DCIT, CHENNAI V. M/s. Aban Investments Pvt. Ltd., CHENNAI

ITA 658/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61020 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 11-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR YOGESH KAMAT
• Section: 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 573/MDS/2011 (ASSESSMENT YEAR : 2007-08) M/S ABAN INVESTMENTS PVT. LIMITED, JANPRIYA CREST, 113, PANTHEON ROAD, EGMORE, CHENNAI - 600 008. PAN : AAACA2926J (APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI - 600 034. (RESPONDENT) I.T.A. NO. 658/MDS/2011 (ASSESSMENT YEAR : 2007-08) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), CHENNAI - 600 034. (APPELLANT) V. M/S ABAN INVESTMENTS PVT. LIMITED, JANPRIYA CREST, 113, PANTHEON ROAD, EGMORE, CHENNAI - 600 008. (RESPONDENT) ASSESSEE BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE REVENUE BY : DR. YOGESH KAMAT, SR. DR DATE OF HEARING : 17.04.2012 DATE OF PRONOUNCEMENT : 17.04.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE CROSS APPEALS OF THE ASSESSEE AND REVEN UE RESPECTIVELY, DIRECTED AGAINST AN ORDER DATED 5.1.2 011 OF THE 2 I.T.A. NOS. 573 & 658/MDS/11 COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI, FOR THE IMPUGNED ASSESSMENT YEAR. 2. THE SOLE GROUND TAKEN BY THE REVENUE IN ITS APPE AL AND ONE OF THE GROUNDS TAKEN BY THE ASSESSEE CONCERNS DIRECTIO N OF THE CIT(APPEALS) TO THE A.O. FOR RE-WORKING THE DISALLO WANCE UNDER SECTION 14A OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). SINCE THIS ISSUE IS COMMON IN BOTH THE APPEALS, IT IS DEALT WI TH FIRST. 3. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD CLAIME D EXEMPTION UNDER SECTION 10(34) OF THE ACT ON AN AMOUNT OF ` 1,55,58,725/- RECEIVED AS DIVIDEND. THOUGH SUCH DIVIDEND INCOME WAS CLAIMED AS EXEMPT, ASSESSEE HAD CONSIDERED ONLY A SUM OF ` 82,57,520/- AS PRO RATA INTEREST ON INVESTMENTS MADE TO EARN SUCH AN E XEMPT INCOME. AS PER THE A.O., THE TOTAL INTEREST PAYMENT FOR IMPUGN ED ASSESSMENT YEAR WAS ` 3,39,39,120/-. A.O. ALSO NOTED THAT OUT OF THE AB OVE AMOUNT, A SUM OF ` 82,57,520/- WAS CONSIDERED BY THE ASSESSEE FOR DIS ALLOWANCE UNDER SECTION 14A OF THE ACT SUO MOTU. SUBMISSION OF THE ASSESSEE WAS THAT NO SHARES WERE ALLOTTED TO IT FOR THE INVE STMENTS MADE WITH M/S NORTH CHENNAI POWER COMPANY LIMITED AND THE MON EY INVESTED IN SUCH COMPANY WAS LYING AS SHARE APPLICATION MONE Y. THEREFORE, ACCORDING TO ASSESSEE, INTEREST COULD NOT BE ATTRIB UTED TO EARNING OF ANY DIVIDEND INCOME ON SUCH INVESTMENTS. HOWEVER, THE A.O. WAS 3 I.T.A. NOS. 573 & 658/MDS/11 NOT IMPRESSED. ACCORDING TO HIM, WHETHER SHARES WE RE ALLOTTED OR NOT WAS NOT RELEVANT. THE FUNDS HAVING BEEN ADVANCED F OR ALLOTMENT OF SHARES, THE INVESTMENT WAS MADE WITH THE PURPOSE OF EARNING DIVIDEND INCOME. SUCH DIVIDEND INCOME BEING EXEMPT FROM TAX , INTEREST ON BORROWED FUNDS HAD TO BE DISALLOWED. RELYING ON TH E DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ITO V . DAGA CAPITAL MANAGEMENT (P) LTD. (117 ITD 169), A.O. APPLIED RU LE 8D OF INCOME- TAX RULES, 1962 AND MADE DISALLOWANCE OF ` 3,54,92,425/-. 4. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE MONEY INVESTED IN VARIOUS COMPANIES WE RE LYING AS SHARE APPLICATION MONEY AND NO SHARES WERE ALLOTTED TO IT . HENCE, IT COULD NOT BE PRESUMED THAT THE INVESTMENTS WERE MADE FOR THE PURPOSE OF EARNING DIVIDEND INCOME. RELIANCE WAS ALSO PLACED O N THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AN D BOYCE MFG. CO. LTD VS. DY. CIT (328 ITR 81). AFTER GOING THROUGH THE SUBMISSION OF THE ASSESSEE, LD. CIT(APPEALS) WAS OF THE OPINION T HAT BORROWED MONEY WAS INVESTED IN VARIOUS COMPANIES AND THOUGH SHARES WERE NOT ALLOTTED IN SOME OF SUCH COMPANIES, THE PURPOSE FOR INVESTMENT WAS ONLY TO EARN DIVIDEND INCOME. ACCORDING TO HIM , NATURE OF BORROWED FUND WOULD NOT CHANGE JUST BECAUSE SHARES WERE NOT ALLOTTED. NEVERTHELESS, HE HELD THAT RULE 8D WAS N OT APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR IN VIEW OF THE DECISION OF HONBLE BOMBAY 4 I.T.A. NOS. 573 & 658/MDS/11 HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD (SUPRA). LD. CIT(APPEALS) DIRECTED THE A.O. TO RE-WORK THE DISAL LOWANCE AFTER EXCLUDING ` 82,57,520/- SUO MOTU ADMITTED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR. 5. NOW BEFORE US, REVENUE IS AGGRIEVED REGARDING TH E DIRECTION OF LD. CIT(APPEALS) FOR EXCLUDING ` 82,57,520/-, WHEREAS, ASSESSEE IS AGGRIEVED THAT INVESTMENTS WHICH WERE LYING AS SHAR E APPLICATION MONEY WERE ALSO CONSIDERED WHILE MAKING DISALLOWANC E UNDER SECTION 14A OF THE ACT. 6. LEARNED A.R. SUBMITTED THAT AS LONG AS THE MONEY WAS LYING AS MERE SHARE APPLICATION MONEY, NO INTENTION COULD BE ATTRIBUTED FOR EARNING DIVIDEND INCOME. ACCORDING TO HIM, THIS AS PECT WAS NOT CONSIDERED BY THE AUTHORITIES BELOW. 7. PER CONTRA, SUPPORTING THE ORDER OF LD. CIT(APPE ALS), LEARNED D.R. SUBMITTED THAT RULE 8D WAS CORRECTLY APPLIED B ASED ON THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE C ASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA). 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. INSOFAR AS APPLICATION OF THE DECISION OF SPECIAL B ENCH OF THIS TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SU PRA) IS 5 I.T.A. NOS. 573 & 658/MDS/11 CONCERNED, HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD (SUPRA) HAS CLEARLY HELD THAT RU LE 8D WOULD NOT APPLY RETROSPECTIVELY BUT ONLY FROM 2008-09. SO, T HE METHOD ADOPTED BY THE A.O. BY APPLYING RULE 8D DOES NOT APPEAR TO BE CORRECT. NEVERTHELESS, HONBLE BOMBAY HIGH COURT HAS ALSO OB SERVED THAT FOR EARLIER YEARS ALSO, A DISALLOWANCE UNDER SECTION 14 A COULD BE MADE CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE . COMING TO THE ARGUMENT OF THE LEARNED A.R. THAT SHARE APPLICATION MONEY BY ITSELF WILL NOT YIELD ANY DIVIDEND, THIS, IN OUR OPINION, IS AB SOLUTELY TRUE. AS LONG AS AN INVESTMENT REMAINS AS SHARE APPLICATION MONEY , NO DIVIDEND CAN BE EARNED THEREON. HOWEVER, THE QUESTION HERE IS WHETHER INVESTMENT AS SHARE APPLICATION MONEY IS WITH THE I NTENTION OF EARNING DIVIDEND, SINCE SHARES WILL EVENTUALLY GET ALLOTTED AGAINST IT. IN OUR OPINION, THIS QUESTION OF INTENTION OF THE ASSESSEE FOR EARNING DIVIDEND WILL BE RELEVANT ONLY IF THERE IS A DEFINITE DATE F OR ALLOTMENT OF SHARES DECLARED BY THE CONCERNED COMPANY. ADMITTEDLY, HER E THE AMOUNT WAS LYING AS SHARE APPLICATION MONEY AND NO SHARES WERE ALLOTTED. REVENUE HAS NOT EXAMINED AS TO WHETHER ANY DATE FOR ALLOTMENT OF SHARES WAS DECLARED BY M/S NORTH CHENNAI POWER COMP ANY LIMITED NOR HAS IT EXAMINED AS TO WHETHER ASSESSEE WAS AWAR E OF THE POSSIBLE DATE OF ALLOTMENT, AT THE POINT OF TIME WHEN IT INV ESTED AS SHARE APPLICATION MONEY. RELEVANT SHARE APPLICATION FORM S ARE NOT AVAILABLE ON RECORD. REVENUE HAS ALSO NOT EXAMINED WHETHER I T IS A CASE WHERE 6 I.T.A. NOS. 573 & 658/MDS/11 DESPITE SUCH DATES FOR ALLOTMENT, BEING DECLARED BY THE COMPANY, IT HAD FAILED TO ISSUE SHARES ON THE APPLICATION MONEY PLACED BY THE ASSESSEE. SHARE APPLICATION MONEY WITH NO KNOWN DA TE ON WHICH SHARES ARE TO BE ALLOTTED, CANNOT BE EQUATED WITH A N INVESTMENT MADE FOR THE PURPOSE OF EARNING DIVIDEND INCOME. THERE IS NO QUESTION OF ANY DIVIDEND UNLESS AND UNTIL THE SHARES ARE ALLOTT ED AGAINST THE SHARE APPLICATION MONEY. ASSESSEE WILL NOT ALSO BE ELIGI BLE FOR ANY INTEREST ON SUCH MONEY UNLESS THERE IS ANY AGREEMENT TO THAT EFFECT WITH THE COMPANY. WE ARE OF THE OPINION THAT INTENTION OF T HE ASSESSEE FOR EARNING DIVIDEND INCOME COULD NOT BE ATTRIBUTED TO THE AMOUNTS INVESTED IN SHARE APPLICATION MONEY, UNLESS AND UNT IL THERE IS A COMMITMENT BROUGHT ON RECORD BY THE CONCERNED COMPA NY FOR ALLOTMENT OF SHARES. THESE ASPECTS HAVE NOT BEEN L OOKED INTO BY THE AUTHORITIES BELOW. IF THE CONCERNED COMPANY IN WHI CH ASSESSEE HAD MADE SHARE APPLICATION MONEY, HAD GIVEN A DEFINITE DATE FOR ALLOTMENT OF SHARES BUT HAD FAILED TO DO SO, NO DOUBT, INTENT ION FOR EARNING DIVIDEND INCOME CAN BE ATTRIBUTED ON THE ASSESSEE. IF NO SUCH DATE IS THERE, NO INTENTION CAN BE ATTRIBUTED, AND THE SHAR E APPLICATION MONEY CAN AT THE BEST BE CONSIDERED ONLY AS A LOAN GIVEN BY THE ASSESSEE TO THE SAID COMPANY. IN OUR OPINION, ALL THESE MATTER S HAVE TO BE LOOKED INTO AFRESH. WE, THEREFORE, SET ASIDE THE ORDERS O F AUTHORITIES BELOW AND REMIT THE ISSUE BACK TO THE ASSESSING OFFICER F OR FRESH CONSIDERATION IN ACCORDANCE WITH LAW. 7 I.T.A. NOS. 573 & 658/MDS/11 9. COMING TO THE OTHER GROUND TAKEN BY THE ASSESSEE , WHICH IS REGARDING DISALLOWANCE MADE BY A.O. TO THE TUNE OF ` 5,61,200/-, THE SAID DISALLOWANCE WAS MADE FOR A REASON THAT ASSESS EE HAD NOT DEDUCTED TAX AT SOURCE ON LOAN PROCESSING FEES PAID TO ONE M/S CHOLAMANDALAM DBS FINANCE LIMITED. EXPLANATION OF THE ASSESSEE WAS THAT PAYMENT OF LOAN PROCESSING FEES DID NOT FA LL UNDER THE CATEGORY OF PROFESSIONAL, CONSULTANCY, TECHNICAL FE ES OR CONTRACTUAL PAYMENTS PRESCRIBED UNDER SECTION 194J OR 194C OF T HE ACT AND THEREFORE, THESE WERE NOT SUBJECT TO TDS. HOWEVER , ASSESSING OFFICER WAS NOT IMPRESSED. ACCORDING TO HIM, LOAN PROCESSING FEES COULD BE CONSIDERED AS INTEREST IN VIEW OF THE DEFI NITION OF TERM INTEREST GIVEN IN SECTION 2(28A) OF THE ACT. PA YMENT OF INTEREST COULD BE MADE ONLY TO BANKING COMPANIES AS PER BANK ING REGULATIONS ACT, 1949 WITHOUT DEDUCTION OF TAX AT SOURCE. SINC E M/S CHOLAMANDALAM DBS FINANCE LIMITED WAS NOT A BANKING COMPANY, AS PER THE A.O., SECTION 2(28A) APPLIED. ASSESSEE HAV ING FAILED TO DEDUCT TAX AT SOURCE, DISALLOWANCE AS MANDATED UNDE R SECTION 40(A)(IA) OF THE ACT WAS MADE. 10. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT FEES FOR PROCESSING LOANS WERE CHARGES LEV IED BY THE LENDER AND IT COULD NOT BE CONSIDERED AS INTEREST COVERED BY SECTION 194A OF THE ACT. ACCORDING TO ASSESSEE, DEFINITION OF INT EREST UNDER SECTION 8 I.T.A. NOS. 573 & 658/MDS/11 2(28A) OF THE ACT COULD NOT BE TRANSPORTED TO SECTI ON 194A OF THE ACT FOR CASTING ON THE ASSESSEE A LIABILITY TO DEDUCT T AX AT SOURCE ON PAYMENT OF PROCESSING FEES. HOWEVER, LD. CIT(APPE ALS) WAS NOT IMPRESSED. ACCORDING TO HIM, WHEN A WORD WAS DEFIN ED IN THE ACT, SUCH A DEFINITION WAS TO BE USED FOR ALL THE PURPOS ES OF THE ACT AND THERE WAS NO NECESSARY TO DEFINE IT AGAIN AND AGAIN . LD. CIT(APPEALS) NOTED THAT THE TERM INTEREST WAS CLEARLY DEFINED IN THE ACT AND PROCESSING FEES PAID BY THE ASSESSEE, AS PER THE SA ID DEFINITION FELL WITHIN THE AMBIT OF INTEREST. ASSESSEE HAVING FA ILED TO DEDUCT THE TAX AT SOURCE, ACCORDING TO HIM, A.O. WAS JUSTIFIED IN MAKING THE DISALLOWANCE. 11. NOW BEFORE US, LEARNED A.R. REITERATED THE ARG UMENTS PUT FORTH BEFORE LD. CIT(APPEALS). 12. PER CONTRA, LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF LD. CIT(APPEALS). 13. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE QUESTION IS WHETHER THE PROCESSING FEES AGAINST THE LOAN TAKEN FROM M/S CHOLAMANDALAM DBS FINANCE LIMITED HAS TO B E CONSIDERED AS INTEREST OR NOT AND IF IT IS TO BE CONSIDERED AS INTEREST, WHETHER IT IS COVERED UNDER SECTION 194A OF THE ACT. INTEREST AS DEFINED UNDER SECTION 2(28A) OF THE ACT, IS REPRODUCED HEREUNDER: - 9 I.T.A. NOS. 573 & 658/MDS/11 INTEREST MEANS INTEREST PAYABLE IN ANY MANNER I N RESPECT OF ANY MONEYS BORROWED OR DEBT INCURRED (INCLUDING A DEPOSIT, CLAIM OR OTHER SIMILAR RIGHT OR OBLIGATION) AND INCLUDES ANY SERVICE FEE OR OTHER C HARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. THE DEFINITION IS CLEAR IN THAT IT INCLUDES ALL THE CHARGES IN RESPECT OF MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF A NY CREDIT FACILITY WHETHER IT HAS BEEN UTILIZED OR NOT. THERE IS NO D ISPUTE THAT THE LOAN PROCESSING FEES PAID BY THE ASSESSEE WAS IN RESPECT OF LOANS BEING RAISED FROM M/S CHOLAMANDALAM DBS FINANCE LIMITED. THEREFORE, WITHOUT DOUBT, SUCH LOAN PROCESSING FEE FELL WITHIN THE DEFINITION INTEREST UNDER SECTION 2(28A) OF THE ACT. NOW TH E QUESTION IS WHETHER THE SAID DEFINITION OF INTEREST CAN BE TR ANSPORTED TO SECTION 194A OF THE ACT. SECTION 194A DOES NOT DEFINE INT EREST AS SUCH. IT SIMPLY CASTS A DUTY ON A PERSON WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF INTEREST, TO DEDUCT T AX AT SOURCE AT RATES IN FORCE. SO, IT IS CLEAR THAT THE PERSON RESPONSI BLE FOR PAYING INTEREST HAS TO DEDUCT TAX AT SOURCE, UNLESS THE PAYMENT FEL L WITHIN THE EXCLUSIONS PROVIDED IN SECTION 194A. THERE IS NO C ASE FOR THE ASSESSEE THAT IT FELL UNDER ANY OF SUCH EXCLUSION. SECTION 2 OF THE ACT START WITH THE WORDS IN THIS ACT, UNLESS THE CONTE XT OTHERWISE REQUIRES. THUS UNLESS CONTEXT OTHERWISE REQUIRES INTEREST M ENTIONED, IN SECTION 194A HAS TO BE UNDERSTOOD IN ACCORDANCE WIT H THE DEFINITION OF 10 I.T.A. NOS. 573 & 658/MDS/11 INTEREST GIVEN UNDER SECTION 2(28A) OF THE ACT. THERE IS NOTHING IN THE CONTEXT OF SECTION 194A WHICH WILL WARRANT ANY DIFFERENT DEFINITION TO BE ADOPTED. THEREFORE, WE ARE OF THE OPINION TH AT THE A.O. WAS JUSTIFIED IN CONSIDERING THE PROCESSING FEES PAID A S INTEREST FALLING WITHIN THE DEFINITION GIVEN IN SECTION 2(28A) OF TH E ACT. ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE WHICH IT HAD NOT DO NE SO. RIGOURS OF SECTION 40(A)(IA) OF ACT IS ATTRACTED. WE DO NOT F IND ANY NECESSITY TO INTERFERE WITH THE ORDER OF LD. CIT(APPEALS). THIS GROUND TAKEN BY THE ASSESSEE IS DISMISSED. 14. TO SUMMARIZE RESULT, APPEAL OF THE REVENUE IS A LLOWED FOR STATISTICAL PURPOSES AND THAT OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 17 TH APRIL, 2012. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 17 TH APRIL, 2012. KRI. COPY TO: (1) ASSESSEE (2) ASSESSING OFFICER (3) CIT(A)- III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE