TMI Blog2018 (7) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity and the investment itself cannot be considered as ‘for the purpose of business’ as there is no business activity at all. Another argument raised by the Ld. Counsel was that the directors are the directors in the SPVs as well and so the business of SPV can be considered as business of assessee. This argument cannot be accepted for the reason that directors can be appointed in any company based on their qualification or association but not because of business connection. If the argument is to be accepted, then, independent directors who are not connected to the promoters but are in various companies, such situation cannot be considered as having business connection with each company, in which they are directors. The argument is rejected. Even though neither party raised the issue, since assessee’s main source of income is only in the nature of dividend, the provisions of Section 14A of the Act may also apply to the facts of the case. Since there is evidence of nexus of borrowing funds being invested in sister concern and assessee sources of income can only be earning dividend income, the entire interest income has to be considered for disallowance u/s. 14A under Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of companies involved in construction, development and operation of domestic/international air ports. Assessee filed its return of income originally admitting total income at NIL. Later, it revised the return of income declaring total loss of ₹ 1,64,12,60,724/- under the normal provisions of the Income Tax Act [Act] and also NIL income computed u/s. 115JB of the Act. In the course of scrutiny assessment, Assessing Officer (AO), after giving due opportunity to assessee, has disallowed the finance costs invoking the provisions of Section 36(1)(iii) and also disallowed other operating costs. AO also did not allow set-off of business loss against the interest income earned. There was one more issue of not granting TDS which is not subject matter of appeal before us. 3. Assessee made detailed submissions before the Ld.CIT(A), which Ld.CIT(A) has extracted but agreed with the AO dismissing the appeal. Hence the present appeal. 4. Assessee has raised the following grounds: 1. On the facts and in the circumstances of the case and in law, the Learned Income Tax Officer Ward 2(2), Hyderabad (Ld.AO) erred in disallowing the finance costs of ₹ 1,64,08,45,837/- resulti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and operation of domestic air ports, one at Mumbai and another at Bangalore through its step down Special Purpose Vehicles [SPVs], Mumbai International Airport Private Limited (MIAPL) and Bangalore International Airport Limited (BIAL). Here these two companies are referred as SPVs (and level-3 companies for the purpose of this order). It is admitted that the interest free advances made by assessee to its sister concerns (level-2) were utilised by such concerns in the following manner: Part of the advances made to M/s.GVKAHPL have been utilised to make additional infusion of capital in MIAPL (level-3 company) which was utilised for its airport business and part of the funds were utilised by M/s. GVKAHPL to acquire additional stake of 13.50% in MIAPL from another existing shareholder. Such transaction enabled M/s.GVKAHPL to acquire controlling interest in MIAPL. Similarly advances made to BAIDPL (level-2) was utilised to acquire stake of 43% in BIAL from the existing shareholder. Such transaction enabled BAIDPL to be shareholders with maximum stake in BIAL thus helping in getting a strategic control over BIAL. Assessee has raised the issue of commercial expediency and eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Assessee relied on the following case law: a. Madhav Prasad Jatia Vs. CIT [10 CTR 375] (SC); b. CIT Vs. Dalmia Cement (Bharat) Ltd., [174 CTR 188](Delhi High Court); c. CIT Vs. Kandagiri spinning Mills Ltd., [298 ITR 306] (Madras High Court); d. S.A. Builders Vs. CIT [288 ITR 1] (SC); e. CIT Vs. Marudhar Chemicals Pharmaceuticals (P) Ltd., [319 ITR 75] ( Punjab Haryana High Court]; f. CIT Vs. Reliance Communication Infrastructure Ltd., [71 DTR 237] (Bombay High Court); g. CIT Vs. Tulip Star Hotels Ltd., [338 ITR 482] (Delhi High Court); h. CIT Vs. Bharti Televenture Limited [51 DTR 98] (Delhi High Court); i. CIT Vs. Modi Entertainment Limited [89 CCH 014] (Delhi High Court); j. M/s. Idea Cellular Limited Vs. Assistant CIT [ITA No. 3261/Mum/2008, dated 11th March, 2015]; k. Hero Cycles (P) Ltd., Vs. CIT [379 ITR 347] (SC); 6.5. Further, assessee also contended that contention of AO that there is no commercial expediency in advancing the funds is also not correct and relied on the case law in the Hon'ble Calcutta High Court in the case of CIT Vs. Kanoria Investments (P.) Ltd., [232 ITR 7] (Cal). It also relied on the principles laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.CIT(A), Ld. Counsel referred to various documents placed in the Paper Book particularly with reference to objects and investment in subsidiaries, their financial statements to submit that various structures of various companies were created for operation purposes but the main promoter assessee is in the business of promoting companies in infrastructure, particularly of development of airports and therefore the interest claim is allowable as business expenditure . He relied on the following decisions: a. Madhav Prasad Jatia Vs. CIT [10 CTR 375] (SC); b. CIT Vs. Dalmia Cement (Bharat) Ltd., [174 CTR 188](Delhi High Court); c. CIT Vs. Kandagiri spinning Mills Ltd., [298 ITR 306] (Madras High Court); d. S.A. Builders Vs. CIT [288 ITR 1] (SC); e. CIT Vs. Marudhar Chemicals Pharmaceuticals (P) Ltd., [319 ITR 75] ( Punjab Haryana High Court]; f. CIT Vs. Reliance Communication Infrastructure Ltd., [71 DTR 237] (Bombay High Court); g. CIT Vs. Tulip Star Hotels Ltd., [338 ITR 482] (Delhi High Court); h. CIT Vs. Bharti Televenture Limited [51 DTR 98] (Delhi High Court); i. CIT Vs. Modi Entertainment Limited [89 CCH 014] (Delhi High Court); j. M/s. Idea C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Industries Ltd., Vs. ITO [181 TTJ 600] (Mumbai-Trib) in the case of Dy. CIT Vs. Enercon India Ltd., (82 taxmann.com 334) (Mumbai-Trib). It was submitted that the expenditure is allowable. 6.10. In reply, Ld.DR reiterated the contentions of the above to submit that there is no commercial expediency. It was further submitted that assessee has only invested in the sister concern and is not in the business of operating airports, therefore, the activity cannot be considered as a business activity. Referring to the Memorandum of Association and main objects, Ld.DR pointed out that assessee has only invested funds as a promoter. It was further submitted that there are no assets worth mentioning at all and there is no depreciation claimed. It was further submitted that the case law relied upon by the assessee does not apply as assessee has invested in sister concerns which are not in business, but in the SPVs which are doing business and there is only a remote investment and not a direct investment and so the principles does not apply. 6.11. In reply, Ld. Counsel submitted that all the assessees are directors on the companies of the other boards and referred to the financial state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponsor, developer, advisor, operator or otherwise by way of equity, preference, debentures, debt or otherwise and to carry on all such acts as are required to participate, float or acquire through bidding or negotiated process for any project either in infrastructure or otherwise . The above objects indicate: i. That assessee is to carry on the business of construction and development of domestic and international airports within or outside India, properties management, operating and maintenance of activities. It is to be admitted that assessee is not doing this business of construction and development of domestic and international airports by itself. The other object is ii. To invest in all kinds of infrastructure companies as promoter, sponsor, developer, advisor, operator or otherwise by way of equity or otherwise and also to carryon such acts as are required to participate, float or acquire through bidding or negotiated process for any project. Thus, the two objects indicate that assessee-company carry on the business on itself [object-1] or to invest in other companies as promoter etc., [object-2]. 6.14. As seen from the activities of assessee, it has only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arise as there is no business activity and the investment itself cannot be considered as for the purpose of business as there is no business activity at all. 6.17. One of the contentions raised is that the business activity of the SPVs is the business activity of assesseecompany. The company has relied on various case law as stated in the submissions before the CIT(A) as well as before us in the arguments. It is to be noted that assessee has not directly invested either in the share capital or as an interest free loan in the SPVs. It has advanced funds to another level-2 sister concerns, which in turn is also not in the activity of construction and development of domestic or international airports. As admitted they are also considered as promoter, sponsor and developer, who invested further funds in acquiring the stake in two SPVs as stated in the facts of the case. Thus, there is a remote connection between assessee s investment in level-2 company and business activity conducted by level-3 company. Most of the case law relied upon by assessee is that those companies are in the business and have also advanced funds to its sister concern as the part of business activity. Here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 23A of Income Tax Act, 1922 and corresponding Section of Section 109 of Income Tax Act, 1961. The Hon'ble Supreme Court while analyzing the issue particularly with reference to that section has this to state : We have now to see what exactly is the meaning of the expression in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments in the main section 23A and the expression in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments in clause (i) of Explanation 2 to section 23A. The Act contains many mind-twisting formulas but section 23A along with some other sections takes the place of pride amongst them. Section 109 of the 1961 Income-tax Act which has taken the place of the old section 23A of the Act is more understandable and less abstruse. But in these appeals we are left with section 23A of the Act. Clause (i) of Explanation 2 to section 23A concerns itself with a company whose business consists wholly or mainly in the dealing in or holding of investments . The word mainly in that clause as well as in the main section 23A must necessarily take its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks and shares. In that case this court was considering whether the dividend income of the assessee-company therein could be considered as business income under section 10 of the Act. Therein this court was not considering the scope of section 23A. But all the same in that case this court proceeded on the basis that no one can make a business of investing. But then section 23A speaks of the business of holding of investments . We were told by the counsel for the assessee that that expression is an incongruous one and that we should, following the decision of this court in Bengal and Assam Investors Ltd. hold that there is nothing like a business of holding of investments . We feel unable to accede to that contention. We cannot say that the legislature did not know its own mind when it used that expression in Section 23A. We must give some reasonable meaning to that expression. No part of a provision of a statute can be just ignored by saying that the legislature enacted the same not knowing what it was saying. We must assume that the legislature deliberately used that expression and it intended to convey some meaning thereby. The expression business is a well-known expression in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come is only in the nature of dividend, the provisions of Section 14A of the Act may also apply to the facts of the case. Since there is evidence of nexus of borrowing funds being invested in sister concern and assessee sources of income can only be earning dividend income, the entire interest income has to be considered for disallowance u/s. 14A under Rule 8D2(i)/(ii) for the impugned assessment year. Since the direct nexus is available for investment in share capital of sister concern or further investment in level-3 SPVs, the direct nexus of the borrowed funds to that of investment certainly attract the provisions of Section 14A and on that reason also the deduction claimed by assessee cannot be allowed. For these reasons, we agree with the orders of AO and CIT(A) on this issue. Ground is dismissed. Ground No. 2: 7. This ground is with reference to allowance of operating cost of ₹ 1,17,09,534/-. This issue is also linked to the above issue and since we have taken the decision about the nature of activity the expenditure per se can not be allowed as business expenditure. Since assessee is not considered to be in the business of construction of airports per se o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against the interest income is bad-in-law. Without prejudice to the above, even if it is assumed that the assessee has not commenced its business operations, the action of the Ld. AO to not allow the set-off of business loss against the interest income on the contention that assessee not commenced its business operations is not warranted, since, u/s. 3 of the Act, the date of setting-up of business is relevant and not the commencement date for claiming deduction of business expenditure. Reliance in this regard can be placed on the following judicial precedents: Western India Vegetable Products Ltd Vs. CIT (l954) [26 ITR 151] (Bombay High Court). The Hon'ble High Court held that there is a distinction between a person commencing a business and a person setting up a business and for the purpose of the Act, the 'setting-up' of business has to be considered. Similar views were also held in the following case laws: - CIT Vs. LG Electronics (India) Limited (2005) (2006) [282 ITR 545] (Delhi High Court); - CIT Vs. Hughes Escorts Communication Limited (2009) [311 ITR 253] (Delhi High Court); - CIT Vs. Samsung India Electronics Limited (2013) [356 ITR 354] ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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