WODEHOUSE GYMKHANA LTD, MUMBAI V. INCOME TAX OFFICER 1(3)(3), MUMBAI

ITA 5795/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5756 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 11-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO. 5795 / MUM/ 2017 ( / ASSESSMENT YEARS: 20 14 - 15 ) THE WODEHOUSE GYMKHANA LTD. 182, MAHARSHI KARVE ROAD, COOPERA GE, NARIMAN POINT, MUMBAI - 400021 / VS. INCOME TAX OFFICER 1(3)(3) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400021 ./ ./ PAN/GIR NO. : AAACT 4146 R ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 1 0 .01.2019 /DATE OF PRONOUNCEMENT: 30. 01.2019 / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 30.06.20 17 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 3 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 201 4 - 15 . 2 . T HE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS.2,51,638/ - UNDER SECTION 14A OF INCOME TAX ACT 1961. APPELLANT PRAYS FOR DELETION OF ADDITION OF RS.2,51,638/ - . 2. LEARNED CIT(A) ERRED IN REJE CTING THE GROUND OF APPEAL THAT PROVISION OF SECTION 14A ARE NOT APPLICABLE IN CASE OF APPELLANT ON THE GROUND THAT INCOME IS ASSESSED UNDER BUSINESS INCOME / INCOME FROM OTHER SOURCES WITHOUT CONSIDERING THE FACT THAT MAJOR INCOME IS EXEMPT UNDER PRINCIPA L OF MUTUALITY. APPELLANT PRAYS TO CONSIDER THAT PROVISION OF SECTION 14A ARE NOT APPLICABLE IN CASE OF APPELLANT AS INCOME IS EXEMPT UNDER PRINCIPAL OF MUTUALITY. 3. LEARNED CIT(A) ERRED IN IGNORING GROUNDS OF APPEAL THAT ASSESSEE SHOULD HAVE CLAIMED EXP ENSES DISALLOWABLE U/S.14A AGAINST TAXABLE INCOME. A SSESSEE BY : SHRI JEEVRAJ P. JAIN REVENUE BY: SHRI CHAUDHARY ARUNKUMAR SINGH ITA NO. 5795 /M/2017 A. Y. 201 4 - 15 2 APPELLANT PRAYS THAT NO EXPENSES ON EXEMPT INCOME IS CLAIMED AGAINST TAXABLE INCOME. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 27.11.2014 DECLARING TOTAL INCOME TO THE TUNE OF NIL. THE ASSESSMENT WAS SELECTED FOR SCRUTINY UNDER CASS. NOTICE U/S.143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE SHOWED THE LIMITED DIVIDEND INCOME OF RS.22,0 7,008/ - WHICH WAS CLAIMED AS EXEMPT INCOME . THE ASSESSING OFFICER APPLIED THE PROVISION OF SECTION 14A R.W. RULE 8D AND ASSESSED THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME I N SUM OF RS.2,51,638/ - . THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. ( - )7,62,575/ - . FEELING AGGRIEVED THE ASSESSEE FILED THE APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF ASSESSING OFFICER, THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1 TO 3 : - 4. ALL THE ISSUES ARE INTERCONNE CTED, THEREFORE ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION. IN FACT UNDER THESE ISSUES THE ASSESSEE HAS CHALLENGED THE ADDITION OF EXPENDITURE TO EARN THE EXEMPT INCOME IN SUM OF RS.2,51,638/ - ASSESSED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A ). THE BASIC CONTENTION OF THE ASSESSEE IS THAT THE EXPENSES WERE NOT CLAIMED AGAINST THE EXEMPT INCOME, THEREFORE, SECTION 14A OF THE ACT IS NOT APPLICABLE. HOWEVER, ON THE OTHER HAND THE LEARNED REPRESENTATIVE OF THE DEPARTMENT HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN ITA NO. 5795 /M/2017 A. Y. 201 4 - 15 3 QUESTION. THE ASSESSEE CLAIMED THAT IT HAS EARNED THE EXEMPT INCOME UNDER THE PRINCIPLE OF MUTUALITY. THE ASSESSEE CLAIMED ITS SOURCE OF INCOME ON THE BASIS OF PRINCIPLE OF MUTUALITY AND DIVIDEND / MUTUAL FUND DIVIDEND ETC. AND INCOME NOT RELATING TO MUTUAL ACTIVITY SUCH AS INTEREST ON BANK DEPOSITS ETC. WHICH CLAIM ED AS TAXABLE INCOME. NO EXPENSES WERE CLAIMED AGAINST TAXABLE INCOME, THEREFORE SECTION 14A OF THE ACT WILL NOT APPLICABLE. HOWEVER, IN THIS REGARD THE ASS ESSEE HAS ALSO RELIED UPON THE MEMORANDUM OF EXPLANATION OF THE PROVISION OF FINANCE BILL OF 2001 PROVIDED THE FOLLOWING RATIONALE FOR INSERTION OF SECTION 14A OF THE ACT. CERTAIN INCOMES ARE NOT INCLUDIBLE WHILE COMPUTING THE TOTAL INCOME AS THESE ARE EX EMPT UNDER VARIOUS PROVISION OF THE ACT. THERE HAVE BEEN CASES WHERE DEDUCTIONS HAVE BEEN CLAIMED IN RESPECT OF SUCH EXEMPT INCOME. THIS IN EFFECT MEANS THAT THE TAX INCENTIVE GIVEN BY WAY OF EXEMPTIONS TO CERTAIN CATEGORIES OF INCOME IS BEING USED TO RE DUCE ALSO THE TAX PAYABLE ON THE NON - EXEMPT INCOME BY DEBITING THE EXPENSE INCURRED TO EARN THE EXEMPT INCOME AGAINST TAXABLE INCOME. THIS IS AGAINST THE BASIC PRINCIPLES OF TAXATION WHEREBY ONLY THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPENDITURE IS TAXED. ON THE SAME ANALOG, THE EXEMPTION IS ALSO IN RESPECT OF THE NET INCOME. EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. ITA NO. 5795 /M/2017 A. Y. 201 4 - 15 4 ACCORDINGLY, THE ASSESSEE DID NOT CLAIM ANY EXPENSES TO EARN THE EX EMPT INCOME AND THE INCOME OF THE ASSESSEE IS BASED UPON THE PRINCIPLE OF MUTUALITY. TAKING INTO ACCOUNT OF ALL THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS WRONGLY CONFIRMED THE ADDITIONS RAISED BY THE AO IN VIEW OF THE SE CTION 14A READ WITH RULE 8D OF THE ACT, THEREFORE, WE DELETE THE ADDITION IN SUM OF RS.2,51,638/ - RAISED I N VIEW OF THE PROVISION OF SECTION 14A READ WITH RULE 8D OF THE ACT AND ALLOWED THE CLAIM OF THE ASSESSEE. 8 . IN THE RESULT, THE APPEA L OF THE ASSESS EE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30.0 1.2019 . SD/ - SD/ - ( SHAMIM YAHYA ) (AMARJIT SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED 30. 01.2019 MP COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//