DCIT 12 (2)(2), MUMBAI V. HATHWAY CABLE AND DATACOM LTD., MUMBAI

ITA 6231/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8857 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2016-2017
• Appeal Filed On: 01-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 250

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI SHRI SHAMIM YAHYA (AM) & SHRI PAVANKUMAR GADALE ( JM) I.T.A. NO. 6231/MUM/2019 (ASSESSMENT YEAR 2016-17) DCIT-12(2)(2) ROOM NO. 128F 1 ST FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. HATHWAY CABLE & DATACOM LTD. 4 TH FLOOR, RAHEJAS V.P. ROAD, CORNER OF MAIN AVENUE SANTACRUZ WEST MUMBAI-400 054. PAN : AAACC6814B (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI NIMESH VORA DEPARTMENT BY SHRI GURBINDER SINGH DATE OF HEARING 29.07.2021 DATE OF PRONOUNCEMENT 02.08.2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 24.6.2019 PERTAINING TO ASSESSMENT YEA R 2016-17. 2. THE GROUNDS OF APPEAL READ AS UNDER : DCIT-12(2)(2), MUMBAI, TO FILE AN APPEAL TO THE HONB LE INCOME TAX APPELLATE TRIBUNAL, MUMBAI, AGAINST THE ORDER OF LD. CIT(A)-20 , MUMBAI, BEARING APPEAL NO.CIT(A)-20/IT-10242/2018-19, DATED 24.06.20 19, IN THE ABOVE CASE ON FOLLOWING GROUNDS: 1. 'ON THE FACTS OF THE CASE, IN THE CIRCUMSTANCES AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE U /S. 14A MERELY ON THE GROUND THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR IGNORING THE DECISION OF APEX COURT IN THE CASE OF M/S. MAXOPP INVESTMENT LTD. VS. CIT, NEW DELHI IN CIVIL AP PEAL NO. 104-109 OF 2015 WHEREIN IT WAS ASSERTED THAT WHETHER DIVIDEND INCO ME IS EARNED OR NOT IS IMMATERIAL FOR THE ATTRACTING OF THE PROVISIONS OF SE CTION 14A AS WHENEVER DIVIDEND IS DECLARED BY THE ASSESSEE ALONE WILL BE THE BENEFICIARY OF THE SAME? 2. 'THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT( A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED'. M/S. HATHWAY CABLE & DATACOM LTD. 2 3. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY'. 3. THE ISSUE IN THIS CASE RELATES TO DISALLOWANCE U NDER SECTION 14A OF THE ACT WHEN ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOM E. 4. LEARNED CIT(A) HAS ALLOWED THIS ISSUE BY HOLDING AS UNDER :- I HAVE CONSIDERED THE RIVAL CONTENTIONS. I FIND FRO M THE SCHEDULE 'EL' OF THE RETURN OF INCOME THAT THE APPELLANT DID NOT EARN ANY EX EMPT INCOME DURING THE RELEVANT PREVIOUS YEAR. THEREFORE, I AGREE WITH THE CONTENTION OF THE AR THAT THE DISALLOWANCE MADE UNDER SECTION 14A IS NOT SUS TAINABLE. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT I N THE CASE OF CIT(CENTRAL) 1 VS. CHETTINAD LOGISTICS (P) LTD. [2018] 95 TAXMANN.COM 250 (SC). RELIANCE IS ALSO PLACED ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDITIONAL CIT [2017] 77 TAXMANN.COM 257 (MADRAS). IN THAT CASE, THE ASSESSEE REDIGTON (INDIA) LTD) HAD INVESTMENTS IN COMPANIES TO THE TUNE OF RS. 177.5 6 CRORES THAT HAD NOT YIELDED ANY RETURNS IN THE PREVIOUS YEAR RELEVANT TO TH E RELEVANT ASSESSMENT YEAR. THE ASSESSING OFFICER DISALLOWED THE EXPENDITU RE UNDER SECTION 14A, READ WITH RULE 8D DESPITE OBJECTIONS THAT THE PROVISI ONS OF SECTION 14A WOULD NOT BE ATTRACTED IN A CASE WHERE NO ACTUAL EXEMPT INCOM E HAD BEEN EARNED. ON APPEAL, THE DISPUTE RESOLUTION PANEL ALSO CONFIRME D THE DISALLOWANCE. ON FURTHER APPEAL, THE TRIBUNAL ALSO CONFIRMED THE DISA LLOWANCE. ON APPEAL TO THE HIGH COURT, THE HIGH COURT HELD THAT IN A YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITUR E UNDER SECTION 14A; THAT THE PROVISIONS OF SECTION 14A, READ WITH RULE 8D C ANNOT BE MADE APPLICABLE IN THE ABSENCE OF EXEMPT INCOME. 5. UPON HEARING BOTH THE PARTIES WE FIND THAT THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT(A). THE REFERENCE BY THE REVEN UES GROUNDS OF APPEAL TO HON'BLE APEX COURT DECISION IN MAXOPP INVESTMENT LTD. VS. CIT, NEW DELHI IN (CIVIL APPEAL NO. 104-109 OF 2015) IS TOTALLY MISPLACED. THE REFERENCE MENTIONED IN TH E GROUNDS OF APPEAL RELATE TO HON'BLE APEX COURT OBSE RVATION IN THAT CONTEXT WHERE SHARES WERE TREATED AS STOCK IN TRADE. THERE IS NO SUCH EXPOSITION BY THE HON'BLE APEX COURT WHICH HELPS THE CASE OF THE REVE NUE HERE. IN FACT IN THE SAID DECISION HON'BLE APEX COURT HAS APPROVED THE D ECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF P ATIALA, WHICH IN FACT HOLDS THAT DISALLOWANCE HAS TO BE RESTRICTED TO EXEMPT IN COME. HENCE WHEN THERE IS NO EXEMPT INCOME DISALLOWANCE UNDER SECTION 14A IS NOT REQUIRED. THIS MAY BE CLEAR FROM THE REFERENCE TO FOLLOWING PART OF HON'B LE SUPREME COURT ORDER : M/S. HATHWAY CABLE & DATACOM LTD. 3 WE NOTE FROM THE FACTS IN THE STATE BANK OF PATIALA CASES THAT THE AO, WHILE PASSING THE ASSESSMENT ORDER, HAD ALREADY RESTRICTE D THE DISALLOWANCE TO THE AMOUNT WHICH WAS CLAIMED AS EXEMPT INCOME BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE RULES AND HOLDING THAT SEC TION 14A OF THE ACT WOULD BE APPLICABLE. IN SPITE OF THIS EXERCISE OF AP PORTIONMENT OF EXPENDITURE CARRIED OUT BY THE AO. CIT(A) DISALLOWED THE ENTIRE DE DUCTION OF EXPENDITURE. THAT VIEW OF THE CIT(A) WAS CLEARLY UNTENABLE AND RIG HTLY SET ASIDE BY THE ITAT. THEREFORE, ON FACTS, THE PUNJAB AND HARYANA HIG H COURT HAS ARRIVED AT A CORRECT CONCLUSION BY AFFIRMING THE VIEW OF THE ITA T , THOUGH WE ARE NOT SUBSCRIBING TO THE THEORY OF DOMINANT INTENTION APPLIED BY THE HIGH COURT. IT IS TO BE KEPT IN MIND THAT IN THOSE CASES WHERE SHARES ARE HELD AS 'STOCK-IN- TRADE, IT BECOMES A BUSINESS ACTIVITY OF THE ASSESSEE TO DEAL IN THOSE SHARES AS A BUSINESS PROPOSITION. IXV) WHETHER DIVIDEND IS EARNED OR NOT BECOMES IMMA TERIAL. IN FACT, IT WOULD BE A QUIRK OF FATE THAT WHEN THE INVESTEE COMPANY DEC LARED DIVIDEND, THOSE SHARES ARE HELD BY THE ASSESSEE, THOUGH THE ASSESSEE H AS TO ULTIMATELY TRADE THOSE SHARES BY SELLING THEM TO EARN PROFITS. THE SITUA TION HERE IS, THEREFORE, DIFFERENT FROM THE CASE LIKE MAXOPP INVESTMENT LTD. WHE RE THE ASSESSEE WOULD CONTINUE TO HOLD THOSE SHARES AS IT WANTS TO RETAI N CONTROL OVER THE INVESTEE COMPANY. IN THAT CASE, WHENEVER DIVIDEND IS DECLARED BY THE INVESTEE COMPANY THAT WOULD NECESSARILY BE EARNED B Y THE ASSESSEE AND THE ASSESSEE ALONE. THEREFORE, EVEN AT THE TIME OF INVESTIN G INTO THOSE SHARES, THE ASSESSEE KNOWS THAT IT MAY GENERATE DIVIDEND INCOME A S WELL AND AS AND WHEN SUCH DIVIDEND INCOME IS GENERATED THAT WOULD BE EARNED BY THE ASSESSEE. IN CONTRAST, WHERE THE SHARES ARE HELD AS STOCK-IN-TRADE, THIS MAY NOT BE NECESSARILY A SITUATION. THE MAIN PURPOSE IS TO LIQUIDATE THOSE SHARES WHENEVER THE PRICE GOES UP IN ORDER TO EARN PROFIT. IN THE RESULT THE APPEAL FILED BY THE REVENUE CHALLENGING THE JUDGEMENT OF P&H COURT IN STATE BANK OF PATIALA ALSO FAILS THOUGH LAW IN THIS REGARD HAS BEEN CLARIFIED HEREWITH. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A). HENCE, WE UPHOLD THE SAME. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 2.8.2021. SD/- SD/- (PAVANKUMAR GADALE) (SHAM IM YAHYA) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI; DATED : 02/08/2021 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT M/S. HATHWAY CABLE & DATACOM LTD. 4 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) PS ITAT, MUMBAI