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15.05.2017 - Voice of CA presents - Updates
Monday, May 15, 2017

  I. Headlines Today:   

  1. DT Notification: Under section 139AA of IT Act - Central Government notifies the provisions shall not apply to an individual who does not possess the Aadhaar number or the Enrolment ID  (Click for detail)
  2. Income tax department launches facility to correct errors in PAN, Aadhaar  (Click for detail)
  3. Aadhaar PAN linkage gets ´ likes´, but data leak big overhang  (Click for detail)
  4. Request for stakeholders comments on Draft Income Computation and Disclosure Standards on Real Estate Transactions  (Click for detail)
  5. Government to oppose RBI's proposal of new cash tool  (Click for detail)
  6. ITAT intends to revise its Rules; releases draft version of new rules for public comments  (Click for detail)
  7. GST panel works out rates for 6,000 items  (Click for detail)
  8. I-T scanner on end-beneficiary details of P-notes  (Click for detail)
  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

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.

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

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.

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)

Golden Rules:

  "Success is a tasty dish.
Patience, intelligence, knowledge & experience are its Ingredients.
But Hard Work is that little Salt that makes it Delicious"


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