GVK Airport Developers Limited (formerly known as GVK Airport Developers Private Limited), Hyderabad, Secunderabad V. ITO, Ward-2(2), Hyderabad, Hyderabad

ITA 488/HYD/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6541 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 15-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Source of fund; Corroborative evidences; Commercial expediency
• Section: 14A; 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 488/HYD/2017 ASSESSMENT YEAR: 2012-13 GVK AIRPORT DEVELOPERS LIMITED, (PREVIOUSLY KNOWN AS GVK AIRPORT DEVELOPERS PRIVATE LIMITED) , SECUNDERABAD [PAN: AACCG5286D] VS INCOME TAX OFFICER, WARD-2(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI PERCY PARDIWALA, AR FOR REVENUE : SHRI ASHOK KUMAR KARDAM, DR DATE OF HEARING : 06-06-2018 DATE OF PRONOUNCEMENT : 05-07-2018 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-2, HYDERABAD, DATED 29-12-2016. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE-COMPANY IS THE PROMOTER OF COMPANIES INVOLVED IN CONSTRUCTION, DEVELOPMENT AND OPERATION OF DOMESTIC/INTERNATIONAL AIR PORTS. ASSESSEE FILED ITS RETURN OF INCOME ORIGINALLY ADMITTI NG TOTAL I.T.A. NO. 488/HYD/2017 :- 2 - : INCOME AT NIL. LATER, IT REVISED THE RETURN OF INCOME DECLARING TOTAL LOSS OF RS. 1,64,12,60,724/- UNDER THE NORMAL PR OVISIONS OF THE INCOME TAX ACT [ACT] AND ALSO NIL INCOME COMPU TED U/S. 115JB OF THE ACT. IN THE COURSE OF SCRUTINY ASS ESSMENT, ASSESSING OFFICER (AO), AFTER GIVING DUE OPPORTUNITY TO ASSESSEE, HAS DISALLOWED THE FINANCE COSTS INVOKING T HE PROVISIONS OF SECTION 36(1)(III) AND ALSO DISALLOWED OTHER OPERATING COSTS. AO ALSO DID NOT ALLOW SET-OFF OF BU SINESS LOSS AGAINST THE INTEREST INCOME EARNED. THERE WAS ONE MORE ISSUE OF NOT GRANTING TDS WHICH IS NOT SUBJECT MATTER OF APPE AL BEFORE US. 3. ASSESSEE MADE DETAILED SUBMISSIONS BEFORE THE LD.CIT(A), WHICH LD.CIT(A) HAS EXTRACTED BUT AGREED W ITH THE AO DISMISSING THE APPEAL. HENCE THE PRESENT APPEAL. 4. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED INCOME TAX OFFICER WARD 2(2), HYDERABAD (LD .AO) ERRED IN DISALLOWING THE FINANCE COSTS OF RS. 1,64,08,45,837 /- RESULTING INTO NET ADDITION OF RS. 1,64,08,45,837/- AND THE LEARNE D COMMISSIONER OF INCOME-TAX (APPEALS)-2, HYDERABAD [LD.CIT(APPEAL S)] FURTHER ERRED IN UPHOLDING THE SAID ACTION OF THE LD.AO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.AO ERRED IN DISALLOWING THE OTHER OPERATING COST S OF RS. 1,17,09,534/- RESULTING TO NET ADDITION OF RS. 1,17 ,09,534/- AND THE LD.CIT(APPEALS) FURTHER ERRED IN UPHOLDING THE SAID ACTION OF THE LD.AO. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.AO ERRED IN NOT ALLOWING SET-OFF OF BUSINESS LOS SES AMOUNTING TO RS. 1,64,43,95,691/- INCURRED BY THE APPELLANT DURI NG THE YEAR I.T.A. NO. 488/HYD/2017 :- 3 - : AGAINST INCOME FROM OTHER SOURCES OF RS. 31,34,96 7/- AND THE LD.CIT(APPEALS) FURTHER ERRED IN UPHOLDING THE SAID ACTION OF THE LD.AO. 5. WE HAVE HEARD LD. COUNSEL FOR ASSESSEE, SHRI PE RCY PARDIWALA AND LD.CIT-DR SHRI ASHOK KUMAR KARDAM. TH E ISSUES ARE CONSIDERED GROUND-WISE: GROUND NO. 1: 6. THE ISSUE IN THIS GROUND IS WITH REFERENCE TO DISALLOWANCE OF FINANCE COSTS OF RS. 164,08,45,837/- CLAIMED BY ASSESSEE AS INCURRED FOR THE PURPOSE OF BUSINESS WHICH THE AO DID NOT ALLOW. 6.1. BRIEFLY STATED FACTS OF THE ISSUE ARE THAT ASSESSEE HAS GRANTED UNSECURED INTEREST FREE ADVANCE TO THE TUNE OF RS. 1408.83 CRORES AND RS. 1793.39 CRORES TO M/S. GVK AI RPORT HOLDINGS PVT. LTD., [GVKAHPL] AND M/S. BANGALORE AIRP ORT & INFRASTRUCTURE DEVELOPERS PRIVATE LIMITED [BAIDPL], CO NSIDERED AS SISTER CONCERNS (FOR THE PURPOSE OF THIS ORDER AS LEVEL-2 COMPANIES). M/S. GVKAHPL AND M/S. BAIDPL ARE WHOLLY OWNED SUBSIDIARIES OF ASSESSEE. IT IS ADMITTED THAT THE AFORESAID ADVANCES TO THE SISTER CONCERNS WERE MADE PA RTLY OUT OF THE UNSECURED INTEREST FREE LOAN RECEIVED BY ASSESS EE FROM ITS HOLDING COMPANY M/S. GVK POWER AND INFRASTRUCTURE LTD (GVKPIL) AND BALANCE OF SUCH ADVANCES WERE OUT OF IN TEREST BEARING BORROWINGS FROM BANKS AND FINANCIAL INSTITU TIONS. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS NOT EARNED ANY INTEREST ON THE ADVANCES GIVEN AS THEY ARE INTEREST FREE BUT I.T.A. NO. 488/HYD/2017 :- 4 - : HAS INCURRED FINANCE COSTS, ON SUCH LOANS OBTAINED FR OM THIRD PARTIES, TO THE TUNE OF RS. 164.08 CRORES. THIS AMOUNT INTER ALIA INCLUDES BANK CHARGES, BORROWING COSTS AMORTIZED DURI NG THE YEAR, APART FROM THE INTEREST EXPENSES. IT WAS THE CONTENTION THAT ASSESSEE WAS ENGAGED IN THE DEVELOPMEN T AND OPERATION OF DOMESTIC AIR PORTS, ONE AT MUMBAI AND ANO THER AT BANGALORE THROUGH ITS STEP DOWN SPECIAL PURPOSE VEHICL ES [SPVS], MUMBAI INTERNATIONAL AIRPORT PRIVATE LIMITED (MIAPL) AND BANGALORE INTERNATIONAL AIRPORT LIMITED (BIAL). H ERE THESE TWO COMPANIES ARE REFERRED AS SPVS (AND LEVEL-3 COM PANIES FOR THE PURPOSE OF THIS ORDER). IT IS ADMITTED THAT THE INTERES T FREE ADVANCES MADE BY ASSESSEE TO ITS SISTER CONCERNS (LEV EL-2) WERE UTILISED BY SUCH CONCERNS IN THE FOLLOWING MANNER: PART OF THE ADVANCES MADE TO M/S.GVKAHPL HAVE BEEN UTILISED TO MAKE ADDITIONAL INFUSION OF CAPITAL IN MIAP L (LEVEL-3 COMPANY) WHICH WAS UTILISED FOR ITS AIRPORT BUSINESS AND PART OF THE FUNDS WERE UTILISED BY M/S. GVKAHPL TO ACQUIRE ADDITIONAL STAKE OF 13.50% IN MIAPL FROM ANOTHER EXISTING SHAREHOLDER. SUCH TRANSACTION ENABLED M/S.GVKAHPL TO ACQUIRE CONTROLLING INTEREST IN MIAPL. SIMILARLY ADVANCES MADE TO BAIDPL (LEVEL-2) WAS UTIL ISED TO ACQUIRE STAKE OF 43% IN BIAL FROM THE EXISTING SHAREHOLDER. SUCH TRANSACTION ENABLED BAIDPL TO BE SHAREHOLDERS WITH MAXIMUM STAKE IN BIAL THUS HELPING IN GETTING A STRATEGIC CONTROL OVER BIAL. I.T.A. NO. 488/HYD/2017 :- 5 - : ASSESSEE HAS RAISED THE ISSUE OF COMMERCIAL EXPEDIEN CY AND ELIGIBLE BUSINESS EXPENDITURE IN CLAIMING THE DEDUCTI ON OF FINANCE COSTS U/S. 36(1)(III) OF THE ACT. 6.2. AO, HOWEVER, DISALLOWED THE FINANCE COST ON THE FOLLOWING CONTENTIONS: THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ADVANCING THE INTEREST-BEARING FUNDS TO ITS SISTER CONC ERN AS INTEREST-FREE ADVANCES AND NOT IN CONSTRUCTION AND MAINTAINING THE AIRPORTS; THAT THE BORROWED MONEY HAS NOT BEEN UTILISED BY THE ASSESSEE IN A WAY THAT MAKES MORE COMMERCIAL SENSE AND HELPS THE ASSESSEE IN RUNNING THE INTENDED BUSINES S IN MORE EFFICIENT MANNER; THAT THE ASSESSEE HAS DIVERTED THE INTEREST-BEARING F UNDS TO SPVS, WHEREIN SUCH SPVS ARE CLAIMING TAX HOLIDAY BENEFITS AND PAYING TAXES UNDER BOOK PROFITS, THUS ENABLING SUCH SPVS TO CREATE RESERVES IN THEIR HANDS FOR THE PURPOSE OF UTILIZATION OF SUCH RESERVES AMONGST THE GROUP COMPANIES; AND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITIES WHICH ENABLED THE ASSESSEE TO EARN ANY DIRECT INCOME AND ALSO THAT THERE IS NO POSSIBILITY OF EARNING ANY INCOME, SINCE, THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN THE FORM OF INTEREST-FREE LOANS. I.T.A. NO. 488/HYD/2017 :- 6 - : 6.3. BEFORE THE LD.CIT(A), IT WAS SUBMITTED THAT LIKE I N ANY NORMAL INFRASTRUCTURE PROJECT, SPVS ARE SET UP THRO UGH WHICH THE PROJECTS ARE IMPLEMENTED. SINCE THE DEVELOP MENT OF AIR PORTS REQUIRE LOT OF FUNDS AND THEREFORE IN ORDER TO ATTRACT STRATEGIC INVESTORS FOR EACH AIRPORT, THERE IS A NEED FO R A SEPARATE SPV. ASSESSEE HAS EXPLAINED THE INVESTMENT P ATTERN BEFORE THE CIT(A) AS UNDER: 100% 100% SISTER CONCERNS SPVS 50.50% 43% 6.4. ASSESSEE RELIED ON THE MAIN OBJECTS OF THE COMPA NY TO SUBMIT THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF AIRPORTS AND FURTHER TH E OBJECTS ALSO PROVIDE THAT INFRASTRUCTURE PROJECTS CAN BE TAKEN THROUGH SPVS. GIVEN THE FACTUAL POSITION ABOVE, IT WAS CONTENDED THAT ANY LOAN GIVEN TO FUND THESE SPVS IS NOTH ING BUT FUNDING ITS OWN BUSINESS OPERATIONS AND HENCE ANY INTEREST INCURRED ON SUCH BORROWED FUNDS IS TOTALLY AL LOWABLE U/S. 36(1)(III) OF THE ACT. IT WAS CONTENDED THAT THE P HRASE FOR GVK AIRPORT DEVELOPERS LIMITED [GVKADL] BANGALORE AIRPORT & INFRASTRUCTURE DEVELOPERS LIMITED [BLADPL] GVK AIRPORT HOLDINGS PRIVATE LIMITED [GVKAHPL] MUMBAI INTERNATIONAL AIRPORT PRIVATE LIMITED [MIAPL] BANGALORE INTERNATIONAL AIRPORT LIMITED [BIAL] I.T.A. NO. 488/HYD/2017 :- 7 - : THE PURPOSE OF BUSINESS AS OCCURRING UNDER THE PROVI SIONS OF SECTION U/S. 36(1)(III) IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING INCOME PROFITS AND GAINS AND ADVANCING OF LOAN TO SPVS FOR CARRYING OUT BUSINESS TO SPVS IS A BUSINESS PURPOSE AND ANY INTEREST INCURRED THEREON I S AN EXPENSE FOR THE PURPOSE OF THE SAID BUSINESS. ASSESS EE RELIED ON THE FOLLOWING CASE LAW: A. MADHAV PRASAD JATIA VS. CIT [10 CTR 375] (SC); B. CIT VS. DALMIA CEMENT (BHARAT) LTD. , [174 CTR 188](DELHI HIGH COURT); C. CIT VS. KANDAGIRI SPINNING MILLS LTD., [298 ITR 306] (MADRAS HIGH COURT); D. S.A. BUILDERS VS. CIT [288 ITR 1] (SC); E. CIT VS. MARUDHAR CHEMICALS & PHARMACEUTICALS (P) LTD. , [319 ITR 75] ( PUNJAB & HARYANA HIGH COURT]; F. CIT VS. RELIANCE COMMUNICATION INFRASTRUCTURE LTD., [ 71 DTR 237] (BOMBAY HIGH COURT); G. CIT VS. TULIP STAR HOTELS LTD., [338 ITR 482] (DELHI H IGH COURT); H. CIT VS. BHARTI TELEVENTURE LIMITED [51 DTR 98] (DELHI HIGH COURT); I. CIT VS. MODI ENTERTAINMENT LIMITED [89 CCH 014] (DELHI HIGH COURT); J. M/S. IDEA CELLULAR LIMITED VS. ASSISTANT CIT [ITA NO. 3261/MUM/2008, DATED 11 TH MARCH, 2015]; K. HERO CYCLES (P) LTD., VS. CIT [379 ITR 347] (SC); I.T.A. NO. 488/HYD/2017 :- 8 - : 6.5. FURTHER, ASSESSEE ALSO CONTENDED THAT CONTENTION OF AO THAT THERE IS NO COMMERCIAL EXPEDIENCY IN ADVANCIN G THE FUNDS IS ALSO NOT CORRECT AND RELIED ON THE CASE LAW I N THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. KAN ORIA INVESTMENTS (P.) LTD., [232 ITR 7] (CAL). IT ALSO REL IED ON THE PRINCIPLES LAID DOWN IN THE CASE OF CIT VS. RAJENDR A PRASAD MOODY [115 ITR 519] (SC). ASSESSEE ALSO RELIED ON THE CO- ORDINATE BENCH DECISION IN THE CASE OF M/S. IDEA CEL LULAR LIMITED VS. ASSISTANT CIT [ITA NO. 3261/MUM/2008, DATE D 11 TH MARCH, 2015] WHICH IN TURN FOLLOWED THE HON'BLE SUP REME COURT JUDGMENT IN THE CASE OF S.A. BUILDERS LTD., VS. C IT [288 ITR 1) (SC) TO SUBMIT THAT THE AMOUNTS INCURRED BY ASSESSEE IS ALLOWABLE AS BUSINESS EXPENDITURE. CONTENDING THE C ONTENTION THAT ASSESSEE HAS ADVANCED INTEREST FREE BUT OTHER COMPAN IES WERE BENEFITTED BY NOT CLAIMING INTEREST THEREBY CLAIMIN G HIGHER DEDUCTION U/S. 80-IA WAS ALSO NEGATIVED TO SUBM IT THAT THEY HAVE NOT CLAIMED DEDUCTION U/S. 80-IA OF THE ACT. 6.6. LD.CIT(A), HOWEVER, DID NOT CONSIDER ANY OF THE SE CONTENTIONS AND DISMISSED THE GROUND, STATING AS UNDER: 6.2. I HAVE GONE THROUGH THE AO'S OBSERVATIONS AND AR'S CONTENTIONS. IT IS SEEN FROM THE FACTS THAT THE AO HAS DISALLOWE D THE AMOUNTS OF RS. L,17,09,534/- AND RS. 1,64,08,45,837/- CLAIMED BY THE ASSESSEE TOWARDS OPERATING EXPENSES AND FINANCE COSTS U/S 36 (1)(III) OF THE ACT, WITH MINOR ADJUSTMENTS OF EXEMPT DIVIDEND INCOME AN D EXPENSES DISALLOWED BY THE ASSESSEE IN THE COMPUTATION. WHIL E DOING SO, THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NOT CARRIE D OUT ANY BUSINESS ACTIVITY DIRECTLY TO EARN ANY INCOME AND G OING BY THE INVESTMENT IT MADE IN THE FORM OF INTEREST-FREE LOA NS / ADVANCES IN ITS SUBSIDIARIES, THERE IS ALSO NO POSSIBILITY OF EARNI NG ANY INCOME. THE AO CONCLUDED THAT AS THERE WAS NO COMMERCIAL EXPEDI ENCY IN THE OVERALL ACTIVITIES OF THE ASSESSEE COMPANY, THE ALL OWABILITY OF THE I.T.A. NO. 488/HYD/2017 :- 9 - : EXPENSES CLAIMED TOWARDS OPERATING EXPENSES AND FIN ANCE COSTS DOES NOT ARISE. DURING THE APPEAL PROCEEDINGS ALSO, THE CONCLUSIONS DRAWN BY THE AO WERE NOT REBUTTED BY THE AR WITH AN Y SUPPORTING EVIDENCE EXCEPT STATING THAT THE SAID EXPENDITURE W AS INCURRED FOR THE PURPOSE OF BUSINESS. IN VIEW OF THE ELABORATE OBSER VATIONS MADE BY THE AO IN THE RELEVANT PARAS OF THE ASSESSMENT ORDE R, I AM OF THE CONSIDERED VIEW THAT THE AO'S ACTION DISALLOWING TH E SAID AMOUNTS OF RS.1,17,09,534/- AND RS. 164,08,45,837/- CLAIMED BY THE ASSESSEE TOWARDS OPERATING EXPENSES AND FINANCE COSTS RESPEC TIVELY U/S 36(1)(III) OF THE ACT, IS JUSTIFIED AND HENCE CONFI RMED. AS A RESULT, THE GROUNDS RAISED ARE DISMISSED. 6.7. REITERATING THE SUBMISSIONS MADE BEFORE THE LD.CIT(A), LD. COUNSEL REFERRED TO VARIOUS DOCUMENTS PLACED IN THE PAPER BOOK PARTICULARLY WITH REFERENCE TO OBJECTS A ND INVESTMENT IN SUBSIDIARIES, THEIR FINANCIAL STATEMENTS TO SUBMIT THAT VARIOUS STRUCTURES OF VARIOUS COMPANIES WE RE CREATED FOR OPERATION PURPOSES BUT THE MAIN PROMOTER ASSESSEE IS IN THE BUSINESS OF PROMOTING COMPANIES I N INFRASTRUCTURE, PARTICULARLY OF DEVELOPMENT OF AIRPORTS AND THEREFORE THE INTEREST CLAIM IS ALLOWABLE AS BUSINESS EXPENDITURE. HE RELIED ON THE FOLLOWING DECISIONS: A. MADHAV PRASAD JATIA VS. CIT [10 CTR 375] (SC); B. CIT VS. DALMIA CEMENT (BHARAT) LTD., [174 CTR 188](DELHI HIGH COURT); C. CIT VS. KANDAGIRI SPINNING MILLS LTD., [298 ITR 306] (MADRAS HIGH COURT); D. S.A. BUILDERS VS. CIT [288 ITR 1] (SC); E. CIT VS. MARUDHAR CHEMICALS & PHARMACEUTICALS (P) LTD. , [319 ITR 75] ( PUNJAB & HARYANA HIGH COURT]; F. CIT VS. RELIANCE COMMUNICATION INFRASTRUCTURE LTD., [71 DTR 237] (BOMBAY HIGH COURT); I.T.A. NO. 488/HYD/2017 :- 10 -: G. CIT VS. TULIP STAR HOTELS LTD., [338 ITR 482] (DELHI H IGH COURT); H. CIT VS. BHARTI TELEVENTURE LIMITED [51 DTR 98] (DELHI HIGH COURT); I. CIT VS. MODI ENTERTAINMENT LIMITED [89 CCH 014] (DELHI HIGH COURT); J. M/S. IDEA CELLULAR LIMITED VS. ASSISTANT CIT [ITA NO. 3261/MUM/2008, DATED 11 TH MARCH, 2015]; K. HERO CYCLES (P) LTD., VS. CIT [379 ITR 347] (SC); AND FOR THE PURPOSE OF COMMERCIAL EXPEDIENCY, THE DEC ISION OF THE CIT VS. UNITED BREWERIES [89 ITR 17] CIT VS. TULIP STAR HOTELS LTD., [338 ITR 482] (DELHI HIGH COURT). LD. COUNSEL ALSO REITERATED THAT THE CONCEPT OF INVESTMENT COMPANY WAS ACCEPTED U/S 109 OF THE IT ACT EARLIER AND HON'BLE S UPREME COURT ALSO ACCEPTED IN THE CASE OF CIT VS. DISTRIBUTOR S (BARODA) (P.) LTD., [83 ITR 377] (SC) THAT THERE IS BUSINESS OF HOLDING INVESTMENT AND THEREFORE, ASSESSEES INVESTM ENT IN SISTER CONCERNS IS TO BE CONSIDERED AS BUSINESS ACTIV ITY AND SINCE THERE IS DIRECT NEXUS WITH THE OPERATIONS OF THE A IRPORTS AND THE REQUIREMENT OF FUNDS, INTEREST CLAIMED IS AN AL LOWABLE DEDUCTION. 6.8. ON A QUERY WHY THERE ARE LEVEL-2 AND LEVEL-3 INVESTMENTS, LD. COUNSEL EXPLAINED THE INVESTMENT PATTERN AND REFERRED TO SUBMISSIONS MADE BEFORE LD. CIT(A) A S UNDER: CONSIDER A SCENARIO, THAT AN INVESTOR APPROACHES T HE. APPELLANT FOR 40 PERCENT OF THE APPELLANT'S STAKE IN MIAPL. I.T.A. NO. 488/HYD/2017 :- 11 -: - ASSUMING THAT THE APPELLANT IS HOLDING THE EQUITY SHARES OF MIAPL DIRECTLY AND NOT THROUGH AN INTERMEDIATE HOLDING CO MPANY I.E. GVKAHPL. POST THE AFORESAID TRANSACTION, THE EQUITY STAKE OF THE APPELLANT WOULD BE 30.30 PERCENT. THE SAME WOULD RE SULT IN THE APPELLANT LOSING THE CONTROLLING STAKE/INTEREST IN MIAPL. IF THE APPELLANT WOULD HAVE MADE EQUIVALENT DILUTIO N IN GVKAHPL, THE SAME WOULD HAVE RESULTED THE APPELLANT CONTINUE TO HOLD CONTROLLING STAKE/INTEREST IN MIAPL EVEN AFTER THE DILUTION. ALSO THIS STRUCTURE ENABLES THE APPELLANT TO GET PR IMARY INVESTORS AT ANY OF THE VERTICAL I.E. GVKAHPL OR BIADPL LEVEL. G ETTING DIRECT INVESTORS WOULD NOT BE POSSIBLE AT MIAPL OR BIAL LE VEL, SINCE, THE SAME WOULD LEAD TO DILUTION OF OTHER INVESTORS (WHI CH INCLUDES AAI) OF MIAPL OR BIAL WHICH THEY MAY NOT AGREE TO. AS PROVIDED ABOVE, THE APPELLANT WOULD LIKE TO SU BMIT THAT THE EXISTING STRUCTURE IS NECESSARY FOR THE APPELLANT T O HELP IN MAINTAINING CONTROLLING INTEREST/MAJORITY STAKE IN THE OPERATING SPV'S (I.E. AT MIAPL OR BIAL LEVEL). ( PAGE 156 OF PAPER BOOK) 6.9. IT WAS THE SUBMISSION THAT THESE CONTENTIONS WERE CONSIDERED IN THE CASE OF PRINCIPAL CIT VS. SESA RE SOURCES LTD., [250 TAXMAN 182] (BOMBAY) AND IN THE CASE OF TA TA INDUSTRIES LTD., VS. ITO [181 TTJ 600] (MUMBAI-TRIB) IN THE CASE OF DY. CIT VS. ENERCON INDIA LTD., (82 TAXMANN.C OM 334) (MUMBAI-TRIB). IT WAS SUBMITTED THAT THE EXPENDITURE IS ALLOWABLE. 6.10. IN REPLY, LD.DR REITERATED THE CONTENTIONS OF THE ABOVE TO SUBMIT THAT THERE IS NO COMMERCIAL EXPEDIENCY. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS ONLY INVESTED IN THE SISTER CONCERN AND IS NOT IN THE BUSINESS OF OPERATING AIRPORTS, THEREFORE, THE ACTIVITY CANNOT BE CONSIDERED AS A BUSIN ESS ACTIVITY. REFERRING TO THE MEMORANDUM OF ASSOCIATION AN D I.T.A. NO. 488/HYD/2017 :- 12 -: MAIN OBJECTS, LD.DR POINTED OUT THAT ASSESSEE HAS ONLY INVESTED FUNDS AS A PROMOTER. IT WAS FURTHER SUBMITTED TH AT THERE ARE NO ASSETS WORTH MENTIONING AT ALL AND THERE IS NO DEPRECIATION CLAIMED. IT WAS FURTHER SUBMITTED THAT THE CAS E LAW RELIED UPON BY THE ASSESSEE DOES NOT APPLY AS AS SESSEE HAS INVESTED IN SISTER CONCERNS WHICH ARE NOT IN BUSINESS, BUT IN THE SPVS WHICH ARE DOING BUSINESS AND THERE IS ONLY A REMOTE INVESTMENT AND NOT A DIRECT INVESTMENT AND SO THE PRINCIP LES DOES NOT APPLY. 6.11. IN REPLY, LD. COUNSEL SUBMITTED THAT ALL THE ASSESSEES ARE DIRECTORS ON THE COMPANIES OF THE OTHER B OARDS AND REFERRED TO THE FINANCIAL STATEMENT TO SUBMIT THAT ASSES SEE IS IN THE BUSINESS OF PROMOTING AIRPORTS AND THEREFOR E, THE INVESTMENTS MADE BY IT IN THE FORM OF LOANS ARE FOR CO MMERCIAL EXPEDIENCY AND THEREFORE, THE EXPENDITURE INCURRED IS TO BE ALLOWED AS A BUSINESS DEDUCTION. 6.12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE PAPER BOOKS PLACED ON RECORD AND THE CAS E LAW RELIED UPON. IT IS ADMITTED THAT ASSESSEE IS A PROMOTER AND HAS ONLY INVESTED IN LEVEL-2 COMPANIES I.E., SISTER CONCERNS, M/S.GVKAHPL AND BAIDPL. EVEN THESE TWO COMPANIES WH ICH ARE LEVEL-2 ARE NOT OPERATING THE AIRPORTS AND THEY ARE ALSO PROMOTERS OF THE REAL OPERATING COMPANIES WHICH ARE MI APL AND BIAL (SPVS/LEVEL-3 COMPANIES) WHICH ARE INVOLVE D IN CONSTRUCTION AND MAINTENANCE OF AIRPORTS AT MUMBAI AND BANGALORE. THERE IS NO DISPUTE WITH REFERENCE TO THE S OURCE OF I.T.A. NO. 488/HYD/2017 :- 13 -: FUNDS WHICH ARE INTEREST BEARING BORROWALS FROM BANKS AND FINANCIAL INSTITUTIONS. THERE IS ALSO NO DISPUTE THAT THE SE AMOUNTS ARE ADVANCED INTEREST FREE TO THE SISTER CONCER N I.E., LEVEL-2 COMPANIES, WHICH IN TURN MADE INVESTMENT IN T HE CAPITAL OF THE LEVEL-3 COMPANIES. IT IS ADMITTED THAT M/S.GVKAHPL INVESTED IN MIAPL TOWARDS CAPITAL AND ALSO ACQUIRED ADDITIONAL STAKE IN MIAPL FROM EXISTING SHARE HOLDERS. LIKEWISE, THE INTEREST FREE ADVANCES MADE TO BAIDPL WAS ALSO UTILISED TO ACQUIRE THE STAKE OF 43% IN BIAL. THUS, THE ENTIRE AMOUNT WHICH WAS BORROWED BY ASSESSEE-COMPANY ON INTE REST HAVE ULTIMATELY GONE FOR INVESTMENT IN SHARE CAPITAL OF LEVEL-3 COMPANIES I.E., SPVS. 6.13. IT IS THE CONTENTION OF ASSESSEE THAT ASSESSEE IS IN BUSINESS OF PROMOTING THE COMPANIES AND ADVANCES ARE FOR COMMERCIAL EXPEDIENCY. BEFORE ADVERTING TO THE ISSUE , IT WOULD BE NECESSARY TO EXTRACT THE MAIN OBJECTS IN THE MEMORANDU M OF ASSOCIATION OF ASSESSEE-COMPANY WHICH ARE AS UNDE R: 1. TO CARRY ON THE BUSINESS OF CONSTRUCTION AND DE VELOPMENT OF DOMESTIC AND INTERNATIONAL AIRPORTS WITHIN OR OUTSI DE INDIA, AIRPORT PROPERTIES MANAGEMENT, OPERATING AND MAINTENANCE AC TIVITIES OF TERMINALS, RUNWAYS, ESCALATORS, LIFTS AND OTHER FAC ILITY PROVIDERS, MALL MANAGEMENT & MAINTENANCE, ADVISORS ETC., AND FOR CA RRYING THE ABOVE OBJECTIVE ACQUIRE, HOLD, SELL AND LEASE ANY K IND OF LAND, PROPERTIES. BUILDINGS, PLANT AND MACHINERY AND TO D O OTHER OPERATIONAL, MANAGEMENT AND MAINTENANCE ACTIVITIES. 2. TO INVEST IN ALL KINDS OF INFRASTRUCTURE DEVELOP MENT COMPANIES AS A PROMOTER, SPONSOR, DEVELOPER, ADVISOR, OPERATOR OR OTHERWISE BY WAY OF EQUITY, PREFERENCE, DEBENTURES, DEBT OR OTHERWIS E AND TO CARRY ON ALL SUCH ACTS AS ARE REQUIRED TO PARTICIPATE, FLOAT OR ACQUIRE THROUGH BIDDING OR NEGOTIATED PROCESS FOR ANY PROJECT EITHE R IN INFRASTRUCTURE OR OTHERWISE. I.T.A. NO. 488/HYD/2017 :- 14 -: THE ABOVE OBJECTS INDICATE: I. THAT ASSESSEE IS TO CARRY ON THE BUSINESS OF CONSTRUCTI ON AND DEVELOPMENT OF DOMESTIC AND INTERNATIONAL AIRPORTS WITHIN OR OUTSIDE INDIA, PROPERTIES MANAGEMENT, OPERATING AND MAINTENANCE OF ACTIVITIES. IT IS TO BE ADMITTED THAT ASSESSEE IS NOT DOING THIS BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF DOMESTIC AND INTERNATIONAL AIRPORTS BY ITSELF. THE OTHER OBJECT IS II. TO INVEST IN ALL KINDS OF INFRASTRUCTURE COMPANIES AS PROMOTER, SPONSOR, DEVELOPER, ADVISOR, OPERATOR OR OTHERWISE BY WAY OF EQUITY OR OTHERWISE AND ALSO TO CARRYON SUCH ACTS AS ARE REQUIRED TO PARTICIPATE, FLOA T OR ACQUIRE THROUGH BIDDING OR NEGOTIATED PROCESS FOR ANY PROJECT. THUS, THE TWO OBJECTS INDICATE THAT ASSESSEE-COMPANY CAR RY ON THE BUSINESS ON ITSELF [OBJECT-1] OR TO INVEST IN OTH ER COMPANIES AS PROMOTER ETC., [OBJECT-2]. 6.14. AS SEEN FROM THE ACTIVITIES OF ASSESSEE, IT HAS ONLY CARRIED OUT THE OBJECT-2 AND HAS NOT DONE ANY BUSINE SS OF CONSTRUCTION OR DEVELOPMENT OF DOMESTIC OR INTERNATIONAL AIRPORTS BY ITSELF AS PROVIDED IN OBJECT-1. THE ACTIV ITY UNDERTAKEN BY ASSESSEE IS TO PROMOTE OTHER COMPANIES INVOLVED IN CONSTRUCTION AND DEVELOPMENT OF AND OPERA TION OF DOMESTIC OR INTERNATIONAL AIRPORTS AT PRESENT WITHIN INDIA . I.T.A. NO. 488/HYD/2017 :- 15 -: 6.15. IT IS IN THIS CONTEXT, ONE HAS TO EXAMINE WHETHER ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION AND DEVEL OPMENT OF DOMESTIC AIRPORTS OR ONLY AN INVESTOR AS A PROMOTER AN D SPONSOR ETC. ASSESSEE CONTENDS THAT THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF AIRPORTS BY THE SPVS IS THE BUSINESS OF ASSESSEE. THIS ARGUMENT CANNOT BE ACCEP TED FOR THE SIMPLE REASON THAT ASSESSEES MAIN OBJECT IS TO CAR RY ON THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT BY ITSELF WHICH IT HAS NOT UNDERTAKEN AND ALSO TO INVEST IN OTHER COMPANI ES AS PROMOTER, SPONSOR, WHICH IS THE ONLY ACTIVITY UNDERTAKE N BY ASSESSEE-COMPANY. AS THE MEMORANDUM OF ASSOCIATION I S CLEAR, WE CANNOT CONSIDER THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF AIRPORTS. SINCE THE OBJECT PROVIDES THAT INFRASTRUCTURE PROJECTS CAN BE UNDERTAKEN THROUGH SPVS, THAT CAN ONLY BE CONSIDERED UN DER THE HEAD INVESTMENT NOT AS A BUSINESS ACTIVITY OF THE ASSESSEE. 6.16. IN ORDER TO CONSIDER THAT ASSESSEE IS IN THE ACTI VITY OF BUSINESS, THERE SHOULD BE SAME REGULAR AND SYSTEM ATIC ACTIVITY SO AS TO CONSIDER THAT ASSESSEE IS INVOLVED IN BUSINESS ACTIVITY. EXCEPT INVESTING IN THE LEVEL-2 COMPANIES, WHICH IN TURN ARE ALSO INVESTING IN LEVEL-3 COMPANIES, THERE IS NO OTHER SYSTEMATIC AND REGULAR BUSINESS ACTIVITY UNDERTAKEN BY ASSESSEE. AS POINTED OUT BY LD.DR, THERE ARE NO ASSE TS AND THERE IS NO CLAIM FOR DEPRECIATION AT ALL. WHAT ASSE SSEE HAS DONE IS ONLY INVESTMENT IN SISTER CONCERN. WHAT ASSESSE E CAN EARN IS BY WAY OF DIVIDEND FROM SISTER CONCERNS OR BY WAY OF I.T.A. NO. 488/HYD/2017 :- 16 -: INTEREST ON THE DEPOSITS MADE IN THE BANKS, IF ANY SURP LUS FUNDS ARE AVAILABLE OR TEMPORARY FUNDS ARE AVAILABL E, AS CAN BE SEEN FROM THE OTHER INCOME EARNED BY ASSESSEE-CO MPANY DURING THE YEAR. THUS, ASSESSEE CANNOT BE CONSIDERED AS AN ASSESSEE CARRYING ON BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF AIRPORTS, BUT ONLY AS INVESTOR, SPONSOR, PROMOTER ETC. SINCE ASSESSEE IS NOT CARRYING ON ANY BUSINESS ACTIVITY ON ITS OWN, THE QUESTION OF ALLOWING THE DEDUCTI ON U/S. 36(1)(III) OF THE ACT DOES NOT ARISE AS THERE IS NO BUS INESS ACTIVITY AND THE INVESTMENT ITSELF CANNOT BE CONSIDERED AS FOR THE PURPOSE OF BUSINESS AS THERE IS NO BUSINESS ACTIV ITY AT ALL. 6.17. ONE OF THE CONTENTIONS RAISED IS THAT THE BUSINE SS ACTIVITY OF THE SPVS IS THE BUSINESS ACTIVITY OF ASSES SEE- COMPANY. THE COMPANY HAS RELIED ON VARIOUS CASE LAW AS STATED IN THE SUBMISSIONS BEFORE THE CIT(A) AS WELL AS BEFORE US IN THE ARGUMENTS. IT IS TO BE NOTED THAT ASSESSEE HAS NOT DIRECTLY INVESTED EITHER IN THE SHARE CAPITAL OR AS AN INTEREST FREE LOAN IN THE SPVS. IT HAS ADVANCED FUNDS TO ANO THER LEVEL-2 SISTER CONCERNS, WHICH IN TURN IS ALSO NOT IN THE ACTI VITY OF CONSTRUCTION AND DEVELOPMENT OF DOMESTIC OR INTERNATIONAL AIRPORTS. AS ADMITTED THEY ARE ALSO CONSIDERED AS PRO MOTER, SPONSOR AND DEVELOPER, WHO INVESTED FURTHER FUNDS IN ACQUIRING THE STAKE IN TWO SPVS AS STATED IN THE FACTS O F THE CASE. THUS, THERE IS A REMOTE CONNECTION BETWEEN ASS ESSEES INVESTMENT IN LEVEL-2 COMPANY AND BUSINESS ACTIVITY CONDUCTED BY LEVEL-3 COMPANY. MOST OF THE CASE LAW RE LIED UPON BY ASSESSEE IS THAT THOSE COMPANIES ARE IN THE BU SINESS I.T.A. NO. 488/HYD/2017 :- 17 -: AND HAVE ALSO ADVANCED FUNDS TO ITS SISTER CONCERN AS THE PART OF BUSINESS ACTIVITY. HERE NEITHER ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OR DEVELOPMENT OF DOMESTIC OR INTERNATIO NAL AIRPORTS ON ITS OWN NOR ITS LEVEL-2 COMPANIES ARE INVO LVED IN THE SAME ACTIVITY. AS THE FACTS INDICATE, ASSESSEE INVES TED FUNDS IN LEVEL-2 COMPANIES, WHO IN TURN INVESTED IN LEVEL-3 COMPANIES. SINCE THE FUNDS ARE ADVANCED ONLY FOR TH E PURPOSE OF INVESTMENT BY ASSESSEE IN THE LEVEL-2 COMPANY, THE S AME CANNOT BE CONSIDERED AS BUSINESS ACTIVITY OF ASSESSE E SO AS TO ALLOW THE DEDUCTION U/S. 36(1)(III). MOST OF THE CASE LAW RELIED UPON BY ASSESSEE DO NOT APPLY TO THE FACTS OF THE CASE AS THERE IS ONE MORE INTERMEDIARY LEVEL, WHICH IS NOT CARRYIN G ON ANY BUSINESS ACTIVITY. AS CAN BE SEEN FROM THE FINANCIAL S OF THOSE COMPANIES ALSO (WHICH ARE AT LEVEL-2 PLACED IN PAPE R BOOK) THEY ARE ALSO EARNING INTEREST AND DIVIDEND INCOME AN D NOT BUSINESS INCOME AS SUCH, AS THEY ARE ALSO NOT INVOLV ED IN ANY BUSINESS ACTIVITY PER SE. THUS, IN OUR OPINION, ASSESSEE CANNOT BE CONSIDERED TO BE ENGAGED IN THE BUSINESS OF CONSTR UCTION AND DEVELOPMENT OF AIRPORT WHICH IS ITS FIRST OBJECT B UT ONLY CAN BE CONSIDERED AS AN INVESTOR IN ALL KINDS OF INF RASTRUCTURE DEVELOPMENT COMPANIES AS PER OBJECT-2. SINCE THE PRI NCIPLES LAID DOWN BY VARIOUS CASE LAW DOES NOT APPLY AS THE PHRASE FOR THE PURPOSE OF BUSINESS IS NOT APPLICABLE TO ASS ESSEE- COMPANYS INVESTMENT, WE ARE NOT IN A POSITION TO APPLY THOSE PRINCIPLES TO THE PRESENT FACTS OF THE CASE. THERE IS MERIT IN REVENUES ARGUMENT THAT ASSESSEE IS NOT EARNING ANY BUS INESS INCOME AND ITS SOURCE OF INCOME IS ONLY INCOME FROM OTHER SOURCES, LIKE EARNING DIVIDEND. SINCE THERE IS NO RE GULAR I.T.A. NO. 488/HYD/2017 :- 18 -: BUSINESS ACTIVITY OF ASSESSEE ON ITS OWN, THE INVESTMEN T IN LEVEL-2 COMPANY WHICH IN TURN HAS INVESTED IN LEVEL -3 COMPANY CANNOT BE CONSIDERED AS BUSINESS ACTIVITY OF ASSESS EE. SO THE PRINCIPLES LAID DOWN BY VARIOUS CASE LAW DOES NOT A PPLY AND DEDUCTION U/S. 36(1)(III) OF THE ACT CANNOT BE MADE FO R THE INTEREST PAID BY ASSESSEE-COMPANY FOR INVESTMENT IN LE VEL-2 SISTER COMPANIES. 6.18. ONE OF THE ARGUMENTS RAISED BY ASSESSEE-COMPAN Y IS THAT INVESTING IN SISTER CONCERNS ITSELF IS A BUSINES S ACTIVITY. LD. COUNSEL RELIED ON SECTION 109 (SINCE DELETED) AN D THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. DISTRIBUTORS (BARODA) P. LTD., [83 ITR 377 ]. THE ISSUE IN THE ABOVE SAID CASE IS WITH REFERENCE TO CLAUSE-I OF EXPLANATION-2 TO SECTION 23A OF INCOME TAX ACT, 1922 A ND CORRESPONDING SECTION OF SECTION 109 OF INCOME TAX AC T, 1961. THE HON'BLE SUPREME COURT WHILE ANALYZING THE ISSUE PARTICULARLY WITH REFERENCE TO THAT SECTION HAS THIS TO S TATE : WE HAVE NOW TO SEE WHAT EXACTLY IS THE MEANING OF THE EXPRESSION IN THE CASE OF A COMPANY WHOSE BUSINESS CONSISTS W HOLLY OR MAINLY IN THE DEALING IN OR HOLDING OF INVESTMENTS' IN THE MAIN SECTION 23A AND THE EXPRESSION 'IN THE CASE OF A COMPANY WHOSE BUSINESS CONSISTS WHOLLY OR MAINLY IN THE DEALING IN OR HOLD ING OF INVESTMENTS' IN CLAUSE (I) OF EXPLANATION 2 TO SECTION 23A. THE ACT CONTAINS MANY MIND-TWISTING FORMULAS BUT SECTION 23A ALONG WITH S OME OTHER SECTIONS TAKES THE PLACE OF PRIDE AMONGST THEM. SEC TION 109 OF THE 1961 INCOME-TAX ACT WHICH HAS TAKEN THE PLACE OF TH E OLD SECTION 23A OF THE ACT IS MORE UNDERSTANDABLE AND LESS ABSTRUSE . BUT IN THESE APPEALS WE ARE LEFT WITH SECTION 23A OF THE ACT. CLAUSE (I) OF EXPLANATION 2 TO SECTION 23A CONCERNS ITSELF WITH A COMPANY WHOSE BUSINESS CONSISTS' WHOLLY OR MAINLY I N THE DEALING IN OR HOLDING OF INVESTMENTS'. THE WORD' MAINLY' IN TH AT CLAUSE AS WELL I.T.A. NO. 488/HYD/2017 :- 19 -: AS IN THE MAIN SECTION 23A MUST NECESSARILY TAKE IT S COLOUR FROM THE WORD 'WHOLLY' PRECEDING THAT WORD, IN THOSE PROVISI ONS. IN OTHER WORDS, THE COMPANY WHICH COMES WITHIN THE SCOPE OF THOSE PROVISIONS MUST BE ONE WHOSE PRIMARY BUSINESS MUST BE IN THE DEALING IN OR HOLDING OF INVESTMENTS'. IF A COMPANY ENGAGES ITSELF IN TWO OR MORE EQUALLY OR NEARLY EQUALLY IMPORTANT BUS INESS ACTIVITIES, THEN IT CANNOT BE SAID THAT THE COMPANY'S BUSINESS CONSISTS 'WHOLLY OR MAINLY' IN DEALING IN A PARTICULAR THING. FURTHE R, EVEN IN CASES WHERE A COMPANY HAS MORE THAN ONE BUSINESS ACTIVITY AND ONE OF ITS ACTIVITIES IS MORE SUBSTANTIAL THAN THE OTHERS, UNL ESS THAT ACTIVITY IS THE PRIMARY ACTIVITY OF THE COMPANY, IT CANNOT BE SAID THAT THAT COMPANY IS ENGAGED IN WHOLLY OR MAINLY IN ANY ONE OF ITS BUSINESS ACTIVITIES. SECTION 23A, IN OUR OPINION, APPLIES ON LY TO CASES WHERE THE PRIMARY ACTIVITY OF THE COMPANY IS IN THE DEALING IN OR HOLDING OF INVESTMENTS. WE SHALL PRESENTLY SEE WHETHER, ON TH E FACTS FOUND BY THE TRIBUNAL, IT CAN BE SAID THAT THE ASSESSEE-COMP ANY'S BUSINESS IN THE RELEVANT YEARS CONSISTED OF MAINLY IN THE DEAL ING IN OR HOLDING OF INVESTMENTS' AS IT WAS NOT THE CASE OF THE REVENUE THAT IT WAS WHOLLY ENGAGED IN THAT BUSINESS. WE NEXT COME ACROSS ANOTHER EXPRESSION WHICH IS FAR MORE DIFFICULT TO COMPREHEND THAN THE ONE THAT WE WERE CONSIDERING TI LL NOW. SECTION 23A SPEAKS OF THE BUSINESS OF 'HOLDING OF INVESTMEN TS'. HERE COMES THE ENIGMA. IT IS EASIER TO UNDERSTAND WHEN THE SEC TION SPEAKS OF A COMPANY HAVING THE BUSINESS OF DEALING IN INVESTMEN TS THOUGH TO SAY THAT THE COMPANY IS DEALING IN INVESTMENTS MAY, AT FIRST SIGHT, LOOK SOMEWHAT INCONGRUOUS. WHEN THE LEGISLATURE SPOKE OF DEALINGS IN INVESTMENTS, IT MEANT DEALING IN SHARES, STOCKS AND SECURITIES, ETC. BUT WHEN A PERSON INVESTS IN THE SHARES OF SOME OF THE COMPANIES, IT IS DIFFICULT TO SAY THAT HIS BUSINESS IS ONE OF INV ESTING. IN COMMERCIAL CIRCLES INVESTING IS NOT CONSIDERED AS BUSINESS. A N INVESTOR MAY FEEL PERPLEXED IF HE IS CALLED A BUSINESSMAN. THIS COURT IN BENGAL AND ASSAM INVESTORS LTD. V. CO MMISSIONER OF INCOME-TAX CAME TO THE CONCLUSION THAT AN INDIVIDUA L WHO MERELY INVESTS IN SHARES FOR THE PURPOSE OF EARNING DIVIDE ND, DOES NOT CARRY ON A BUSINESS AND THAT THE ONLY WAY HE CAN COME UND ER SECTION 10 OF THE ACT IS BY CONVERTING THE SHARES ACQUIRED BY HIM INTO STOCK-IN- TRADE, I.E., BY CARRYING ON THE BUSINESS OF DEALING IN STOCKS AND SHARES. IN THAT CASE THIS COURT WAS CONSIDERING WHE THER THE DIVIDEND INCOME OF THE ASSESSEE-COMPANY THEREIN COULD BE CON SIDERED AS BUSINESS INCOME UNDER SECTION 10 OF THE ACT. THEREI N THIS COURT WAS NOT CONSIDERING THE SCOPE OF SECTION 23A. BUT ALL T HE SAME IN THAT CASE THIS COURT PROCEEDED ON THE BASIS THAT NO ONE CAN M AKE A BUSINESS OF INVESTING. BUT THEN SECTION 23A SPEAKS OF THE BUSIN ESS OF HOLDING OF INVESTMENTS. WE WERE TOLD BY THE COUNSEL FOR THE ASSESSEE THAT THAT I.T.A. NO. 488/HYD/2017 :- 20 -: EXPRESSION IS AN INCONGRUOUS ONE AND THAT WE SHOULD , FOLLOWING THE DECISION OF THIS COURT IN BENGAL AND ASSAM INVESTOR S LTD. HOLD THAT THERE IS NOTHING LIKE A BUSINESS OF 'HOLDING OF INV ESTMENTS'. WE FEEL UNABLE TO ACCEDE TO THAT CONTENTION. WE CANNOT SAY THAT THE LEGISLATURE DID NOT KNOW ITS OWN MIND WHEN IT USED THAT EXPRESSION IN SECTION 23A. WE MUST GIVE SOME REASONABLE MEANING TO THAT EXPRESSION. NO PART OF A PROVISION OF A STATUTE CAN BE JUST IGNORED BY SAYING THAT THE LEGISLATURE ENACTED THE SAME NOT KN OWING WHAT IT WAS SAYING. WE MUST ASSUME THAT THE LEGISLATURE DELIBER ATELY USED THAT EXPRESSION AND IT INTENDED TO CONVEY SOME MEANING T HEREBY. THE EXPRESSION 'BUSINESS' IS A WELL-KNOWN EXPRESSION IN INCOME-TAX LAW. IT MEANS, AS OBSERVED BY THIS COURT IN NARAIN SWADE SHI WEAVING MILLS V. COMMISSIONER OF EXCESS PROFITS TAX : SOME REAL, SUBSTANTIAL AND SYSTEMATIC OR ORGANISED COURSE OF ACTIVITY OR C ONDUCT WITH A SET PURPOSE. THIS IS ALSO THE MEANING GIVEN TO THAT EX PRESSION IN THE EARLIER DECISIONS OF THE HIGH COURTS AND THE JUDICI AL COMMITTEE. WE MUST, THEREFORE, PROCEED ON THE BASIS THAT THE LEGI SLATURE WAS AWARE OF THE MEANING GIVEN BY COURTS TO THAT EXPRESSION W HEN IT INCORPORATED SECTION 23A INTO THE ACT IN 1957. HENC E WE MUST HOLD THAT WHEN THE LEGISLATURE SPEAKS OF THE BUSINESS OF HOLDING OF INVESTMENTS, IT REFERS TO REAL, SUBSTANTIAL AND SY STEMATIC OR ORGANISED COURSE OF ACTIVITY OF INVESTMENT CARRIED ON BY AN ASSESSEE FOR A SET PURPOSE SUCH AS EARNING PROFITS. THE HON'BLE SUPREME COURT ITSELF HAS EXPRESSED THAT IS AN ENIGMATIC QUESTION AND DIFFICULT TO COMPREHEND BUT SINCE SECTION ITSELF HAS PROVIDED FOR BUSINESS OF INVESTM ENTS IT WAS ACCEPTED FOR THE PURPOSE OF THAT SECTION, HOWEVER, IT WE NT ON TO CLARIFY THAT SOME REAL SUBSTANTIAL SYSTEMATIC OR ORGANIZ ED COURSE OF ACTIVITY OF CONDUCT WITH THE SAID PURPOSE IS REQUIRED TO BE CONSIDERED AS BUSINESS WHICH IS LACKING IN THI S CASE. THEREFORE, RELIANCE ON THE ABOVE SAID JUDGMENT DOES N OT APPLY TO THE FACTS OF THE CASE AND SINCE THE PROVISIONS OF SEC TION 109 IS NO LONGER ON STATUE, WE CANNOT HOLD THAT ASSESSEE IS IN THE BUSINESS OF INVESTMENT. AT BEST, THE INTEREST PAYABLE CAN BE CAPITALISED TO THE COST OF THE INVESTMENT AND AS AND WHEN ANY CAPITAL GAINS ARISES, THE SAME CAN BE CLAIMED, BUT IT CANNOT BE I.T.A. NO. 488/HYD/2017 :- 21 -: ALLOWED AS BUSINESS LOSS AS CLAIMED BY ASSESSEE U/S . 36(1)(III) OF THE ACT. 6.19. ANOTHER ARGUMENT RAISED BY THE LD. COUNSEL WAS THAT THE DIRECTORS ARE THE DIRECTORS IN THE SPVS AS WELL A ND SO THE BUSINESS OF SPV CAN BE CONSIDERED AS BUSINESS OF ASSESSEE. THIS ARGUMENT CANNOT BE ACCEPTED FOR THE RE ASON THAT DIRECTORS CAN BE APPOINTED IN ANY COMPANY BASED ON THEIR QUALIFICATION OR ASSOCIATION BUT NOT BECAUSE OF BUSINE SS CONNECTION. IF THE ARGUMENT IS TO BE ACCEPTED, THEN, INDEPENDENT DIRECTORS WHO ARE NOT CONNECTED TO THE PROM OTERS BUT ARE IN VARIOUS COMPANIES, SUCH SITUATION CANNOT BE CONSIDERED AS HAVING BUSINESS CONNECTION WITH EACH CO MPANY, IN WHICH THEY ARE DIRECTORS. THE ARGUMENT IS REJECTED . 6.20. EVEN THOUGH NEITHER PARTY RAISED THE ISSUE, SIN CE ASSESSEES MAIN SOURCE OF INCOME IS ONLY IN THE NAT URE OF DIVIDEND, THE PROVISIONS OF SECTION 14A OF THE ACT MAY ALSO APPLY TO THE FACTS OF THE CASE. SINCE THERE IS EVIDEN CE OF NEXUS OF BORROWING FUNDS BEING INVESTED IN SISTER CONCERN AND ASSESSEE SOURCES OF INCOME CAN ONLY BE EARNING DIVI DEND INCOME, THE ENTIRE INTEREST INCOME HAS TO BE CONSIDERED FOR DISALLOWANCE U/S. 14A UNDER RULE 8D2(I)/(II) FOR THE IMPUGNED ASSESSMENT YEAR. SINCE THE DIRECT NEXUS IS AVAILABLE FOR INVESTMENT IN SHARE CAPITAL OF SISTER CONCERN OR FURTHER INVESTMENT IN LEVEL-3 SPVS, THE DIRECT NEXUS OF THE BO RROWED FUNDS TO THAT OF INVESTMENT CERTAINLY ATTRACT THE PROVISIONS OF SECTION 14A AND ON THAT REASON ALSO THE DEDUCTION CLAIM ED BY I.T.A. NO. 488/HYD/2017 :- 22 -: ASSESSEE CANNOT BE ALLOWED. FOR THESE REASONS, WE AG REE WITH THE ORDERS OF AO AND CIT(A) ON THIS ISSUE. GROUND IS DISMISSED. GROUND NO. 2: 7. THIS GROUND IS WITH REFERENCE TO ALLOWANCE OF OPERATING COST OF RS. 1,17,09,534/-. THIS ISSUE IS A LSO LINKED TO THE ABOVE ISSUE AND SINCE WE HAVE TAKEN THE DECISION ABOUT THE NATURE OF ACTIVITY THE EXPENDITURE PER SE CAN NOT BE ALLOWED AS BUSINESS EXPENDITURE. SINCE ASSESSEE IS NOT CONSI DERED TO BE IN THE BUSINESS OF CONSTRUCTION OF AIRPORTS PER SE ON ITS OWN AND IS ONLY INVESTING AS A PROMOTER, IT CANNOT BE CONSI DERED AS BUSINESS ACTIVITY OF ASSESSEE. HOWEVER, NECESSARY E XPENDITURE FOR RUNNING DAY TO DAY ACTIVITY OF THE COMPANY HAS TO BE ALLOWED AS A DEDUCTION ACCORDINGLY EITHER U/S. 37(1) OR UNDER THE HEAD OTHER SOURCES. SUCH EXPENDITURE CANNOT BE OUTRIGHTLY DISALLOWED AND AS THE CLAIM IS ONLY FOR OPE RATING EXPENDITURE OF ASSESSEE-COMPANY, AO IS DIRECTED TO EX AMINE AND ALLOW THE EXPENDITURE. ACCORDINGLY, THIS GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 3: 8. THIS GROUND IS WITH REFERENCE TO SET-OFF OF BUSI NESS LOSS CLAIMED IN GROUND 1. FACTS OF THE CASE ARE THAT ASSESSEE HAS RECEIVED INTEREST INCOME OF RS. 31,34,967/-. SUC H INTEREST WAS OFFERED TO TAX UNDER THE HEAD 'INCOME FROM OTHER SO URCES' WHILE COMPUTING THE TOTAL INCOME. THE BUSINESS LOSS I NCURRED BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS S ET-OFF I.T.A. NO. 488/HYD/2017 :- 23 -: AGAINST SUCH INCOME. THE LD. AO DID NOT ALLOW THE SET- OFF OF BUSINESS LOSS AGAINST THE AFORESAID INCOME ON CONTENTIO N THAT ASSESSEE HAS NOT COMMENCED ITS BUSINESS OPERATIONS AN D EXPENSES INCURRED BY ASSESSEE ARE PRE-OPERATIVE IN N ATURE, AND HENCE NOT ELIGIBLE FOR TAX DEDUCTION. 8.1. BEFORE THE LD.CIT(A) IT WAS SUBMITTED THAT ASSESSEE- COMPANY WAS INCORPORATED ON 10 TH JUNE, 2005 WITH THE MAIN BUSINESS OBJECTS AS STATED IN ITS MEMORANDUM OF ASSOCIATION IT WAS FURTHER SUBMITTED THAT AS AT THE STARTING OF THE FINANCIAL YEAR UNDER CONSIDERATION, ASSESS EE HAD INVESTMENT IN VARIOUS SPV'S WHICH WAS ACQUIRED/SET-UP IN PREVIOUS FINANCIAL YEARS. FURTHER, SUCH SPV'S WERE O PERATIVE FROM THE FIRST DATE OF THE YEAR UNDER CONSIDERATION. THE SAME IS ALSO EVIDENT FROM THE AUDITED FINANCIALS STATEMENT OF MIAPL AND BIAL ENCLOSED VIDE ANNEXURE-4 AND 5 RESPECTIVELY . SUCH SPV'S ARE NOTHING BUT AN EXTENDED ARM OF ASSESSEE. THE BUSINESS OF ASSESSEE COMMENCED FROM THE DATE WHEN AS SESSEE MADE THE FIRST INVESTMENT AND/OR PROVIDED INTEREST-FREE ADVANCES TO ITS SPV'S FOR CARRYING OUT THE BUSINESS OPE RATIONS. GIVEN THE ABOVE, IT WAS CONTENDED THAT ASSESSEE HAS NOT ONLY SET-UP ITS BUSINESS OPERATIONS BUT HAS ALSO COMMENCE D THE SAME IN EARLIER YEAR WHEN SUCH DOWNSTREAM INVESTMENT W AS MADE BY ASSESSEE BY WAY OF ACQUISITION OF SHARES/ ADVANCEMENT OF INTEREST-FREE ADVANCE TO THE SPV'S. HEN CE, THE ACTION OF THE LD. AO TO NOT ALLOWING THE SET-OFF OF B USINESS LOSS AGAINST THE INTEREST INCOME IS BAD-IN-LAW. WITHOUT PREJUD ICE TO THE ABOVE, EVEN IF IT IS ASSUMED THAT THE ASSESSEE HAS N OT I.T.A. NO. 488/HYD/2017 :- 24 -: COMMENCED ITS BUSINESS OPERATIONS, THE ACTION OF THE LD. AO TO NOT ALLOW THE SET-OFF OF BUSINESS LOSS AGAINST THE I NTEREST INCOME ON THE CONTENTION THAT ASSESSEE NOT COMMENCED ITS BUSINESS OPERATIONS IS NOT WARRANTED, SINCE, U/S. 3 OF THE ACT, THE DATE OF SETTING-UP OF BUSINESS IS RELEVANT AND NOT TH E COMMENCEMENT DATE FOR CLAIMING DEDUCTION OF BUSINESS EXPENDITURE. RELIANCE IN THIS REGARD CAN BE PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS: WESTERN INDIA VEGETABLE PRODUCTS LTD VS. CIT (L954) [ 26 ITR 151] (BOMBAY HIGH COURT). THE HON'BLE HIGH COU RT HELD THAT THERE IS A DISTINCTION BETWEEN A PERSON COMMENCING A BUSINESS AND A PERSON SETTING UP A BUSINESS AND FOR THE PURPOSE OF THE ACT, THE 'SETTING-UP' OF BUSINESS HAS TO BE CONSIDERED. SIMILAR VIEWS WERE ALSO HELD IN THE FOLLOWING CASE L AWS: - CIT VS. LG ELECTRONICS (INDIA) LIMITED (2005) (2006) [282 ITR 545] (DELHI HIGH COURT); - CIT VS. HUGHES ESCORTS COMMUNICATION LIMITED (2009) [311 ITR 253] (DELHI HIGH COURT); - CIT VS. SAMSUNG INDIA ELECTRONICS LIMITED (2013) [356 ITR 354] (DELHI HIGH COURT) GIVEN THE ABOVE, IT WAS CONTENDED THAT ACTION OF AO THAT THE BUSINESS OF ASSESSEE HAS NOT COMMENCED AND NOT ALLOWI NG THE I.T.A. NO. 488/HYD/2017 :- 25 -: SET-OFF OF BUSINESS LOSS WITH THE INTEREST INCOME EARN ED DURING THE YEAR UNDER CONSIDERATION IS WITHOUT APPRECIATING THE FACT THAT FOR THE PURPOSE OF THE ACT THE DATE OF 'SET-UP OF B USINESS' IS RELEVANT AND NOT 'COMMENCEMENT OF BUSINESS'. IN V IEW OF THE SUBMISSION, ASSESSEE PRAYED THAT THE NECESSARY DIR ECTION SHOULD BE GIVEN TO LD. AO TO ALLOW THE SET-OFF OF BUS INESS LOSS AGAINST THE INTEREST INCOME. 8.2. LD.CIT(A) HAS CONSIDERED THIS IN PARA 7.2 AS U NDER: 7.2. I HAVE GONE THROUGH THE AOS OBSERVATIONS AND ARS CONTENTIONS. IT IS SEEN FROM THE FACTS THAT THE AO HAS NOT ALLOWED SET OFF OF BUSINESS LOSSES AGAINST THE INTEREST INCOME OF RS. 31,34,967/- STATING THAT THE ASSESSEE HAS NOT COMMENCED ITS BUS INESS OPERATIONS AND EXPENSES INCURRED BY THE ASSESSEE ARE PRE-OPERA TIVE IN NATURE, AND HENCE NOT ELIGIBLE FOR SET OFF. DURING THE APP EAL PROCEEDINGS ALSO, THE AR COULD NOT REBUT THE CONCLUSIONS DRAWN BY THE AO. THEREFORE, I AM OF THE CONSIDERED VIEW THAT THE AOS ACTION IN N OT ALLOWING SET OFF OF BUSINESS LOSSES AGAINST THE INTEREST INCOME OF R S. 31,34,967/- IS JUSTIFIED AND HENCE CONFIRMED. AS A RESULT, THE GRO UNDS RAISED ARE DISMISSED. 8.3. IT WAS THE CONTENTION THAT SET-OFF OF LOSSES IS EL IGIBLE FOR SET-OFF AGAINST THE INTEREST INCOME. THERE IS NO DISPUTE WITH REFERENCE TO SETTING UP OF THE BUSINESS BY ASSESSE E- COMPANY AND THEREFORE, THE LOSSES WHICH ARE ALREADY QUANTIFIED IN EARLIER YEAR ARE TO BE SET-OFF AS PER THE PROVISIONS OF THE ACT. THE LOSSES IN EARLIER YEAR IF CARRIED F ORWARD AS BUSINESS LOSS, THE SAME CAN ONLY BE SET-OFF TO THE BU SINESS INCOME. SINCE THERE IS NO BUSINESS INCOME DURING THE YEAR, THE LOSS CANNOT BE SET-OFF TO THE OTHER SOURCES OF INCOM E. HOWEVER, CURRENT YEARS OPERATIONAL EXPENDITURE IS TO B E ALLOWED AS SET-OFF AS PER THE PROVISIONS OF THE ACT. AO IS I.T.A. NO. 488/HYD/2017 :- 26 -: DIRECTED TO EXAMINE THIS ASPECT AND WHATEVER AMOUNT IS ALLOWABLE AS OPERATIONAL COST OF THE COMPANY, ALLOWED IN GROUND NO.2 CAN BE SET-OFF TO THE INCOME FROM OTHER SO URCES I.E., INTEREST INCOME EARNED DURING THE YEAR. AO IS DIRECTED TO EXAMINE THE PROVISIONS OF LAW AND FACTS OF THE CASE AN D DIRECTED TO DO ACCORDINGLY. GROUND IS CONSIDERED AL LOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JULY, 2018 SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER HYDERABAD, DATED 5 TH JULY, 2018 TNMM I.T.A. NO. 488/HYD/2017 :- 27 -: COPY TO : 1. GVK AIRPORT DEVELOPERS LIMITED, PAIGAH HOUSE, 15 6-159, SARDAR PATEL ROAD, SECUNDERABAD. 2. THE INCOME TAX OFFICER, WARD-2(2), HYDERABAD. 3. CIT(APPEALS)-2, HYDERABAD. 4. PR.CIT-2, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.