dividend Income referred u/s 115BBD is allowable as per law. 4.19. It is submitted that sub-section (2) of section 115BBD begins with a non-obstante clause stating that no deduction in respect of any expenditure or allowance shall be allowed to the assessee in computing its income by way of dividend, which means that no deduction towards 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 ....
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....under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 690, if such income is not covered under clause (a), the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure 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....
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.... not include the term 'set-off of loss' of being not available to the assessee. 4.32 It is also submitted that whenever any income is proposed to be taxed on gross basis at specified rates without grant of any deduction towards expenditure or allowance or set-off of loss, then it is expressly provided in the body of the section or the section is suitably amended otherwise. Hence, it is submitted that since, sub-section (2) to section 115BB& of the Act does not categorically provide that no deduction would be allowed for set-off of losses, it is to be construed that set-off of loss is available as deduction while computing foreign dividend income. III. Section 115BBD being a concessional provision under the law should be construed liberally 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 ....
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....is otherwise in loss. 4. 37. In other words, the main objective behind introducing section 115BBD of the Act was to encourage repatriation of foreign dividends by the Indian companies from its foreign subsidiary companies and to provide concessional rate of tax, if the total income as computed in the manner laid down under the Act includes foreign dividend income. 4.38. Thus, it is submitted that section 115BBQ of the Act being an incentive provision is a beneficial legislation and is to be construed liberally to grant benefit to the taxpayer to fulfill the mandate, of legislation which is to repatriate foreign dividends. Reliance in this regard is placed on the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CTT (196 ITS 188), wherein it is held as under'. "The provision in a taxing statute granting 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, ....
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....n record, duly supported by various precedents including the judgements of the Hon'ble Supreme Court and Jurisdictional High Court which were available at the time of the assessment. 1.3 The learned CIT failed to appreciate and ought to have held that the action of the AO in allowing set-off of loss of current year against the dividend income received from specified foreign companies u/s. 115BBD of the Act is neither erroneous nor prejudicial to the interest of the Revenue inasmuch as if such dividend income is taxed in current year without allowing set-off u/s. 71 of the Act, assessee would be entitled to carry forward and set-off losses (to the extent of dividend income) against business income of subsequent years which otherwise would have been taxable at maximum marginal rate of tax. 1.4 The learned CIT has erred in law and on facts in ignoring the reasons given by the appellant on the proceedings 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....
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....rals India Pvt. Ltd. vrs. PCIT (ITA No. 3073/Mum/2019) and submitted that there is no provision in section 115BBD to exclude the dividend income received from specified foreign company similar to section 115BBE and 115BBDA, therefore the provision contained in section 115BBD does not contain such direction as specified in section 115BBE, etc. He further submitted that legislature was very clear not to include the dividend received from specified foreign company and he prayed that section 263 order may be set aside. 6. On the other hand, Ld. DR vehemently argued and placed reliance on the order passed by Ld. CIT. 7. Considered the rival contentions and the material placed on record, we notice from the record that the assessment was completed u/s 143(3) r.w.s. 144C of the Act and assessee has submitted all the information relating to the computation of income. Further, AO asked the information relating to receipt of dividend income in his notice and assessee 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 s....