TaxTMI 
TaxTMI 
2020 (7) TMI 125
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....at the Appellant Company had on its own, offered Rs. 17 lakhs as disallowance u/s.14A, being Operating & Administrative Expenses and Establishment / General Expenses, which could be considered as attributable towards earning exempt dividend income. The CIT(A) has disallowed 0.5% of average investments (excluding Investments which yielded taxable income), which is unwarranted. The Appellant Company therefore prays that the additional disallowance made by the CIT(A), over and above the disallowance of Rs. 17 lakhs voluntarily offered by the Appellant Company be deleted. [Refer page Nos.3 to 7, point No. 5 of the Assessment Order and page 1 to 3, point No. 1 of CIT(A)'s order]. GROUND NO 2: INTEREST ON OUTSTANDING AMOUNT OF ASSOCIATED ENTERPISE :- The CIT(A) and the Assessing Officer/TPO erred on facts and in law in disregarding the fact that the Appellant Company had a small outstanding towards re-imbursement of expenses aggregating Rs. 4,84,879/- from Saudi Ensas Company for Engineering Services W.L.L., a wholly owned subsidiary of the Appellant Company (Associated Enterprise) situated in Kingdom of Saudi Arabia. The said outstanding was refle....
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....laim for deduction was bound to be considered by the CIT(Appeals) or the ITAT before whom such claim was specifically raised. Per contra, the ld. D.R did not object to the admission of the aforesaid additional ground of appeal raised by the assesse before us. As observed by us hereinabove, the assessee has sought an adjudication on an issue i.e as to whether or not the amount paid by an assessee towards "Education Cess" or any "other cess" viz. the Secondary and Higher Education Cess is disallowable as an expenditure u/s 40(a)(ii) of the Income-tax Act, 1961. In our considered view, as the assessee has raised a purely legal issue which would not require any verification of facts, therefore, we have no hesitation in admitting the same. 2. Briefly stated, the assessee company which is a part of the Tata group and is India‟s premier Air conditioning and Engineering Service Provider, had filed its "Original‟ return of income on 23.11.2012, which thereafter was followed by filing of a revised return of income on 28.03.2014, declaring a total income of Rs. 199,46,34,280/-. Subsequently, the case of the asssessee was selected for scrutiny assessment u/s 143(2) of the Act. ....
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....regards to acquisition, retention and sale of shares at the most appropriate time, the A.O worked out the disallowance u/s 14A r.w Rule 8D(2)(iii) i.e towards incurring of administrative expenses for earning of the exempt dividend income at an amount of Rs. 2,01,51,905/-. As the assessee had already offered a suo motto disallowance of an amount of Rs. 17 lac u/s 14A of the Act, therefore, the A.O restricted the addition/disallowance to an amount of Rs. 1,84,51,905/-[Rs. 2,01,51,905/- (-) Rs. 17,00,000/-]. The A.O after inter alia making the aforesaid additions/disallowances assessed the income of the assessee company at Rs. 203,43,63,070/-, vide his order passed u/s 143(3) r.w.s 144C(4), dated 29.04.2016. 4. Aggrieved, the assessee assailed the aforesaid additions/disallowances made by the A.O before the CIT(A). As regards the disallowance made by the A.O u/s 14A, it was observed by the CIT(A) that the assessee had made an ad hoc disallowance of Rs. 17 lac, which in the absence of any basis was not justified. Accordingly, the CIT(A) observed that the A.O was well within his right to work out the disallowance u/s 14A r.w Rule 8D. As regards the claim of the assessee that only div....
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....e transfer pricing provisions were not applicable. The CIT(A) in support of his said view relied on the judgment of the Hon‟ble High Court of Bombay in the case of Vodafone India Services Pvt. Ltd. Vs. Addl. CIT (2014) 368 ITR 1 (Bom). On the basis of his aforesaid observation the transfer pricing adjustment made by the TPO was vacated by the CIT(A). 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. As regards the additional disallowance u/s 14A r.w Rule 8D(2)(iii) of Rs. 1,84,51,905/-, it was submitted by the ld. A.R that involving identical facts the Tribunal had vide its consolidated order dated 17.10.2019 in ITA No. 2822/Mum/2017 & ITA No. 2823/Mum/2017 for A.Y 2009-10 and A.Y 2010-11 had restored the matter to the file of the A.O, with a direction to firstly examine the sufficiency or correctness of the suo motto disallowance of Rs. 17 lac offered by the assessee. Alternatively, the Tribunal had also directed the A.O to exclude those investments which had not yielded any dividend income for the purpose of computing the disallowance u/s 14A r.w Rule 8D. The ld. A.R took us through the aforesaid order of the T....
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....75 (Bom). In the case before the Hon‟ble High Court the following substantial question of law was inter alia raised : "iii. Whether on the facts and in the circumstances of the case and in law, the Education Cess and Higher and Secondary Education Cess is allowable as a deduction in the year of payment." After exhaustive deliberations, the Hon‟ble High Court had observed that the legislature in Sec. 40(a)(ii) had though provided that "any rate or tax levied" on "profits and gains of business or profession" shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession", but then there was no reference to any "cess". Also, the High Court observed that there was no scope to accept that "cess" being in the nature of a "tax" was equally not deductible in computing the income chargeable under the head "profits and gains of business or profession". It was further observed that if the legislature would had intended to prohibit the deduction of amounts paid by an assessee towards say, "education cess" or any other "cess", then, it could have easily included a reference to "cess" in clause (ii) of Section 40(a)....
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....business or profession". However, the Respondent - Revenue contends that "cess" is also included in the scope and import of the expression "any rate or tax levied" and consequently, the amounts paid towards the "cess" are not liable for deduction in computing the income chargeable under the head "profits and gains of business or profession". 18. In relation to taxing statute, certain principles of interpretation are quite well settled. In New Shorrock Spinning and Manufacturing Co. Ltd. Vs Raval, 37 ITR 41 (Bom.), it is held that one safe and infallible principle, which is of guidance in these matters, is to read the words through and see if the rule is clearly stated. If the language employed gives the rule in words of sufficient clarity and precision, nothing more requires to be done. Indeed, in such a case the task of interpretation can hardly be said to arise : Absoluta sententia expositore non indiget. The language used by the Legislature best declares its intention and must be accepted as decisive of it. 19. Besides, when it comes to interpretation of the IT Act, it is well established that no tax can be imposed on the subject without words in the A....
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....has not done so means that the legislature did not intend to prevent the deduction of amounts paid by a Assessee towards the "cess", when it comes to computing income chargeable under the head "profits and gains of business or profession". 24. The legislative history bears out that the Income Tax Bill, 1961, as introduced in the Parliament, had Section 40(a)(ii) which read as follows : "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains" 25. However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word "cess" from the aforesaid clause from the Income Tax Bill, 1961. The effect of the omission of the word "cess" is that only any rate or tax levied on the profits or gains of any business or profession are to be deducted in computing the income chargeable under the head " profits and gains of business or profession". Since the deletion of expression "cess" from the Income Tax Bill, 1961, was deliberate, there is no question of reintroducing this expre....
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.... the Income Tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression "cess" and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, "cess" and consequently, "cess" whenever paid in relation to business, is allowable as deductable expenditure. 29. In Kanga and Palkhivala's "The Law and Practice of Income Tax" (Tenth Edition), several decisions have been analyzed in the context of provisions of Section 40(a)(ii) of the IT Act, 1961. There is reference to the decision of Privy Council in CIT Vs Gurupada Dutta 14 ITR 100, where a union rate was imposed under a Village Self Government 15 TXA17&18-13 dt.28.02.2020 Act upon the assessee as the owner or occupier of business premises, and the quantum of the rate was fixed after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. F....
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....e (ITA No.1111 and 1112/PUN/2017 decided on 25th July, 2019) by the ITAT, Pune. 32. Again, Ms. Linhares, learned Standing Counsel for the Revenue was unable to say whether the Revenue had instituted the appeals in the aforesaid matters. Mr. Ramani, learned Senior Advocate for the Appellant submitted that to the best of his research, no appeals were instituted by the Revenue against the aforesaid decisions of the ITAT. 33. The ITAT, in the impugned judgment and order, has reasoned that since "cess" is collected as a part of the income tax and fringe benefit tax, therefore, such "cess" is to be construed as "tax". According to us, there is no scope for such implications, when construing a taxing statute. Even, though, "cess" may be collected as a part of income tax, that does not render such "cess", either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii) of the IT Act. The mode of collection, is really not determinative in such matters. 34. Ms. Linhares, has relied upon M/s Unicorn Industries Vs Union of India and others, 2019 SCC Online SC 1567 in support of her contention that "cess" is nothing but "tax" and therefore,....
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.... or jurisdiction to grant such a deduction to the Appellant - Assessee. She submits that this is what precisely held by the ITAT in its impugned judgments and orders and therefore, the same, warrants no interference. 38. Although, it is true that the Appellant - Assessee did not claim any deduction in respect of amounts paid by it towards "cess" in their original return of income nor did the Appellant - Assessee file any revised return of income, according to us, this was no bar to the Commissioner (Appeals) or the ITAT to consider and allow such deductions to the Appellant - Assessee in the facts and circumstances of the present case. The record bears out that such deduction was clearly claimed by the Appellant - Assessee, both before the Commissioner (Appeals) as well as the ITAT. 39. In CIT Vs Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336, one of the questions of law which came to be framed was whether on the facts and circumstances of the case, the ITAT, in law, was right in holding that the claim of deduction not made in the original returns and not supported by revised return, was admissible. The Revenue had relied upon Goetze (supra ) and urged that ....
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....on of law in Tax Appeal No.18 of 2013 is also required to be answered in favour of the Appellant - Assessee and against the Respondent- Revenue. To that extent therefore, the impugned judgments and orders made by the ITAT warrant interference and modification. 43. Thus, we answer all the three substantial questions of law framed in Tax Appeal No.17 of 2013 in favour of the Appellant - Assessee and against the Respondent -Revenue. Similarly, we answer the sole substantial question of law framed in Tax Appeal No.18 of 2013, in favour of the Appellant - Assessee and against the Respondent - Revenue." Accordingly, we respectfully following the aforesaid judgment of the Hon‟ble High Court of Bombay in the case of Sesa Gold Limited (supra), therein conclude that "Education Cess" and the Secondary and Higher Education Cess is not disallowable as a deduction u/s 40(a)(ii) of the Act. The additional ground of appeal raised by the assessee is allowed. 8. We shall now deal with the additional disallowance made by the A.O u/s 14A r.w Rule 8D in the case of the assessee. On a perusal of the assessment order, we find that though the assessee had offered a suo mot....
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....allowance made by the assessee and invoke Rule 8D only if not satisfied with assessee's working of disallowance. It is made clear that if the disallowance is computed in terms of Rule 8D(2)(iii) then apart from the directions of Ld. CIT(A) to exclude certain investments, those investments which have not yielded any exempt income during the year under consideration would also be excluded as per the decision of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415]. Accordingly, Ground No.1 of assessee's appeal may be treated as partly allowed for statistical purposes." As the fact pattern involved in the case of the assessee for the year under consideration remains the same as was there before the Tribunal in the assessee‟s own case for A.Y 2009-10 and A.Y 2010-11, therefore, we respectfully follow the view therein taken and for the sake of consistency restore the matter to the file of the A.O for fresh adjudication. The A.O in the course of the "set aside‟ proceedings is directed to examine the sufficiency or correctness of suo moto disallowance made by the assessee having regards to its accounts and explanations and shal....
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....d by the AE to assessee for years? 1.5 Whether on the facts and circumstances of the case and in law, the CIT(A) is correct in relying on the ease of Vodafone India Service Pvt. Ltd. [368 ITR 1 (Bom), without realizing the distinguishing facts like in the Vodafone case the issue is assessment of excess inbound capital as income as per valuation, whereas the issue in the present case is re-characterisation of share application money Fending for quite a long time QS loan and charging interest on the same? 1.6 Whether on the facts and circumstances the case and in law, the CIT(A) is correct in relying on the case of Parle Biscuits (P.) Ltd. Vs DCIT [2014] 46 taxmann.com 11 (Mum) without realizing the distinguishing facts like in the Parle case the issue is de/ay occurred in issuance of share certificates, whereas the issue in the instant case nonallotment of shares itself a consequence the a for quite a long time and as the AE in the c mount advanced by the assessee to move mount form' of share application y pending without allotment of shares beyond a reasonable time is essentially loan in `substance'? 1.7 Whether on the facts and circumstances of t....
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....s consolidated order for A.Y 2009-10 and A.Y 2010-11 in ITA No. 2822/Mum/2017 and ITA No. 2823.Mum/2017, had vacated the additions that were made by the A.O towards charging of notional interest on the share application money that was given to its wholly owned subsidiary company viz. Saudi Ensas Company for Engineering Services WLL, UAE. We have perused the aforesaid order of the Tribunal, and find, that the said addition was vacated by the Tribunal by observing as under: 3.5.7 Upon careful consideration of factual matrix as enumerated by us in the preceding paragraphs, the undisputed position that emerges is the fact that the assessee has advanced Share Application Money to one of its AE situated in Saudi Arabia with a view to acquire further stake in that entity. The entity has become wholly owned subsidiary of the assessee company during the month of January, 2009. The financial health of its AE was not good and the money was advanced with a view to infuse further capital in the AE and with a view to acquire controlling stake in its AE. The money has been utilized by its AE to pay-off business debts and to meet working capital requirements. Another undisputed fact is th....
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.... Delhi Tribunal rendered in Bharti Airtel Limited V/s Addl. CIT (ITA No. 5816/Del/2012 dated 11/03/2014) wherein Hon'ble Bench has observed as under: - "47. We find that in the present case the TPO has not disputed that the impugned transactions were in the nature of payments for share application money, and thus, of capital contributions. The TPO has not made any adjustment with regard to the ALP of the capital contribution. He has, however, treated these transactions partly as of an interest free loan, for the period between the dates of payment till the date on which shares were actually allotted, and partly as capital contribution, i.e. after the subscribed shares were allotted by the subsidiaries in which capital contributions were made. No doubt, if these transactions are treated as in the nature of lending or borrowing, the transactions can be subjected to ALP adjustments, and the ALP so computed can be the basis of computing taxable business profits of the assessee, but the core issue before us is whether such a deeming fiction is envisaged under the scheme of the transfer pricing legislation or on the facts of this case. We do not find so. We do not find any provi....
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....coordinate bench of this Tribunal had an occasion to deal with the arm's length price adjustment with regard to interest free advances to the subsidiaries. That was a case in which the assessee, an Indian company, advanced interest-free loans to its 100% foreign subsidiaries. The subsidiaries used those funds to make investments in other step- down subsidiaries. On 22 VOLTAS LIMITED Assessment Years 2009-10 & 2010-11 the question whether notional interest on the said loans could be assessed in the hands of the assessee under the transfer pricing provisions of Chapter X, the assessee argued that the said "loans" were in fact "quasi - equity" and made out of commercial expediency. It was also argued that notional income could not be assessed to tax. However, both of these arguments were rejected by a coordinate bench of this Tribunal. While doing so, the coordinate bench observed that there was no material on record to establish that the loans were in reality not loans but were quasi-capital and that there is also no reason why the loans were not contributed as capital if they were actually meant to be a capital contribution. It was observed that, "It is not the case that there w....
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.... treating the payment of share application money, as partly in the nature of interest free loans to the AEs, and, accordingly, ALP adjustment based on that hypothesis was indeed devoid of legally sustainable merits. We delete the impugned adjustment of Rs. 19,15,45,943. The assessee gets the relief accordingly. As we have decided this ground of appeal on the fundamental issue that the payment of share application money could not be partly treated as interest free loan to AE, we see no need to deal with other aspects of the matter. This decision has subsequently been followed by Mumbai Tribunal in Parle Biscuits Pvt. Ltd. V/s DCIT (ITA No.9010/Mum/2010 dated 11/04/2014) and also in Aditya Birla Minacs Worldwide Ltd. V/s DCIT (ITA No.7033/Mum/2012 25/03/2015) wherein similar ratio has been laid down. 3.5.9 Keeping in the view the facts and circumstances, we delete the impugned TP adjustment as proposed by Ld. TPO." We have perused the aforesaid order of the Tribunal, and find, that the fact situation pertaining to the issue under consideration viz. transfer pricing adjustment as regards charging of notional interest on the share application money that was given b....