TaxTMI 
TaxTMI 
TaxTMI 
2024 (12) TMI 1676
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....enses of INR 6,89,82,540, Processing fees of INR 87,42,750, Personnel expenses of INR 1,50,00,000, Travelling expenses of INR 1,05,34,529, Business promotion expenses of INR 32,90,237, Rent expenses of INR 40,00,000, Repairs expenses of INR 10,00,000 and depreciation of INR 29,00,000) by treating the same as directly linked for earning exempt income for the purpose of computing disallowance under section 14A r.w. Rule 8D. 4) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance of professional fees of INR 1,60,00,000 paid to Deep C Anand Foundation by attributing it towards incurred for promoting the interest of group companies and was not incurred for the business of the assesse. 5) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming disallowance of UK Branch office expenses of INR 1,02,63,993 by treating the same was not incurred for the purpose of business of the assesse. 2.The assessee has also raised following additional grounds that reads as under: 6. On the facts and in the circumstances of the case and in law, the learned CIT(A) er....
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....that no new facts are required to be investigated to adjudicate the same. Considering the submissions and respectfully following the decisions of Hon'ble Supreme Court in case of National Thermal Power Company Ltd. Vs. CIT reported in (1998) 223 ITR 383 and Jute Corporation of India Vs. CIT reported in 187 ITR 688, we admit the additional grounds raised by the assessee. Accordingly the application filed by the assessee seeming admission of additional grounds stands allowed. Accordingly the application for admission if additional grounds stands allowed. Brief facts of the case are as under: 3. The assessee is stated to be investing company carrying on business of acquiring and exercising control over companies in Anand Group to provide long term finance and to provide managements consultancy services to various companies of Anand Group. It is submitted that, Anand Group is a global leader in manufacturing product for automotive industry and is a flagship company of the group, wherein Gabriel India Ltd., was formed to manufacture shock absorbers. It is submitted that, the group has established around joint 13 ventures and 7 technical collaborations. The assessee submitte....
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....w of financial performance, to help assessee to improve its performance of its affiliate company and to guide for hirer but in a different capacity being trust of Mr. Deep C Foundation. 3.5.1. The assessee was called upon to file details regarding the professional fees debited under the head "Selling and Administration head. From the details furnished by the assessee, the Ld.AO noted that Rs. 1.60 crore was paid to Mr. Deep C Anand Foundation Trust managed by Mr. Deep C Anand and Mrs. Kiran Deep C Anand. The Ld.AO thus disallowed the said amount paid by the assessee to Mr. Deep C Anand by holding that the payment was made without any basis. 3.6. The Ld.AO noted that the assessee had earned huge dividend from the investments made in the group companies. The assessee was thus called upon to furnish the details. The assessee in response to showcause notice submitted that, it had received dividend income from its group company and subsidiary company Gabriel India Ltd., Degremont Ltd., Manovitor and Spicer India Ltd. Amounting to Rs.35,14,87,406/-. It was submitted that, the assessee had suo-moto disallowed Rs. 9,08,52,583/- in the computation of income under section 14A r.w. 3....
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.... shows only capital gain. Its shares are shown as a stock in trade, then only regular business expenses can be claimed. It is very obvious that Anand Group of Companies comprises of number of companies and assessee is merely holding the shares of these companies. Therefore, assessee is not entitled for various expenses, hence Assessing Officer has disallowed the expenses of U.K. Office and professional fees, and thereafter has made disallowance u/ s. 14A r.w.r.8D. 3.2 In appeal, on other hand it is contended that assessee does business of investment. It was incorporated in 1966 with the main business activities of exercising control over companies in Anand Group and to provide long term finance and consultancy services. The shares have been purchased with the intention to maintain controlling there is systematic activities. Ld. Assessing Officer has properly appreciated the same. The written submission is as under :- "During the year the appellant company has eamed income by way of dividend, interest income, income earned on sale of its investments and professional fees for providing management support services to group company. During the assessment proc....
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....business of these companies as is clear from the services that had been rendered in the shape of export promotion, liaison office at Delhi and internal audit and it also rendered consultation in respect of finance by its directors meeting every day with reference to the needs and requirements of each company and that it is not a case where the assessee-company contented itself with merely making an investment and looking for the dividend. The High Court has, therefore, held that there was a business activity in the matter of holding of investments. ● In CIT v. RajeevaLochankanoria208 ITR 616( Cal), it was held that funds borrowed for acquiring interest in managed companies was an allowable deduction. The Court observed that the activity of managing, controlling, administering and financing companies is a business/ professional/ vocational activity in its own right." ● It is submitted that in the present case the assesse qua holding company has similarly to act to advance the business interests of its subsidiary companies. It has often to engage with joint venture partners of the subsidiaries because it has long experience of carrying out such negotiati....
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....the purpose of business, would not be affected, notwithstanding the fact that the dividend income is not taxable under the head business. The court reached an identical conclusion in Commissioner of Income-Tax vs Jardine Henderson Ltd. 1994 210 ITR 981 (Cal). In the case of S.A. Builders Ltd. v. CIT (281 ITR 1) (SC) the Supreme Court held that where a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, Bench opined that, ordinarily be entitled to deduction of interest on its borrowed loans." 3.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that appellant has admitted the fact that it has purchased shares of group companies only "with the intention to maintain controlling interest in group companies". Therefore, the finding of the Assessing Officer that appellant does not do any regular course of business or manufacturing activities or any other sort of business, is correct. It can be seen from the balance sheet that assessee simply shows....
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....ave been utilised for investing in the shares of Anand Group Companies, hence direct nexus is established therefore the interest expenditure of Rs. 7,77,25,290/- has to be disallowed u/ s. 14A. Thus, Assessing Officer has found that total expenditure of Rs. 11,44,50,056/- are directly related to earning of dividend. Further, as per Rule allowable expenditure is there, hence, Assessing Officer has worked out the same at Rs.2,74,33,122/- and Rs.92, 19, 129/-. Thus, finally Assessing Officer has disallowed an amount of Rs. 15,11,02,307/- 4.2 In appeal, on other hand, it is submitted that Ld. Assessing Officer has wrongly disallowed the expenditure ignoring the disallowance made by the Appellant. The written submission is as under :- ● "During the year under consideration the appellant had eamed dividend income of INR 35,14,87,406 from various companies. The appellant while filing the retum of income had disallowed expenditure of INR 9,08,52,385 under section 14A by applying Rule 8D for earning exempt income. However the Assessing Officer disallowed expenditure of INR 11,44,50,056 by treating it as directly linked for earning exempt income under Rule 8D....
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....the investment. ● We wish to point out that even if the loan of INR 65 crore was taken the incremental investment in equity shares of these companies are as follows: Name of the Company Investment As on 31st March 2010 Investment As on 31st March 2011 Incremental investment Gabriel India Limited 42,46,71,286 57,64,65,268 15,17,93,982 Mando India Limited 7,86,26,000 7,86,26,000 Nil Degremont Limited 3,86,72,160 3,86,72,160 Nil ● In fact the aggregate increase in Investment during the year under consideration was only INR 30,48,44,095. Thus it was incorrect on the part of the AO to conclude that the entire borrowings from Tata Capital have been utilised for investing in shares of Anand Group Companies. He has observed that the entire loan of INR 65 crore was utilised for purchase of shares. ● Thus as explained above there was no direct nexus between the borrowed funds and investment and considering the fact that money was fungible, the appellant had correctly applied Rule 8D (ii) and disallowed the expenditure of INR 8,16,33,454. ● The expenditure towards proceeding fe....
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....used the relevant records. So far as the issue regarding disallowance u/s 14A in the case where no dividend has been received, the same is covered against the assessee by the order of Tribunal in assessee's own case for the assessment year 2008-09, wherein the Tribunal has followed the decision of special bench of Tribunal while deciding the issue. Therefore, we do agree with the finding of the Tribunal on this point. Further since the assessee has raised the new plea in the year under consideration that no expenditure had been incurred by the assessee for earning the exempt income or for the investment in question. We find merit and substance in the contention of the assessee on this point because the investment has been made by the assessee in the group concern and not in the shares of any un- related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the Investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assessee would have incurred....
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.... 14A r.w. Rule 8D." ● Mumbai Tribunal in case of JM Financial Limited Vs Additional Commissioner of Income Tax 4(3) has held as follows: In view of the above discussion and facts and circumstances of the case we agree with the view taken by this Tribunal in the above stated cases and accordingly hold that the assessee has brought out a case to show that no expenditure has been incurred for maintaining the 98% of the investment made in the subsidiary companies, therefore, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the AO is not justified, accordingly the same is deleted." 4.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that during the year assessee has received dividend of Rs. 35,14,87,406/-, interest income of Rs. 17,265,656/- and professional fees of Rs. 14,65,30,638/-. When there is dividend, which is exempt the corresponding expenditure has to be disallowed as per Section 14A r.w.r. 8D. Appellant has disallowed suo-motto an amount of Rs.9,08,52,583/- but there is no proper justification for such di....
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....sed. 5.1 Ground No.4 is against the disallowance of professional fees of Rs. 1,60,00,000/- paid to Deep C. Anand foundation. Assessing Officer has noticed that assessee has shown professional fees of Rs. 23869,173/- which includes an amount of Rs. 1.60 crores as paid to Deep C. Anand foundation. Mr. Deep C. Anand is the Chairman of the assessee company. According to the Assessing Officer, such expenditure is not at all related to any business needs of the assessee. The explanation of the assessee is that this foundation has given advises and consultancy is not supported with the any evidence. According to the Assessing Officer there is not business expediency for making such payment to the Trust. There is no justification for such expenses, hence Assessing Officer has disallowed the such professional fees of Rs. 1.60 crores claimed to be given to the Trust. 5.2 In appeal, appellant submit as under :- ● Respectfully it is submitted that the main business interest of the appellant company qua a holding company is to protect and further the business interests of the subsidiary companies which it has promoted. ● The learned authors Kanga ....
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....ng company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, Bench opined that, ordinarily be entitled to deduction of interest on its borrowed loans. ● It is submitted that in the present case the assessee qua holding company has similarly to act to advance the business interests of its subsidiary companies. It has often to engage with joint venture partners of the subsidiaries because it has long experience of carrying out such negotiations. Secondly and equally importantly, as a promoter it has an interest in ensuring that the subsidiary companies continue to grow and remain in good health. ● It has necessarily to hold shares as investment and not stock in trade because it is a not dealer in shares and has a long term interest in the future of the subsidiary companies it has promoted. ● It is further submitted that these are precisely the considerations which may have weighed with the Courts when they held interest paid on borrowed capital utilized to buy shares of managed companies for purposes of carrying on its managing agency business was for purposes of ....
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....ume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman." 5.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that Ld. Assessing Officer has rightly disallowed the claim of professional fees of Rs. 1.60 crores given to a Trust namely Deep C. Foundation, headed by Chairman of the Company. It is very evident from the written submission that such an amount of Rs. 1.60 crores have not been incurred wholly and exclusively for business purposes. Since, the all the investment has been made in group companies, there is no need of any professional expertise. The copy of Management Service Agreement claimed to be inter into with Deep C. Anand Foundation is a "self serving documents". It does not reveal any valid reason for such huge expenditure. It is very evident that all the investment has ma....
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....s only. A holding company, for example, has often to act in the interests of its subsidiaries, even if they are involved in a different line of business from that of the holding company. It might for example may have to stand guarantee for such subsidiaries or advance loans to them. Thus in CIT v. United Breweries Ltd. 292 ITR 188 (Kar), it was held that irrecoverable loans granted to a subsidiary company were an allowable deduction. ● In CIT v. Amalgamation Put. Ltd. (226 ITR 188), the Supreme Court confirmed the finding of the High court (73 ITR 380) that in view of sec. 23A of the 1922 Act holding of investments, in appropriate cases, would equally be a business as dealing in them and what is required is that there must be a real, substantial and systematic or organised course of activity or conduct with the set purpose of earning profit which is the test for a business. The High Court has observed that the assessee-company is not a mere investor in a single company but has investments in sixteen companies and had taken active interest in the business of these companies as is clear from the services that had been rendered in the shape of export promotion,....
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....as deduction, the justification for allowance of expenditure for furthering the interests of a M/s. Asia Investments Put. Ltd. subsidiary company by a holding company would perhaps be equally, if not more, justifiable. ● The A.O. has opined that since the shares in subsidiary companies are held as investments and the assessee eams only dividend income from such investments, no business expenditure to further their interests can be allowed as a deduction for earning such income. ● In this connection it is submitted that expenditure laid out or expended wholly and exclusively for business as stipulated u/ s.37 is much wider than expenditure laid or expended for earning dividend Income stipulated u/s 57 (refer, india Cement v. CIT 60ITR 52(SC). In Hughes v. Bank of New Zealands ITR 636 it was held that the interest paid by a bank for capital borrowed for buying tax free securities had to be allowed as deduction in arriving at taxable profits, notwithstanding the fact that interest on tax free securities could not be taxed. The court observed that a receipt on the credit side is not required to justify the deduction of an expense. In other words, every deb....
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.... maintain controlling interest, it means there is no independence of existence of such company. Most of the Companies of this Group might be incurring such expenses. Obviously, for no valid reason accounts of the appellant has been debited with this expenditure which is not incurred wholly and exclusively for business purposes. Because of failure of showing any such evidence, Ld. A.R. has refer to and relied upon the various case laws on theoretical basis. Obviously, there is no substance in any of the arguments or written explanation. I find that Ld. Assessing Officer has correctly observed that none of such expenditure like maintaining car in London incurring expenditure for kitchen, grocery, electricity expenses and giving rent is related to business activity. Therefore, the facts of the case do not justify such expenditure. None of the case laws relied upon by the Ld. A.R. is applicable to the facts of the case as elaborated by the Assessing Officer. Therefore, appellant does not deserve any relief. Considering the facts of the case, the disallowance made by the Assessing Officer of Rs. 1,02,63,993/- is sustained. 6.4 In the result, Grounds of Appeal No. 5 is dismissed....
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....the facts as narrated above and the submissions of both sides, we find that the issue which is now subject matter of appeals of the assessee for assessment year 2011-12, 2012-13 and 2013-14 has already been considered by the Division Bench of the Tribunal in assessee's appeal for assessment year 2003-04 decided on 23/02/2018. The Tribunal after considering submissions of the assessee and documents on record viz. auditors report, object clause of Memorandum of Association, etc. decided the issue against the assessee. The case laws relied on by the assessee would support the argument of assessee for allowing interest expenditure u/s 36(1)(iii) of the Act, if the Bench would have accepted the contention of assessee that investment in shares is the 'business activity of assessee. Thus, in the light of specific findings of the Bench, the case laws referred by assessee would not reinforce the cause of assessee. 10. The assessee is seeking constitution of Larger/Special Bench on the ground that the order of Division Bench dated 23/02/2018 is per-incuriam and the Bench would be constrained to follow earlier order. 11. A reference can be made to a Special/ Larger B....
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.... of the assessee for assessment year 2011- 12, 2012- 13 and 2013-14 has already been considered by the Division Bench of the Tribunal in assessee's appeal for assessment year 2003-04 decided on 23/02/2018. The Tribunal after considering submissions of the assessee and documents on record viz. auditors report, object clause of Memorandum of Association, etc. decided the issue against the assessee. The case laws relied on by the assessee would support the argument of assessee for allowing interest expenditure u/s 36(1)(iii) of the Act, if the Bench would have accepted the contention of assessee that investment in shares is the 'business activity' of assessee. Thus, in the light of specific findings of the Bench, the case laws referred by assessee would not reinforce the cause of assessee. 10. The assessee is seeking constitution of Larger/ Special Bench on the ground that the order of Division Bench dated 23/2/2018 is per- Incuriam and the Bench would be constrained to follow earlier order. 11. A reference can be made to a Special/ Larger Bench, where there is doubt over the correctness of earlier decision by the Bench on law or facts [Re. UOI vs. Paras ....
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....acts necessary for adjudicating the issues raised by the assessee for the year under consideration. 5. The Ld. AR submitted that, the assessee was incorporated in 1966, with main business activity of exercising control over companies in Anand Group, provide long term finance and provide management consultancy to Anand Group. 5.1. He submitted that, the assessee's main activity was to act as an investment company. In addition to that, the assessee is also providing management/corporate, support services to Spicer India Ltd., part of Anand Group. The assessee also has one manufacturing unit for the manufactures of machines. It is submitted that, the assessee purchases shares and grants loans and the funds required are generally borrowed from various companies. The Ld.AR submitted that the assessee's income includes dividend, interest income, income earned on sale of its investments and professional fees for providing management support services to group company. The Ld.AR argued that the assessee is predominantly an investment company is proved by its conduct, as it has over the years utilized its funds for the purpose of the business as stated above. 5.2. The Ld.AR ....
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....decision of Hon'ble Bombay High court in case of CIT Panaji, Goa vs. Phil Corp. Ltd., reported in (2011) 244 CTR 226 ● decision of Hon'ble Bombay High court in case of PCIT v. Concentrix Services (I) Pvt. Ltd., reported in (2019) 111 taxmann.com 269 ● decision of Hon'ble Bombay High court in case of CIT v. Srishti Securities Pvt Ltd reported in (2009) 321 ITR 498 ● decision of Hon'ble Delhi High court in case of PCIT v. Gaursons Realty (P) Ltd reported in (2020) 120 taxmann.com 259 ● decision of Hon'ble Delhi High court in case of CIT v. Premier Auto Finance P. Ltd. reported in (1980) 128 ITR 540 ● decision of Hon'ble Gujrat High court in case of Addl. CIT v. Laxmi Agents P. Ltd (1980) 125 ITR 227 ● decision of Hon'ble Delhi High court in case of Eicher Good earth Ltd v. CIT reported in (2015) 378 ITR 28 ● decision of Hon'ble Calcutta High court in case of CIT v. Jardine Henderson and Company Ltd. reported in 210 ITR 981 ● decision of coordinate bench of this Tribunal in case of Tata Industries v. Govt. ITO reported in (2017) 181 TT....
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....sized that by holding controlling interest in the group companies, the assessee was to perform various managerial functions, participating board meetings and to take vital decisions for grown of subsidiaries and group concerns. He submitted that, merely because the shares of the group company in which the assessee has controlling interest are shown as investment, does not mean that assessee is not carrying any business activity. He placed reliance on the decision of the Hon'ble Calcutta High Court in case of CIT Vs. Rajeeva Lochan Kanoria reported in 208 ITR 616, wherein it is held that, funds borrowed for acquiring interest was allowable deduction. Hon'ble Kolkata High Court had observed that the activity of managing, controlling, administrating and financing companies was a business / professional/occasional activity in its own right. He also placed reliance on the following decisions in support of the above propositions. Decision of Hon'ble Supreme Court in case of CIT vs. Amalgamation Put. Ltd. (1997) 226 ITR 188 Decision of Hon'ble Supreme Court in case of S.A. Builders Ltd. vs. CIT (Appeals) (2007) 288 ITR 1 Decision of Hon'ble D....
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....bifurcate the total expenditure incurred for earning professional fees from Spicer India Limited. 5.13. On the contrary, the Ld. DR vehemently opposed all the submissions of the Ld.AR and placed reliance on para-3.3 of the order passed by the Ld. CIT(A): "3.3 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully. I find that appellant has admitted the fact that it has purchased shares of group companies only "with the intention to maintain controlling interest in group companies". Therefore, the finding of the Assessing Officer that appellant does not do any regular course of business or manufacturing activities or any other sort of business, is correct. It can be seen from the balance sheet that assessee simply shows dividend, interest and income from other source. Thus, it is very evident that no other business activities is done, hence the finding of the Assessing Officer is worth approvable. As such, I find no reason to accept the counter arguments of Ld. A.R. / Appellant. Thus, the approach and finding of the Assessing Officer is sustained." 5.14. He thus submitted that it is an admitted fact that the assessee p....
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....al business activity. 6.1. It is also noted that the assessee earned Rs. 14.56 crores from Spicer India Ltd. (being a group company), by providing management support service. The assessee also has earned interest income of Rs. 1.72 crores from inter-corporate deposits to group companies. Both these receipts have been shown under the head income from business. 6.2. During the relevant year under consideration, the assessee claimed the expenses of Rs. 1,02,63,993/- towards rent paid and other expenses like electricity, postage and telephone, vehicle expenses, kitchen expenses and maintenance expenses paid while staying in UK. He Ld.AR argued that these expenditures were incurred for acquiring controlling interest and therefore are to be categorized as business expenditure. 6.3. The Ld.AR vehemently relied on various decisions of jurisdictional High Court, Hon'ble Delhi High Court, Hon'ble Gujrat High Court, decisions of this Tribunal, (referred to herein above). On perusal of the same we note that most of the decisions are prior to insertion of Rule 8D that particularly deals with computation of expenditure that would have to disallowed as incurred for earning exempt....
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.... though incidentally income was also generated in the form of dividends, the dominant intention for purchasing the shares was not to earn the dividend income but to acquire and retain the controlling the business in the company in which shares were invested, or for the purpose of trading in the shares as business activity. 6.4.1. After considering the entire case law on this aspect in the light of the facts involved in both the facts, Hon'ble Court vide paragraph nos. 39 - 40 held as under: "(39) In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in- trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10(34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is ba....
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.... of Patiala also fail, though law in this respect has been clarified hereinabove." (emphasis supplied) 6.4.2. The view of Hon'ble Court is very clear from para 40 above that dominant intention is not important for the purposes of computing disallowance under section 14A. As the assessee has acquired the shares in the group companies and has held it as investment, whatever may be the dominant purpose, disallowance under section 14A r.w.Rule 8D is mandatory, if the assessee earns dividend from such investments. Respectfully following the view expressed by Hon'ble Supreme Court in case of Maxopp Investment Ltd. v. CIT(supra), we hold that the dominant purpose for making investment in shares is not important criteria, even though the assessee has acquired shares for having controlling interest in the group companies. Accordingly Ground No.2 raised by the assessee stands dismissed. 7. Now we analyse the items considered by the authorities for computing the disallowance as per Rule 8D(2). 7.1. The term expenditure occurring in section 14A would take within its sue not only direct expenditure but also all forms of expenditure regardless of whether they are fix....
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....)(i). 7.6. It is submitted by the Ld.AR that, during the year under consideration, the assessee rendered management consultancy services to Spicer India Ltd., in the nature of human resource, business development, marketing and distribution, finance, legal and taxation etc. He submitted that the assessee offered Rs. 14.65 crores received from Spicer India Ltd., to taxation under the head Income from Business and profession. It was submitted submitted that to earn the professional fees from Spicer India Ltd., the expenditure had to be incurred. 7.6.1. The Ld.AO noted that while carrying on the activity of promoting, managing, financing and controlling companies by purchasing shares of group companies, the assessee has earned consultancy fees from Spicer India Ltd. amounting to Rs. 14.65 crores. The assessee has also not maintained separate books of accounts for various sources of income and therefore apportioned all expenditures vis-à-vis income earned was not possible. 7.6.2. On analysis of the P & L A/c. regarding the personal expenses, it is noted that under the head salaries and bonus in schedule 14 a sum of Rs. 1,59,19,089/- has been incurred. The assessment ord....