ISS Facility Services India Pvt. Ltd., Mumbai V. DCIT, New Delhi

ITA 5427/DEL/2012

• Counselvise Citation: 542720114 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 25-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S GILL
• Assessee Lawyers: PUNEET THUKRAL
• Keywords: Business income; Earning of tax free income; Wholly owned subsidiary; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI R.P. TOLANI : JUDICIAL MEMBER AND SHRI T.S. KAPOOR : ACCOUNTANT MEMBER ITA NO. 5427/DEL/2012 ASSTT. YR: 2007-08 ISS FACILITY SERVICES INDIA PVT. LTD. VS. DCIT CIR . 11(1), GODREJ INDUSTRIES LTD. COMPLEX, NEW DELHI. ROAD NO. 4, PHIROJSHAH NAGAR, EASTERN EXPRESS HIGHWAY, VIKHROLI (EAST), MUMBAI-400079. PAN: AABCI 3815 L ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI PUNEET THUKRAL CA RESPONDENT BY : SHRI R.S. GILL CIT (DR) DATE OF HEARING: 1-04-2014 DATE OF ORDER: 9 TH APRIL, 2014. O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST ORDER DATED 27-8- 2012 OF CIT(A)- XV, NEW DELHI IN APPEAL NO. 479/09-10 RELATING TO A .YR. 2007-08, CHALLENGING DISALLOWANCE OF FOLLOWING EXPENSES U/S 14A OF THE I.T. ACT, 1961. INTEREST EXPENSES PAID ON RETENTION OF MONEYS TO (I) OUTGOING SHARE-HOLDERS = RS. 4,08,000/- (II) IN RESPECT OF ADMINISTRATIVE EXPENSES = RS. 4 ,10,000/-. ITA NO. 5427/DEL/2012 ASSTT. YR: 2007-08 2 2. BRIEF FACTS ARE: THE ASSESSEE IS NOT INTO ANY AC TIVE BUSINESS AND IS WHOLLY OWNED SUBSIDIARY OF ISS GLOBAL A/S, A DENIS COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER DISALLOWED THE EXPENDITURE IN RESPECT OF ROC FILING AND STAMPING F EES; ADMINISTRATIVE EXPENSES; AND INTEREST EXPENSES. IT MAY BE PERTINEN T TO MENTION THAT ASSESSING OFFICER DISALLOWED THESE EXPENSES HOLDING THEM AS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL. 2.1. IN THE APPELLATE PROCEEDINGS, CIT(A) PROPOSED THAT ASSESSEES MAIN OBJECTIVE WAS ONLY TO MAKE INVESTMENTS IN DIFFERENT COMPANIES AND TO ACQUIRE THEM AS THEIR SUBSIDIARY COMPANIES. THEREFO RE, PROPORTIONATE ADMINISTRATIVE AND INTEREST EXPENSES SHOULD BE DIS ALLOWED U/S 14A AS THEY ARE DIRECTLY ATTRIBUTABLE TO AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 2.2. LD. CIT(A) REJECTED THE ASSESSEES CONTENTION THAT PROVISIONS OF SEC. 14A ARE NOT APPLICABLE AS IN THIS YEAR THERE WAS NO EXEMPT INCOME, BY FOLLOWING OBSERVATIONS: 5.5. ONE OF THE CONTENTION RAISED BY THE APPELLANT IS THAT, SINCE THEY DID NOT EARN ANY DIVIDEND WHICH WAS EXEM PT FROM TAX THEREFORE, SECTION 14A IS NOT APPLICABLE. I DONT A GREE WITH THE APPELLANTS SUBMISSIONS THAT SINCE IN THE YEAR UNDE R CONSIDERATION THEY DIDNT HAVE ANY EXEMPT INCOME TH EREFORE, NO DISALLOWANCE UNDER SECTION 14A IS WARRANTED. IN FACT THE ITAT, DELHI SPECIAL BENCH DECISION IN T HE CASE OF CHEMINVEST LTD. VS. ITO (317 ITR 86) DATED 05-05 -2009 IS BASED ON THE RULING OF APEX COURT IN THE CASE OF CI T VS. RAJENDRA PRASAD MOODY WHEREIN IT WAS HELD THAT EXPE NDITURE WAS ALLOWABLE TO THE ASSESSEE WITHOUT ANY REQUIREME NT OF EARNING OF RECEIPT OF INCOME. THEREFORE, ACCORDING TO REVERSE ITA NO. 5427/DEL/2012 ASSTT. YR: 2007-08 3 ANALOGY, THE EXPENDITURE SHALL BE DISALLOWED WHETHE R ANY INCOME WAS GENERATED OR NOT. THE TRIBUNAL THEREFORE HELD THAT: WHAT ONE HAS TO SEE IS WHETHER ANY EXPENDITURE WERE INCURRED BY AN ASSESSEE IN RELATION TO AN INCOME THAT DOES NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE UNDER THIS ACT, AND IF THE ANSWER IS I N AFFIRMATIVE THEN THAT EXPENDITURE CANNOT BE ALLOWED IRRESPECTIVE OF THE FACT THAT IT WAS ALLOWABLE UNDER DIFFERENT PROVISION OF THE ACT WHERE A DIFFERENT PHRASEOLOGY IS USED IN ALLOWING THAT EXPENDITURE AS THE FOCUS HAS TO ON DISALLOWANCE WITHIN PARAMETERS OF SECTION 14A, ON OVERRIDING PROVISION OVER ALLOWANCE PROVISIONS. IT WOULD RESULT IN DISALLOWANCE EVEN OF NO INCOME HAS RESULTED OR MADE OR EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. WE ALSO MAKE IT CLEAR THAT THE DISALLOWANCE HAS TO BE OF THE ENTIRE AMOUNT OF THE EXPENDITURE SO RELATED AND, AS CLAIMED IN REVENUES APPEAL, CANNOT BE REDUCED BY THE RECEIPT OF INTEREST. HENCE IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED VIE THAT THE DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE EVEN IF DURING THE YEAR, THE APPELLANT DOESNT HAVE ANY EXEMPT INC OME. 2.3. LD. CIT(A) RELIED ON HONBLE DELHI HIGH COURT JUDGMENT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT 64 DTR 122 AND H ELD THAT THE IMPUGNED DISALLOWANCES WERE TO BE MADE U/S 14A. 2.4. AGGRIEVED, ASSESSEE IS BEFORE US. 3. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT IT IS NOT IN DISPUTE THAT IN THIS YEAR THERE IS NO INCOME EARNED BY THE ASSESSEE . IN FUTURE ALSO THE POSSIBILITY OF EARNING THE INCOME WILL BE EITHER DI VIDEND INCOME OR CAPITAL ITA NO. 5427/DEL/2012 ASSTT. YR: 2007-08 4 GAINS ON SALE OF SHARES IN ACCORDANCE WITH LAW. BES IDES, IT IS THE BUSINESS OF THE ASSESSEE TO INVEST IN OTHER COMPANIES UNDER THE COMPANIES ACT AND ONE OF THE APPROVED OBJECT OF THE COMPANY IS TO CARRY O N BUSINESS OF INVESTMENT. THE COMPANY IS DULY REGISTERED UNDER ROC AND THE I MPUGNED SHARE HOLDINGS ARE IN THE NATURE OF TRADING STOCK OF THE COMPANY. 3.1. APROPOS THE AMOUNT OF INTEREST PAID TO THE OUT GOING SHARE HOLDERS ON THE MONEY RETAINED, THE SAME IS ALSO NECESSITATED B Y BUSINESS EXPEDIENCY IN AS MUCH IT AMOUNTS TO A SECURITY TO RECOVER SUNDRY DEBTORS. 3.2. APROPOS ADMINISTRATIVE EXPENSES, MOST OF THEM ARE FOR AUDIT FEES AND THE EXPENDITURE INCURRED FOR MAINTAINING THE OFFICE . THUS, THE ASSESSEE BEING A BUSINESS ENTITY WITH AN APPROVED OBJECT OF DOING ITS BUSINESS BY HOLDING COMPANIES AND TO PROTECT THE FINANCIAL INTEREST OF ITS BUSINESS, THE EXPENDITURE INCURRED ON AUDIT FEES AND ADMINISTRATI VE EXPENSES IS ADMISSIBLE EXPENDITURE. 