TaxTMI 
TaxTMI 
2007 (12) TMI 235
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....Notices under ss. 142(1) and 143(2) were issued. Assessee is engaged in the business of manufacturing and/or trading in consumer products such as soaps, detergents, cosmetics, industrial chemicals, oils, oilseeds, oil palm nursery and plantation, financial operations and letting of properties, having branches and factories all over the country. 4. During the course of assessment proceedings, assessee was asked to justify its claim of dividend of Rs. 569.06 lakhs for exemption under s. 10(33). It was submitted that the assessee claimed dividend receipt as exempt and what is claimed as exempt is dividend income as there is no expenditure whatsoever incurred in earning the dividend income. There is no borrowing attributable to the investments made by the assessee. It was further submitted, in respect of dividend of Rs. 6,34,17,603 received during the year under consideration. Rs. 5,69,06,124 was claimed as exempt under s. 10(33) as dividend of this amount was declared/paid on or after 1st June, 1997 and balance of Rs. 65,11,479 declared/paid prior to 1st June, 1997 was brought to tax. 5. However, the AO did not accept the claim of the assessee. He held, the assessee has not allo....
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....s allowable under s. 36 and cannot be apportioned in an ad hoe manner to divided. For the above proposition assessee relied upon the decisions of the Hon'ble Calcutta High Court in the cases of CIT vs. Anniversary Investments Agencies Ltd. (1989) 78 CTR (Cal) 91 : (1989) 175 ITR 199 (Cal) and CIT vs. New India Investment Corpn. Ltd. (1978) 113 ITR 778 (Cal) and the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT vs. Laxmi Agents (P) Ltd. (1980) 125 ITR 227 (Guj). 7. CIT(A) opined that it is not permissible for the AO to allocate interest on ad hoc basis and expenditure on estimate basis, pertaining to dividend income earned by the assessee. He held, the onus has not been discharged by the AO by pointing out any particular item of expenditure or investment has been made out of borrowed funds. It is not permissible to allocate expenditure on ad hoc basis and thereafter reduce exemption under s. 10(33). For the above proposition, he relied upon the decision of the Hon'ble Calcutta High Court in the case of CIT vs. United Collieries Ltd. (1993) 203 ITR 857 (Cal). He allowed the claim of the assessee vide paras 2.6 and 2.7 of his order, observing as under: "2.6....
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....ear that the sale proceeds of investments during the particular financial year far exceed the cost of investments made during the year under consideration. There is no borrowing attributable to the acquisition of shares on which dividend has been received. Surplus realized by the assessee on sale of past investments in each and every year, has been ploughed back into the business activities of the assessee. Factually, there is no borrowing to fund an investment. On the contrary, the surpluses on sale of shares have funded the assessee's manufacturing operations. He further submitted, perusal of share capital and reserves and surplus in the balance sheet at the end of the year would reveal that reserves and surplus amount to Rs. 26206 lakhs and share capital amount to Rs. 6,514 lakhs. Amount in investments aggregates to Rs. 23,179.55 lakhs, which is much lower compared to capital employed, i.e. Rs. 32,720 lakhs and it is more than covered by reserves of the assessee company. Learned counsel submitted, one cannot notionally and on sheer conjecture ascribe expenses to the earning of dividend income when in actual fact no such expenses had been incurred. The onus is on the Revenue to s....
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....n expenditure will most certainly be incurred for earning such dividend income. I estimate such expenditure @ 5 per cent of the dividend of Rs. 43,70,884, which has been claimed exempt under s. 10(33) of the Act. Hence, the expenditure to be disallowed works out to Rs. 2,18,544." 12. Learned counsel submitted, for the asst. yr. 2000-01, Revenue has accepted the order of the learned CIT(A) on the very same point, which is in favour of the assessee. He further submitted that for the assessment year under consideration the assessee in fact sold investment worth Rs. 55 crores whereas assessee purchased and made investment only to the tune of Rs. 6 crores. On the premises of the above facts, there is no reason and there is no meaning in saying that the assessee had spent borrowed money to make the investment. Assessee is rot trading in shares. Assessee had made investment only in assessee's group concerns, where the assessee need not spend any labour for the above purpose. In support of assessee's contention that no disallowance could be made, learned counsel relied upon the following decisions: The Hon'ble Bombay High Court in the case of CIT vs. General Insurance Corporation of ....
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....he rival submissions and the decisions relied upon by the contending parties and also the facts brought on record, we are of the view that the order of the learned CIT(A) does not call for any interference. Assessee is a big conglomerate. It is very difficult to come to a definite conclusion that the assessee has borrowed funds for investment, where assessee will get tax-free returns, particularly in view of the fact that assel8see has sold its own assets/shares to the tune of Rs. 55 crores whereas assessee has made investment to the tune of Rs. 6 crores and odd. In the light of the above fact, it is very difficult to come to the conclusion that the assessee has utilised borrowed funds to make investment in the tax-free returns. The appeal by the Revenue on this ground hence fails and it is dismissed. 15. Coming to next ground (ground No. 2) of objection taken by the Revenue it is directed against the order of the CIT(A) in allowing deduction under s. 35D to the tune of Rs. 90,17,700, without giving the AO an opportunity to re-examine the issue. 16. AO observed, in the revised return the assessee had claimed deduction under s. 35D in respect of share issue expenses of Rs. 90,....
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....entitled to various businesses carried on by the assessee. In the absence of specific information regarding receipt of rental income which may be assessed under house property, the following income was assessed under the head "Income from other source": Nature of Income Amount(Rs.In lakhs) (1) Miscellaneous Interest paid on fixed deposits 13.73 with banks (2) Leave and licence fees received from outside 206.21 parties in the nature of rent other than fees received from employees for staff quarters (3) interest on inter-corporate deposits 288.33 (4) Interest on investments 1.36 (5) Interest on income-tax refunds &nb....
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.... (1992) 104 CTR (AP) 55 : (1992) 198 ITR 375 (AP); United Liner Agencies of India (P) Ltd. vs. CIT (1992) 107 CTR (Cal) 237 : (1993) 201 ITR 704 (Cal) and CIT vs. Bihar Alloys Steels Ltd. (1994) 116 CTR (Pat) 346 : (1994) 206 ITR 350 (Pat), etc. He held, finally the issue has been settled by the Hon'ble Supreme Court in detail in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT. Though the decision was regarding interest income prior to commencement of its business, but the ratio of the judgment clarified and settled down the controversy. Hon'ble Supreme Court ruled that interest derived by the assessee from investment in short-term deposits with bank would be chargeable under the head "Income from other source". AO also relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Coromandal Cements Ltd. (1999) 153 CTR (SC) 209 : (1998) 234 ITR 412 (SC) (Larger Bench), wherein it is held that interest would not go to reduce the interest payable by netting out of interest by the assessee on the term loans secured by the assessee from financial institution for the purpose of business. In the light of the decision of the Hon'ble Supreme Court in the ca....
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.... Tribunal. 27. Learned Departmental Representative supported the order of the AO and submitted, relying upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Autokast Ltd. (2001) 165 CTR (SC) 16 : (2001) 248 ITR 110 (SC), which followed the decision of the apex Court again in the case of Tuticorin Alkali Chemicals & Fertilizes Ltd. vs. CIT, wherein the Hon'ble Supreme Court (Large Bench) held that interest was taxable in the hands of the assessee as income from other sources. Learned Departmental Representative further submitted, the facts were not properly put before the AO by the assessee. CIT(A), while reversing the order, had also not given any cogent reason why he is reversing the order of the AO. Again he placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs. Coromandal Cements Ltd., wherein their Lordships, following the decision in the case of Tuticorin Alkali Chemicals & Fertilizes Ltd., reversed the decision of the Hon'ble Andhra Pradesh High Court in CIT vs. Coromandal Cements Ltd. (1999) 153 CTR (AP) 210. Hence, learned Departmental Representative submitted, the order of the CIT(A) is to be reversed. 28. Replying to the....
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.... per the objects clause of the memorandum. It was further submitted, assessee utilized certain portion of its factory after changing the user with permission of municipality, into a commercial complex and has licenced the premise for use by large multinational corporations. Hence, these are business assets and have been exploited by the assessee as such. Jt has been subjected to depreciation and depreciati6n on such buildings has been allowed even by the AO. These premises/assets were reflected as fixed assets in the financial statement. The volume of such activity will show that it was a full-fledged business activity. In view of the above facts, it was submitted that this income is to be treated as business income. 30. Learned counsel again brought our attention to paper book pp. 76 to 101, assessment order for the asst. yr. 1999-2000, wherein similar income was treated as business income. Learned counsel hastened to add that he is not disputing the disallowance of two items by the AO, viz. item Nos. (1) and (5), mentioned hereinabove vide para 23 of our order. He further submitted, the decisions relied upon by the AO are distinguishable on facts. 31. Considering the rival ....
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....r (c) of sub-s. (3A) of s. 80HHC. 35. Contending parties conceded that this issue now stands covered against the (Revenue by the Special Bench decision of the Tribunal in the case of Dy. CIT vs. Syncome Formulations (1) Ltd. (2007) 108 TTJ (Mumbai)(SB) 105 : (2007) 13 SOT 414 (Mumbai)(SB), wherein the Tribunal held that deduction under s. 80HHC in a case of MAT assessment is to be worked out on the basis of adjusted book profit under s. 115JA and not on the basis of profit computed under regular provisions of law applicable to computation of profits and gains of business or profession. Hence, the appeal by the Revenue on this ground fails and it is dismissed. 36. Next ground (ground No. 7) of objection taken by the Revenue is directed against the order of the CIT(A) in allowing the claim of the assessee to reduce the book profit on account of depreciation on revaluation of assets without appreciating the fact that revaluation reserve cannot be considered to be reserve within the meaning of Expln. (i) to s. 115JA(2) as at the time of creation of revaluation reserve it has not been routed through P&L a/c. 37. AO noticed on going through details that the assessee reduced book....