DCIT, CHENNAI V. M/s. Shriram Properties (P) Ltd., CHENNAI

ITA 2827/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7413 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 29-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R SIVARAMAN
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2827/MDS/2016 * +* / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI - 600 034. V. M/S SHRIRAM PROPERTIES PVT. LTD., NO.149, GREAMS DUGAR, 4 TH & 5 TH FLOOR, GREAMS ROAD, CHENNAI - 600 006. PAN : AAFCS 5801 D (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT /0-. 1 2 / RESPONDENT BY : SHRI R. SIVARAMAN, ADVOCATE ' 1 3& / DATE OF HEARING : 30.01.2017 45+ 1 3& / DATE OF PRONOUNCEMENT : 29.03.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 15, CHEN NAI, DATED 28.06.2016 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2 I.T.A. NO.2827/MDS/16 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF PAYMENT OF ROYALTY TO THE EXTENT OF ` 20,62,683/-. 3. WE HAVE HEARD SHRI SHIVA SRINIVAS, THE LD. DEPAR TMENTAL REPRESENTATIVE AND SHRI R. SIVARAMAN, THE LD.COUNSE L FOR THE ASSESSEE. IT WAS BROUGHT TO THE NOTICE OF THIS BEN CH THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THIS BENCH OF THE TRIBUNAL IN SHRIRAM TRANSPORT FINANCE CO. LTD. V. DCIT IN I.T.A . NO.454/MDS/2016. THIS TRIBUNAL VIDE ITS ORDER DATE D 24.08.2016 FOUND THAT THE PAYMENT WAS MADE BY THE ASSESSEE FOR USING LOGO WHICH BELONGS TO SHRIRAM OWNERSHIP TRUST. SINCE TH E PAYMENT WAS MADE FOR USING THE LOGO WHICH BELONGS TO SHRIRAM OW NERSHIP TRUST, THIS TRIBUNAL FOUND THAT THE PAYMENT MADE BY THE AS SESSEE IS IN THE REVENUE FIELD. IN VIEW OF THE ORDER OF THIS TRIBUN AL ON IDENTICAL ISSUE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE W ITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 4. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE I NCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 3 I.T.A. NO.2827/MDS/16 5. SHRI SHIVA SRINIVAS, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE ASSESSEE MADE INVESTMENT WITH TH E INTENTION TO EARN DIVIDEND INCOME WHICH IS EXEMPTED FROM TAXATIO N. THE ASSESSING OFFICER FOUND THAT THE EXPENDITURE WAS NO T COMPUTED UNDER RULE 8D OF INCOME-TAX RULES, 1962. SINCE THE ASSESSEE BEING A COMPANY, ACCORDING TO THE LD. D.R., THE ASS ESSEE HAS TO NECESSARILY INCUR EXPENDITURE AT THE MANAGERIAL LEV EL FOR MAKING DECISION TO INVEST THE FUNDS, THEREFORE, A PORTION OF EXPENDITURE INCURRED BY THE ASSESSEE WOULD BE RELATABLE TO THE INCOME WHICH IS OTHERWISE NOT TAXABLE UNDER THE PROVISIONS OF INCOM E-TAX ACT. HOWEVER, ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS ) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT NO DIVIDEN D INCOME WAS EARNED DURING THE YEAR UNDER CONSIDERATION. ACCORD ING TO THE LD. D.R., EARNING OF DIVIDEND INCOME IS IMMATERIAL WHEN THE EXPENDITURE WAS COMPUTED UNDER RULE 8D(2). WHEN TH E ASSESSEE BORROWED FUNDS AND PAID INTEREST, DEFINITELY A PART OF EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE RELATABLE TO EAR NING OF DIVIDEND INCOME. MOREOVER, THE SALARY PAID TO MANAGERIAL ST AFF FOR TAKING DECISION TO INVEST THE MONEY, A PART OF SALARY PAID TO THEM RELATES TO EXPENDITURE FOR EARNING THE INCOME. THEREFORE, ACC ORDING TO THE LD. 4 I.T.A. NO.2827/MDS/16 D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THERE WAS NO INCOME. 6. ON THE CONTRARY, SHRI R. SIVARAMAN, THE LD.COUNS EL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS NOT EARNE D ANY DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. PLACIN G RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. V. ADDL. CIT (2017) 77 TAXMANN.COM 257, THE LD.COUNSEL SUBMI TTED THAT ON IDENTICAL CIRCUMSTANCES, THE MADRAS HIGH COURT FOUN D THAT BY APPLYING THE MATCHING CONCEPT IN A YEAR WHERE THERE IS NO EXEMPTED INCOME, THERE CANNOT BE ANY DISALLOWANCE O F EXPENDITURE. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE CIT(AP PEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE MADE INVESTMENT IN THE SH ARES OF OTHER COMPANIES. EVEN THOUGH THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE INVESTMENT WAS PARTLY MA DE IN SUBSIDIARY COMPANIES, IT IS NOT KNOWN HOW SUCH COMPANIES ARE S UBSIDIARY COMPANIES OF THE ASSESSEE. IT IS ALSO NOT KNOWN HO W MANY SHARES OF THE SAID COMPANIES IN WHICH THE INVESTMENT WAS M ADE, WERE HELD 5 I.T.A. NO.2827/MDS/16 BY THE ASSESSEE AT THE RELEVANT POINT OF TIME. THE REFORE, THIS TRIBUNAL IS UNABLE TO FIND OUT WHETHER THE INVESTME NT IS REALLY MADE IN THE SUBSIDIARY COMPANIES. 8. NOW COMING TO THE CONTENTION OF THE LD.COUNSEL F OR THE ASSESSEE THAT THERE WAS NO INCOME FROM SUCH INVESTM ENT DURING THE YEAR UNDER CONSIDERATION, THE CONTENTION OF THE LD. D.R. IS THAT IRRESPECTIVE OF THE INCOME, THE EXPENDITURE HAS TO BE COMPUTED AS PER THE METHOD PRESCRIBED UNDER RULE 8D(2). 9. WE HAVE CAREFULLY GONE THROUGH THE RULE 8D(2) OF THE INCOME-TAX RULES, 1962, WHICH READS AS FOLLOWS:- METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOM E (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF THE PREVIOUS YEAR, IS NOT SATI SFIED WITH- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE M ADE BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITU RE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PRE VIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE I N RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROV ISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE O F FOLLOWING AMOUNTS, NAMELY:- 6 I.T.A. NO.2827/MDS/16 (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING T O INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME ; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPE NDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIR ECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, A N AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY :- A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTERES T OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME F ROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEE T OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DA Y AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSET S' SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET EXCLU DING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT IN CLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMEN T OF MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. (SUPRA). THE MADRAS HIGH COURT HAS OBSERVED AT PARAGRAPHS 14 AND 15 AS FOLLO WS:- 7 I.T.A. NO.2827/MDS/16 14. NOTHING MUCH TURNS ON THE USE OF THE WORD INCLU DABLE AND THE PHRASE UNDER THE ACT IN S.14A AND WE ARE N OT PERSUADED TO ACCEPT THE EMPHASIS LAID OR THE INTERP RETATION OF THE SAME BY THE REVENUE. AN ASSESSMENT IN TERMS OF THE INCOME-TAX ACT IS SPECIFIC TO AN ASSESSMENT YEAR AND RELATED PREVIOUS YEAR. S.4 OF THE ACT, WHICH IMPOSES THE CH ARGE TO TAX READS THUS: CHARGE OF INCOME-TAX 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME-TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RAT E OR RATES, INCOME-TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH AND SUBJEC T TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY O F ADDITIONAL INCOME-TAX) OF, THIS ACT IN RESPECT OF TH E TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON: PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF THIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOME OF A PERIOD OTHER THAN THE PREVIOUS YEAR, IN COME- TAX SHALL BE CHARGED ACCORDINGLY. THUS, WHERE THE STATUTE INDENTED THAT INCOME SHALL BE RECOGNIZED FOR TAXATION IN RESPECT OF ANY PREVIOUS O THER THAN THAT IMMEDIATELY PRECEDING THE RELEVANT ASSESSMENT YEAR, THE PROVISION SHALL EXPRESSLY STATE SO. THE PROVISIONS OF S.10 IN CHAPTER III OF THE ACT DEALING WITH INCOMES NOT IN CLUDED IN THE TOTAL INCOME COMMENCES WITH THE PHRASE IN COM PUTING THE TOTAL INCOME OF A PREVIOUS YEAR, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WA S EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INCU RRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN T HE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHIN G CONCEPT, IN A YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSU MED 8 I.T.A. NO.2827/MDS/16 INCOME. MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. V . CIT (1997) 225 ITR 802/91 TAXMAN 340 (SC). THE LANGUAGE OF S.14A (1) SHOULD BE READ IN THAT CONTEXT AND SUCH TH AT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 11. IN VIEW OF THE JUDGMENT OF MADRAS HIGH COURT, T HIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 12. THE NEXT ISSUE ARISES FOR CONSIDERATION IS COMP UTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 13. WE HAVE HEARD SHRI SHIVA SRINIVAS, THE LD. DEPA RTMENTAL REPRESENTATIVE AND SHRI R. SIVARAMAN, THE LD.COUNSE L FOR THE ASSESSEE. THE CIT(APPEALS), BY FOLLOWING THE ORDER OF THIS TRIBUNAL, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. IN FACT, THE CIT(APPEALS) REPRODUCED THE ORDER OF THIS TRIBUNAL. SINCE THE CIT(APPEALS) HAS FOLLOWED THE ORDER OF THIS TRIBUNA L, THERE CANNOT BE ANY GRIEVANCE ON THE PART OF THE REVENUE. THERE FORE, THIS TRIBUNAL FINDS NO REASON TO INTERFERE WITH THE ORDE R OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9 I.T.A. NO.2827/MDS/16 ORDER PRONOUNCED ON 29 TH MARCH, 2017 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 29 TH MARCH, 2017. KRI. 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A)-15, CHENNAI-34 4. ' :3 /CIT-6, CHENNAI-34 5. 8; /3 /DR 6. * < /GF.