DCIT, CHENNAI V. Shriram Properties Pvt Limited, CHENNAI

ITA 2018/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4297 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 01-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R SIVARAMAN
• Keywords: Business income; Business expenditure; Double taxation relief; Earning of tax free income; Permanent establishment; Wholly owned subsidiary
• Section: 143(3); 14A; 54

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.2018/MDS/2016 ( / ASSESSMENT YEAR: 2011-12) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI -34. VS M/S. SHRIRAM PROPERTIES PVT. LTD., NO.149, GREAMS DUGAR, 4 TH & 5 TH FLOOR, GREAMS ROAD, CHENNAI 600 006. PAN: AAFCS5801D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT /RESPONDENT BY : SHRI R. SIVARAMAN, ADVOCATE /DATE OF HEARING : 03.04.2017 ! /DATE OF PRONOUNCEMENT : 06.06.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- 15, CHENNAI DATED 18.03.2016 IN ITA NO.592/CIT(A)-1 5/13-14 FOR THE ASSESSMENT YEAR 2011-12 PASSED U/S.250(6) R.W.S . 143(3) OF THE ACT. 2 ITA NO.2018/MDS/2016 2. THE REVENUE HAS RAISED THREE ELABORATE GROUNDS I N ITS APPEAL. HOWEVER THE CRUXES OF THE ISSUES ARE AS FOL LOWS:- I. THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO A LLOW THE PROFESSIONAL FEES OF RS.25,89,854/- CLAIMED BY THE ASSESSEE AS ITS EXPENDITURE. II. THE LD. CIT(A) HAS ERRED IN DIRECTING THE LD.AO TO DELETE THE DISALLOWANCE MADE U/S.14A OF THE ACT FOR RS.4,30,98,790/-. III. THE LD.CIT(A) HAS ERRED IN TREATING THE INTERE ST INCOME RECEIVED FROM INTER CORPORATE DEPOSITS AS BUSINESS INCOME THOUGH THE ASSESSEE WAS NOT IN THE BUSINESS OF FINA NCING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS AS PROPERTY DEVELOPERS, FILED ITS RETURN OF INCOME FOR THE ASSE SSMENT YEAR 2011-12 ON 30.09.2011 DECLARING LOSS OF RS.37,08,97 ,186/-. THE CASE WAS SELECTED UP FOR SCRUTINY UNDER CASS AND NO TICE U/S.143(2) OF THE ACT WAS ISSUED. THEREAFTER THE A SSESSMENT ORDER WAS PASSED U/S. 143(3) ON 21.02.2014 WHEREIN THE LD.AO MADE VARIOUS ADDITIONS. 3 ITA NO.2018/MDS/2016 4. GROUND NO.I :- DELETION OF ADDITION TOWARDS PROFESSIONAL FEES OF RS.25,89,854/-. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, IT WAS NOTICED BY THE LD.AO THAT THE ASSESSEE HAS CLAI MED RS.25,89,854/- AS PROFESSIONAL AND CONSULTANCY CHAR GES WHICH WAS PAID TO THE CONSULTANT WITHOUT DEDUCTING TDS. ON QUERY IT WAS EXPLAINED BY THE LD. ASSESSEES REPRESENTATIVE THAT THE AFORESAID AMOUNT WAS PAID TO M/S. MAYOR BROWN LLB T OWARDS PROFESSIONAL FEES FOR SERVICES RENDERED OUTSIDE IND IA WITH RESPECT TO DOCUMENTATION. IT WAS FURTHER CLARIFIED THAT M/ S. MAYOR BROWN LLB DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN IND IA AND HENCE THE INCOME DID NOT ACCRUE OR ARISE IN INDIA T O THE FOREIGN ENTITY. THE ASSESSEE ALSO ENCLOSED FORM 15CB IN LI EU OF THE TRANSACTION AND CLAIMED THAT THE PROVISIONS OF SECT ION 195 WILL NOT BE ATTRACTED. HOWEVER THE LD.AO REJECTED THE A RGUMENTS ADVANCED BY THE LD.AR BY RELYING ON EXPLANATION 2 T O SECTION 9(1)(VII) OF THE ACT, THE DECISION IN THE CASES, GM P INTERNATIONAL GMBH DATED 29.01.2010 REPORTED IN 188 TAXMANN 143 A AR, M/S. TRANSMISSION CORPORATION OF ANDHRA PRADESH REP ORTED IN 239 ITR 589 (SC) AND THE INDO US TREATY. THEREAFTER HE INVOKED 4 ITA NO.2018/MDS/2016 THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT, AND ACCORDINGLY DISALLOWED THE CLAIM OF EXPENDITURE OF RS.25,89,854 /-. ON APPEAL THE LD.CIT(A) AFTER EXAMINING THE ISSUE IN D ETAIL DELETED THE ADDITION MADE BY THE LD.AO BY OBSERVING AS UNDE R:- 5.1.2 I HAVE CONSIDERED THE FINDINGS GIVEN BY THE ASSESSING OFFICER. THE APPELLANT HAS RELIED UPON THE DECISIO N OF ITAT D BENCH, CHENNAI IN THE CASE OF ACIT V/S. M/S. M. M. FORGING LTD. IN ITA NO.2679/MDS/2014 DATED 19.06.2 015. THE COMMISSION PAID TO FOREIGN AGENTS FOR PROCURING ORD ERS CANNOT BE CALLED EITHER TO RENDERING OF TECHNICAL SERVICES OR MANAGERIAL OR CONSULTANCY SERVICES. THE HONBLE DE LHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERN ATIONAL TAXATION)-II, V/S. PANALFA AUTO ELEKTRIK LTD. 49 TA XMANN.COM 412 HAS HELD THAT THE SERVICES RENDERED FOR PROCURE MENT OF EXPORT ORDERS ETC. CANNOT BE TERMED AS MANAGERIAL S ERVICES PROVIDED BY THE NON-RESIDENTS. AS PER DTAA AGREEME NT, NO TAX AT SOURCE IT TO BE DEDUCTED. THEREFORE, THE ASSESS ING OFFICER IS DIRECTED TO ALLOW PROFESSIONAL TAX OF RS.25,89,854/ -. THESE GROUND OF APPEAL ARE ALLOWED. 4.1 BEFORE US THE LD. DR REITERATED THE FINDINGS O F THE LD.AO AND ARGUED IN SUPPORT OF THE SAME, WHILE AS T HE LD.AR RELIED ON THE ORDER OF THE LD.CIT(A). 4.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. AT THE OUTSET WE FIND MER IT IN THE ORDER OF THE LD.CIT(A). FROM THE FACTS OF THE CASE IT IS CLEAR THAT THE 5 ITA NO.2018/MDS/2016 ASSESSEE HAD INCURRED EXPENDITURE OF RS.25,89,854/- RELATED TO DOCUMENTATION OUTSIDE INDIA AND THE SERVICES WERE R ENDERED BY COMPANY SITUATED OUTSIDE INDIA. THEREFORE, IT IS C RYSTAL CLEAR THAT FOR SERVICES RENDERED BY M/S. MAYOR BROWN LLB., OUT SIDE INDIA, INCOME CANNOT BE SAID TO HAVE ACCRUED OR ARISEN IN INDIA. HENCE, WE DO NOT FIND IT NECESSARY TO INTERFERE WIT H THE ORDER OF THE LD.CIT(A) ON THIS ISSUE. 5. GROUND NO.II: DELETION OF THE DISALLOWANCE U/S.1 4A OF THE ACT FOR RS.4,30,98,790/- :- IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HA S MADE INVESTMENT OF RS.1167,56,40,860/- IN SHARES AS ON 3 1.03.2011 AND THE INVESTMENT AS ON 01.04.2010 WAS RS.129,49,3 9,630/-. SINCE, THE DIVIDEND INCOME EARNED BY THE ASSESSEE C OMPANY FROM ITS INVESTMENTS WERE NOT TAXABLE AND SINCE THE ASSESSEE COMPANY HAD NOT MADE ANY DISALLOWANCE ON ITS OWN T OWARDS THE EXPENDITURE INCURRED FOR MAINTAINING SUCH INVESTMEN TS, THE LD.AO INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE RULES BY REJECTING THE FOLLOWING SUBMISSI ON OF THE LD.AR:- 6 ITA NO.2018/MDS/2016 1. THE FACT IS THAT THE ASSESSEE INCURS ROUTINE EXPEND ITURE TO MAINTAIN ITS ESTABLISHMENT AND TOWARDS ADMINISTRATI ON, A PORTION OF WHICH CAN BE ATTRIBUTABLE TO THE ACTIVIT Y OF EARNING DIVIDEND. THE MANAGERIAL STAFF AND THE DIRECTORS O F THE ASSESSEE COMPANY ARE INVOLVED IN THE DECISION MAKIN G PROCESS ON INVESTMENTS MADE; THE ASSESSEE CLAIMS TH E MANAGERIAL REMUNERATION IN WHOLE AS AN EXPENDITURE. THEREFORE, A PORTION OF THE EXPENDITURE OF THE ASSE SSEE COULD BE ATTRIBUTABLE TOWARDS THE DIVIDEND EARNED BY THE ASSESSEE WHICH IS TO BE EXEMPT U/S.10. 2. THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.13,14,47, 893/- AS FINANCE CHARGES ON ITS BORROWED CAPITAL DURING THIS ASSESSMENT YEAR. HAD THE SURPLUS FUNDS OF THE ASSE SSEE FROM THE BUSINESS HAD BEEN UTILIZED THERE WOULD BE A DEF INITE DECREASE IN THE AMOUNT OF INTEREST PAID BY THE ASSE SSEE. THEREFORE, TO ARGUE THAT NO PORTION OF THE INTEREST PAID RELATES TO INVESTMENT IS NOT CORRECT AND TO THAT EX TENT IT STANDS UNSATISFIED FOR EXPLANATION. 3. RULE 8D HAS BEEN PRESCRIBED TO ARRIVE AT THE FIGURE OF EXPENDITURE ATTRIBUTABLE TO THE EXEMPT INCOME, IF I T COULD NOT BE ARRIVED AT DIRECTLY. THE CASE OF THE ASSESSEE I S SUCH ONE, SINCE ITS INVESTMENTS AND PAYMENT OF INTEREST, THE COMPONENT OF MANAGERIAL REMUNERATION AND OTHER STAFF EXPENSES ARE INTERLINKED AND IT WOULD BE DIFFICULT TO ALLOCATE I NDIVIDUALLY. 5.1 ON APPEAL THE LD.CIT(A) DIRECTED THE LD.AO TO D ELETE THE ADDITION OF RS.4,30,98,790/- OBSERVING AS UNDER:- THE FACT THAT THE ASSESSEE INCURS ROUTINE EXPENDIT URE TO MAINTAIN ITS ESTABLISHMENT AND TOWARDS ADMINISTRATI ON, A PORTION OF WHICH CAN BE ATTRIBUTABLE TO THE ACTIVIT Y OF EARNING DIVIDEND. THE MANAGERIAL STAFF AND THE DIRECTORS O F THE ASSESSEE COMPANY ARE INVOLVED IN THE DECISION MAKIN G PROCESS 7 ITA NO.2018/MDS/2016 ON INVESTMENTS MADE; THE ASSESSEE CLAIMS THE MANAGE RIAL REMUNERATION IN WHOLE AS AN EXPENDITURE. THEREFORE , A PORTION OF THE EXPENDITURE OF THE ASSESSEE COULD BE ATTRIBU TABLE TOWARDS THE DIVIDEND EARNED BY THE ASSESSEE WHICH IS TO BE EXEMPT U/S.10 5.2 BEFORE US THE LD.DR ARGUED IN SUPPORT OF THE OR DER OF THE LD.AO, WHILE AS THE LD.AR RELIED ON THE ORDER OF TH E LD.CIT(A) AND FURTHER SUBMITTED THAT MOST OF THE INVESTMENTS MADE BY THE ASSESSEE COMPANY WERE IN ITS SISTER CONCERNS. THE LD.AR FURTHER SUBMITTED THAT THE TRIBUNAL ON MANY EARLIER INSTANCE HAD HELD THAT THE PROVISIONS OF SECTION 14A OF THE ACT WILL NOT BE APPLICABLE WHEN INVESTMENTS ARE MADE IN SISTER CONC ERNS FOR STATISTICAL REASONS. 5.3 WE HAVE HEARD THE RIVAL SUBMISSION AND CAREFULL Y PERUSED THE MATERIAL ON RECORD. AT THE OUTSET, WE FIND THA T THIS ISSUE IS COVERED BY OUR RECENT DECISION IN THE CASE OF M/S. SIDD LIFE SCIENCES IN ITA NO.3004/MDS/2016, ORDER DATED 10.04 .2017. THE GIST OF THE RELEVANT PORTION OF THE CASE IS REP RODUCED HEREIN BELOW FOR REFERENCE: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. RELYING ON VARIOUS D ECISIONS OF THE 8 ITA NO.2018/MDS/2016 HIGHER JUDICIARY THIS BENCH OF THE TRIBUNAL ON THE EARLIER OCCASION IN THE CASE OF LAKSHMI ELECTRICAL DRIVES LTD IN ITA NO .3114/MDS/2016 VIDE ORDER DATED 23.03.2017 HAS HELD AS FOLLOWS:- THE ASSESSEE HAD INVESTED RS.18.01 CRORES WHICH WO ULD YIELD EXEMPT INCOME. THEREFORE THE LD. AO INVOKED THE PROVISION S OF SECTION 14A AND RULE 8D OF THE RULES AND MADE ADDITION WHICH WA S SUBSEQUENTLY CONFIRMED BY THE LD. CIT(A). AT THE OUTSET, THE LD . AR SUBMITTED BEFORE US THAT, THE ENTIRE INVESTMENTS, FOR STRATEG ICALLY REASONS, WAS MADE IN SUBSIDIARY COMPANIES AND IT WAS SOURCED FRO M INTEREST FREE FUNDS. THE LD. AR FURTHER ARGUED THAT ON SEVERAL O CCASIONS, THE CHENNAI BENCH OF THE TRIBUNAL HAS HELD THAT IF SUCH INVESTMENTS ARE MADE IN SISTER /SUBSIDIARY COMPANIES, THE PROVISION S OF SECTION 14A CANNOT BE INVOKED. HE THEREFORE PLEADED THAT THE A DDITION MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT, MAY BE DELETED. THE LD. DR THOUGH OPPOSED TO THE SUBMISSION OF THE LD. AR COULD NOT SUCCESSFULLY CONTROVERT TO THE SUBMISSIONS. AFTER HEARING BOTH SIDES, WE FIND MERIT IN THE ARGUMENTS OF THE LD. AR. ON S EVERAL INSTANCE THIS BENCH OF THE TRIBUNAL HAS HELD AS WHAT WAS ARGUED B Y THE LD. AR. FOR INSTANCE IN THE CASE OF M/S. DATA SOFTWARE RESE ARCH COMPANY (INTERNATIONAL) PVT. LTD. V. ACIT, ITA NOS.2169 & 2 170/MDS/2015 AND ACIT V. M/S. DATA SOFTWARE RESEARCH COMPANY (INTERN ATIONAL) PVT. LTD., ITA NOS. 2171& 2172/MDS/2015 VIDE ORDER DATED 03.02.2016, THIS BENCH OF THE TRIBUNAL HAS HELD AS FOLLOWS: 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. IT IS A NORMAL P RACTICE TO MAKE INVESTMENT IN SISTER COMPANIES DUE TO COMMERCIAL EXIGENCIES. WHILE DOING SO, NO EXPENSE CAN BE ATTRIBUTABLE OTHER THAN INTEREST EXPENSE FOR MAK ING SUCH INVESTMENTS BECAUSE ALL MANAGEMENT COSTS WILL BE ABSORBED FOR STRATEGIC DECISION MAKING PROCESS WHIC H IS ALLOWABLE AS BUSINESS EXPENDITURE. IN THE CASE OF THE ASSESSEE IT IS SUBMITTED THAT NO INTEREST COST WAS INCURRED AS THE ENTIRE INVESTMENTS WERE MADE OUT OF OWN FUNDS. FURTHER IN THE DECISION OF THE TRIBUNAL IN I TA NO.115/MDS/2015 DATED 06.01.2016, EXTRACTED HEREIN BELOW, IT HAS BEEN HELD THAT SECTION 14A OF THE ACT WILL 9 ITA NO.2018/MDS/2016 NOT BE APPLICABLE WHEN INVESTMENTS ARE MADE IN SIST ER COMPANIES. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. ON THE IDENTICA L ISSUE AS POINTED OUT BY THE LD. A.R. THE CHENNAI BENCH OF TH E TRIBUNAL IN ITA NO.156/MDS/2013 VIDE ORDER DATED 20/08/13 FO R THE ASSESSMENT YEAR 2009-10 HAS REMITTED BACK THE MATTE R TO THE LD. ASSESSING OFFICER TO DECIDE THE MATTER ONCE AGA IN AFRESH BASED ON THE FINDINGS WHETHER THE ASSESSEE HAD ACTU ALLY INCURRED ANY EXPENDITURE IN EARNING THE DIVIDEND IN COME. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREIN B ELOW FOR REFERENCE:- FURTHER, ON THE IDENTICAL ISSUE VARIOUS BENCHES OF THE TRIBUNAL AND THE HONBLE BOMBAY HIGH COURT HAVE HELD AS FOLL OWS:- I) GARWARE WALL ROPES LTD., VS. ACIT REPORTED IN (2014) 65 SOT 086 (MUM.) HELD AS FOLLOWS:- WHEN ASSESSEE HAS PRIMA FACIE BROUGHT OUT CASE THA T NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME, W HICH DOES NOT FORM PART OF TOTAL INCOME, THEN IN ABSENCE OF ANY F INDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT IN COME PROVISIONS 14A CANNOT BE APPLIED.. II) INTEGLOBE ENTERPRIESES LTD., VS. DCIT REPOTED IN (2014) 40 CCH 0022(DEL. TRIB.) HELD AS FOLLOWS:- NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) WHERE NO DIRECT OR INDIRECT INTEREST EXPEN DITURE WAS INCURRED FOR MAKING INVESTMENTS. WHERE THE ASSESSEE HAD UTILIZED INTEREST FREE FUNDS FOR MAKING FRESH INVESTMENTS AND THAT TOO INTO ITS SUBSIDIARIES, WHI CH WAS NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME AND WHICH WAS FOR STRATEGIC PURPOSES ONLY, NO DISALLOWANCE OF INTEREST WAS REQU IRED TO BE MADE UNDER RULE 8D(I) & 8D(II) AND STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR PURPOSE OF ARRIVING AT DISALLOWANCE UN DER RULE 8D(III). III) M/S.JM FINANCIAL LTD., VS. ACIT REPORTED IN 2 014-TIOL-202- ITAT-MUM HELD AS FOLLOWS: THE DEPARTMENT HAS NOT DISPUTED THIS FACT OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSI DIARY COMPANIES OF THE ASSESSEE AND, THEREFORE, THE PURPO SE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. THE ASSESS EE HAS BROUGHT OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRED FOR MAINTAINING THE 98% OF THE INVESTMENT MADE IN T HE SUBSIDIARY 10 ITA NO.2018/MDS/201 6 COMPANIES, THEREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMP T INCOME, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT J USTIFIED, ACCORDINGLY THE SAME IS DELETED. (IV) CIT VS. BHARTI TELEVENTURE LTD. REPORTED IN (2 011) 331 ITR 0502. WHERE THE ASSESSEE WAS FOUND TO BE HAVING ADEQUATE NON- INTEREST BEARING FUND BY WAY OF SHARE CAPITAL AND R ESERVES AND THERE WAS NO NEXUS BETWEEN THE BORROWALS OF ASSESSEE AND THE ADVANCES GIVEN, NO DISALLOWANCE FOR INTEREST WAS CALLED FOR . (V) CIT VS. RELIANCE UTILITIES & POWER LTD., REPOR TED IN (2009) 313 ITR 0340(BOM.) HAS HELD AS FOLLOWS:- TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL Y EAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUND, PRESUMPTION STANDS E STABLISHED THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND THEREFORE NO PART OF INT EREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. (VI) EIH ASSOCIATED HOTELS LTD VS. DCIT REPORTED I N 2013-TIOL- 796-ITAT-MAD . THE INVESTMENTS MADE BY THE ASSESSEE IN THE SU BSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOT EL INDUSTRY. THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FRO M INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL. THEREFO RE THE INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY IS NOT TO BE RECKONED FOR DISALLOWANCE U/S.14A R.W.R.8D. THE ASSESSING OFFICE R IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER TH E PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSE SSEE IN SUBSIDIARY COMPANY. TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISI ON OF THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS /13 CITED SUPRA, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMINE THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APPROPRIATE ORDER AS PER LAW AND ME RITS AND IN THE LIGHT OF THE DECISIONS CITED HEREIN ABOVE. W HILE DOING SO, WE ALSO DIRECT THE LD. ASSESSING OFFICER TO CONSIDE R THE DECISION OF THE TRIBUNAL IN THE CASE M/S AGILE ELEC TRIC SUB ASSEMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS HELD AS FOLLOWS:- 11 ITA NO.2018/MDS/201 6 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF THE ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPLICABLE. M OREOVER IN THE CASE EIH ASSOCIATED HOTELS LTD V. DCIT REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503, 1624/MDS/2012 DATED 17 TH JULY, 2013, IT HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS F OLLOWS:- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISAL LOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MAD E BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOT EL INDUSTRY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL INVESTMENT OF RS.64,18,19,775/-, RS.63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CA SE OF THE ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACC OUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE AS SESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENT AL. THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDI ARY ARE NOT TO BE RECKONED FOR DISALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVE STMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY DECIDED IN FAV OUR OF ASSESSEE. FOR THE ABOVE SAID REASONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MADE FOR ACQ UIRING THE SHARES OF THE ASSESSEES SISTER CONCERNS. ACCORDING LY WE RESTRAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD .CIT(A) ON THIS REGARD. 8. THEREFORE, FOLLOWING THE AFORESAID DECISION OF T HE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF SECTION 14A WHERE INVESTMENTS ARE MADE IN SISTER CONCERNS SUCH AS EQUITY SHARES AND SHARE APPLICATIO N MONEY. HOWEVER, IF THE INVESTMENTS ARE MADE FROM BORROWED FUNDS, SECTION 14A OF THE ACT WOULD BE APPLICABLE AND LEARNED ASSESSING OFFICER SHALL COMP UTE THE DISALLOWANCE UNDER SECTION 14A READ WITH RULES 8D IN ACCORDANCE WITH LAW. 12 ITA NO.2018/MDS/201 6 6.1 ACCORDINGLY WE HEREBY REMIT BACK THE MATTER TO THE FILE OF THE LD. AO TO CONSIDER THE ISSUE AFRESH IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL AND PASS APPROPRIATE ORDER IN ACCOR DANCE WITH MERITS AND LAW. WE ALSO MAKE IT CLEAR THAT FOR THE INVESTMENTS MADE IN MUTUAL FUNDS, PROVISIONS OF SECTION 14A REA D WITH RULE 8D WILL BE APPLICABLE SINCE THE ASSESSEE WOULD INCU R SOME EXPENDITURE AT LEAST FOR THE DECISION MAKING PROCES S AS TO IN WHICH MUTUAL FUND THE INVESTMENT HAS TO BE MADE AND AT WH AT POINT OF TIME EXIT FROM SUCH FUNDS. IT IS ORDERED ACCORDING LY. ACCORDINGLY IN THIS CASE OF THE ASSESSEE ALSO, WE H EREBY REMIT THE MATTER BACK TO THE FILE OF THE LD. AO FOR FRESH CON SIDERATION SO AS TO PASS APPROPRIATE ORDER AS PER MERIT AND LAW AND IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL. IN VIEW OF THE ABOVE DECISION OF THE CHENNAI BENCHE S OF THE TRIBUNAL, WE HEREBY REMIT THE MATTER BACK TO THE FI LE OF THE LD.AO WITH DIRECTIONS TO PASS APPROPRIATE ORDER IN THE LI GHT OF THE AFFORESTED DECISION AFTER EXAMINING THE FACTS OF TH E CASE. WE ALSO MAKE IT CLEAR THAT IF THE ASSESSEE HAS ADMITTE D ANY EXPENSES TO HAVE BEEN INCURRED RELATING TO EXEMPT I NCOME AS POINTED OUT BY THE LD.CIT(A) IN HIS ORDER AT PARA N O.5.2.1, THEN TO THAT EXTENT DISALLOWANCE HAS TO BE SUSTAINED BY VIR TUE OF SECTION 14A OF THE ACT. IT IS ORDERED ACCORDINGLY. 6. GROUND NO.III:- INTEREST INCOME EARNED FROM INTE R- CORPORATE DEPOSITS TREATED AS BUSINESS EXPENDITURE:- 13 ITA NO.2018/MDS/201 6 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS OBSERVED THAT THE ASSESSEE HAD EARNED INTEREST AMOU NTING TO RS.2,34,24,327/- AS DETAILED HEREIN BELOW:- SPL RELATORS PRIVATE LIMITED RS.1,15,50,001/- BENGAL SHRIRAM HITECH CITY PRIVATE LIMITED RS.1,1 6,04,506/- BANK INTEREST RS. 2,69,820/- ------------------------ TOTAL RS.2,34,24,327 ------------------------ THE ASSESSEE TREATED THE AFORESAID INTEREST INCOME AS BUSINESS INCOME BY RELYING ON THE DECISION OF THE HONBLE KO LKATA HIGH COURT IN THE CASE EVEREADY INDUSTRIES LTD VS.CIT RE PORTED IN 323 ITR 312. HOWEVER, THE LD.AO BY RELYING ON THE DECI SION OF THE HONBLE APEX COURT IN THE CASE TUTICORIN ALKALINE C HEMICALS & FERTILIZERS LTD VS. CIT REPORTED IN 93 TAXMAN 502 A ND THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CA SE CIT VS. VAIKUNDAM RUBBER COMPANY PVT. LTD. REPORTED IN 131 TAXMAN 61 HELD THAT THE INTEREST INCOME HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AS PER THE PROVISI ONS OF SECTION 54 OF THE ACT. 6.1 ON APPEAL THE LD.CIT(A) ACCEPTED THE CLAIM OF T HE ASSESSEE AND HELD THAT THE INTEREST INCOME EARNED B Y THE 14 ITA NO.2018/MDS/201 6 ASSESSEE HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS BY OBSERVING AS UNDER: AS REGARDS THE INTEREST RECEIVED FROM SPL REALTORS PVT. LTD., AS SUBSIDIARY COMPANY OF OUR COMPANY IS ALSO ENGAGE D IN THE SAME LINE OF BUSINESS. SIMILARLY BENGAL SHRIRAM HI TECH CITY PRIVATE LIMITED IS COMPANY COMING WITHIN THE PURVIE W OF OUR COMPANY UNDER OUR MANAGEMENT. THE APPELLANT HAS BE EN ASSISTING THESE COMPANIES IN ACCORDANCE WITH CLAUSE 11 OF THE OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION. HENCE THE INTEREST RECEIVED FROM THESE COMPANIES IS ASSESSABL E UNDER THE HEAD BUSINESS. THE ASSESSING OFFICERS OPINION T HAT SINCE THE APPELLANT IS IN THE BUSINESS OF PROPERTY DEVELO PMENT, THE INTEREST IS NOT ASSESSABLE UNDER THE HEAD BUSINESS IS NOT CORRECT. AS REGARDS THE BANK INTEREST, THE SAME IS ASSESSABL E UNDER THE HEAD BUSINESS AS IN THE LIGHT OF THE HONBLE KARN ATAKA HIGH COURT DECISION IN THE CASE OF EVEREADY INDUSTRIES I NDIA LIMITED VS. COMMISSIONER OF INCOME TAX (323 ITR 312). 6.2 AFTER HEARING BOTH SIDES, WE DONT FIND MERIT I N THE ORDER OF THE LD.CIT(A). THE ASSESSEE HAS PARKED ITS SURPLUS FUNDS IN OTHER COMPANIES AND EARNED INTEREST. SUCH INCOME H AS TO BE NECESSARILY ASSESSED UNDER THE HEAD INCOME FROM OT HER SOURCE AS PER SECTION 54 OF THE ACT, AS HELD BY THE LD.AO. THE LD.AOS DECISION IS IN ACCORDANCE WITH THE DECISION OF THE HONBLE APEX COURT WHICH IS CITED BY THE LD.AO IN HIS ORDER. HEN CE, WE HEREBY DIRECT THE LD.AO TO ASSESS THE INTEREST EARNED FROM THE BANK AND 15 ITA NO.2018/MDS/201 6 INTER-CORPORATE DEPOSITS UNDER THE HEAD INCOME FRO M OTHER SOURCE. 7. ACCORDINGLY, GROUND NO.I WITH RESPECT TO DELETIO N OF PROFESSIONAL FEES OF RS.25,89,854/- IS HELD AGAINST THE REVENUE, GROUND NO.2 WITH RESPECT TO DISALLOWANCE U/S.14A AN D RULE 8D OF THE RULES IS REMITTED BACK TO THE FILE OF THE LD .A.O WITH SPECIFIC DIRECTIONS AND GROUND NO.3 WITH RESPECT TO INTER-CO RPORATE DEPOSITS IS HELD IN FAVOUR OF THE REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON THE 6 TH JUNE, 2017. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) ' #$ /JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER %' /CHENNAI, &# /DATED 6 TH JUNE, 2017 JR # () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF