TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 254
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....se two companies. 3. The Assessing Officer disallowed the interest holding that no deduction is to be allowed in respect of expenditure incurred in relation to income which does not form part of the total income under the Income Tax Act, 1961 (the Act). The Assessing Officer observed that the purpose of investment was to earn income in the form of dividend from the two companies and the same was not taxable. The assessment order dated 14th March 2001 was challenged before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) held that Section 14A of the Act clearly says that any expenditure incurred in relation to any income which is not included in the total income would not be allowed on expenditure. Since the dividend income is not includable in the total income by virtue of Section 10(33) of the Act, whether the dividend income is received or not, the expenditure claimed for such income cannot be allowed in view of provisions of Section 14A and Section 10(33) of the Act. Paragraphs 3.3 and 3.4 of the order of CIT(A) read as under : 3.3. Apart from this, section 14A also clearly says that any expenditure incurred in relation to any income which is not included in the ....
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....estion of law was framed : Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest of Rs. 36,88,866/- paid on the borrowings was not allowable as deduction? 6. Appellant, who appeared in person, submitted that the Apex Court in S.A. Builders Ltd. V/s. Commissioner of Income Tax (Appeals) and Anr. (2007) 288 ITR 1 (SC) has held that the deduction should be allowed since the expression for the purpose of business would include expenditure voluntarily incurred for commercial expediency. It was submitted that appellant started as individual stockbroker who wanted to expand as a corporate entity and it is this business expenditure made it essential for him to use borrowed funds in the two companies. Appellant submitted that loans taken in personal name were duly utilised in acquiring equity shares in two closely held companies fully under his control and effectively the interest was paid on the borrowed utilised in his corporatized business under a clear commercial expediency. In our view, S.A. Builders Ltd. (Supra) would not be applicable to the facts of this case inasmuch as that was a case where assessee had borrow....
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....ture of Rs. 1,61,21,168/-, which was claimed as business expenditure under Section 36(1)(iii) of the Act. Assessee argued that the expenditure claimed was not hit by Section 14A of the Act, on the ground that although borrowed funds were partly utilised for investment in shares held as trading assets, such investment was made with the intention to acquire and retain a controlling interest in the company and that the receipt of dividend thereon was merely incidental. It was also argued on behalf of assessee that when the shares were acquired, as part of promoter holding, for the purpose of acquiring controlling interest in the company, the dominant object is to keep control over the management of the company and not to earn the dividend from investment in shares. Whether dividend is declared/earned or not is immaterial and, in either case, assessee would not liquidate the shares in investee companies. Therefore, no expenditure was made "in relation to" the income, i.e., the dividend income and, therefore, Section 14A of the Act would not be attracted. The Apex Court held that the dominant purpose test for which the investment into shares is made by an assessee may not be relevant wh....
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....ends as well. On this basis, the assessees contend that the dominant intention for purchasing the share was not to earn dividends income but control of the business in the company in which shares were invested or for the purpose of trading in the shares as a business activity etc. In this backdrop, the issue is as to whether the expenditure incurred can be treated as expenditure 'in relation to income' i.e. dividend income which does not form part of the total income. To put it differently, is the dominant or main object would be a relevant consideration in determining as to whether expenditure incurred is 'in relation to' the dividend income. In most of the appeals, including in Civil Appeal Nos. 104-109 of 2015, aforesaid is the scenario. Though, in some other cases, there may be little difference in fact situation. However, all these cases pertain to dividend income, whether it was for the purpose of investment in order to retain controlling interest in a company or in group of companies or the dominant purpose was to have it as stock-in-trade. xxxxxxxxxxxxxxx 29. Basing their case on the aforesaid principles, it was argued that when the shares were acquired, as part of pr....
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.... from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income. 33. There is no quarrel in assigning this meaning to section 14A of the Act. In fact, all the High Courts, whether it is the Delhi High Court on the one hand or the Punjab and Haryana High Court on the other hand, have agreed in providing this interpretation to section 14A of the Act. The entire dispute is as to what interpretation is to be given to the words 'in relation to' in the given scenario, viz. where the dividend income on the shares is earned, though the dominant purpose for subscribing in those shares of the investee company was not to earn dividend. We have two scenarios in these sets of appeals. In one group of cases the main purpose for investing in shares was to gain control over the investee company. Other cases are those where the shares of investee company were held by the assessees as stock-in-trade (i.e. as a business activity) and not as investment to earn dividends. In this context, it is to be examined as to whether the expenditur....