w w w . L a w y e r S e r v i c e s . i n



Commissioner of Income Tax, Chennai v/s M/s. Apollo Infrastructure Projects Finance Co. Ltd.


Company & Directors' Information:- INDIA INFRASTRUCTURE FINANCE COMPANY LIMITED [Active] CIN = U67190DL2006GOI144520

Company & Directors' Information:- APOLLO INFRASTRUCTURE PROJECTS FINANCE COMPANY PRIVATE LIMITED [Active] CIN = U65191TN1996PTC036440

Company & Directors' Information:- C AND C PROJECTS LIMITED [Active] CIN = U74999HR2007PLC036644

Company & Directors' Information:- Y K M PROJECTS PRIVATE LIMITED [Active] CIN = U40109TG2008PTC057263

Company & Directors' Information:- APOLLO FINANCE LIMITED [Active] CIN = U65923DL1995PLC064163

Company & Directors' Information:- K J INFRASTRUCTURE PROJECTS INDIA PRIVATE LIMITED [Active] CIN = U45203PN2008PTC131551

Company & Directors' Information:- D. E. C. INFRASTRUCTURE AND PROJECTS (INDIA) PRIVATE LIMITED [Active] CIN = U45209TG2008PTC060557

Company & Directors' Information:- T G R PROJECTS INDIA PRIVATE LIMITED [Active] CIN = U45200KA2012PTC062702

Company & Directors' Information:- S G PROJECTS LIMITED [Active] CIN = U65999WB1990PLC049684

Company & Directors' Information:- B C C PROJECTS PVT LTD [Active] CIN = U74899DL2001PTC112102

Company & Directors' Information:- J K S PROJECTS LIMITED [Active] CIN = U45400WB2011PLC157565

Company & Directors' Information:- D M P PROJECTS PVT LTD [Active] CIN = U27109WB2006PTC107513

Company & Directors' Information:- T & T PROJECTS LIMITED [Active] CIN = U45201AS2008PLC008641

Company & Directors' Information:- W AND W PROJECTS PRIVATE LIMITED [Active] CIN = U65910DL1989PTC036754

Company & Directors' Information:- E M C PROJECTS PVT LTD [Active] CIN = U29248WB1964PTC026261

Company & Directors' Information:- H AND V PROJECTS PRIVATE LIMITED [Active] CIN = U72400DL2011PTC220047

Company & Directors' Information:- M A PROJECTS PRIVATE LIMITED [Active] CIN = U70101DL2005PTC135093

Company & Directors' Information:- S. V. S. PROJECTS PRIVATE LIMITED [Active] CIN = U70100AP1998PTC029024

Company & Directors' Information:- M V PROJECTS (INDIA) PRIVATE LIMITED [Active] CIN = U45202KA2008PTC045272

Company & Directors' Information:- S V S PROJECTS INDIA PRIVATE LIMITED [Active] CIN = U45200AP2015PTC096787

Company & Directors' Information:- A T E PROJECTS PRIVATE LIMITED [Active] CIN = U74999DL1999PTC102246

Company & Directors' Information:- U W T PROJECTS LIMITED [Active] CIN = U45200AP2004PLC043198

Company & Directors' Information:- J J PROJECTS PVT LTD [Active] CIN = U24231WB1986PTC040246

Company & Directors' Information:- Z H PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45400WB2012PTC184307

Company & Directors' Information:- K & J PROJECTS PRIVATE LIMITED [Active] CIN = U45203MH2004PTC150165

Company & Directors' Information:- T & I PROJECTS LTD [Active] CIN = L29130WB1984PLC038232

Company & Directors' Information:- B 2 R PROJECTS PRIVATE LIMITED [Active] CIN = U45400WB2013PTC189971

Company & Directors' Information:- C M PROJECTS PRIVATE LIMITED [Active] CIN = U45201DL2004PTC130580

Company & Directors' Information:- N G PROJECTS LIMITED [Active] CIN = U45201GJ2003PLC042152

Company & Directors' Information:- E AND C PROJECTS PRIVATE LIMITED [Active] CIN = U29150DL2002PTC115297

Company & Directors' Information:- B. D. R. PROJECTS PRIVATE LIMITED [Active] CIN = U45202TG1998PTC028780

Company & Directors' Information:- V AND S PROJECTS PRIVATE LIMITED [Active] CIN = U70109DL1996PTC079487

Company & Directors' Information:- L S R PROJECTS PRIVATE LIMITED [Strike Off] CIN = U07010KA2005PTC036041

Company & Directors' Information:- V R PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45400AP2007PTC054901

Company & Directors' Information:- D C R PROJECTS PRIVATE LIMITED [Active] CIN = U45209TG2007PTC056307

Company & Directors' Information:- R. R. PROJECTS PVT LTD [Active] CIN = U45200TG1982PTC003711

Company & Directors' Information:- S H PROJECTS PRIVATE LIMITED [Active] CIN = U74996DL2006PTC149971

Company & Directors' Information:- S R PROJECTS INDIA PVT LTD [Active] CIN = U45207WB1981PTC033286

Company & Directors' Information:- L E PROJECTS PRIVATE LIMITED [Active] CIN = U45303WB2005PTC102555

Company & Directors' Information:- M. S. PROJECTS PRIVATE LIMITED [Active] CIN = U45400WB2009PTC131902

Company & Directors' Information:- J V PROJECTS PRIVATE LIMITED [Active] CIN = U74899DL1995PTC069037

Company & Directors' Information:- B N PROJECTS PRIVATE LIMITED [Active] CIN = U45201GJ2009PTC058067

Company & Directors' Information:- J P PROJECTS PRIVATE LIMITED [Active] CIN = U70109WB2011PTC165990

Company & Directors' Information:- R K PROJECTS PRIVATE LIMITED [Active] CIN = U74899DL1990PTC043660

Company & Directors' Information:- A B PROJECTS PRIVATE LIMITED [Active] CIN = U45200MH2004PTC149404

Company & Directors' Information:- A K PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45201TG1996PTC023179

Company & Directors' Information:- S N M PROJECTS PRIVATE LIMITED [Active] CIN = U70102UP2010PTC040243

Company & Directors' Information:- INDIA INFRASTRUCTURE PROJECTS LIMITED [Active] CIN = U45400UP2009PLC037401

Company & Directors' Information:- J AND H PROJECTS PRIVATE LIMITED [Active] CIN = U45200GJ2013PTC074010

Company & Directors' Information:- M C M CHENNAI INFRASTRUCTURE PRIVATE LIMITED [Active] CIN = U27209TN1981PTC008580

Company & Directors' Information:- N S PROJECTS PRIVATE LIMITED [Active] CIN = U70101WB2007PTC117882

Company & Directors' Information:- H S PROJECTS PRIVATE LIMITED [Active] CIN = U45208DL2006PTC153706

Company & Directors' Information:- N M PROJECTS PRIVATE LIMITED [Active] CIN = U29219DL2009PTC186728

Company & Directors' Information:- K. V. PROJECTS PRIVATE LIMITED [Active] CIN = U70102WB2012PTC188439

Company & Directors' Information:- G R S PROJECTS & INFRASTRUCTURE PRIVATE LIMITED . [Active] CIN = U45200WB2007PTC113238

Company & Directors' Information:- K R S PROJECTS PRIVATE LIMITED [Active] CIN = U70102AP2012PTC082232

Company & Directors' Information:- B S C PROJECTS PRIVATE LIMITED [Active] CIN = U45200DL2011PTC227768

Company & Directors' Information:- J K PROJECTS PRIVATE LIMITED [Active] CIN = U45203GJ2001PTC039576

Company & Directors' Information:- F C C PROJECTS PRIVATE LIMITED [Active] CIN = U29248UP1982PTC005786

Company & Directors' Information:- S N PROJECTS LIMITED [Active] CIN = U85110KA1996PLC021040

Company & Directors' Information:- B. D. PROJECTS PRIVATE LIMITED [Amalgamated] CIN = U45400WB2010PTC147620

Company & Directors' Information:- C & I PROJECTS PRIVATE LIMITED [Active] CIN = U29100DL2010PTC209136

Company & Directors' Information:- C & I PROJECTS PRIVATE LIMITED [Active] CIN = U74140DL2010PTC209136

Company & Directors' Information:- C B PROJECTS PRIVATE LIMITED [Active] CIN = U70109WB1997PTC085237

Company & Directors' Information:- G G PROJECTS PRIVATE LIMITED [Active] CIN = U45201DL1998PTC091501

Company & Directors' Information:- V M G PROJECTS (INDIA) PRIVATE LIMITED [Strike Off] CIN = U45400WB2011PTC164117

Company & Directors' Information:- M. L. PROJECTS PRIVATE LIMITED [Active] CIN = U45400WB2010PTC151513

Company & Directors' Information:- R N D PROJECTS PRIVATE LIMITED [Active] CIN = U70102DL1996PTC080051

Company & Directors' Information:- K M B INFRASTRUCTURE PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45203TZ2002PTC010399

Company & Directors' Information:- M. K. N. PROJECTS PRIVATE LIMITED [Active] CIN = U70101DL2009PTC196755

Company & Directors' Information:- M B R PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45300KA2009PTC049005

Company & Directors' Information:- G S P PROJECTS PRIVATE LIMITED [Active] CIN = U45201WB1992PTC057116

Company & Directors' Information:- K P S PROJECTS PRIVATE LIMITED [Active] CIN = U70102TG2005PTC046280

Company & Directors' Information:- E AND V PROJECTS PRIVATE LIMITED [Strike Off] CIN = U70102TG2004PTC042622

Company & Directors' Information:- T M R PROJECTS PRIVATE LIMITED [Active] CIN = U45400DL2010ULT211007

Company & Directors' Information:- P A PROJECTS PRIVATE LIMITED [Active] CIN = U45208WB1997PTC083907

Company & Directors' Information:- N K D PROJECTS PRIVATE LIMITED [Active] CIN = U45400WB2008PTC128819

Company & Directors' Information:- A I PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45203WB2000PTC091229

Company & Directors' Information:- APOLLO INDIA PRIVATE LIMITED [Active] CIN = U24290DL2012PTC237964

Company & Directors' Information:- P N PROJECTS PRIVATE LIMITED [Active] CIN = U45202DL2016PTC289494

Company & Directors' Information:- V AND M PROJECTS PRIVATE LIMITED [Active] CIN = U45201DL2005PTC139731

Company & Directors' Information:- K K PROJECTS PVT LTD [Strike Off] CIN = U70200WB1995PTC073058

Company & Directors' Information:- S L PROJECTS PRIVATE LIMITED [Active] CIN = U45400AN2009PTC000109

Company & Directors' Information:- PROJECTS PVT LTD [Strike Off] CIN = U45201WB1951PTC019759

Company & Directors' Information:- V K M PROJECTS PRIVATE LIMITED [Active] CIN = U45400UP2011PTC045725

Company & Directors' Information:- K P PROJECTS PVT LTD [Active] CIN = U70101WB1996PTC077397

Company & Directors' Information:- C R PROJECTS PRIVATE LIMITED [Active] CIN = U45400PB2009PTC032572

Company & Directors' Information:- N D B K PROJECTS (INDIA) PRIVATE LIMITED [Active] CIN = U27100PB2012PTC036987

Company & Directors' Information:- N P R PROJECTS INDIA PRIVATE LIMITED [Strike Off] CIN = U45400TN2012PTC086360

Company & Directors' Information:- G P N PROJECTS PRIVATE LIMITED [Strike Off] CIN = U18101TZ2006PTC012749

Company & Directors' Information:- V K R PROJECTS PRIVATE LIMITED [Active] CIN = U45200TG2005PTC046370

Company & Directors' Information:- I N C PROJECTS PRIVATE LIMITED [Active] CIN = U70109WB2005PTC101620

Company & Directors' Information:- J. S. PROJECTS PRIVATE LIMITED [Active] CIN = U45400WB2009PTC136510

Company & Directors' Information:- H C S INFRASTRUCTURE PROJECTS PRIVATE LIMITED [Active] CIN = U45209CH2011PTC032723

Company & Directors' Information:- D J PROJECTS PRIVATE LIMITED [Active] CIN = U15201DL2005PTC134979

Company & Directors' Information:- M S C K PROJECTS PRIVATE LIMITED [Converted to LLP] CIN = U70101DL2005PTC135407

Company & Directors' Information:- T AND M PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45201KA2008PTC045199

Company & Directors' Information:- S AND S INFRASTRUCTURE PROJECTS INDIA PRIVATE LIMITED [Strike Off] CIN = U45203KA2007PTC042147

Company & Directors' Information:- A C G PROJECTS PRIVATE LIMITED [Active] CIN = U45201UP1999PTC024162

Company & Directors' Information:- N E PROJECTS LTD [Strike Off] CIN = U16009AS1999PLC005873

Company & Directors' Information:- D R PROJECTS PRIVATE LIMITED [Active] CIN = U74899DL2001PTC109612

Company & Directors' Information:- I J PROJECTS PRIVATE LIMITED [Strike Off] CIN = U70102KA2009PTC049320

Company & Directors' Information:- G C N PROJECTS PRIVATE LIMITED [Active] CIN = U45200KA2011PTC061371

Company & Directors' Information:- L N PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45200TG2004PTC043064

Company & Directors' Information:- H B PROJECTS PVT LTD [Amalgamated] CIN = U45201WB1993PTC058846

Company & Directors' Information:- I. T. G PROJECTS PRIVATE LIMITED [Active] CIN = U74899DL1994PTC063342

Company & Directors' Information:- P. S. PROJECTS PRIVATE LIMITED [Converted to LLP and Dissolved] CIN = U70109WB2011PTC170655

Company & Directors' Information:- A R N PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45202MH2010PTC199122

Company & Directors' Information:- S P PROJECTS (INDIA) PRIVATE LIMITED [Active] CIN = U45400DL2010PTC203910

Company & Directors' Information:- J R PROJECTS PRIVATE LIMITED [Strike Off] CIN = U70109HR2012PTC045119

Company & Directors' Information:- C N R PROJECTS INDIA PRIVATE LIMITED [Active] CIN = U45201KA2007PTC041355

Company & Directors' Information:- INFRASTRUCTURE PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45203DL1997PTC087330

Company & Directors' Information:- A J PROJECTS (INDIA) PRIVATE LIMITED [Strike Off] CIN = U45201MH2006PTC164622

Company & Directors' Information:- CHENNAI FINANCE PRIVATE LIMITED [Strike Off] CIN = U65191TN1995PTC030934

Company & Directors' Information:- A N B INFRASTRUCTURE PROJECTS PRIVATE LIMITED [Active] CIN = U45400DL2007PTC162673

Company & Directors' Information:- J M PROJECTS PRIVATE LIMITED [Active] CIN = U45200MP2007PTC019336

Company & Directors' Information:- L S S PROJECTS PRIVATE LIMITED [Active] CIN = U45400UP2013PTC059508

Company & Directors' Information:- A TO Z PROJECTS PRIVATE LIMITED [Strike Off] CIN = U70101DL1995PTC069527

Company & Directors' Information:- G I T T PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45201TG2006PTC051193

Company & Directors' Information:- Z & I PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45309TN2007PTC064972

Company & Directors' Information:- B. G. PROJECTS PRIVATE LIMITED [Active] CIN = U45400MH2012PTC231270

Company & Directors' Information:- P S R PROJECTS INDIA PRIVATE LIMITED [Active] CIN = U45400TG2015PTC101191

Company & Directors' Information:- CHENNAI INFRASTRUCTURE PRIVATE LIMITED [Active] CIN = U45200TN2012PTC084165

Company & Directors' Information:- E & E PROJECTS PRIVATE LIMITED [Active] CIN = U45400UP2015PTC075033

Company & Directors' Information:- B B R PROJECTS PRIVATE LIMITED [Active] CIN = U45200TG2005PTC045165

Company & Directors' Information:- M V R PROJECTS PRIVATE LIMITED [Active] CIN = U45200TG2005PTC045166

Company & Directors' Information:- L V S PROJECTS PRIVATE LIMITED [Under Process of Striking Off] CIN = U45200TG2010PTC068286

Company & Directors' Information:- CHENNAI FINANCE CO PRIVATE LIMITED [Under Process of Striking Off] CIN = U65991TN1981PTC009023

Company & Directors' Information:- R N V PROJECTS PRIVATE LIMITED [Active] CIN = U70102UP2011PTC044240

Company & Directors' Information:- K L PROJECTS PRIVATE LIMITED [Active] CIN = U27104DL2003PTC119655

Company & Directors' Information:- K S M PROJECTS PRIVATE LIMITED [Active] CIN = U45400DL2009PTC194824

Company & Directors' Information:- 3 G PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45400DL2015PTC276736

Company & Directors' Information:- I S R PROJECTS PRIVATE LIMITED [Active] CIN = U74140DL2005PTC138210

Company & Directors' Information:- L V PROJECTS PRIVATE LIMITED [Active] CIN = U74140DL2014PTC272838

Company & Directors' Information:- C P E C APOLLO PRIVATE LIMITED [Active] CIN = U74999DL2015PTC283774

Company & Directors' Information:- M K PROJECTS PRIVATE LIMITED [Strike Off] CIN = U45201DL2002PTC117787

Company & Directors' Information:- B V M PROJECTS PRIVATE LIMITED [Active] CIN = U45201DL2004PTC131352

Company & Directors' Information:- K. J. S. PROJECTS PRIVATE LIMITED [Active] CIN = U70109DL2006PTC152898

Company & Directors' Information:- V N R PROJECTS PRIVATE LIMITED. [Active] CIN = U45400AP2008PTC060896

Company & Directors' Information:- H V PROJECTS PVT LTD [Active] CIN = U45202HR1997PTC033617

Company & Directors' Information:- APOLLO PROJECTS PRIVATE LIMITED [Strike Off] CIN = U70101KA2009PTC051247

Company & Directors' Information:- V & V PROJECTS PRIVATE LIMITED [Strike Off] CIN = U70109KA2005PTC037578

Company & Directors' Information:- C AND T PROJECTS PRIVATE LIMITED [Strike Off] CIN = U74140GJ2009PTC057480

Company & Directors' Information:- A AND B PROJECTS PRIVATE LIMITED [Active] CIN = U45201GJ2007PTC051077

Company & Directors' Information:- B. P. S. R. PROJECTS PRIVATE LIMITED [Active] CIN = U70109RJ2018PTC063238

Company & Directors' Information:- A. R. PROJECTS PRIVATE LIMITED [Strike Off] CIN = U40200DL2007PTC161559

    T.C.A. No. 567 of 2008

    Decided On, 23 January 2019

    At, High Court of Judicature at Madras

    By, THE HONOURABLE DR. JUSTICE VINEET KOTHARI & THE HONOURABLE DR.(MRS.) JUSTICE ANITA SUMANTH

    For the Appellant: T. Ravikumar, Senior Standing Counsel. For the Respondent: N.V. Balaji, Advocate.



Judgment Text

(Prayer: Appeal filed under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal, Madras 'A' Bench, dated 23.10.2007, passed in ITA No.525/Mds/2006.)

Dr. Vineet Kothari, J.

1. Revenue has filed this appeal under Section 260A of the Income Tax Act, in short, 'the Act', aggrieved by the order passed by the learned Income Tax Appellate Tribunal, dated 23.10.2007, passed in ITA No.525/Mds/2006, for the Assessment Year 2002-2003.

2. The substantial question of law, on which the present appeal was admitted by a Coordinate Bench of this Court on 07.07.2004, is quoted below :

“ Whether on the facts and in the circumstances of the case, the Tribunal was right in allowing the interest payable on moneys borrowed for investment in shares, even when the income earned from the equity shares does not form part of total income as per Section 10 of the Income Tax Act ? ”

3. The controversy involved in this appeal is about disallowance under Section 14A of the Act of the expenditure incurred in relation to the income not includible in Total Income.

4. The facts, as found by the Assessing Authority in the present case for the Assessment Year 2001-2002, are that the Assessee company made a total investment of Rs.137.00 crores in equity shares in PPN-Power Generating Co. Ltd and the Assessee, during the year in question, paid total Debenture Interest and Finance Charges of Rs.6,46,21,000/-, on the Debentures issued by the company, the Debenture Interest component being to the extent of Rs.5,35,47,000/- and the Finance Charges were to the extent of Rs.1,10,74,000/-.

5. The Assessing Authority disallowed the entire Debentures' Interest and Finance Charges to the extent of Rs.6,46,20,719/- on the premise that the equity shares were purchased by the Assessee out of the borrowed money and, therefore, the entire interest on such Debentures and the Finance Charges were required to be disallowed under Section 14A of the Act. Section 14A (1) of the Act reads as under :-

“14A. Expenditure incurred in relation to income not includible in total income.—(1) For the purposes of computing the total income under this 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 this Act.”

6. The controversy involved in the present case stands squarely covered by a Division Bench of this Court in the case of Commissioner of Income Tax v. Chettinad Logistics (P) Ltd., (2017) 80 Taxmann.com 221 (Madras) and the same was affirmed by the Hon'ble Supreme Court by dismissal of the Revenue's appeal in S.L.P. (Civil) Diary No.15631 of 2018, on 02.07.2018, (2018) 95 Taxmann.com 250 (SC), and the Division Bench of this Court, while rendering the judgment in Chettinad's case, cited supra, had followed the earlier Coordinate Bench decision of this Court, in which, one of us, namely, Dr.Anita Sumanth, J., was a party, decided on 23.12.2016, in Redington (India) Ltd. v. Addl.CIT, (2017) 77 Taxmann.com 257 (Mad). The relevant extracts from the said judgments are quoted below:-

Chettinad's case :

“9.1 The legislature, in order to do away with the pernicious practice adopted by the Assessees', to claim expenditure, against income exempt from tax, introduced the said provision.

10. In the instant case, there is no dispute that no income i.e., dividend, which did not form part of total income of the Assessee was earned in the relevant assessment year.

10.1 Therefore, to our minds, the addition made by the Assessing Officer by relying upon Section 14 A of the Act, was completely contrary to the provisions of the said Section.

10.2 Mr.Senthil Kumar, who appears for the Revenue, submitted that the Revenue could disallow the expenditure even in such a circumstance by taking recourse to Rule 8D.

10.3 According to us, Rule 8D, only provides for a method to determine the amount of expenditure incurred in relation to income, which does not form part of the total income of the Assessee.

10.4 Rule 8 D, in our view, cannot go beyond what is provided in Section 14 A of the Act.

11. Furthermore, we may note that a similar argument was sought to be advanced by the Revenue in the matter concerning, Redington (India) Ltd. v. Addl. CIT [2017] 77 taxmann.com 257 (Mad.) which was, subject matter of T.C.A.No.520 of 2016.

11.1 A Co-ordinate Bench of this Court, vide judgment dated 23.12.2016, rejected the plea of the Revenue advanced in that behalf.

11.2 As a matter of fact, a perusal of the judgment would show that the Revenue had sought to argue that because exempt income could be earned in future years, therefore, recourse could be taken to the provisions of Section 14A of the Act, to disallow expenditure. In other words the stand taken by the Revenue was irrespective of the fact whether or not income was earned in the concerned assessment year expenditure under Section 14A could be disallowed against anticipated income.

11.3 Pertinently, the Division Bench in Redington (India)Ltd. (supra) case has repelled this precise argument.

12. The Division Bench, in our view, quiet correctly held that, the computation of total income, in terms of Section 5 of the Act, is made qua real income and not, vis-a-vis, notional income.

12.1 The Division Bench went on to hold that Section 4 of the Act brings to tax, that income, which is relatable to the assessment year in issue. The Division Bench, thus, held that where no exempt income is earned in the previous year, relevant to the assessment year in issue, provisions of Section 14 A of the Act, read with Rule 8 D could not be invoked.”

Redington's case :

“15. The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802/91 Taxman 340 (SC). The language of s.14A (1) should be read in that context and such that it advances the scheme of the Act rather than distort it.

16. In conclusion, we are of the view that the provisions of s. 14A read with Rule 8D of the Rules cannot be made applicable in a vacuum i.e. in the absence of exempt income. The questions of law are answered in favour of the assessee and against the department and the appeal allowed. No costs.”

7. Both the above direct judgments of this Court clearly held that disallowance of the expenditure for earning the income, which is not includible in total income, cannot be made under Section 14A of the Act, unless the Assessee has actually earned such exempt income during the assessment year in question.

8. The facts, as noted by the Assessing Authority himself, clearly reveal that no Dividend Income was at all earned by the Respondent-Assessee in this year and, therefore, the question of invoking Section 14A of the Act did not simply arise. The said provision applies only if there is an income, which cannot form part of the total income and is exempt during the year in question and the expenditure in relation to earning of such exempted income can only be disallowed under Section 14A of the Act.

9. If the provision of Section 14A itself is not attracted and if no such exempted income is earned during the year, there is no question of disallowing the entire Debenture Interest and Finance Charges, which was a usual business expenditure of the Assessee. The Assessing Authority, totally oblivious of the basic parameters of Section 14A itself, has invoked the said provision and misapplied the same in the present case.

10. Though it was so, the learned Commissioner of Income Tax (Appeals), in the first appeal, restricted the disallowance of such expenditure to the extent of 2% of the expenditure. The Assessee did not, however, file any further appeal against the said order of CIT (Appeals), but, the Revenue took an appeal before the learned Income Tax Appellate Tribunal, which dismissed the appeal of the Revenue by the order, dated 23.10.2007, which is impugned in this appeal.

11. Learned counsel for the Revenue, however, relying on a judgment of the Supreme Court in the case of Maxopp Investment Ltd. v. Commissioner of Income Tax, (2018) 402 ITR 640 (SC), rendered on 12.02.2018, has submitted that since the equity shares in question were purchased out of the borrowed funds, the Assessing Authority was justified in disallowing the debenture interest and finance charges. The observations of the Hon'ble Supreme Court in the factual context of the Assessee viz., M/s.Maxopp Investment Ltd. are quoted below to the extent relevant, besides giving a brief of the facts as well :

“3) Though, it is clear from the plain language of the aforesaid provision that no deduction is to 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, the effect whereof is that if certain income is earned which is not to be included while computing total income, any expenditure incurred to earn that income is also not allowed as a deduction. It is well known that tax is leviable on the net income. Net income is arrived at after deducting the expenditures incurred in earning that income. Therefore, from the gross income, expenditure incurred to earn that income is allowed as a deduction and thereafter tax is levied on the net income. The purpose behind Section 14A of the Act, by not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit. Once a particular income itself is not to be included in the total income and is exempted from tax, there is no reasonable basis for giving benefit of deduction of the expenditure incurred in earning such an income. For example, income in the form of dividend earned on shares held in a company is not taxable. If a person takes interest bearing loan from the Bank and invests that loan in shares/stocks, dividend earned therefrom is not taxable. Normally, interest paid on the loan would be expenditure incurred for earning dividend income. Such an interest would not be allowed as deduction as it is an expenditure incurred in relation to dividend income which itself is spared from tax net. There is no quarrel up to this extent.

4) However, in these appeals, the question has arisen under varied circumstances where the shares/stocks were purchased of a company for the purpose of gaining control over the said company or as ‘stock-in-trade’. However, incidentally income was also generated in the form of dividends as well. (Distinguishing Feature from the present case). On this basis, the assessees contend that the dominant intention for purchasing the share was not to earn dividends income but control of the business in the company in which shares were invested or for the purpose of trading in the shares as a business activity etc. In this backdrop, the issue is as to whether the expenditure incurred can be treated as expenditure ‘in relation to income’ i.e. dividend income which does not form part of the total income. To put it differently, is the dominant or main object would be a relevant consideration in determining as to whether expenditure incurred is ‘in relation to’ the dividend income. In most of the appeals, including in Civil Appeal Nos. 104-109 of 2015, aforesaid is the scenario. Though, in some other cases, there may be little difference in fact situation. However, all these cases pertain to dividend income, whether it was for the purpose of investment in order to retain controlling interest in a company or in group of companies or the dominant purpose was to have it as stock-in-trade.

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40) We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as ‘stock-in-trade’, it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove.”

12. Per contra, learned counsel for the Respondent-Assessee supported the order passed by the learned Tribunal and urged that in the absence of any actual dividend income earned by the Assessee during the year in question, there was no question of any disallowance of Debenture Interest and Finance Charges to be made under Section 14A of the Act, as no expenditure can be said to have been incurred at all in relation to the income, which did not form part of the total income.

13. Having heard the learned counsel for the parties, we are of the clear opinion that there is no merit in this appeal filed by the Revenue and the entire edifice of the argument of Revenue is without any foundation. The Assessing Authority misapplied the provision of Section 14A of the Act, which, in clear terms, stipulates that no deduction can be allowed in respect of expenditure incurred in relation to income, which does not form part of total income under the Act.

14. In view of the clear fact found in the present case that the Assessee did not earn any exempted income or dividend income on the equity shares held by it during this year

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, there was no question of disallowing any part of the Debenture Interest or Finance Charges, since the provisions under Section 14A of the Act were not attracted at all. 15. The facts of the judgments cited at Bar by the learned counsel for the Revenue are totally distinguishable. The Assessee i.e., Maxopp Investment Ltd. invested the borrowed funds in Maxopp India for gaining and retaining the control over the investee company and held the shares in question as a stock-in-trade. No such facts are available in the present case. While dealing with that peculiar situation, the observation was made by the Hon'ble Supreme Court in Paragraph 40, quoted above, that in such cases, where equity shares are purchased as stock-in-trade to gain control over the investee company, whether the dividend is actually declared by the investee company or not, would not make a difference. These contextual observations of Hon'ble Supreme Court in the case of Maxopp India, are, therefore, of little help to the Revenue in the present case. 16. On the contrary, the controversy in hand before us is squarely covered by the two decisions cited above of the Coordinate Benches of this Court and one of which has been affirmed by the Hon'ble Supreme Court itself with dismissal of the SLP, after the aforesaid decision in the case of Maxopp India was rendered. 17. Therefore, we are of the considered opinion that the appeal filed by the Revenue deserves to be dismissed and the substantial question of law framed above for our consideration deserves to be answered in favour of the Assessee and against the Revenue. 18. This appeal of the Revenue is, accordingly, dismissed. There shall be no order as to costs.
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