TMI Blog2017 (5) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gain (on the sale of shares) and dividend income (during the currency of the investment), both taxexempt, it matters little whether the investment is in shares of a ‘group’ or an ‘outside’ company. No business purpose of the impugned investment, as also noted in the context of disallowance u/s. 36(1)(iii), has been advanced by the assessee at any stage, claiming, rather, the investment to be ‘strategic’ (refer para 3 of this order). Why, where for a business purpose, the expenditure disallowed, which is on interest as well as indirect, administrative expenditure, would stand to be allowed u/s.36(1)(iii) or, as the case may be, sec.37(1) itself, so that the question of disallowance under section 14A does not arise. We find no merit in the assessee’s case and, accordingly, confirm the impugned disallowance. In working the disallowance of interest expenditure, however, only the expenditure net of that disallowed u/s. 36(1)(iii) would be taken into account, else it would amount to a double disallowance, also taking care to exclude – so as to maintain proper basis, the corresponding assets. That is, the entire interest considered for allowance or, as the case may be, disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision by the tribunal in Suryavanshi Holdings Ltd. vs. Dy. CIT (in ITA No.1175/Hyd/2009), reproducing the operative part thereof in his order. In further appeal before us, the assessee relies on the decision in CIT v. S.A. Builders Ltd. 288 ITR 1 (SC). 3. We have heard the parties, and perused the material on record. The law in the matter is well-settled, and if the borrowed capital is, to any extent, employed for non-business purposes, proportionate disallowance of interest shall follow. The case law in the matter is legion, and for which we may, if only for the sake of completeness of this order, refer to the decision by the Hon ble jurisdictional High Court, though rendered in a different set of facts, in K. Somasundaram Bros. v. CIT [1999] 238 ITR 939 (Mad). Again, as is well-settled, the burden of proof to establish it s claim of non-diversion of borrowed capital, so that it stands employed wholly, throughout the relevant previous year, for business purposes, is on the assessee in-as-much as the onus to prove its return, and the claims preferred thereby, is only thereon (CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC); CIT v. R. Venakataswamy Naidu [1956] 29 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the disallowance, so that, aggrieved, the assessee is in second appeal. 5. Before us, the assessee relied on the decision in the case of Rane Holdings Ltd. v. Asst. CIT (in ITA No.115/Mds/2015 dated 06/1/2016/copy on record), and the decision in Cheminvest Ltd. v. CIT [2015] 378 ITR 33 (Del). 6. We have heard the parties, and perused the material on record. The decisions relied upon clarify that the AO may proceed to make disallowance under section 14A only upon being not satisfied with the correctness of the assessee s claim with regard to expenditure, if any, incurred in relation to income not forming part of the total income under the Act. The law in the matter is unambiguously clear, and for which we may reproduce the section itself, as under: Expenditure incurred in relation to income not includible in total income. 14A. (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. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue, is that the investment is in group companies, so that s.14A would not apply to the expenditure incurred in relation thereto. This aspect stands considered recently by the tribunal in Voltech Engineers P. Ltd. v. Dy. CIT (in ITA Nos. 1765 1801/Mds/2016 dtd. 20/2/2017) with reference to the decisions by the higher courts of law as well as by the tribunal, including by the larger benches thereof. It stands clarified that the nature or the character of the shareholding is not relevant, and what is of relevance is the income taxable or tax-exempt, that arises or may arise there-from (inasmuch as income normally arises only subsequent to the expenditure). Where, as in the present case, it is on a long term basis, so that it would result in long-term capital gain (on the sale of shares) and dividend income (during the currency of the investment), both taxexempt, it matters little whether the investment is in shares of a group or an outside company. No business purpose of the impugned investment, as also noted in the context of disallowance u/s. 36(1)(iii), has been advanced by the assessee at any stage, claiming, rather, the investment to be strategic (refer para 3 of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on Clean Development Mechanism (CDM) receipt by the assessee in respect of it s two power generating units. CDM or carbon credit , as it is popularly referred to, is received under a market mechanism for generating power through non conventional sources, involving non-emission of carbon. The source of the receipt being a scheme for incentivizing the same, the AO, following Liberty India v. CIT [2009] 317 ITR 218 and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC), was of the view that the relationship between the activity of power generation and carbon credit is not direct or immediate, so as to be regarded as derived from the same. The ld. CIT(A), in appeal, following the decision by the Chennai Bench of the Tribunal in Ambika Cotton Mills Ltd. v. Dy. CIT (in ITA No.1836/Mds/2012 dated 16.04.2013/copy on record), opined the same to be a capital receipt, so that there is no question of it qualifying for deduction u/s. 80-IA. Aggrieved, the assessee is in second appeal. 8. We have heard the parties, and perused the material on record. At the very outset we observe the dichotomy attending the impugned order qua this issue, sought to be projected by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 579 (SC) et. al.), or is secondary. The receipt is on account of an international arrangement, called Kyoto Protocol (to which India is a signatory), whereby processes involving low (with reference to the existing emission levels in the relevant sector) or non-emission of carbon, which has an adverse impact on the environment, is sought to be promoted by granting what is called carbon credit . The units emitting carbon are, correspondingly, required to purchase, at a cost, carbon credits, to compensate for the carbon emitted, polluting the environment. This mechanism, by thus according preference to clean forms of generating power (or generally doing business), ensures that the overall carbon content in the environment does not increase, if not actually decrease. The acquisition of carbon credit by such carbon emitting units is certainly a cost to their businesses, while the receipt, being incidental to their business for the non emitting units, assumes the character of income. The relationship of first degree, though, is with the arrangement (protocol) for encouraging employment of technologies that involve low or non-emission of carbon. Reference in this regard be made to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer: Emil Webber v. CIT [1993] 200 ITR 483 (SC) and CIT v. G.R.Karthikeyan [1993] 201 ITR 866 (SC)). Accretion to (the existing stock of) capital, is, as afore-noted, income, by definition. It is only where it is to compensate for the depletion or exhaustion of a capital asset that the receipt shall have or be imbued with the character of a capital receipt. Why, depreciation, granted by way of a statutory allowance, is again only to compensate a business in respect of such erosion in value of a capital asset on account of its user and/or obsolescence, so that the business receipt cannot, to that extent, be termed as income. We may next advert to the decision in Ambica Cotton Mills Ltd. v. CIT (in ITA No.1836/Mds/2012 dated 16.04.2013), relied upon by the assessee. The same stands rendered following the decision in My Home Power Ltd. v. Dy. CIT [2012] 27 taxmann.com 27 (Trib-Hyd.), the operative part (paras 24,25) of which stands extracted by the tribunal at para 9 of its order, before concluding (at para 26, also reproduced) of the carbon credit being a capital receipt, whereafter it records it s finding as under: Taking cue from the same, we also hold that the CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur reference to loom-hours, as well as our decision, rendered, relying on the later decision by the larger bench of the Hon'ble Apex Court, wherein it explains and distinguishes its earlier decision in Maheswari Devi Jute Mills Ltd. (supra). Again, the tribunal holds that the transferable carbon credit is not an incident of the business, but a credit for reducing emissions. In-as-much as the said credit arises to the assessee s business on account of undertaking it in a particular manner, the nexus with the business or business conduct cannot be denied. How then, we wonder, with respect, the tribunal records it as not a part of the receipt of the business but a capital receipt, further stating that the asset generated is not of the business but due to environmental concerns. Indeed, the protocol arises only to address the environmental concerns, as it was to regulate the overall production in the case of loom-hours, but the credit to the assessee arises only on account of it s business. Why, in the subsequent para (# 25), tribunal refers to the Guidance Note on accounting for self-generated Certified Emission Reductions (CERs) issued by the Institute of Chartered Accountants ..... X X X X Extracts X X X X X X X X Extracts X X X X
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