IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH ` A', NEW DELHI)
BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.4959/Del/2012 & 5401 /Del/2013
Assessment year : 2009-10 & 2010-11 respectively
ACIT, Circle 2(1), Vs. M/s. Bharat Hotels Ltd.,
New Delhi Barakhamba Lane,
New Delhi.
GIR / PAN:AAACB1298E
(Appellant) (Respondent)
Appellant by : Shri Y Kakkar, DR
Respondent by : Shri Ajay Vohra, Sr. Adv.
Shri Gaurav Jain, Adv.
ORDER
PER T.S. KAPOOR, AM:
These are two appeals filed by Revenue against the order of Ld.
CIT(A) dated 30.07.2012 and dated 19.07.2013 respectively. Similar issues
are involved in these two appeals. One of the grounds of Revenue is the
action of Ld. CIT(A) by which he had deleted disallowance made u/s 14A of
the Act and the 2nd grievance is the action of Ld. CIT(A) by which he had
allowed depreciation on world trade centre and world trade tower which was
disallowed by A.O. Though these appeals were filed by Revenue but Ld.
A.R. at the outset, submitted that the disallowance u/s 14A is now fully
covered in favour of the assessee as various High Courts have held that
where dividend is not received, disallowance u/s 14A cannot be made. In
support, Ld. A.R. relied on the following case laws:
2 ITA No.4959/Del/2012
I.T.A.No. 5401/Del/2013
CIT Vs Holcim India Pvt. Ltd. I.T.A.No. 486 and 299/2014 decided by
Hon'ble Delhi High Court placed in paper book pages 9A-9M.
CIT Vs Shivam Motors (P) Ltd. I.T.A.No. 88 of 2014 placed at paper book
pages 10-16.
CIT Vs Corrtech Energy Pvt. Ltd. I.T.A.No. 239/2014 placed at paper book
pages 17-21
CIT Vs M/s. Lakhani Marketing Incl. I.T.A.No. 970/2008 placed at paper
book pages 22-28
CITVs Delite Enterprises its 110/2009 placed at paper book pages 29-30
CIT Vs Mr. M. Baskaran I.T.A.No. 1717/Mds.2013 paper book pages 31-41.
2. Ld. A.R. submitted that admittedly, no dividend was received by the
assessee in the present year and, therefore, disallowance u/s14A was not
warranted as held in the above mentioned decisions.
3. Regarding the 2nd issue, Ld. A.R. submitted that this issue is also
covered in favour of the assessee and in this respect; he invited our attention
to page 7 para 16 of the tribunal order in the case of the assessee itself in
Assessment Year 2008-09.
4. Ld. D.R. on the other hand submitted that there is a Kerala High
Court decision in the case of South Indian Bank Vs CIT 49 Taxman.Com
100 wherein, it has been held that for making disallowance u/s 14A earning
of dividend is not relevant and further submitted that the case law relied
upon by Ld. A.R. are distinguishable from the facts and circumstances of the
present case in view of the fact that in the present case, the investment has
been made in the subsidiary companies and therefore, subsidiary companies
were under control of assessee company and they might have manipulated to
dodge revenue in not declaring and receiving dividend income from
investments. Ld. A.R. submitted that without prejudice to the first
3 ITA No.4959/Del/2012
I.T.A.No. 5401/Del/2013
argument, even otherwise, the dividend which could have been received
from these subsidiary companies, was not exempt as the subsidiary
companies are situated outside India and dividend received from foreign
companies was not tax free. Moreover, he submitted that investment by
assessee was in subsidiary companies, which was for strategic purposes and
dividend received from strategic investments was not taxable as held by
Delhi Tribunal in the case of Holcim India Pvt. Ltd. The copy of Tribunal
order was stated to be placed at paper book pages 53-54. Ld. A.R. further
relied upon the case law of Interglobe Enterprises Ltd. Vs DCIT in I.T.A.
No. 1362 and 1032/Del/2013 placed at paper book pages 54-65.
5. We have heard rival parties and have gone through the material placed
on record. We find from the facts of the present cases that following are the
undisputed facts:
i) The assessee did not receive dividend during the year under
consideration.
ii) The investment was made by Assessee Company in subsidiary
companies for strategic Purposes.
iii) The investment during the year was made in a subsidiary company
which was situated outside India and, therefore the dividend income if any
received from foreign companies was not exempt.
5.1 We find that various High Courts have dealt with the issue of
disallowance u/s 14A where there is no receipt of dividend. The Hon'ble
Jurisdictional High Court of Delhi in the case of Holcim India Pvt. Ltd.
(supra) vide para 14 to 17 has held as under:
"14. On the issue whether the respondent-assessee could have
earned dividend income and even if no dividend income was earned,
yet Section l4A can be invoked and disallowance of expenditure can
be made, there are three decisions of the different High Courts
4 ITA No.4959/Del/2012
I.T.A.No. 5401/Del/2013
directly on the issue and against the appellant-Revenue. No contrary
decision of a High Court has been shown to us. The Punjab and
Haryana High Court in Commissioner of Income Tax, Faridabad Vs.
M/s. Lakhani Marketing Incl., ITA No. 970/2008, decided on
02.04.2014, made reference to two earlier decisions of the same Court
in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs.
Winsome Textile Industries Limited, [2009] 319 ITR 204to hold that
Section 14A cannot be invoked when no exempt income was earned.
The second decision is of the Gujarat High Court in Commissioner of
Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130
(Guj.). The third decision is of the Allahabad High Court in Income
Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Ii) Kanpur,
Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said
decision it has been held:
"As regards the second question, Section 14A of the Act
provides that for the purposes of computing the total income
under the Chapter, no deduction shall be allowed in respect of
expenditure incurred by the assessee in relation to income
which does not form part of the total income under the Act.
Hence, what Section 14A provides is that if there is any income
which does not form part of the income under the Act, the
expenditure which is incurred for earning the income is not an
allowable deduction. For the year in question, the finding of
fact is that the assessee had not earned any tax free income.
Hence; in. the absence of any tax free income, the
corresponding expenditure could not be worked out for
disallowance. The view of the CIT(A), which has been affirmed
by the Tribunal, hence does not give rise to any substantial
question of law. Hence, the deletion of the disallowance of
Rs.2,03,7521- made by the Assessing Officer was in order" .
15. Income exempt under Section 1 0 in a particular assessment year,
may not have been exempt earlier and can become taxable in future
years. Further, whether income earned in a subsequent year would or
would not be taxable, may depend upon the nature of transaction
entered into in the subsequent assessment year. For example, long
term capital gain on sale of shares is presently not taxable where
security transaction tax has been paid, but a private sale of shares in
an off market transaction attracts capital gains tax. It is an undisputed
5 ITA No.4959/Del/2012
I.T.A.No. 5401/Del/2013
position that respondent assessee is an investment company and had
invested by purchasing a substantial number of shares and thereby
securing right to management. Possibility of sale of shares by private
placement etc. cannot be ruled out and is not an improbability.
Dividend mayor may not be declared. Dividend is declared by the
company and strictly in legal sense, a shareholder has no control and
cannot insist on payment of dividend. When declared, it is subjected
to dividend distribution tax.
16. What is also noticeable is that the entire or whole expenditure has
been' disallowed as if there was no expenditure incurred by the
respondent-assessee for conducting business. The CIT(A) has
positively held that the business was set up and had commenced. The
said finding is accepted. The respondent-assessee, therefore, had to
incur expenditure for the business in the form of investment in shares
of cement companies and to further expand and consolidate their
business. Expenditure had to be also incurred to protect the
investment made. The genuineness of the said expenditure and the fact
that it was incurred for business activities was not doubted by the
Assessing Officer and has also not been doubted by the CIT(A).
17. In these circumstances, we do not find any merit in the present
appeals. The same are dismissed in limine."
5.2 Similarly, Hon'ble Allahabad High Court in the case of Shivam
Motors in I.T.A.No. 88/2014 has held as under:
"15 As regards the second question, Section 14A of the Act
provides that for the purposes of computing the total income under the
Chapter, no , deduction shall be allowed in respect of expenditure
incurred by the assessee in relation to income which does not form
part of the total income under the Act. Hence, what Section 14A
provides is that if there is any income which does not form part of the
income under the Act, the expenditure which is incurred for earning
the income is not an allowable deduction. For the year in question,
the finding of fact is that the assessee had not earned any tax free
income. Hence, in the absence of any tax - free income, the
corresponding expenditure could not be worked out for disallowance.
The view of the CIT(A), which has been affirmed by the Tribunal,
hence does not give rise to any substantial question of law. Hence, the
6 ITA No.4959/Del/2012
I.T.A.No. 5401/Del/2013
deletion of the disallowance of Rs.2,03,752/- made by the Assessing
Officer was in order."
5.3 From the above decision of Hon'ble Delhi High Court we find that
Hon'ble High Court has considered various case laws for arriving at the
conclusion that in case the dividend income is not received by an assessee,
the disallowance u/s 14A cannot be made. Reliance was placed by Ld. D.R.
on the case law of Hon'ble Kerala High Court cannot be considered as the
issue is squarely covered by Hon'ble Jurisdictional High Court. Moreover,
we find that investments were for strategic purposes and such investment
cannot be said to have been made for earning of dividend as held by various
courts which has been relied upon by Ld.A.R. as detailed below:
" i) 216 Taxman 92 CIT vs Oriental Structural Engineers Pvt. Ltd.
ii) 147 ITD 678 VA Tech Escher Wyss Flovel (P) Ltd. Vs ACIT
iii) I.T.A.No. 5123 & 5124/Del/2012 Holcim (India) P.Ltd. (Del.)
iv) 1362 & 1032/Del/2013 Interglobe Enterprises Ltd. VS DCIT
v) I.T.A.No. 5408/2012 Garware Wall Ropes Ltd. vs Addl. CIT
vi) I.T.A.No. 1021/Cjd.2011 Spray Engg. Devices Ltd.vs Addl. CIT
vii) I.T.A.No. 4521/Mum/2012 J M Financial Ltd. VsACIT
viii) 215 Taxman 8 CIT Vs CUTI Bank Ltd.
ix) S.C. decision in Civil appeal 4678/2014 dismissing SLP filed by
Deptt. Against Guj. High Court order.
x) 215 Taxman 272 CIT Vs Suzlon Energy Ltd. (Guj.)
5.4 The Hon'ble Tribunal in the case of Holcim (India) Pvt. Ltd. (supra)
held as under:
"15. Even on merits, we note that disallowances made u/s 14A were
unwarranted as assessee has not invested in shares for earning of
dividend but acquired the controlling interest in t~e respective
companies for doing the business. Ld. CIT(A) himself has admitted
that assessee is doing the business and the business of the assessee
company has been set up, therefore, there is no question that assessee
has invested the funds for earning of dividend.
7 ITA No.4959/Del/2012
I.T.A.No. 5401/Del/2013
16:- Similar issue came up before the Chandigarh Bench of the
Tribunal in the case of M/s Spray Engineering Devices Ltd. (*supra).
In this case also the disallowances were made u/s 14A by the
assessing officer by observing that-assessee has purchased shares of
Rs. 3.01 crores of M/s Shri Sai Baba Sugar Mills Ltd. for earning
exempt income. This action of the assessing officer was confirmed by
CIT(A). On second appeal before the Tribunal, the Tribunal held that,
"we find merit in the plea of the assessee that where a business
strategy had been adopted by the assessee by way of investment in
shares of sick company in order to make over the said company for
widening its operation of business, cannot be held to be investment
per se. The decision making of a business man by way of strategy
planning in allied line of business is a decision made in the course of
carrying on the business and the Assessing officer cannot sit in
judgment seat to comment upon the same. Once the assessee has been
found to have made a business investment by way, of shares in related
line of business, the said investment though held by way of shares in
the said company cannot be subjected to disallowance under section
14A of the Act, which in any case is relatable to disallowance of the
expenditure out of the exempt income earned by the assessee, by way
of its investment in shares of other company. In the facts of the present
case the investment was purely of business nature as the company in
which the amount was invested was a loss making company and there
was no question of earning any dividend income from such
investment. In the totality of the facts and circumstances of the case
we find no merit in the order of the authorities below in disallowing
any expenditure under the garb of section 14A of the Act".
17. Identical facts are involved in the present case in hand, as in this
case also the assessee has invested in the companies which were not
showing any profits. The assessee acquired controlling interest in
those companies just to run these companies properly. Ld. AR has
stated that till date no dividend has been earned by the assessee as
assessee is doing the business in these companies from the amounts
invested through shares. Therefore, in our considered view this is not
a case of disallowance u/s 14A of the Act.
8 ITA No.4959/Del/2012
I.T.A.No. 5401/Del/2013
Accordingly, we delete the disallowance made by ld. CIT(A) U/s 14A
of the for both the years in question.
18. In the result, the appeals of the assessee are allowed."
5.3 In the present cases also, we note that assessee had made strategic
investments in subsidiary companies and the purpose was to run hotels and
the investments were not made for the purpose of earning dividend.
Therefore, on the basis of case laws relied upon by Ld. A.R. under such
circumstances disallowance u/s 14A cannot be made.
5.3 Further, we find that the subsidiary company in which the investment
was made during the years were situated outside India, thus dividend if any
received from them would not have been exempted. Therefore, keeping in
view all facts and circumstances, the ground No.1 in both the appeals are
dismissed.
6. As regards ground No.2, the same is also covered in favour of the
assessee by Tribunal order in the case of assessee itself. The Tribunal in
Assessment Year 2008-09 following earlier year order had decided the issue
in favour of the assessee by holding as under:
"16. Ground No.3 is against the deletion of disallowance of
depreciation of World Trade Centre New Delhi World Trade Towers
amounting to Rs.77,186/-. Both parties agreed that similar issue has
come up before the Tribunal in the assessee's own case for the earlier
Assessment Years 1995-96 to 2006-07. The first appellate authority
has followed these decisions. We find no infirmity in the same."
9 ITA No.4959/Del/2012
I.T.A.No. 5401/Del/2013
7. The facts being similar, therefore, following the above, we do not find
any infirmity in the order of Led. CIT(A) and, therefore, ground No.2 is also
dismissed.
8. In view of above, both the appeals filed by Revenue are dismissed.
9. Order pronounced in the open court on 29th Dec., 2014.
Sd/- Sd/-
( I. C. SUDHIR) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date: 29.12.2014
Sp
Copy forwarded to:-
The appellant
The respondent
The CIT
The CIT (A)-, New Delhi.
The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order
(ITAT, New Delhi).
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