4. LD. DR ON THE OTHER HAND CONTENDS THAT HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. (SUPRA) HAS ALS O LAID DOWN GUIDELINES FOR WORKING OUT DISALLOWANCE U/S 14A IN THE YEAR WH EN RULE 8D IS NOT APPLICABLE. THE ASSESSEE IN THIS YEAR HAS NOT CONDU CTED ANY BUSINESS, WHICH IS MENTIONED BY THE ASSESSING OFFICER. ASSUMING THA T MAKING INVESTMENT IN HOLDING COMPANIES IS BUSINESS ACTIVITY, EVEN THEN THE ACTIVITY PRODUCES ONLY DIVIDEND INCOME AND THE SUBSEQUENT EVENTS OF GENERA TING TAXABLE INCOME DO NOT APPLY TO THIS YEAR AS EVERY YEAR IS TO BE CONSI DERED ON THE INDEPENDENT FACTS. IN THE LIGHT OF THESE SUBMISSIONS LD. DR CON TENDS THAT THE INTEREST PAID BY THE ASSESSEE AS ADDITIONAL CHARGES PAID TO DEBTO RS IS AGAIN ON CAPITAL ITA NO. 5427/DEL/2012 ASSTT. YR: 2007-08 5 ACCOUNT AS THE DEBTORS AND IN THE HANDS OF THE ASSE SSEE REPRESENT IN THE CAPITAL FIELD. THEREFORE, THIS EXPENDITURE IS IN AN Y CASE CAPITAL IN NATURE, NOT ALLOWABLE. 4.1. COMING TO THE ADMINISTRATIVE EXPENDITURE, THER E IS NO INCOME IN THIS YEAR AND THE INCOME WHICH MAY BE EARNED BY THE ASSE SSEE IN FUTURE IS ALSO EXEMPT. IN THE ABSENCE OF BUSINESS ACTIVITY AND TH E POSSIBLE INCOME BEING EXEMPT IN NATURE MERELY BECAUSE IS CARRYING ON BUSI NESS INCOME, THE EXPENDITURE CANNOT BE ALLOWED IN TERMS OF SEC. 14A BEING ATTRIBUTABLE TO EXEMPT INCOME. THEREFORE, ON BOTH THE COUNTS, THE O RDER OF CIT(A) IS TO BE UPHELD. 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE ARGUMENT OF LD. DR. T HE INTEREST PAID TO DEBTORS FOR DELAYED PAYMENT OF THEIR SHARE HOLDINGS IS A CAPITAL EXPENDITURE WHICH CANNOT BE ALLOWED UNDER ANY CIRCUMSTANCES, EV EN IF THE ASSESSEES ACTIVITY IS ASSUMED TO BE BUSINESS ACTIVITY. THEREF ORE, THE DISALLOWANCE IS UPHELD. 5.1. COMING TO THE ADMINISTRATIVE EXPENSES, THERE I S NO INCOME IN THIS YEAR AND THE FUTURE INCOME BEING OF DIVIDEND, IS EXEMPT FROM TAX. IT IS SETTLED LAW THAT CARRYING ON BUSINESS BY WAY OF HOLDING COMPANI ES AND CONTROLLING THEM IS BUSINESS ACTIVITY WHICH IS ONE OF THE APPROVED O BJECTS OF THE ASSESSEE COMPANY. PART OF THE ADMINISTRATIVE EXPENDITURE IS TO BE TREATED AS RELATED TO BUSINESS INCOME AND THE BALANCE IS TO BE HELD AS AT TRIBUTABLE TO EXEMPT INCOME U/S 14A. INTEREST OF JUSTICE WILL BE SERVED IF 50% OF ADMINISTRATIVE ITA NO. 5427/DEL/2012 ASSTT. YR: 2007-08 6 EXPENDITURE I.E. 2,05,000/- IS ALLOWED TO ASSESSEE. IN THE RESULT ASSESSEE GETS PARTIAL RELIEF. 6. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 09-04-2014. SD/- SD/- ( T.S. KAPOOR ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 09-04-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR