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II. Direct Taxes Case Laws:
1. Godrej
& Boyce Manufacturing Company Limited Vs. DCIT, Civil Appeal No.
7020 of 2011, Date of Judgement: 08.05.2017, Supreme Court of India
Issue
Whether dividend income on shares in respect of which tax is
payable under Section 115-O of the Income Tax Act,1961 and income on
units of mutual funds on which tax is payable under Section 115-R of the
Act, is covered within the scope of section 14A of the Act?
Held: Yes
Brief Facts
The assessee is engaged in the business of manufacture of steel
furniture, security equipments, typewriters, electrical equipments and a
host of other related products. It is also a promoter of various other
companies and invests its funds in such companies in order to maintain
control of such concerns as sister concerns. For the Assessment Year
2002-2003, the appellant – Company filed its return declaring a total
loss of Rs.45,90,39,210/-. In the said return, it had shown income by
way of dividend from companies and income from units of mutual funds to
the extent of Rs.34,34,78,686. The AO did not allow interest expenditure
to the extent of Rs.6,92,06,000/- holding the same to be attributable
to earning the dividend income of Rs. 34,34,78,686/- The said figure of
interest expenditure disallowed was worked out from the total interest
expenditure for the year on a notional basis in the ratio of the cost of
the investments in shares and units of mutual funds to the cost of the
total assets appearing in the balance sheet.
Though
the aforesaid order of the ld. AO was reversed by the ld. CIT(A)
following the earlier orders pertaining to the previous Assessment
Years, but the hon’ble Tribunal, in appeal, took a different view and
held that sub-sections (2) & (3) of Section 14A of the Act (inserted
by the Finance Act, 2006 w.e.f. 01-04-2007) were retrospectively
applicable to the AY 2002-2003 and, therefore, the matter should be
remanded to the AO for recording his satisfaction/ findings in the light
of the said sub-sections of Section 14A of the Act. In further appeal
to the Hon’ble High Court u/s 260A of the Act, the Hon’ble High Court
held the provision of Section 14A of the Act is attracted in respect of
dividend income referred to in Section 115-O as such income is not
includible in the total income of the shareholder and upheld the remand
as made by the Tribunal to the AO. Accordingly, the assessee preferred
further appeal before the Hon’ble Supreme Court. The issue in present
appeal relates to the admissibility or otherwise deduction of
expenditure incurred in earning dividend income which is not includible
in the total income of the Assessee by virtue of the provisions of
Section 10(33) of the Act.
Held:
The Hon’ble Supreme Court held that the object behind the
introduction of Section 14A of the Act by the Finance Act of 2001 is
clear and unambiguous. The legislature intended to check the claim of
allowance of expenditure incurred towards earning exempted income in a
situation where an assessee has both exempted and non-exempted income or
includible or non-includible income. While there can be no scintilla of
doubt that if the income in question is taxable and, therefore,
includible in the total income, the deduction of expenses incurred in
relation to such an income must be allowed, such deduction would not be
permissible merely on the ground that the tax on the dividend received
by the assessee has been paid by the dividend paying company and not by
the recipient assessee, when under Section 10(33) of the Act such income
by way of dividend is not a part of the total income of the recipient
assessee. A plain reading of Section 14A would go to show that the
income must not be includible in the total income of the assessee. Once
the said condition is satisfied, the expenditure incurred in earning the
said income cannot be allowed to be deducted.
The
section does not contemplate a situation where even though the income
is taxable in the hands of the dividend paying company the same to be
treated as not includible in the total income of the recipient assessee,
yet, the expenditure incurred to earn that income must be allowed on
the basis that no tax on such income has been paid by the assessee. Such
a meaning, if ascribed to Section 14A, would be plainly beyond what the
language of Section 14A can be understood to reasonably convey. In this
regard, the reliance is also placed on Commissioner of Income Tax-III v. Calcutta Knitwears, Ludhiana [2014] 6 SCC 444 (para 31) that:
"the language of a taxing statute should ordinarily be read and
understood in the sense in which it is harmonious with the object of the
statute to effectuate the legislative animation. A taxing statute
should be strictly construed; common sense approach, equity, logic,
ethics and morality have no role to play. Nothing is to be read in,
nothing is to be implied; one can only look fairly at the language used
and nothing more and nothing less.”
Thus,
appeal was answered against the appellant-assessee by holding that
Section 14A of the Act would apply to dividend income on which tax is
payable under Section 115-O of the Act.
(Please click here for judgment)
2. CIT
Vs. M/S Rave Entertainment Pvt. Ltd, Income Tax Appeal Defective No. -
114 of 2015, Date of Judgement: 05.05.2017, High Court of Allahabad
Issue
Whether CIT can exercise its revisionary power u/s 263 of the
Income tax Act to revise the assessment order passed by Assessing
Officer, where the order is already set aside by CIT(Appeals)?
Held: No
Brief Facts
An order of assessment was passed against the respondent assessee on
9.12.2011 under Section 143 (3) of the Act. This order was set aside by
the CIT (Appeals) on merits vide order dated 9.10.2012. The above
assessment order dated 19.12.2011 was set aside by the CIT in exercise
of its revisional power under Section 263 of the Act on 25.3.2014 and
the matter has been remanded for reassessment. The tribunal set aside
the revisional order on the ground that when the order sought to be
revised itself has been set aside by the appellate order and had ceased
to exist, there was no occasion for revising the same. Therefore, an
appeal was filed by revenue before the Hon’ble High Court against the
order of the Tribunal.
Held:
The Hon’ble High Court placed reliance on the decision of the Hon’ble
Mumbai High Court in the case of Ranka Jewellers Vs. Additional
Commissioner of Income Tax (2011) 238 CTR (Bom) 153 that where an order
passed by the AO was considered in appeal by the CIT (A), the remedy of
revision u/s 263 of the Act is not available and therefore, the order of
CIT u/s 263 of the Act would be invalid and also held that once the
order of Assessing Authority is appealed against and the appeal is
decided on merits, the order merges in the appellate order leaving no
scope for its revision independently.
Therefore, the appeal of the revenue was dismissed.
(Please click here for judgment)
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