TaxTMI 
TaxTMI 
2020 (7) TMI 125
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....akhs 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 reflected as Advance in the Annual Report (Page No 57) of the Appellant Company, being rec....
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.... 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. 3. As the assessee during the year under consideration had entered into International transactions with its AEs, theref....
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....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 dividend yielding investments were to be considered for computing the average value of investments u/s 14A r.w Rule 8D(2)(iii), the same was accepted by....
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....bay 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 Tribunal and submitted that the said issue in all fairness and for the sake of consistency was required to be restored on the same terms to the file of the A.....
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....e 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). On the basis of its aforesaid observations, the Hon‟ble High Court had concluded that now when the legislature had not provided for any prohibition on the deduction o....
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....able 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 Act clearly showing an intention to lay a burden on him. The subject cannot be taxed unless he comes within the letter of the law and the argument that he falls within the spirit of the law cannot be availed of by the department. [See CIT vs Motors &....
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....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 expression in Section 40(a)(ii) of IT Act and that too, under the guise of interpretation of taxing statute. 26. In fact, in the aforesaid precise regard, reference can usefully be made to the Circular No. F. No.91/58/66-ITJ(19), dated 18th May, 1967 issued by the CBDT which reads as follows :- "Interpretation of provision of S....
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....henever 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. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [82 ITR 580] that the expression 'profits or gains of any business or profession' has reference only to profits and gains as determined in accordance with Section 29 of this Act and that any rate or tax levied upon profits calculated in a manner other than that provided by that section could not b....
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....TAT. 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, there is no question of deduction of amounts paid towards "cess" when it comes to computation of income chargeable under the head profits or gains of any business or profession. 35. The issue involved in Unicorn Industries ( supra ) was not in the context of provisions in Section 40(a)(ii) of the IT Act. Rather, the issue involved was whether the 'education cess, higher education cess and National Calamity Contingent Duty (NCCD)&....
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....g 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 the ITAT had no power to allow the claim for deduction. However, the Division Bench, whilst proceeding on the assumption that the Assessing Officer in terms of law laid down in Goetze (supra) had no power, proceeded to hold that the Appellate Authority under the IT Act had sufficient powers to permit such a deduction. In taking this view, the Division Bench relied upon the Full Bench decision of this Court in Ahmedabad Electricity Co. Ltd Vs CIT (199 ITR 351) to hold tha....
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....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 motto disallowance of Rs. 17 lac u/s 14A of the Act, but the quantification of the same was divorced of any logic or reasoning. Although, it was the claim of the assessee before the lower authorities that it did not have any separate "Investment department‟, and its investment portfolio was being handled by its MIS department which primarily attended to its accounts and banking operations, however, it had failed to give any cogent basis for attributing on an ad hoc basis a disallowance of Rs. 17 lac out of the administrat....
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.... 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 shall proceed further after recording speaking reasons for his non-satisfaction, if any. Apart from that, the assessee shall in the course of the "set aside‟ proceedings remain at a liberty to substantiate its claim for disallowance on the basis of fresh material. The Ground of appeal No. 1 is allowed for statistical purposes. 9. The appeal of the assessee is partly allowed in terms of our aforesaid observations. ITA No. 7028/Mum/2018 A.Y : 2012-13 (Revenue's appeal) 10. We shall now take up the appeal of the revenue wherein the impugned orde....
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....n 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 the case and in law, the CIT(A) is correct in deviating from his own order in the same assessee's case on the very same issue for the AY 2009-10, wherein the CIT(A) considered the share application money lying unrefunded beyond the reasonable period as deemed loan and has approved the charging of interest on the same? 2. Disallowance U/s 14A: On the facts and circumstances of the and in law, the CIT(A) erred in directing the AO not to consider the asset which did not yield dividend income for computation of average value of investment for making disallowance u/ s. 14A." 11. We shall first deal with the cla....
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....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 that ultimately the shares have been allotted to the assessee during December, 2015 after getting the desired regulatory approvals from concerned authority i.e. SAGIA. It is also undisputed fact that there was delay in the legal process which has been substantiated by the assessee, inter-alia, by furnishing email correspondences etc. The entirety of the facts and circumstances would demonstrate that the investment made by the assessee was for genuine business purpose and the stated transaction was not found to be a sham transaction, in any manner. Another fact is that whatever benefit would accrue to assessee's AE, they would indirectly a....
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....he 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 provision in law enabling such deeming fiction. What is before us is a transaction of capital subscription, its character as such is not in dispute and yet it has been treated as partly of the nature of interest free loan on the ground that there has been a delay in allotment of shares. On facts of this case also, there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of ' inordinate delay' and not the entire period be....
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....ency. 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 was any technical problem that the loan could not have been contributed as capital originally, if it was meant to be a capital contribution". The argument of loan being in the nature of quasi capital was thus rejected on facts. It was not even a case of quasi capital, and, therefore, this case has no bearing on the question before us i.e. whether ALP adjustments can be made in respect of payments towards share application money in a situation in which the shares have been issued several months after the payments for share application money have been made. Similarly, in VVF's case (supra), the transaction was admittedly in the nature of interest free loan between AEs and the ....
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....nacs 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 by the assessee to its wholly owned subsidiary company viz. Saudi Ensas Company for Engineering Services WLL, UAE, for which allotment of shares was pending on 31.03.2012, remains the same as was there before the Tribunal in the assesse‟s own case for A.Y 2009-10 and A.Y 2010-11 in ITA No. 2822/Mum/2017 and ITA No. 2823.Mum/2017. Finding ourselves to be in agreement with the aforesaid view of the Tribunal, we respectfully follow the same. Accordingly, in terms of our aforesaid observations we uphold the deletion of the addition of Rs. 1,81,20,323/- that was made by the A.O/TPO towards charging of notional interest on share application money pending allotment of shares with its wholly owned subsidiary company ....