D.C.I.T. 2(1), MUMBAI V. H.V. AXLES LTD., MUMBAI

ITA 8324/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3428 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 12-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR SONE ITA NO MM A Y
• Keywords: Capital asset; Depreciation; Earning of tax free income; Cost of acquisition
• Section: 14A; 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . , ! '# , $ , % BEFORE S/SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND AMARJIT SINGH, JUDICIAL MEMBER / I.T.A. NO.6199/M/2011 & I.T.A. NO. 8469/M/2011 ( $ & '& / ASSESSMENT YEAR: 2007-08 & 2008-09) TML DRIVELINES LIMITED (EARLIER KNOWN AS HV AXLES LIMITED), 3 RD FLOOR, NANAVATI MAHALAYA, 18, HOMI MODY STREET, HUTATMA CHOWK, MUMBAI - 400001 / VS. DY. COMMISSIONER OF INCOME TAX 2(1) AAYAKAR BHAVAN, M.K.MARG, MUMBAI - 400020 / I.T.A. NO. 8324/M/2011 ( $ & '& / ASSESSMENT YEAR: 2008-09) DY. COMMISSIONER OF INCOME TAX 2(1) AAYAKAR BHAVAN, M.K.MARG, MUMBAI - 400020 / VS. TML DRIVELINES LIMITED (EARLIER KNOWN AS HV AXLES LIMITED) 3 RD FLOOR, NANAVATI MAHALAYA, 18, HOMI MODY STREET, HU TATMA CHOWK, MUMBAI - 400001 ./ ./ PAN/GIR NO. : AAACH7625P ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: MS. AARTI SATHE DEPARTMENT BY: SHRI VIJAY KUMAR SONE ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 2 / DATE OF HEARING: 05.01.2016 !' /DATE OF PRONOUNCEMENT: 18.05.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THIS ORDER SHALL DISPOSED OF ABOVE MENTIONED THREE APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE. SINCE THE SAID APPEALS ISSUES ARE THE SAME AND THE MATTER OF CONTR OVERSY IS ALSO SIMILAR IN NATURE THEREFORE THESE APPEALS ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE M/S. H.V.AXLES IS ENGAGED IN THE MA NUFACTURING OF AUTOMOBILE AND AUTO PARTS. THE ASSESSMENT OF TH E ASSESSEE WAS COMPLETED BY THE ORDER DATED 15.12.2010 FOR A.Y.200 7-08 AND 31.12.2010 FOR A.Y.2008-09. THE ASSESSEE CHALLEN GED THE DISALLOWANCE U/S. 14 OF THE INCOME TAX ACT, 1961( I N SHORT THE ACT) BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] WHICH WAS CONFIRMED THEREFORE THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ITA NO. 6199/MUM/2011 & 8469/MUM/2011 3. WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LEAR NED REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECOR D. LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT NO A DMINISTRATIVE ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 3 EXPENSES WERE INCURRED TO EARN THE EXEMPT INCOME TH EREFORE NO EXPENSES ARE REQUIRED TO BE DEDUCTED IN VIEW OF THE PROVISION U/S.14A OF THE ACT. IT IS ALSO ARGUED THAT THE LEARNED ASS ESSING OFFICER HAD FAILED TO DO ANY EXERCISE TO CONNECT THE EXPENSES I NCURRED TO EARN THE EXEMPT INCOME THEREFORE IN THE SAID CIRCUMSTANCES THE EXPENDITURE WHICH WERE NOT INCURRED TO EARN EXEMPT INCOME IS NO T REQUIRED TO BE ASSESSED IN VIEW OF THE PROVISION OF SECTION 14A OF THE ACT. IT IS ALSO ARGUED THAT THE ASSESSING OFFICER DID NOT EXAMINE T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO INCURRING THE EXPENDITURE TO EARN THE EXEMPT INCOME WHEREAS IT SEEMS TO BE UTILI ZED ON HIS OWN FUND TO EARN THE EXEMPT INCOME THEREFORE THE EXPEND ITURE IS NOT LIABLE TO BE DISALLOWED IN PROVISION IN SECTION 14A OF THE ACT. RELIANCE PLACED UPON THE LAW SETTLED IN [2009] 313 ITR 340 ( BOM) IN THE CASE OF BOMBAY COMMISSIONER OF INCOME TAX VS. RELIANCE U TILITIES AND POWER LTD. HOWEVER, ON THE OTHER HAND LEARNED REPR ESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTIONS. ON AP PRAISAL OF THE ORDER IN QUESTION IT CAME INTO THE NOTICE THAT FOR THE A. Y.2007-08 THE ASSESSEE HAS CLAIMED EXEMPTION OF DIVIDEND INCOME T O THE TUNE OF RS.45,92,284/- AND FOR THE A.Y.2008-09 THE ASSESSEE HAS CLAIMED THE EXEMPTION OF DIVIDEND INCOME TO THE TUNE OF RS.2,39 ,43,775/-. HOWEVER, NO EXPENSES HAVE BEEN SHOWN TO BE INCURRED TO EARN THE SAID EXEMPT INCOME. THE ASSESSING OFFICER APPLIED THE OBSERVATIONS MADE IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS . DY. CIT [2010] 194 TAXMAN 203 DECIDED BY THE HONBLE BOMBAY HIGH COURT. ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 4 BOTH THE ORDERS NOWHERE SPEAKS ABOUT THE EXPENSES I NCURRED TO EARN THE EXEMPT INCOME SPECIFICALLY. THE BALANCE SHEET OF BOTH THE YEARS ARE ON THE FILE AS ANNEXURE -1 AND 2 WHICH SPEAKS THAT THE ASSESSEE WAS HAVING SUFFICIENT SURPLUS AMOUNT IN COMPARISON TO THE INVESTMENT MADE IN MUTUAL FUND TO EARN THE EXEMPT INCOME. THE REFORE, THE SAID CIRCUMSTANCES AND IN VIEW OF THE ABOVE MENTIONED LA W SETTLED IN [2009] 313 ITR 340 (BOM) IN THE CASE OF BOMBAY COMM ISSIONER OF INCOME TAX VS. RELIANCE UTILITIES AND POWER LTD. W E ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IS REQUIRED TO BE EX AMINED A FRESH IN ACCORDANCE WITH LAW. THEREFORE THE FINDING OF THE LEARNED CIT(A) ON THIS ACCOUNT HAS BEEN ORDERED TO BE SET ASIDE AND L EARNED ASSESSING OFFICER IS HEREBY DIRECTED TO DECIDED THE MATTER AF RESH IN ACCORDANCE WITH LAW. THIS ISSUE IS DECIDED IN FAVOUR OF THE A SSESSEE AGAINST THE REVENUE. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE ALLOWED. ITA NO. 8324/MUM/2011 4. THE SOLE POINT WHICH HAS BEEN RAISED BY THE REVE NUE IS THAT THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE PROVISI ONS OF EXPLANATION 6 TO SUB-SECTION (1) OF SECTION 43 OF THE ACT WHERE USED PLANT AND MACHINERY IS TRANSFERRED FROM THE HOLDING COMPANY T O SUBSIDIARY COMPANY, THE WDV IN THE BOOKS OR IN THE BLOCK OF AS SETS OF THE TRANSFEROR COMPANY SHALL BE CONSIDERED AS THE ACTU AL COST IN THE HAND OF THE TRANSFEREE COMPANY IN RESPECT OF SUCH ASSETS . IN THIS REGARD THE FINDING OF THE LEARNED CIT(A) IS HEREBY MENTIONED B ELOW:- ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 5 THE ASSESSING OFFICER HAS APPLIED THE PROVISIONS O F SECTION 47(IV) OF THE ACT TO CONSIDER THE NATURE OF TRANSFER AND THEREBY APPLIED THE EXPLANATION 6 TO SUB-SECTIO N (1) OF SECTION 43 FOR THE PURPOSE OF WORKING OUT THE AC TUAL COST TO THE SUBSIDIARY COMPANY. EXPLANATION 6 TO S UB- SECTION (1) OF SECTION 43 PROVIDES AS UNDER: EXPLANATION 6 TO SUB-SECTION (1) : WHEN ANY CAPITA L ASSET IS TRANSFERRED BY A HOLDING COMPANY TO ITS SUBSIDIARY COMPANY OR BY A SUBSIDIARY COMPANY TO IT S HOLDING COMPANY, THEN, IF THE CONDITIONS OF CLAUSE (IV) OR, AS THE CASE MAY BE, OF CLAUSE (V) OF SECTION 47 ARE SATISFIED, THE ACTUAL COST OF THE TRANSFERRED CAPIT AL ASSET TO THE TRANSFEREE COMPANY SHALL BE TAKEN TO BE THE SAM E AS IT WOULD HAVE BEEN IF THE TRANSFEROR COMPANY HAD CONTI NUED TO HOLD THE CAPITAL ASSETS FOR THE PURPOSE OF ITS SUBSIDIARY. WHERE A 100 PER CENT HOLDING COMPANY OF A SUBSIDIAR Y COMPANY TRANSFER CERTAIN ASSETS TO SUCH SUBSIDIARY COMPANY EVEN FOR A PRICE OR CONSIDERATION HIGHER TH AN THE WDV, THE CAPITAL GAINS ON SUCH TRANSFER HAS BEEN EXEMPTED UNDER SECTION 47(IV). THE REASON BEING THE IDENTITY OF THE OWNERSHIP OF THE COMPANIES PRECLUDE D ITS BEING CONSIDERED AS INVOLVING ANY GAIN TO THE TRANS FEROR COMPANY. AS CAPITAL GAIN WAS EXEMPT IN THE HANDS OF THE TRANSFEROR COMPANY AND IN ORDER TO ENSURE THAT THE ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 6 TRANSFEREE COMPANY DOES NOT CLAIM DEPRECIATION ON A HIGHER COST, IT WAS PROVIDED BY THE INSERTION OF EXPLANATION (6) TO SUB-SECTION (1) OF SECTION 43 OF THE ACT, THAT IN SUCH CASES THE WDV IN THE HANDS OF THE TRANSFEROR COMPANY, SHALL BE THE COST OF ACQUISITIO N IN THE HANDS OF THE TRANSFEREE COMPANY. THE ASSESSING OFFICERS ACTION IS RIGHT AS FAR AS THE SITUATION A S ON THE DATE OF TRANSFER IS CONCERNED. BUT BY 30-9-1994, TH E ASSESSEE COMPANY CEASED TO BE THE SUBSIDIARY OF THE TRANSFEROR HOLDING COMPANY. SECTION 47 GRANTS EXEMP TION FROM SECTION 45 WHILE SECTION 47A WITHDRAWS THE EXEMPTION GRANTED UNDER SECTION 47 ON THE OCCURRENC E OF THE EVENTS MENTIONED THEREIN. SECTION 47 READS AS U NDER:- 47. NOTHING CONTAINED IN SECTION 45 SHALL APPLY TO THE FOLLOWING TRANSFERS: (I) ** ** TO (III) ** (IV) ANY TRANSFER OF A CAPITAL ASSET BY A COMPANY T O ITS SUBSIDIARY COMPANY, IF (A) THE PARENT COMPANY OR ITS NOMINEES HOLD THE WHOLE O F THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY, AND (B) THE SUBSIDIARY COMPANY IS AN INDIAN COMPANY, CLAUSE (II) OF SECTION 47A PROVIDES THAT THE EXEMPT ION GRANTED UNDER SECTION 47 SHALL BE WITHDRAWN IF THE ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 7 SUBSIDIARY COMPANY CEASES TO BE SO FROM THE HOLDING COMPANY WITHIN A PERIOD OF 8 YEARS FROM THE DATE OF TRANSFER OF THE CAPITAL ASSET AND IT SHALL BE TREAT ED AS THE INCOME OF THE YEAR IN WHICH THE TRANSFER HAS TA KEN PLACE. THE FACT THAT THE ASSESSEE HAS CEASED TO BE THE SUBSIDIARY OF THE HOLDING COMPANY ON 30-09-1994 WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS BUT HE REJECTED T HE SAME ON THE GROUND THAT THE SUBSEQUENT EVENTS WILL NOT HAVE E ANY MATERIAL CHANGE WITH RESPECT TO CHANGING OF COST OF ACQUISITION OF THE CAPITAL ASSE TS ACQUIRED FROM THE HOLDING COMPANY. BUT, IN OUR OPINION, THE ASSESSING OFFICER SHOULD HAVE CONSIDER ED THE SUBSEQUENT EVENTS. THE APPLICATION OF THE PROVISIONS OF SECTION 47 IS NOT FINAL BUT IS SUBJEC T TO THE OCCURRENCE OF EVENTS UNDER SECTION 47A. IF THE EVENTS MENTIONED IN SECTION 47A OCCUR, THE EXEMPTIONS GRANTED UNDER SECTION 47 OF THE INCOME- TAX ACT ARE WITHDRAWN. WHAT IS THE EFFECT OF SUCH WITHDRAWALS? IN THE CASE OF THE TRANSFEROR COMPANY, THE INCOME IS TO BE TREATED AS THE INCOME OF THE YE AR IN WHICH THE TRANSFER HAS TAKEN PLACE. THIS SHOWS THAT THE SUBSEQUENT EVENT HAS THE EFFECT OF WITHDRAWING THE EMPTION GRANTED UNDER SECTION 47 AND THE INCOME GOE S BACK TO THE DATE OF TRANSFER. THUS, PROVISIONS OF SECTION 47 ARE WITHDRAWN ON OCCURRENCE OF THE EVENT S MENTIONED UNDER SECTION 47A AND THE TRANSACTION HAS TO BE TREATED AS A TRANSFER UNDER SECTION 47(V) OR (VI) OF THE ACT AS THE CASE MAY BE AND THE TRANSFEROR COMPANY IS LIABLE TO PAY THE CAPITAL GAINS TAX. IN THE PRESENT CASE DUE TO CEASURE OF THE ASSESSEE-COMPANY ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 8 BEING A SUBSIDIARY OF THE TRANSFEROR COMPANY, THE PROVISIONS OF SECTION 47(IV) HAVE CEASED TO APPLY, AND THE TRANSACTION HAS TO BE CONSIDERED AS A TRANSFER. SECTION 47A PROVIDES FOR THE WITHDRAWAL OF EXEMPTIO N AND THE RESULTANT TREATMENT TO BE GIVEN TO THE INCO ME IN THE HANDS OF THE TRANSFEROR COMPANY. WHAT IS THE CONSEQUENTIAL EFFECT ON THE TRANSFEREE COMPANY? WHA T SHOULD BE THE VALUE OF COST OF ACQUISITION IN ITS H ANDS? THE ANSWER LIES IN SECTION 49(3). SECTION 49(3) REA DS AS UNDER:-- 49(3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB- SECTION (1) WHERE THE CAPITAL GAIN ARISING FROM THE TRANSFER OF A CAPITAL ASSET REFERRED TO IN CLAUSE ( IV) OR, AS THE CASE MAY BE, CLAUSE (V) OF SECTION 47 IS DEEMED TO BE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS BY VIRTUE OF THE PROVISIONS CONTAINED IN SECTION 47A, THE COST OF ACQUISITION OF SUCH ASSET TO THE TRANSFEREE COMP ANY SHALL BE THE COST FOR WHICH SUCH ASSET WAS ACQUIRED BY IT. SUB-SECTION(3) PROVIDES THAT IN THE HANDS OF THE TRANSFEREE, THE VALUATION/COST OF THE ASSET REGARDI NG WHICH THE EXEMPTION GRANTED UNDER SECTION 47(IV) HAS BEEN WITHDRAWN UNDER SECTION 47A OF THE ACT, IT SHALL BE THE COST FOR WHICH SUCH ASSET WAS ACQUIRED BY IT. THUS, IN THE PRESENT CASE, THE COST FOR WHICH THE ASSESSEE HAS A CQUIRED THE ASSET SHOULD BE THE COST OF ACQUISITION FOR THE PURPOSE OF COMPUTATION OF DEPRECATION. THE DECISION IN THE CASE OF ESSAR OIL LTD. AS ABOVE SQUARELY COVERED THE CASE OF THE ASSESSEE. THEREFORE, THE A.O. IS DI RECTED TO TAKE THE COST OF ACQUISITION OF SUCH ASSETS AS HAVE BEEN ACQ UIRED BY IT FROM ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 9 M/S. TATA MOTORS LTD. AT THE COST AT WHICH THEY HAV E BEEN ACQUIRED MEANS THE ACTUAL CONSIDERATION PAID BY THE ASSESSEE COMPANY AND ACCORDINGLY ALLOW THE DEPRECIATION CLAIMED BY THE A SSESSEE. IN RESULT, THE GROUND OF APPEAL IS ALLOWED. 5. IT IS CLEAR THAT THE FINDING OF THE LEARNED CIT( A) IS BASED UPON THE OBSERVATIONS MADE IN ESSAR OIL LIMITED VS. DEPU TY COMMISSIONER OF INCOME TAX, SPECIAL RANGE, 27 [2007] 13 SOT 691, INCOME TAX APPELLATE TRIBUNAL, MUMBAI D BENCH AND THE FINDIN G OF THE SAID JUDGMENT HAS DULY BEEN CONFIRMED BY THE JURISDICTIO NAL BOMBAY HIGH COURT IN ITA NO.3160 OF 2009 IN CASE COMMISSIONER O F INCOME TAX 5 VS. M/S. ESSAR OIL LTD. DECIDED ON 7 TH JULY, 2011. CONSIDERING THE FACTS OF THE CASE BEFORE US WE AGREE THAT THE CASE OF THE ASSESSEE IS DULY COVERED BY THE CASE OF ESSAR OIL LTD. (SUPRA). THEREFORE, WE DO NOT FIND ANY INFIRMITY AND ILLEGALITY IN THE FINDIN G GIVEN BY THE LEARNED CIT(A), HENCE WE DISMISSED THE APPEAL FILED BY THE REVENUE. 7. ACCORDINGLY, APPEALS OF THE ASSESSEE ARE HEREBY ALLOWED AND APPEAL OF THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MAY, 2016 SD/- SD/- (B.R.BASKARAN) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 18 TH MAY, 2016 MP MP MP MP ITA NO.6199&8469/M/11&8324/M/11 A.Y. 2007-08 & 2008-09 10 ) * +$!', -,'! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ) / BY ORDER, - & //TRUE COPY// ./# (DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI