DISH TV INDIA LTD, MUMBAI V. ASST CIT CIR 6(1), MUMBAI

ITA 2066/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1527 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 09-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R M MADHAVI
• Keywords: Earning of tax free income; Wholly owned subsidiary
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NOS.2066 & 2067/M/2015 ASSESSMENT YEARS: 2008-09 & 2009-10 M/S. DISH TV INDIA LTD., CONTINENTAL BUILDING, 135, DR. A.B. ROAD, MUMBAI-400 018 PAN: AAACA 5478M VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-6(1), [PRESENT CHARGE ASST. COM. OF INCOME TAX, CIRCLE 16(1)] ROOM NO.467, 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JAY BHANSALI, A.R. REVENUE BY : MS. R.M. MADHAVI, D.R. DATE OF HEARING : 30.11.2016 DATE OF PRONOUNCEMENT : 20.12.2016 O R D E R PER C.N. PRASAD, JUDICIAL MEMBER: BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AGAIN ST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-4, [HEREINAFTE R REFERRED TO AS THE CIT(A)] MUMBAI DATED 25.01.12 FOR THE ASSESSMENT YE ARS 2008-09 AND 2009- 10 ARISING OUT OF THE ASSESSMENT ORDERS PASSED UNDE R SECTION 143(3) OF THE ACT. 2. THE ONLY ISSUE IN BOTH THESE APPEALS OF THE ASSE SSEE IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.2, 95,53,327/- AND RS.3,20,53,826/- OUT OF INTEREST UNDER RULE 8D(2)(I I) AND RS.47,22,550/- AND RS.47,22,550/- OUT OF EXPENSES UNDER RULE 8D(2)(III ) FOR THE ASSESSMENT YEARS 2008-09 & 2009-10 RESPECTIVELY. THE LD. COUNSEL FO R THE ASSESSEE AT THE OUTSET SUBMITS THAT THE ASSESSEE HAS NOT RECEIVED A NY DIVIDEND INCOME DURING THESE TWO ASSESSMENT YEARS. THEREFORE, HE SUBMITS THAT IN THE ABSENCE OF EXEMPT INCOME RECEIVED NO DISALLOWANCE UNDER SECTIO N 14A CAN BE MADE IN ITA NOS.2066 & 2067/M/2015 M/S. DISH TV INDIA LTD. 2 THESE TWO ASSESSMENT YEARS. FOR THIS PROPOSITION, HE PLACES RELIANCE ON THE FOLLOWING DECISIONS: 1. CHEMINVEST LTD. V CIT [378 ITR 33 (DEL)] 2. M/S. FAIR EXPORTS (INDIA) P. LTD V. ACIT BEING ITA NO.1881 & 899/MUM/2011 FOR A.Y. 2006-07 TO 2010-11 DATED 17.0 5.2016 3. M/S. VAKRANGEE LIMITED V. ACIT BEING ITA NO.6988 /MUM/2014 FOR A.Y. 2009-10 DATED 10.08.2016 4. FIDUCIARY EUROMAX GLOBAL MARKETS LTD V. DCIT (I TA NO.1349/MUM/2012) 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT AL L THE INVESTMENTS MADE BY THE ASSESSEE ARE INTO WHOLLY OWNED SUBSIDIARY CO MPANIES AND ALL THESE INVESTMENTS ARE STRATEGIC INVESTMENTS IN SUBSIDIARY AND GROUP COMPANIES AS THE PURPOSE OF INVESTMENT IS TO GAIN CONTROLLING STAKE BUT NOT FOR THE PURPOSE OF STAKE EARNING ANY DIVIDEND/EXEMPT INCOME. THEREFOR E, HE SUBMITS THAT IN SUCH CIRCUMSTANCES NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. FOR THIS PROPOSITION, HE PLACES RELIANCE ON THE FOLLOWING DE CISIONS: 1) CHEMINVEST LTD. V CIT [378 ITR 33 (DEL)] 2) FIDUCIARY EUROMAX GLOBAL MARKETS LTD V. DCIT (ITA NO.1349/MUM/2012) 3) M/S. VAKRANGEE LIMITED V. ACIT BEING ITA NO.6988/MUM/2014 FOR A.Y. 2009-10 DATED 10.08.2016 4) GARWARE WALL ROPES LIMITED V ADDL. CIT (ITA NO. 5408/MUM/2012) 5) M/S JM FINANCIAL LIMITED V ADDL. CIT (ITA NO: 4521/MUM/2012) 4. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THE ASSESSEE COMPANY HAS SUBSTANTIAL OWN FUNDS OF ABOUT RS.212.4 0 CRORES AS ON 31.03.07 WHEN ALL THESE INVESTMENTS OF RS.94.45 CRORES WERE MADE AND THEREFORE HE SUBMITS THAT WHEN THE ASSESSEE HAS SUFFICIENT OWN F UNDS THE PRESUMPTION IS THAT THE INVESTMENT WAS MADE FROM OUT OF OWN FUNDS AND N OT FROM THE BORROWED FUNDS. FOR THIS PROPOSITION HE PLACES RELIANCE ON THE FOLLOWING DECISIONS: 1) CIT V RELIANCE UTILITIES AND POWER LTD [313 ITR 340 (BOM)] 2) CIT V HDFC 383 ITR 529 (BOM) 3) FIDUCIARY EUROMAX GLOBAL MARKETS LTD V. DCIT (ITA ITA NOS.2066 & 2067/M/2015 M/S. DISH TV INDIA LTD. 3 NO.1349/MUM/2012) 5. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT S THAT FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A ONLY THOSE INVESTMEN TS ARE TO BE CONSIDERED FROM WHICH EXEMPT INCOME HAS BEEN RECEIVED DURING T HE YEAR. FOR THIS PROPOSITION HE PLACES RELIANCE ON THE FOLLOWING PRO POSITIONS: 1) ACB INDIA V ACIT [374 ITR 108 (DEL)] 2) M/S SLYVEX CABLE CO. PVT. LTD. V DY.CIT BEING ITA NO.8581/MUM/2011 FOR A.Y. 2008-09 DATED 24.02.2016 3) DY.CIT V. REI AGRO LTD (ITA NO:1811/KOL/2012) 4) CIT V REI AGRO LTD (CALCUTTA HIGH COURT) 5) ALLBANK FINANCE LTD V. JCIT BEING ITA NO:465/KOL /2013 FOR A.Y. 2009-10 DATED 13.01.2016 6. THE LD. D.R. PLACES RELIANCE ON THE ORDERS OF TH E AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF AUTHORITIES BELOW. 8. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS N OT RECEIVED ANY EXEMPT INCOME IN THESE TWO ASSESSMENT YEARS. IN SUCH CIRC UMSTANCES IT HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT THAT NO DISALLOWANC E UNDER SECTION 14A CAN BE MADE. FOLLOWING THIS DECISION, THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF VAKRANGEE LTD. VS. ACIT IN ITA NO.6988/MUM/ 2014 DATED 10.08.16 HELD AS UNDER: 3.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUD ING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE ON IN SUPPORT OF PROPOSIT IONS PUT FORTH BY THE ASSESSEE FOR DELETION OF THE DISALLOWANCE OF RS.74,31,010/- UNDE R SECTION 14A R.W. RULE 8D. ADMITTEDLY, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION AND THIS FACT HAS NOT BEEN CONTROVERT ED BY THE LEARNED CIT(A). THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF T HE ACT IS IN RESPECT OF EXPENDITURE INCURRED IS IN RELATION TO THE EARNING OF INCOME NO T INCLUDIBLE IN TOTAL INCOME. A PLAIN READING OF THE PROVISIONS OF SECTION 14A OF T HE ACT ENVISAGES THAT THERE SHOULD BE ACTUAL RECEIPT OF INCOME NOT INCLUDIBLE IN THE T OTAL INCOME. THEREFORE, THE PROVISIONS OF SECTION 14A OF THE ACT WILL NOT APPLY WHEN NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE BY THE ASSESSEE DURING THE R ELEVANT PREVIOUS YEAR. THIS PROPOSITION HAS BEEN UPHELD BY THE HON'BLE DELHI HI GH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT (2015) 278 ITR 33 (DEL) VID E ORDER DATED 02.09.2015 WHEREIN AT PARA 23 THEREOF THEIR LORDSHIPS HAVE HEL D AS UNDER: - ITA NOS.2066 & 2067/M/2015 M/S. DISH TV INDIA LTD. 4 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINB EFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ACT ENVISAG ES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBL E IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE O F DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME . IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 3.4.2 IN THE CASE ON HAND, ADMITTEDLY THE FACTUAL P OSITION IS THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME IN THE YEAR UNDER CONS IDERATION. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE RATIO OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA) W OULD SQUARELY APPLY. THE HON'BLE HIGH COURT IN THE AFORESAID JUDGEMENT HELD THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE IN THE YEAR IN WHICH NO EXEM PT INCOME IS EARNED. IT WAS HELD THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL EA RNING OF INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME DURING THE RELEVANT YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID EXEMPT INCOME. THEREFORE, IN THE FACTUAL MATRIX OF THE CASE ON HAN D, AS DISCUSSED ABOVE, WE RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA) AND THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF FAIR EXPORTS (INDIA) PVT. LTD. (SUPRA) HOLD THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE IN THE CASE ON HAND FOR THE YEA R UNDER CONSIDERATION SINCE THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. WE THERE FORE SET ASIDE THE DECISION OF THE AUTHORITIES BELOW AND DIRECT THE AO TO DELETE T HE DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS.74,31,010/- UNDER SECTION 14A OF TH E ACT. 9. THE CO-ORDINATE BENCH FURTHER HELD THAT IF THE I NVESTMENT WAS MADE AS A STRATEGIC INVESTMENT IN GROUP COMPANIES FOR CONTROL LING INTEREST NO DISALLOWANCE IS ATTRACTED UNDER SECTION 14A OF THE ACT OBSERVING AS UNDER: 3.5.1 FURTHER THE LEARNED A.R. FOR THE ASSESSEE HAS SUBMITTED THAT, EVEN OTHERWISE, THE SAID DISALLOWANCE UNDER SECTION 14A W.R. RULE 8 D OUGHT NOT TO HAVE BEEN MADE AS THE ENTIRE INVESTMENT IN SHARES MADE BY THE ASSE SSEE OF RS.52,15,95,000/- WAS STRATEGIC INVESTMENT IN GROUP COMPANIES FOR CONTROL OVER THESE COMPANIES AND NOT FOR INVESTMENT PURPOSE WITH THE INTENTION OF EARNIN G OF TAX EXEMPT DIVIDEND INCOME. ON A PERUSAL OF THE DETAILS ON RECORD, I.E. THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND THE ORDER OF ASSESSMENT WE FIND THAT THE AVERMENTS OF THE LEARNED A.R. THAT THE ENTIRE SHARES HELD BY THE ASS ESSEE ARE IN RESPECT OF ITS STRATEGIC INVESTMENTS IN SUBSIDIARY/GROUP CONCERNS IS FACTUALLY CORRECT. WE FIND THAT A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF FIDUCIARY EUROMAX GLOBAL MARKETS LTD. IN ITA NO. 1349/MUM/2012 AND OTHERS DATED 29.0 6.2016, RELIED ON BY THE ASSESSEE, AT PARA 14 THEREOF ON SIMILAR FACTUAL CIR CUMSTANCES HAS HELD THAT: - 14. ...................... .......... STRATEGIC INVESTMENT IN GROUP COMPANIES THEREFORE CANNOT BE HELD TO BE FOR INVESTMENT PURPOSES OR WITH THE OBJECT OF EA RNING OF DIVIDEND/TAX EXEMPT INCOME, BUT THE SAME, IN THE LIGHT OF ABOVE REFERRED TO JUDICIAL ITA NOS.2066 & 2067/M/2015 M/S. DISH TV INDIA LTD. 5 DECISIONS CAN SAFELY BE SAID TO BE RELATED TO THE B USINESS ACTIVITY OF THE ASSESSEE AND NO DISALLOWANCE, THEREFORE, IS ATTRACT ED ON SUCH AN INCOME U/S 14A OF THE ACT. IN THE LIGHT OF THE ABOVE REFERRED TO DECISIONS AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO T O EXCLUDE THE STRATEGIC INVESTMENTS MADE BY THE ASSESSEE IN GROUP COMPANIES WHILE CALCULATING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT. 3.5.2 FOLLOWING THE AFORESAID DECISION OF THE COORD INATE BENCH OF THIS TRIBUNAL IN THE CASE OF FIDUCIARY EUROMAX GLOBAL MARKETS LTD. ( SUPRA), WE HOLD AND DIRECT THAT THE STRATEGIC ENTIRE INVESTMENTS MADE BY THE ASSESS EE IN GROUP COMPANIES ARE TO BE EXCLUDED WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. 10. RESPECTFULLY FOLLOWING THE SAID DECISION, WE HO LD THAT SINCE THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME AND THE INVESTME NTS WERE MADE ONLY AS A STRATEGIC INVESTMENT IN WHOLLY OWNED SUBSIDIARY COM PANIES NO DISALLOWANCE UNDER SECTION 14A IS ATTRACTED. THUS, WE DIRECT TH E ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE UNDER SECTION 14A IN BOTH THE SE ASSESSMENT YEARS. ACCORDINGLY, GROUNDS FILED BY THE ASSESSEE ARE ALLO WED. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.12.2016. SD/- SD/- (MANOJ KUMAR AGGARWAL) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 20.12.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.