ITO-Ward-6(2), Kolkata, Kolkata V. M/s Ishanika Securities (P) Ltd., Kolkata

ITA 789/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91954 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2012
• Court: TRIBUNAL
• Department Lawyers: KALYAN NATH
• Keywords: Business income; Earning of tax free income; Question of law
• Section: 14A; 115JB; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM ] I.T.A NO. 7 89 /KOL/201 2 ASSESSMENT YEAR : 200 8 - 0 9 INCOME - TAX OFFICER, WD - 6(2), KOLKATA. VS. ISHANIKA SECURITIES (P) LTD. (PAN:AAACI7257E) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 1 8 .0 5 .2015 DATE OF PRONOUNCEMENT: 22 . 0 5 . 2015 FOR THE APPELLANT: SHRI KALYAN NATH, JCIT FOR THE RESPONDENT: S HRI SUBASH AGARWAL, ADVOCATE ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER PASSED BY CIT (A) - VI , KOLKATA VIDE NO. 7 5 /CIT(A) /VI/KOL/CIR - 6/2010 - 11/KOL DATED 0 2 . 0 1 .201 2 . ASSESSMENT WAS FRAMED BY DCIT, CIR - 6 , KOLKATA U/S. 14 3(3) /115WE(3) OF THE INCOME - TAX ACT, 1961 (H EREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 8 - 0 9 VIDE HIS ORDER DATED 1 7 . 12 .20 1 0 . 2. AT THE OUTSET, IT IS NOTICED THAT THE APPEAL OF REVENUE IS DELAYED BY 32 DAYS AND CONDONATION PETITION HAS BEEN FILED EXPLAINING THE REASONS FOR DELAY ALONG WITH SUPPORTING AFFIDAVIT. ON QUERY FROM THE BENCH, LD. COUNSEL FOR THE ASSESSEE HAS NOT OPPOSED THE CONDONATION RATHER HE CONCEDED THAT DELAY CAN BE CONDONED. IN VIEW OF THE ABOVE REASONS GIVEN IN THE CONDONATION PETITION AND CONCESSION GIVEN BY LD. COUNSEL FOR THE ASSESSEE, WE CONDONE THE DELAY AND ADMIT THE APPEAL. 3. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DISALLOWANCE OF EXPENSES RELATABLE TO EXEMPT INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES, 1962, ( HEREINAFTER REFERRED TO AS THE RULES ) . FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 2 ITA NO . 7 89 /K/201 2 ISHANIKA SECURITIES (P) LTD. AY 200 8 - 0 9 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN LAW IN DELETING THE ADDITION TO THE EXTENT OF RS.1,38,541/ - . 4 . AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STATED T HAT THE ISSUE REGARDING DISALLOWANCE OF EXPENSES OF RS.1,39,554/ - FOR EARNING DIVIDEND INCOME OF RS.750/ - , BEING ARISING OUT OF INVESTMENT OF RS.2 LAKH AND THE OTHER SHARES ARE STOCK - IN - TRADE ONLY. ACCORDING TO LD. COUNSEL, THIS ISSUE IS NOW COVERED BY TH E DECISION OF HON BLE KERALA HIGH COURT IN THE CASE OF CIT VS. LEENA RAMACHANDRAN (2011) 339 ITR 296 (KER), WHEREIN IT HAS BEEN HELD AS UNDER: HELD, ALLOWING THE APPEAL, THAT ANY EXPENDITURE INCURRED FOR EARNING ANY INCOME WHICH WAS NOT TAXABLE UNDER THE ACT WAS NOT AN ALLOWABLE EXPENDITURE. DIVIDEND INCOME WAS EXEMPT UNDER SECTION 10(33) OF THE ACT AND THE DIVIDEND EARNED BY THE ASSESSEE ON THE SHARES ACQUIRED BY HER WITH THE BORROWED FUNDS DID NOT CONSTITUTE PART OF THE TOTAL INCOME IN THE HANDS OF THE ASSESSEE. THE REASONING GIVEN BY THE TRIBUNAL FOR DISALLOWANCE OF RS. 2 LAKHS, I.E. BY APPLYING SECTION 14A, SQUARELY APPLIED TO THE INTEREST PAID ON THE BORROWED FUNDS BECAUSE IT WAS ON RECORD THAT THE ENTIRE FUNDS BORROWED WERE UTILIZED FOR THE ACQUIS ITION OF SHARES BY THE ASSESSEE IN THE COMPANY. THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT ON THE BORROWED FUNDS UTILIZED FOR THE ACQUISITION OF SHARES ONLY IF SHARES WERE HELD AS STOCK - IN - TRADE AND THAT WO ULD ARISE ONLY IF THE ASSESSEE WAS ENGAGED IN TRADING IN SHARES. SO FAR AS THE ACQUISITION OF SHARES WAS IN THE FORM OF INVESTMENT AND THE ONLY BENEFIT THE ASSESSEE DERIVED WAS THE DIVIDEND INCOME WHICH WAS NOT ASSESSABLE UNDER THE ACT, THE DISALLOWANCE UNDER SECTION 14A WAS SQUARELY ATTRACTED AND THE ASSESSING OFFICER RIGHTLY DISALLOWED THE CLAIM. FURTHER, THIS ISSUE HAS BEEN ADJUDICATED BY HON BLE KARNATAKA HIGH COURT IN THE CASE OF M/S. CCI LTD. VS. JCIT, ITA NO. 359 OF 2011 DATED 28.02.2012 , WHERE IN VIDE PARA 5 IT HAS BEEN HELD AS UNDER: 5. WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN EARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. IT IS NOT THE CASE OF THE ASSESSEE RETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63% OF THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE INCOME DERIVED THEREFROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMAINING 37% OF THE SHARES ARE RETAINED. IT HAS REMAINED UNSOLD WITH THE ASSESSEE. IT IS THOSE U NSOLD SHARES HAVE YIELDED DIVIDEND, FOR WHICH, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN EARNING THE SAID INCOME, THE SAID EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE, IT CANNOT BE SAID THAT THE E XPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THEREFORE, THE IMPUGNED ORDERS ARE NOT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. ACCORDINGLY, WE PASS THE F OLLOWIN G : I) APPEAL IS ALLOWED. II) IMPUGNED ORDERS ARE HEREBY SET ASIDE 3 ITA NO . 7 89 /K/201 2 ISHANIKA SECURITIES (P) LTD. AY 200 8 - 0 9 III) THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5 . FROM THE ABOVE , IT IS CLEAR THAT THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES WILL NOT APPLY TO THE SHARES HELD AS STOCK IN TRADE. HOWEVER, LD. CIT, DR STATED THAT HON BLE DELHI HIGH COURT IS CONTRARY TO THE ABOVE TWO DECISIONS. THE HON BLE DELHI HIGH C OURT IN MAXOPP INVESTMENT LTD. VS. CIT (2012) 347 ITR 272 (DEL) HAS TAKEN A CONTRARY VIEW AND STATED THAT EVEN SECTION 14A READ WITH RULE 8D OF THE RULES WILL APPLY TO SHARES HELD AS STOCK IN TRADE . B UT KEEPING IN VIEW THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD. (1973) 88 ITR 192 (SC), AND AS THE HON BLE KARNATAKA HIGH COURT AND HON BLE KERALA HIGH COURT ARE IN FAVOUR OF THE ASSESSEE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY RESPECTFU LLY FOLLOWING THE ABOVE DECISIONS. 6 . THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) IN ALLOWING REBATE U/S. 88E OF THE ACT EVEN THOUGH THE INCOME IS ASSESSED U/S. 115JB OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN LAW IN ALLOWING REBATE U/S. 88E AGAINST MAT U/S. 115JB OF THE ACT. 7 . AT THE OUTSET, IT IS TO BE MENTIONED THAT EVEN THOUGH THE INCOME IS COMPUTED U/S. 115JB OF THE ACT REBAT E U/S. 88E OF THE ACT IS TO BE ALLOWED WHILE COMPUTING THE TAX. THE CIT(A) RELYING ON THE DECISION OF HON BLE KARNATAKA HIGH COURT IN THE CASE OF CI T VS. M/S. HORIZON CAPITAL LTD., ITA NO. 434 OF 2010, MISC. CVL 6629 OF 2011 DATED 24.10.2011 REPORTED IN (2012) 17 TAXMANN 8 (KAR), WHEREIN THE FOLLOWING VIEW WAS TAKEN: 17. THEREFORE, THE CONTENTION THAT THIS BENEFIT IS NOT AVAILABLE TO THE ASSESSEE WHOSE TOTAL INCOME IS ASSESSED UNDER SECTION 115JB HAS NO SUBSTANCE. IN OTHER WORDS, WHEN THE TOTAL INCOME IS ASSESSED AND THE TAX CHARGEABLE IS COMPUTED, IT IS FROM THAT TAX WHICH IS CHARGEABLE, THE TAX PAID UNDER SECTION 88E IS GIVEN DEDUCTION, BY WAY OF REBATE, UNDER SECTION 87 OF THE ACT. THIS IS THE LEGISLATIVE INTENT. THAT IS A PROMISE TO GIVE DEDUCTIO N OF THE TAX ALREADY PAID. THIS IS THE MODE IN WHICH TAX ALREADY PAID IS HANDED BACK AT THE TIME OF FINAL COMPUTATION. 8 . WE FIND THAT THE ISSUE IS NOW COVERED BY THE DECISION OF HON BLE KARNATAKA HIGH COURT IN THE CASE OF HORIZON CAPITAL LTD., SUPRA A ND EVEN HON BLE JURISDICTIONAL HIGH 4 ITA NO . 7 89 /K/201 2 ISHANIKA SECURITIES (P) LTD. AY 200 8 - 0 9 COURT IN CIT VS. M/S. WINRO COMMERCIAL INDIA LTD. GA NO. 274 OF 2013, ITAT NO. 25 OF 2013 AND CIT VS. M/S. TODI SECURITIES (P) LTD. IN GA NO. 425 OF 2013, ITAT NO. 32 OF 2013 DATED 25.03.2013, WHEREIN IT HAS HELD AS UNDE R: MR. KHAITAN, LEARNED SENIOR ADVOCATE HAPPENED TO BE PRESENT WHEN THE MATTER WAS TAKEN UP FOR HEARING. HE POINTED OUT THAT THIS QUESTION IS ALREADY COVERED BY A JUDGMENT OF THE KARNATAKA HIGH COURT. HE PRODUCED A COPY OF THE JUDGMENT IN THE CASE OF T HE COMMISSIONER OF INCOME TAX VS. M/S. HORIZON CAPITAL LTD. WHEREIN THE FOLLOWING VIEW WAS TAKEN: 17. THEREFORE, THE CONTENTION THAT THIS BENEFIT IS NOT AVAILABLE TO THE ASSESSEE WHOSE TOTAL INCOME IS ASSESSED UNDER SECTION 115JB HAS NO SUBSTANCE. IN OTHER WORDS, WHEN THE TOTAL INCOME IS ASSESSED AND THE TAX CHARGEABLE IS COMPUTED, IT IS FROM THAT TAX WHICH IS CHARGEABLE, THE TAX PAID UNDER SECTION 88E IS GIVEN DEDUCTION, BY WAY OF REBATE, UNDER SECTION 87 OF THE ACT. THIS IS THE LEGISLATIVE INTENT. THAT IS A PROMISE TO GIVE DEDUCTION OF THE TAX ALREADY PAID. THIS IS THE MODE IN WHICH TAX ALREADY PAID IS HANDED BACK AT THE TIME OF FINAL COMPUTATION. WE ARE OF THE OPINION THAT THE VIEWS EXPRESSED BY THE KARNATAKA HIGH COURT ARE REASONABLE AND ARE AL SO ADOPTED BY US. THE QUESTIONS ARE ACCORDINGLY ANSWERED. BOTH THE APPEALS ARE THUS DISPOSED OF. IT MEANS THAT THE ISSUE IS NOW SETTLED IN FAVOUR OF ASSESSEE THAT REBATE U/S. 88E OF THE ACT WILL BE ALLOWED EVEN THOUGH THE INCOME IS TO BE ASSESSED U/S. 115JB OF THE ACT. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS HEREBY UPHELD. THIS ISSUE OF REVENUE S APPEAL IS DISMISSED. 9 . IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 10 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 22.05.2015 . SD/ - SD/ - ( P. K. BANSAL ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 22ND MAY , 201 5 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT ITO, WARD - 6(2), KOLKATA . 5 ITA NO . 7 89 /K/201 2 ISHANIKA SECURITIES (P) LTD. AY 200 8 - 0 9 2 RESPONDENT ISHANIKA SECURITIES (P) LTD., 9, INDIA EXCHANGE PLACE, 7 TH FLOOR, ROOM NO. 4, KOLKATA - 700 001. 3 . THE CIT (A), KOLKATA 4. 5. THE CIT, KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .