DCIT, Bangalore V. M/s Wonderla Holidays Limited, Bangalore

ITA 1107/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7270 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B R RAMESH JT BENGALURU
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO. 1107/BANG/2016 ASSESSMENT YEAR : 2008 - 09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2), BANGALORE. VS. M/S. WONDERLA HOLIDAYS LTD., (FORMERLY KNOWN AS VEEGA HOLIDAYS & PARKS PVT. LTD.), 28 TH KM, MYSORE ROAD, BANGALORE 562 109. PAN: AAACV 7975J APP ELLANT RESPONDENT APP ELLANT BY : MS. SUSAN MATHEW , CA RESPONDENT BY : SHRI B.R. RAMESH, JT. CIT(DR)(ITAT), BENGALURU DATE OF HEARING : 31.10.2017 DATE OF PRONOUNCEMENT : 10 .11.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(APPEALS)-7, BENGALURU INTER ALIA ON THE FOLLOWING GROUNDS:- ITA NO.1107/BANG/2016 PAGE 2 OF 7 1. THE ORDER OF THE LEARNED C1T(A} IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE C1T(A) WAS JUSTIFIED IN LAW IN HOLDING THAT THE ORD ER PASSED BY THE AO U/S 143(3} WAS NOT ERRONEOUS AND THEREBY IT COULD NOT BE CONSIDERED AS PREJUDICIAL TO THE INTEREST OF THE RE VENUE. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE C1T(A) WAS JUSTIFIED IN LAW IN ALLOWING THE EXPENDI TURE INCURRED IN EARNING TAX FREE INCOME. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT( A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND TH AT OF THE ASSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACT THAT THERE WAS NO EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR. THEREFORE, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. IN SU PPORT OF THIS CONTENTION, HE PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. V . CIT AS REPORTED IN 378 ITR 33 (DEL) . 3. THE LD. DR SIMPLY PLACED RELIANCE UPON THE ORDE R OF THE AO. 4. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORIT IES BELOW, WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS NOT EARNED ANY E XEMPTED INCOME. NOW IT IS SETTLED POSITION OF LAW THAT WHENEVER ASS ESSEE DID NOT EARN ANY EXEMPT INCOME, NO DISALLOWANCE COULD BE MADE U/S. 1 4A OF THE ACT. IN THIS ITA NO.1107/BANG/2016 PAGE 3 OF 7 REGARD, THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. V. CIT, 378 ITR 33 (DEL) HAS CATEGORICALLY HELD THAT SECTION 14A ENVISAGES THAT THERE SHOULD BE ACTUAL RECEIPT OF INCOME WHICH WAS NOT INCLUDIBLE IN THE TOTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE IN RELATION TO THE SAID INCOME. WHEREVER THERE IS NO EXEMPT INCOME INCLUDIBLE IN THE TOTAL I NCOME OF THE ASSESSEE, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. THE RELEVANT OBSERVATIONS OF THE JUDGMENT OF THE HONBLE DELHI H IGH COURT ARE EXTRACTED HEREUNDER:- 15. TURNING TO THE CENTRAL QUESTION THAT ARISES F OR CONSIDERATION, THE COURT FINDS THAT THE COMPLETE AN SWER IS PROVIDED BY THE DECISION OF THIS COURT IN CIT V. HO LCIM INDIA (P) LTD. (DECISION DATED 5TH SEPTEMBER 2014, IN I. T. A . NO. 486 OF 2014). IN THAT CASE, A SIMILAR QUESTION AROSE, VIZ. , WHETHER THE INCOME-TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN DELE TING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WHEN NO D IVIDEND INCOME HAD BEEN EARNED BY THE ASSESSEE IN THE RELEV ANT ASSESSMENT YEAR ? THE COURT REFERRED TO THE DECISIO N OF THIS COURT IN MAXOPP INVESTMENT LTD. (SUPRA) AND TO THE DECISI ON OF THE SPECIAL BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL IN THIS VERY CASE, I.E., CHEMINVEST LTD. V. CIT [2009] 317 ITR ( AT) 86 (DELHI) [SB]. THE COURT ALSO REFERRED TO THREE DECI SIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE. THE FIRST WAS THE DECISION IN CIT V. LAKHA NI MARKETING INCL. (DECISION DATED APRIL 2, 2014, OF THE HIGH CO URT OF PUNJAB AND HARYANA IN I. T. A. NO. 970 OF 2008)SINCE REPO RTED IN [2015] 4 ITR-OL 246 (P&H) WHICH IN TURN REFERRED T O TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LTD. [2010] 323 ITR 518 (P&H) AND CIT V. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 (P&H). THE SECON D WAS OF THE GUJARAT HIGH COURT IN CIT V. CORRTECH ENERGY (P .) LTD. [2014] 223 TAXMANN 130 (GUJ) ; [2015] 372 ITR 97 (G UJ) AND THE THIRD OF THE ALLAHABAD HIGH COURT IN CIT V. SHI VAM MOTORS (P) LTD. (DECISION DATED 5TH MAY, 2014, IN I. T. A. NO. 88 OF ITA NO.1107/BANG/2016 PAGE 4 OF 7 2014). THESE THREE DECISIONS REITERATED THE POSITIO N THAT WHEN AN ASSESSEE HAD NOT EARNED ANY TAXABLE INCOME IN THE R ELEVANT ASSESSMENT YEAR IN QUESTION 'CORRESPONDING EXPENDIT URE COULD NOT BE WORKED OUT FOR DISALLOWANCE.' 16. IN CIT V. HOLCIM INDIA (P.) LTD. (SUPRA), THE COURT FURTHER EXPLAINED AS UNDER : '15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER A ND CAN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHE R INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD N OT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANS ACT ION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG-TERM CAPITAL GAIN ON SALE OF SHARES I S PRESENTLY NOT TAXABLE WHERE SECURITY TRANSACTION TA X HAS BEEN PAID, BUT A PRIVATE SALE OF SHARES IN AN OFF M ARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UN DISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIA L NUMBER OF SHARES AND THEREBY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVAT E PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT INSI ST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX.' 17. ON FACTS, IT WAS NOTICED IN CIT V. HOLCIM INDI A (P.) LTD. (SUPRA) THAT THE REVENUE HAD ACCEPTED THE GENUINENE SS OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN THAT CASE A ND THAT EXPENDITURE HAD BEEN INCURRED TO PROTECT INVESTMENT MADE. 18. IN THE PRESENT CASE, THE FACTUAL POSITION THAT HAS NOT BEEN DISPUTED IS THAT THE INVESTMENT BY THE ASSESSEE IN THE SHARES OF MAX INDIA LTD. IS IN THE FORM OF A STRATEGIC INVEST MENT. SINCE THE BUSINESS OF THE ASSESSEE IS OF HOLDING INVESTMENTS, THE INTEREST EXPENDITURE MUST BE HELD TO HAVE BEEN INCURRED FOR HOLDING AND MAINTAINING SUCH INVESTMENT. THE INTEREST EXPENDITU RE INCURRED BY THE ASSESSEE IS IN RELATION TO SUCH INVESTMENTS WHICH GIVES RISE TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME. ITA NO.1107/BANG/2016 PAGE 5 OF 7 19. IN THE LIGHT OF THE CLEAR EXPOSITION OF THE L AW IN HOLCIM INDIA (P.) LTD. (SUPRA) AND IN VIEW OF THE ADMITTED FACTUAL POSITION IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC I NVESTMENT IN SHARES OF MAX INDIA LTD. THAT NO EXEMPTED INCOME WA S EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR AND SI NCE THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSE SSEE IS NOT IN DOUBT, THE QUESTION FRAMED IS REQUIRED TO BE ANSWER ED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DE CISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY (SUPRA), IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID DECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSU E BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPE NDITURE UNDER SECTION 57(III) OF THE ACT COULD BE ALLOWED A S A DEDUCTION AGAINST DIVIDEND INCOME ASSESSABLE UNDER THE HEAD ' INCOME FROM OTHER SOURCES'. UNDER SECTION 57(III) OF THE ACT, D EDUCTION IS ALLOWED IN RESPECT OF ANY EXPENDITURE LAID OUT OR E XPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. THE SUPREME COURT EXPLAINED THAT THE EXPRES SION 'INCURRED FOR MAKING OR EARNING SUCH INCOME, DID NO T MEAN THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A CON DITION PRECEDENT FOR CLAIMING THE EXPENDITURE. THE COURT E XPLAINED (PAGE 522 OF 115 ITR) : 'WHAT SECTION 57(III) REQUIRES IS THAT THE EXPENDIT URE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURP OSE OF THE EXPENDITURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF SECTION 57(III) AND THAT PURPOSE M UST BE MAKING OR EARNING OF INCOME. SECTION 57(III) DOES N OT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDE R TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INC OME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LAN GUAGE OF SECTION 57(III) TO SUGGEST THAT THE PURPOSE FOR WHI CH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFI T BY WAY OF RETURN IN THE SHAPE OF INCOME. THE PLAIN NAT URAL CONSTRUCTION OF THE LANGUAGE OF SECTION 57(III) IRR ESISTIBLY LEADS TO THE CONCLUSION THAT TO BRING A CASE WITHIN THE SECTION, IT IS NOT NECESSARY THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITURE.' ITA NO.1107/BANG/2016 PAGE 6 OF 7 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA THAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MO ODY (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDU CTION UNDER SECTION 57(III) OF THE ACT, WHERE THE EXPRESSION US ED IS 'FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME'. SECTION 14A OF THE ACT ON THE OTHER HAND CONTAINS THE EXPRESSION 'IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME '. THE DECISION IN RAJENDRA PRASAD MOODY (SUPRA) CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTIO N 14A OF THE ACT. 22. IN THE IMPUGNED ORDER, THE INCOME-TAX APPELLAT E TRIBUNAL HAS REFERRED TO THE DECISION IN MAXOPP INVESTMENT L TD. (SUPRA) AND REMANDED THE MATTER TO THE ASSESSING OFFICER FO R RECONSIDERATION OF THE ISSUE AFRESH. THE ISSUE IN M AXOPP INVESTMENT LTD. (SUPRA) WAS WHETHER THE EXPENDITURE (INCLUDING INTEREST ON BORROWED FUNDS) IN RESPECT OF INVESTMEN T IN SHARES OF OPERATING COMPANIES FOR ACQUIRING AND RETAINING A C ONTROLLING INTEREST THEREIN WAS DISALLOWABLE UNDER SECTION 14A OF THE ACT. IN THE SAID CASE, ADMITTEDLY THERE WAS DIVIDEND EARNED ON SUCH INVESTMENT. IN OTHER WORDS, IT WAS NOT A CASE, AS T HE PRESENT, WHERE NO EXEMPT INCOME WAS EARNED IN THE YEAR IN QU ESTION. CONSEQUENTLY, THE SAID DECISION WAS NOT RELEVANT AN D DID NOT APPLY IN THE CONTEXT OF THE ISSUE PROJECTED IN THE PRESENT CASE. 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINB EFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT T HE EXPRESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE R ELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTIO N 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 5. IN THE LIGHT OF THE AFORESAID JUDGMENT, THE PROV ISIONS OF SECTION 14A CANNOT BE INVOKED AS THERE IS NO EXEMPT INCOME IN T HE HANDS OF THE ITA NO.1107/BANG/2016 PAGE 7 OF 7 ASSESSEE. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(APPEALS) WHO HAS RIGHTLY DELETED THE ADDITION. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF NOVEMBER, 2017. SD/- SD/- ( JASON P. BOAZ ) ( SUNIL KUMAR YADA V ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 10 TH NOVEMBER, 2017. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.