TaxTMI 
TaxTMI 
TaxTMI 
2022 (12) TMI 436
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.... current year business loss against foreign dividend income and upholding the levy of tax u/s 115BBD of the Act on gross foreign dividend income. The interconnected second issue to be decided in this appeal is as to whether the assessee would be entitled for deduction u/s 80G of the Act from the foreign dividend income forming part of Gross Total Income. The assessee has also raised additional ground vide its letter dated 24/06/2021 wherein it had challenged the action of the revenue in not allowing the brought forward business losses of earlier years against the foreign dividend income referred to in section 115BBD of the Act, earned from investments which are made with a view to exercise control and accordingly constituting business activity of the assessee. 2.1. We have heard the rival submissions and perused the materials available on record. At the outset, we deem it fit to admit the additional ground raised by the assessee vide letter dated 24/06/2021 as it is purely a legal issue not requiring any verification of facts and all the facts necessary for adjudicating the said additional ground are already on record of the lower authorities. 2.2. The assessee company is engaged....
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.... foreign companies is ruled out by the "Non-obstante" clause of section 115BBD. d. The argument of taking help from section 115BBDA, which provides taxability of dividend received from domestic companies is irrelevant, because every section is independent of each other in Chapter XII which deals with "Determination of Taxes in Certain Special Cases". e. The assessee stated that "Generalia Specialibus Non Derogant and general! Bus specialia derogant" i.e. if a special provision is made on a certain subject matter, that matter is excluded from the general provision. f. Using the same maxim, it can be inferred that a special provision has been inserted by way of section 115BBD due to which resort cannot be made to provisions of set off of losses as per I. T. Act, 1961 because set off of losses are general provisions. g. With regard to claim of deduction Chapter VI-A, i.e. u/sec 80G, the section itself expressly provides in sub section (2) of section 115BBD that "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 its income by way of dividends refer....
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....the assessee company apart from foreign dividend income , had also earned income from sale of services and sale of products as is evident from Schedule 18 (Revenue from Operations) of financial statements. Hence the assessee would be entitled for allowability of expenses and set off of brought forward business losses and unabsorbed depreciation of earlier years. 2.7. We have gone through the provisions of section 115BBD of the Act. From the bare reading of the said section, we find that the starting point of the applicability of the said section is determination of 'total income'. The plain and unambiguous reading of the provisions of section 115BBD of the Act makes it clear that only after determination of total income as per the provisions of the Act, the remaining foreign dividend income included in the said total income would be taxed at the rate of 15% and remaining income (other than foreign dividend income) would be taxed at normal rate of tax. This could be better understood by the following examples:- If the total income is Rs 100, out of which foreign dividend income is Rs 30, then the tax payable by the assessee would be as under:- Tax @ 15% on Rs 30 being foreign div....
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.... interest would be fully deductible u/s 36(1)(iii) notwithstanding the fact that the assessee earned various streams of income out of these investments, one of which was assessable under the head 'income from other sources'. c) Decision of Hon'ble Madras High Court in the case of CIT vs Amalgamations P Ltd reported in 108 ITR 895 (Mad) affirmed by Hon'ble Supreme Court in 92 Taxman 132 (SC). In this case it was held - The question before us is whether the principle, which is applicable to the managing agency companies, can be applied to a company, which is carrying on the business of holding investments. As we have already seen, the decisions of the Supreme Court required a nexus between the business of the assessee and the expenditure that has been incurred. The business of the assessee is the holding of investments. If with reference to this business of the holding of investments any expenditure had been incurred, that would have been allowed as deduction. The business of holding investment and the businesses of the subsidiary companies are wholly separate and distinct. The expenditure that has been incurred in the present case cannot be said to be in carrying on the assessee....
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....tify the deduction of the expenditure incurred in remunerating the directors who rendered services to the subsidiary companies and not to the assessee. (Underlining provided by us) d) Decision of Hon'ble Supreme Court in the case of CIT vs Cocanada Radhaswami Bank Ltd reported in 57 ITR 306 (SC) . In this case, it was held - While section 24(1) of the 1922 Act, provides for setting off of the loss in a particular year under one of the heads mentioned in section 6 of the 1922 Act against the profits under a different head in the same year, subsection (2) provides for the carrying forward of the loss of one year and setting off of the same against the profits or gains of the assessee from the same business in the subsequent year or years. The crucial words, therefore, are 'profits and gains of the assessee from the same business', i.e., the business in regard to which he sustained loss in the previous year. The question, therefore, was whether the securities formed part of the trading assets of the business and the income there from was income from the business. The answer to this question depended upon the scope of section 6 of the 1922 Act. The scheme of the Act is th....
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....n in the case of TIDCO Ltd reported in 124 ITD 117. The Third Member held - 6. The situation, however, changes when the income , though per se, is dividend income but has a different complexion on account of the activity carried out by the assessee. If the assessee is not an investor, but a trader in shares or is one like the assessee before us, then the dividend income changes its complexion to business income. In other words, the dividend income received by such person is in reality his business income. Chennai Tribunal had given a finding that the assessee is engaged in promotion and development of new undertaking in the State and for the purpose, held shares in a number of joint undertakings for which the dividend income was received. Accordingly it held that the dividend income would form part of business of the assessee and accordingly taxable under the head 'income from business', although the same is assessable under the head 'income from other sources' by virtue of specific provision contained in section 56(2)(i) of the Act. . Accordingly, it had held that assessee would be entitled to set-off of brought forward business loss and unabsorbed depreciation of earlier years ....
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....e. 8. After careful reading of section 115BBD, we agree with the submission of Ld. AR that there is no provision in that section to eliminate the dividend income from specified foreign company before setting off of loss and similar to the provisions and specific direction present in section 115BBE. In our considered view that taxable income has to be determined as per the provisions of Income Tax Act i.e. first to compute the total income based on the Chapter-IV and then apply the Chapter-VI and VIA in order to compare the aggregation and set off of losses. After determining the taxable income by applying the above Chapters and if still there is profit, then such taxable profit has to be taxed according to the prevailing rates as per the various applicable provisions of the Act. Since assessee is having substantial loss and as per the provision of Chapter-VI, the taxable income has to be adjusted first before applying any other provisions contained in the Act particularly when there is no specific provision contained in section 115BBD wherein to impose restriction on carrying forward any loss similar to provision contained in section 115BBE and section 115BBDA. Therefore, we do n....
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....ion 115BBD reads as under:- "115BBD. (1) Where the total income of an assessee, being an Indian company, includes any income by way of dividends declared, distributed or paid by a specified foreign company, the income-tax payable shall be the aggregate of- (a) the amount of income-tax calculated on the income by way of such dividends, at the rate of fifteen per cent; and (b) the amount of income-tax with which the assessee, would have been chargeable had its total income been reduced by the aforesaid income by way of dividends. (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 its income by way of dividends referred to in sub-section (1). (3) In this section,- (i) "dividends" shall have the same meaning 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." 35. The above section clearly provides that where the....
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.... nowhere there is any restriction or curb provided in sub section (2) that foreign dividend income cannot be set off against the current year loss while computing the total income. As stated above, in the total income, the assessee has made computation for various streams of income separately. Out of the said total income, if there is any foreign dividend income, the same shall be taken into account while computing the total income and if there is a loss, then the same shall be set off in accordance with section 71 of the Act. 39. On the contrary, there is another section 115BBDA, which deals with dividend received from domestic companies. In this section there is a specific restriction not only for allowance of expenditure deduction in respect of any expenditure or allowance but also restriction on set off of loss. For the sake of ready reference, section 115BBDA is reproduced as under:- 115BBDA. (1) Notwithstanding anything contained in this Act, where the total income of (a specified assessee) resident in India, includes any income in aggregate exceeding ten lakh rupees, by way of dividends declared, distributed or paid by a domestic company or companies (on or before the 31st....
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....show that there is a specific bar or restriction for allowing of any set off of any loss from any part of stream of income. This bar and restriction is completely absent in sub section (2) of section 115BBD. If we take this analogy of section 115BBDA and Section 115BBE, then it indicates that, whenever Legislature has intended not to allow deduction or set off of loss, it has been clearly provided in the statute and wherever only restriction is for not allowing the deduction in respect of any expenditure or allowance, then same has to be confined to the language given in the statute and nothing can be inferred or read into to import any other restriction in the said provision, i.e., the set off of loss should also be read into. Section 115BBD is similar to section 115BBF, which is tax on income on patent and there only restriction provided in sub section (2) is with regard to non-allowability of non-deduction in respect of any expenditure or allowance. No amendment has been brought in section 115BBD in sub section (2) as was brought in sub section (2) of section 115BBE w.e.f. 01.04.2017. 42. Further, whenever income is proposed to be taxed on gross basis at a specified rates with....
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.... similar view has been taken by the Coordinate Bench in the case of Tata Motors Ltd. vs. DCIT (supra) which has been followed by the Ld. CIT (A), hence we do not find any infirmity in following the principle laid down therein. Accordingly, ground nos. 6.1 to 6.3 raised by the revenue is dismissed. (Emphasis supplied by us) 2.11. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that - a) assessee would be entitled for set off of current year loss with the foreign dividend income; b) assessee would be entitled for set off of brought forward business losses and unabsorbed depreciation of earlier years with the foreign dividend income ; and c) assessee would be eligible for deduction u/s 80G of the Act from the Gross Total Income subject to the restrictions provided in that relevant section. 2.12. Accordingly, the grounds raised by the assessee and the additional ground raised by the assessee are allowed. ITA No. 421/Mum/2020 - Revenue Appeal - Asst Year 2016-17 3. The only issue to be decided in this appeal is with regard to the disallowance u/s 14A of the Act both under normal provisions of the Act as....