AIR INDIA LTD, MUMBAI V. ACIT 5(1), MUMBAI

ITA 5204/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3165 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D J SHUKLA
• Keywords: Business income; Earning of tax free income; Source of fund
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.5204/MUM/2011 ASSESSMENT YEAR-2007-08 AIR INDIA LTD., OLD AIRPORT, KALINA, SANTACRUZ, MUMBAI-400029 / VS. ACIT - 5(1), M UMBAI PAN NO. AAAC A9213E ( /ASSESSEE) ( / REVENUE) ITA NO.4919/MUM/2011 ASSESSMENT YEAR-2007-08 DCIT - 5(2), R. NO.571, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/ S N ATIONAL A VIATION C OMPANY OF I NDIA L IMITED , O LD A IRPORT , S ANTACRUZ (E) M UMBAI -400029 PAN NO.AAACA9213E ( / REVENUE) ( /ASSESSEE) ITA NO.4919 & 5204/MUM/2011 M/S NATIONAL AVIATION COMPANY OF INDIA LTD./ AIR INDIA LTD. 2 / ASSESSEE BY SHRI D.J. SHUKLA / REVENUE BY SHRI RAJESH DAMOR -DR ! / DATE OF HEARING : 31/03/2016 ! / DATE OF ORDER: 01/04/2016 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE AS WELL AS THE REVENUE IS IN CROSS APP EAL AGAINST THE IMPUGNED ORDER BOTH DATED 28/03/2011 FO R ASSESSMENT YEAR 2007-08, OF THE LD. FIRST APPELLATE AUTHORITY, MUMBAI. FIRST, WE SHALL TAKE UP APPEAL OF THE ASSESSEE (ITA NO.5204/MUM/2011). 2. THE FIRST GROUND RAISED BY THE ASSESSEE IS WITH RESPECT TO APPLICABILITY OF THE PROVISIONS OF SECTI ON 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) TO T HE FACTS OF THE PRESENT APPEAL AND CONFIRMATION OF DISALLOWA NCE TO THE EXTENT OF 5% OF THE EXEMPTED INCOME. THE CRUX O F ARGUMENT ADVANCED BY LD. COUNSEL FOR THE ASSESSEE, SHRI D.J. SHUKLA, IS THAT THE EXEMPT INCOME WAS TO THE EXTENT OF RS.50 LAKHS AND ONLY ONE BUSINESS INVESTMENT WAS MADE BY THE ASSESSEE, WHEREIN, NO DISALLOWANCE IS CALLED FOR. ON THE OTHER HAND, THE LD. DR, SHRI RAJESH DAMOR, DEFE NDED THE CONCLUSION, ARRIVED AT IN THE IMPUGNED ORDER. ITA NO.4919 & 5204/MUM/2011 M/S NATIONAL AVIATION COMPANY OF INDIA LTD./ AIR INDIA LTD. 3 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A PUBLIC SECTOR CORPORATIO N WHOLLY OWNED BY GOVERNMENT OF INDIA AND IS A NATIONAL CARR IER, ENGAGED IN NATIONAL/INTERNATIONAL AIR TRANSPORTATIO N OF PASSENGERS AND CARGO. THE ASSESSEE IN ITS REVISED R ETURN DECLARED LOSS OF RS.660,50,85,118/-. THE ASSESSEE S HOWED DIVIDEND INCOME, DURING FINANCIAL YEAR 2006-07, AMOUNTING TO RS.3,06,00,000/- AND OUT OF WHICH DIVI DEND INCOME OF RS.2,56,00,000/- WAS OFFERED AS TAXABLE A S INCOME FROM OTHER SOURCES AS THE SAME WAS RECEIVED FROM FOREIGN INVESTMENT. THE BALANCE AMOUNT OF RS.50 LAK HS WAS RECEIVED FROM COCHIN INTERNATIONAL AIRPORT LTD. (IN SHORT CIAL) AND WAS CLAIMED AS EXEMPT U/S 10(34) OF THE A CT ON THE GROUND THAT CIAL IS AN INDIAN COMPANY IN WHICH AIR INDIA HOLDS EQUITY SHARES. THE LD. ASSESSING OFFICE R ASKED THE ASSESSEE AS TO WHY THE EXPENSES SHOULD NOT BE DISALLOWED BY APPLYING RULE-8D OF THE INCOME TAX RU LES. THE ASSESSEE VIDE COMMUNICATION DATED 30/12/2009 RE AD AS UNDER:- THE INVESTMENT MADE IN THE SHARES OF CIAL IS OUT O F THE FUNDS OWNED BY THE COMPANY AND NOT FROM THE BORROWED FUND S. THEREFORE, NO EXPENDITURE HAS BEEN INCURRED IN MAKI NG THE INVESTMENT IN THE SHARES OF CIAL. THUS, NO EXPENDI TURE SHOULD BE DISALLOWED. 2.2. THE LD. ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE PLEA THAT THE ASSESSEE DID NOT PROD UCE ANY ITA NO.4919 & 5204/MUM/2011 M/S NATIONAL AVIATION COMPANY OF INDIA LTD./ AIR INDIA LTD. 4 EVIDENCE THAT THE INVESTMENT WAS MADE OUT OF OWN FU NDS. HE MADE A DISALLOWANCE OF RS.31,39,880/- U/S 14A OF THE ACT. ON APPEAL BEFORE THE COMMISSIONER OF INCOME TA X (APPEAL), IN THE STAND TAKEN IN THE ASSESSMENT ORDE R WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER A PPEAL BEFORE THIS TRIBUNAL. 2.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, CONCL USION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF K EPT IN JUXTAPOSITION AND ANALYZED, WE FIND THAT THE NECES SARY DETAILS WAS VERY MUCH MADE AVAILABLE BEFORE THE ASS ESSING OFFICER/ COMMISSIONER OF INCOME TAX (APPEAL). THE INVESTMENT WAS MADE OUT OF OWN FUNDS FOR THE PURPOS ES OF EARNING DIVIDEND. THE AVAILABILITY OF FUNDS, DETAIL S OF CAPITAL SHARE AND RESERVE AND SURPLUS IS EVEN AVAILABLE AT PAGE-6 OF THE IMPUGNED ORDER. SO FAR AS, APPLICABILITY OF RUL E-8D IS CONCERNED, SO FAR AS, ASSESSMENT YEAR INVOLVED IS 2 007-08, THEREFORE, RULE 8D IS APPLICABLE BUT AT THE SAME TI ME IT CANNOT BE APPLIED MECHANICALLY. THE ASSESSEE INVEST ED RS.5 CRORE IN EQUITY SHARE CAPITAL OF CIAL AND FURTHER I NVESTED RS.5 CRORE IN THE EQUITY SHARE CAPITAL, THEREFORE, IN THE ABSENCE OF ANY CONTRARY MATERIAL AND SINCE THE OWN FUNDS WERE INVESTED AND NO EXPENSES WERE CLAIMED, THE DISALLOWANCE IS NOT JUSTIFIED, CONSEQUENTLY, THIS G ROUND OF THE ASSESSEE IS ALLOWED. ITA NO.4919 & 5204/MUM/2011 M/S NATIONAL AVIATION COMPANY OF INDIA LTD./ AIR INDIA LTD. 5 3. THE NEXT GROUND RAISED PERTAINS TO CONFIRMATION OF DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.337. 10 (MILLIONS). THE CRUX OF ARGUMENT ON BEHALF OF THE A SSESSEE THAT IN EARLIER ASSESSMENT YEARS, NO SUCH DISALLOWA NCE WAS MADE AND IN THE PRESENT ASSESSMENT YEAR, THE FACTS ARE IDENTICAL. THE CRYSTALLIZATION WAS CLAIMED TO BE MA DE DURING THE YEAR ITSELF. THE LD. COUNSEL FILED A CHART OF P RIOR PERIOD ADJUSTMENT OF FINANCIAL YEAR ENDING ON 31/03/2007, WHICH IS SUMMARIZED AS UNDER:- SL. NO. DESCRIPTION F.Y. AMOUNT IN MILLION 1 PASSENGER REVENUE 2006 - 07 18.9 2 CARGO REVENUE 2006 - 07 13.5 3 M AIL 2006 - 07 0.1 4 HANDLING CHARGES 2006 - 07 129 .9 5 PASSENGER AMENITIES 2006 - 07 33.4 6 HAJ OPERATION 2006 - 07 16.2 7 PUBLICITY 2006 - 07 19.5 8 SALARIES/STAFF WELFARE EXPENSE 2006 - 07 48.5 9 COMMUNICATION CHARGES-OTHER 2006 - 07 0.1 10 INTEREST ON INVESTMENT 2006 - 07 1.5 11 EXCHANGE VARIATION 2006 - 07 55.5 TOTAL 337.1 3.4. THE AFORESAID FIGURES EVEN HAS BEEN MENTIONED IN PARA 5.3 OF THE IMPUGNED ORDER. THE RELIEF WAS D ENIED TO THE ASSESSEE ON THE PLEA (PARA 5.5 OF THE IMPUGNED ORDER) THAT THE ASSESSEE COULD NOT PRODUCE THE EVIDENCE WI TH RESPECT TO THESE LIABILITIES WHETHER CRYSTALLIZE DU RING THE YEAR. HOWEVER, THE ASSESSEE DREW OUR ATTENTION TO P AGE 24 OF THE PAPER BOOK WITH RESPECT TO REJECTIONS/REFUND S AND WE FOUND THE EXPLANATION OF THE ASSESSEE TO BE CORRECT . ITA NO.4919 & 5204/MUM/2011 M/S NATIONAL AVIATION COMPANY OF INDIA LTD./ AIR INDIA LTD. 6 CONSIDERING THE FACTS AND THE EXPLANATION OF THE AS SESSEE, THIS GROUND IS ALLOWED. THE APPEAL OF THE ASSESSEE, IS, THEREFORE, ALLOWED. 4. NOW, WE SHALL TAKE UP THE APPEAL OF THE REVENUE (ITA NO.4919/MUM/2011), WHEREIN, FIRST GROUND PERTAINS T O DIRECTING THE ASSESSING OFFICER TO TREAT THE INTERE ST INCOME OF RS.3018.64 LAKHS ON SHORT TERM DEPOSITS AS BUSIN ESS INCOME AND NOT INCOME FROM OTHER SOURCES. THE LD. D R DEFENDED THE CONCLUSION TAKEN IN THE ASSESSMENT ORD ER, WHEREAS, THE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE CONCLUSION DRAWN IN THE IMPUGNED ORDER BY SUBMITTIN G THAT THE CONCLUSION OF THE COMMISSIONER OF INCOME T AX (APPEAL) IS BASED UPON THE DECISION OF THE TRIBUNAL . 4.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE RECEIVED SUBSTANTIAL REVENUE FROM SALES OF ITS FOREIGN OFFICE AT LONDON, NEWYORK, ETC . THE ASSESSEE TOOK PERMISSION FROM RBI TO KEEP THE SALE PROCEEDS ABROAD IN THE BANK ACCOUNT AT DIFFERENT PL ACED AND EARNED INTEREST OF RS.30,18,64,580/-. THIS WAS TREATED AS INCOME FROM OTHER SOURCES. HOWEVER, THE TRIBUNAL VIDE ORDER DATED 31/10/2008 (ITA NOS.6865 & 6866/MUM/2005) ADJUDICATE THE DISPUTE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE SAME IS REPRO DUCED HEREUNDER:- ITA NO.4919 & 5204/MUM/2011 M/S NATIONAL AVIATION COMPANY OF INDIA LTD./ AIR INDIA LTD. 7 '11. WE HAVE CONSIDERED THE ISSUE, EXAMINED THE FAC TS AND THE CASE LAWS. IT IS TRUE THAT VARIOUS JUDICIAL PRINCIPLES WERE ES TABLISHED ON THE BASIS OF THE FACT AVAILABLE IN EACH CASE. IF THE FUNDS ARE NOT H AVING ANY BUSINESS REQUIREMENT AND FUNDS ARE DEPOSITED FOR LONG TERM I NVESTMENTS OR FUNDS ARE RECEIVED AND INVESTED WHICH ARE NOT REQUIRED FO R BUSINESS PURPOSES THE INCOME THEREON CAN BE CONSIDERED AS 'INCOME FROM OT HER SOURCES'. THE VARIOUS CASE LAWS RELIED UPON BY THE LEARNED O. R. ARE GIVEN IN THE CONTEXT WHERE THE SURPLUS FUNDS WERE NOT BEI NG USED FOR THE BUSINESS. HOWEVER IN THE VARIOUS CASE LAWS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE THE DEPOSITS ARE BEING USED IN THE COURSE OF BUSINESS AND ARE ONLY DEPOSITED FOR SHORT TERM PERIODS OR IN CURRENT ACCOUNTS AND THE SOURCE OF FUNDS ARE BUSINESS RECEIPTS. IN THE PRESENT CASE , THERE IS NO DISPUTE THAT THE FUNDS ARE SALE PROCEEDINGS IN THE BUSINESS ACTI VITIES OF THE ASSESSEE COMPANY ABROAD. IT IS ALSO SEEN THAT INSTEAD OF REPATRIATING THE FUNDS TO INDIA, THE ASSESSEE WAS PERMITTED TO U TILIZE THE FUNDS FOR THEIR DAY-TO-DAY ADMINISTRATION PURPOSES AS WELL AS FOR R EPAYMENT OF VARIOUS LOANS TAKEN FOR 'BUSINESS PURPOSES BY RETAINING THE FUNDS ABROAD WITH THE NECESSARY PERMISSION FROM RESERVE BANK OF INDIA. IT IS ALSO A FACT THAT THESE DEPOSITS ARE KEPT IN CURRENT ACCOUNTS OR IN SHORT T ERM DEPOSITS FOR THEIR IMMEDIATE USE FOR BUSINESS PURPOSES. ON THESE FACTS IT IS TO BE HELD THAT THE FUNDS ARE BEING USED IN THE BUSINESS AND THE INCIDE NTAL BUSINESS INCOME ON THE SHORT TERM DEPOSITS ABROAD ARE TO BE CONSIDERED AS BUSINESS RECEIPTS ONLY. THIS VIEW IS ALSO SUPPORTED BY THE ACTION OF THE CBOT IN TAKING UP THE ASSESSEE'S CASE BEFORE THE INLAND REVENUE AUTHORITI ES OF UK WHEN THE SAME WAS BEING TAXED AS 'INCOME FROM OTHER SOURCES' NOT COVERED BY THE OTAA BETWEEN UK AND INDIA. THESE FACTS ARE ESTABLISHED I N THE ORDER FOR THE ASSESSMENT YEAR 1993-94 OF THE LEARNED CIT(A) AND A S SUBMITTED BY THE ASSESSEE, THE MATTER WAS NOT CHALLENGED AND ACCEPTE D UPTO ASSESSMENT YEAR 1996-97. FOR THESE REASONS, WE ARE OF THE OPIN ION THAT THE INTEREST EARNED ON SHORT TERMS DEPOSITS IS TO BE CONSIDERED INCOME FROM BUSINESS. CONSEQUENTLY, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE INTEREST INCOME AS INCOME FROM BUSINESS. THE ASSESSEES GROUNDS ARE ALLOWED ON THIS ISSUE. WE FIND THAT THE DEPARTMENT HAS NEITHER BROUGHT ON RECORD ANY CONTRARY FACTS/DECISION, THEREFORE, ON THE PRIN CIPLE OF PARITY ALSO, THE GROUND OF THE REVENUE IS HAVING NO MERIT, CONSEQUENTLY, THE IMPUGNED GROUND IS DISMISSED. ITA NO.4919 & 5204/MUM/2011 M/S NATIONAL AVIATION COMPANY OF INDIA LTD./ AIR INDIA LTD. 8 5. THE NEXT GROUND PERTAINS TO RESTRICT THE DISALLOWANCE TO 5% MADE U/S 14A OF THE ACT OF THE EXEMPTED INCOME AND FURTHER HOLDING THAT RULE -8D I S APPLICABLE FROM A.Y. 2008-09. WE HAVE ALREADY DELIB ERATED UPON THIS ISSUE WHILE ADJUDICATING GROUND NUMBER-1 OF THE APPEAL OF THE ASSESSEE(SUPRA), THEREFORE, WE FIND N O INFIRMITY IN THE CONCLUSION OF THE COMMISSIONER OF INCOME TAX (APPEAL) . ON THIS ISSUE HIS STAND IS AFFIRMED . 6. THE LAST GROUND PERTAINS TO DELETING THE DISALLOWANCE OF RS.455.28 LAKHS MADE ON ACCOUNT OF FREQUENT FLIER PROGRAM (FFP). THE LD. DR DEFENDED T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER, WHEREAS , THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE IM PUGNED ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF JET AIRWAYS LTD. (ITA NO.3201/MUM/2003 AND 6084/MUM/2003) ORDER DATED 30/05/2006. THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY THE LD. DR. 6.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS UNCONTROVERTED FINDING THAT THE LIABILITY IN RESPEC T OF FFP MILES ACCRUES SIMULTANEOUSLY WITH A PASSENGER UNDERTAKING TRAVEL ON A FARE PAYING TICKET, THEREFO RE, IT CANNOT BE A CONTINGENT LIABILITY. FOLLOWING THE AFO RESAID DECISION OF THE TRIBUNAL DATED 30/05/2006 AND FURTH ER IN THE ABSENCE OF ANY CONTRARY FACTS/DECISION AND THE CASE ITA NO.4919 & 5204/MUM/2011 M/S NATIONAL AVIATION COMPANY OF INDIA LTD./ AIR INDIA LTD. 9 LAWS RELIED UPON IN PARA 7.5 OF THE IMPUGNED ORDER, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE COMMISSIONER OF INCOME TAX (APPEAL). FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 31/03/2016. SD/- SD/- (RAJENDRA) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER MUMBAI; $ DATED : 01/04/2016 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. &' () / THE APPELLANT (RESPECTIVE ASSESSEE) 2. *+() / THE RESPONDENT. 3. , , - ( &' ) / THE CIT, MUMBAI. 4. , , - / CIT(A)- , MUMBAI, 5. /01 *2 , , &' ! &23 , / DR, ITAT, MUMBAI 6. 14 5 / GUARD FILE. / BY ORDER, +/' * //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI