M/s. ULTRAMARINE & PIGMENTS LTD., MUMBAI V. ACIT CIR 7(3), MUMBAI

ITA 7617/MUM/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62203 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-03-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 29-12-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI N.K. BILLAIY A(A.M) ITA NO. 7617/MUM/2005(A.Y.2002-03) ULTRAMARINE & PIGMENTS LIMITED, THIRUMALAI HOUSE, PLOT NO.101/102, ROAD NO.29, SION (E), MUMBAI 400 022. PAN:AAACU0718Q (APPELLANT) VS. THE ACIT, CIR. 7(3), AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (RESPONDENT) APPELLANT BY : SHRI HIRO RAI RESPONDENT BY : SHRI ATIQ AHMED DATE OF HEARING : 29/03/2012 DATE OF PRONOUNCEMENT : 0 4/04/2012 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 5/9/2005 OF CIT(A) 23, MUMBAI RELATING TO ASSESSMENT YEAR 2002- 03. ORIGINALLY THIS APPEAL WAS HEARD BY THE TRIBUNAL ON 12/3/2009 AND A N ORDER DATED 16/4/2009 WAS PASSED BY THE TRIBUNAL. GROUND NO. 1 RAISED BY THE ASSESSEE READS AS FOLLOWS: THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN: 1.CONFIRMING THE DISALLOWANCE OF INTEREST OF RS. 32 ,30,685/-. THE BASIS FOR THE SAME, THE REASONS AND ALSO THE WORKIN G OF THE DISALLOWANCE ARE IN CORRECT AND IMPROPER. 2. BY ORDER DATED 16.4.2009 THE AFORESAID GROUND OF APPEAL WAS DISMISSED BY THE TRIBUNAL. SIMILAR GROUND WAS RAIS ED BY THE ASSESSEE IN A.Y 2001-02 IN ITA NO.2775/M/2005. BY THE VERY SAM E ORDER DATED ITA NO. 7617/MUM/2005(A.Y.2002-03) 2 16/4/2009 THE TRIBUNAL DISMISSED THE SAID GROUND AL SO. THE ASSESSEE PREFERRED APPEAL BEING ITA NO.467 OF 2010 AND 412 O F 2010 BEFORE THE HONBLE BOMBAY HIGH COURT AGAINST THE AFORESAID ORD ER OF THE TRIBUNAL IN A.Y 2001-02 AND 2002-03 RESPECTIVELY. BY ORDER DAT ED 8/2/2011 FOR A.Y 2001-02 THE HONBLE HIGH COURT REMANDED THE ISSUE T O THE TRIBUNAL FOR FRESH CONSIDERATION WITH THE FOLLOWING OBSERVATIONS. 3. AS REGARDS FIRST QUESTION IS CONCERNED, THE COU NSEL THAT THE DECISION OF THIS COURT IN THE CASE OF CIT V/S. AMRI TABEN R. SHAH REPORTED IN 238 I1R 777, WHICH HAS BEEN RELIED BY T HE TRIBUNAL IS DISTINGUISHABLE ON FACTS. COUNSEL FOR APPELLANT SUB MITS THAT IN THAT CASE, THERE WAS NO DISPUTE THAT INVESTMENTS IN SHAR ES WERE MADE FOR THE PURPOSE OF ACQUIRING CONTROLLING INTEREST THERE IN, WHEREAS, IN THE PRESENT CASE, THE INVESTMENTS HAVE BEEN MADE FOR EA RNING DIVIDEND. THIS ASPECT OF THE MATTER HAS NOT BEEN CONSIDERED B Y THE TRIBUNAL. 3. SIMILAR DIRECTIONS WERE GIVEN FOR A.Y 2002-03 B Y THE HONBLE HIGH COURT. 4. PURSUANT TO THE DIRECTION OF THE HONBLE HIGH C OURT, THE ISSUE WITH REGARD TO DISALLOWANCE OF INTEREST EXPENSES AS RAISED BY T HE ASSESSEE IN ITA NO.2775/M/05 FOR A.Y 2001-02 WAS AGAIN HEARD CONSID ERED THE TRIBUNAL AND TRIBUNAL HELD AS FOLLOWS: 9. GROUNDS NO.1 AND 2 OF ASSESSEES APPEAL AND GRO UND NO.1 OF REVENUES APPEAL ARE ON THE ISSUE OF ALLOWABILITY O F INTEREST UNDER SECTION 57(111) ON AMOUNTS BORROWED FROM EXIM BANK, FOR THE PURCHASE OF SHARES IN TCLTM, WHICH IS A MALAYSIAN C OMPANY. THE ASSESSEE HAD TAKEN A LONG TERM LOAN OF 9,00,00,000. BEFORE THE HIGH COURT, WHEN THE MATTER CAME UP, BOTH THE PARTIES AG REED THAT THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN AM RITABEN. SHAH (SUPRA), HAS NO APPLICATION TO THE FACTS OF THE CAS E. IN VIEW OF THIS SPECIFIC CONCESSION GIVEN BY THE REVENUE, WE NOW CO NSIDER THE OTHER CASE LAWS RELIED ON DURING THE COURSE OF HEARING AN D ADJUDICATE THE MATTER. 10. IN THE CASE OF MOODI PVT LTD (SUPRA), THE HONB LE JURISDICTIONAL HIGH COURT HELD AS FOLLOWS: IN RESPECT OF THE INTEREST PAID ON MONIES BORROWED FOR PURCHASE, OF ITA NO. 7617/MUM/2005(A.Y.2002-03) 3 SHARES OF A CO, THE TRIBUNAL HELD THAT THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED UNDER SECTION 57(111) OF THE INCOME-TAX ACT 1961, SINCE THE MONEYS WERE BORROWED FOR ,PURCHASE OF SHARES FROM W HICH THE ASSESSEE EXPECTED TO RECEIVE DIVIDENDS, AND HENCE THE EXPENDITURE WAS CLEARLY LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME ON A REFERENCE HELD, AFFIRMING THE DECISION OF THE TRIBUNAL, THAT THE EXPENDITURE ON INTEREST PAID ON BORROWINGS FOR PURCHASE OF SHARES OF THE MANAGED, COMPANY W CO., WAS ALLOWABLE DEDUCTION UNDER SECTIO N 1O(2)(XV) OF THE INDIAN INCOME TAX ACT 1922, OR UNDER SECTION 37 (1) OF THE INCOME- TAX ACT, 1961, AND THE INTEREST PAID FOR ACQUISITIO N OF SHARES OF A CO. WAS ALLOWABLE AS DEDUCTION UNDER SECTION57(III) OF THE INCOME TAX ACT, 1961. 11. THE HONBLE SUPREME COURT IN RAJENDRA PRASAD MO ODI (SUPRA), HELD AS FOLLOWS: - WHERE THE ASSESSEE BORROWED MONIES FOR THE PURPOSE OF MAKING INVESTMENT IN CERTAIN SHARES AND PAID INTEREST THER EON DURING THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT Y EAR BUT DID NOT RECEIVE ANY DIVIDEND ON THE SHARES PURCHASED W ITH THOSE MONIES: HELD, ACCORDINGLY, THAT THE INTEREST ON MO NIES BORROWED FOR INVESTMENT IN SHARES, WHICH HAD NOT YIELDED ANY DIVIDEND WAS ADMISSIBLE AS A DEDUCT/ON UNDER SECTION 57(III) OF THE ACT, IN COMPUTING ITS INCOME FROM DIVIDEND UNDER THE HEA D INCOME FROM OTHER SOURCES 12. THE HONBLE JURISDICTIONAL HIGH COURT IN ORMERO DS (INDIA) P. LTD (SUPRA) HELD AS FOLLOWS:- HELD, (I) THAT THE WORD PURPOSE IN THE EXPRESSIO N EXPENDITURE INCURRED SOLELY FOR THE PURPOSE OF MAKING OR EARNIN G SUCH INCOME, PRO FITS OR GAINS IN SECTION 12(2) OF THE INCOME-TAX A CT, DID NOT MEAN MOTIVE FOR THE TRANSACTION; MUCH LESS COULD IT MEAN THE ULTERIOR MOTIVE OR THE ULTIMATE ABJECT OF THE PURCHASE OF THE SHARE S BY THE ASSESSEE; D THEREFORE, THE FINDING OF THE TRIBUNAL THAT THE PUR CHASE WAS MADE SERVE THE CONVENIENCE OF TWO OTHERS WAS NO MORE THA N A FINDING AS HE ULTERIOR MOTIVE IN PURCHASING THE SHARES, WHEREAS T HE PURPOSE E PURCHASE WAS A ENTIRELY DIFFERENT MATTER; (II) THAT THE ONLY CONCLUSION, ON THE FACTS, WAS TH AT THESE IN VESTMENTS WERE MADE ,FOR THE PURPOSE OF EARNING INCOME OR DIV IDENDS OR FOR PROFITS OR GAINS; ITA NO. 7617/MUM/2005(A.Y.2002-03) 4 (III) THAT, THEREFORE, THE INTEREST PAID BY THE A SSESSEE ON MONEYS BORROWED FOR THE PURCHASE OF SHARES COULD BE SET OF F AGAINST ITS OTHER INCOME UNDER SECTION 24(1) OF THE ACT-.. 13 THE HONBLE JURISDICTIONAL HIGH COURT IN PHIL CO RPN LTD (SUPRA), HELD AS FOLLOWS:- THE REASONING OF THE TRIBUNAL THAT THE OVERDRAFT W AS NOT OPERATED ONLY FOR INVESTING IN THE SHARES OF SUBSID IARY COMPANY AND THE FACT THAT IT WAS ALSO USED FOR INVESTMENT I N THE SHARES OF THE SISTER/SUBSIDIARY COMPANY TO HAVE CONTROL OVER THAT COMPANY AND, THEREFORE, THE ELEMENT OF INTEREST PAI D ON ,THE OVERDRAFT WAS NOT SUSCEPTIBLE OF BIFURCATION AND,, THEREFORE, THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UNDER SECTI ON 36(1)(III). 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NO T BROUGHT BEFORE US ANY CONTRARY DECISION HIS ARGUMENT THAT THE AMOU NTS WERE INVESTED IN FOR CONTROLLING INTEREST AND THAT THERE IS NO DIVIDEND INCOME WHICH WAS EARNED, IS DEVOID OF MERIT IN VIEW OF THE PROPOSITION LAID DOWN IN CASE LAWS QUOTED AND REPRODUCED ABOVE. 15. COMING TO THE ISSUE AS TO WHETHER THE AADT WITH MALASIA WOULD DISENTITLE THE DEDUCTION WE AGREE WITH THE SUBMISSI ONS OF THE ASSESSEE THAT THE WHOLE WORLD INCOME IS TAXABLE IN THE HANDS OF THE ASSESSEE UNDER THE PROVISIONS OF THE ACT AND WHEN IT IS DONE SO, SECTION 90(2) MANDATES THAT THE PROVISIONS OF THIS ACT SHALL APPL Y TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE. THE ASSESSEE D OES HAVE AN OPTION OF BEING ASSESSED UNDER THE NORMAL PROVISIONS OF T HE ACT AS CLAIMED BY THE, LEARNED COUNSEL. THE ACT DIRECTS AND THE SE CTION MAKES IT COMPULSORY FOR THE ASSESSING OFFICER TO APPLY THE P ROVISIONS OF THE ACT TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSES SEE. WHEN SO APPLIED IN THIS CASE, THE NET INCOME WOULD BE A NEGATIVE FI GURE AND THE PROVISIONS OF THE ACT WOULD BE MORE BENEFICIAL TO T HE ASSESSEE. 5. THE TRIBUNAL THUS ALLOWED THE CLAIM OF THE ASSE SSEE IN AY 01-02. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE DISALLOWANC E OF INTEREST WAS MADE IN A.Y 2002-03 AND THE REASONS FOR MAKING THE DISAL LOWANCE ARE IDENTICAL. THIS APPEAL WAS TAKEN UP FOR HEARING PURSUANT TO TH E ORDER OF THE HONBLE HIGH COURT REMANDING THE ISSUE FOR FRESH CONSIDERAT ION BY THE TRIBUNAL. IN VIEW OF THE SIMILARITY OF FACTS AND CIRCUMSTANCES T HE DECISION RENDERED BY THE TRIBUNAL FOR A.Y 2001-02 WILL BE SQUARELY APPLICABL E. RESPECTFULLY FOLLOWING ITA NO. 7617/MUM/2005(A.Y.2002-03) 5 THE AFORESAID DECISION WE HOLD THAT THE DISALLOWANC E OF INTEREST SUSTAINED BY THE CIT(A) DESERVES TO BE DELETED. ACCORDINGLY TH E GROUND OF APPEAL IS ALLOWED. 6. IN THE RESULT, THE APPEAL IN SO FAR AS GROUND N O.1 CONCERNED IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 4 TH DAY OF APRIL 2012 SD/- SD/- (N.K.BILLAIYA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 4TH APRIL 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RA BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO. 7617/MUM/2005(A.Y.2002-03) 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 29/03/2012 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 30/3/2012 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER