TMI Blog2019 (11) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... the total exempt income earned during the year is ₹ 22,01,928/- as per note 10 attached to the profit and loss statement for the year ended 31st March, 2014 and share dividend account placed at page 42 of the paper book. We consider that Hon ble Delhi High Court in the case of Joint Investment Pvt. Ltd. Vs. CIT [ 2015 (3) TMI 155 - DELHI HIGH COURT] held that disallowance u/s. 14A cannot exceed the actual exempt income - we restrict the impugned disallowance to the extent of income of ₹ 2,21,928/- , therefore, appeal of the Revenue is partly allowed. - ITA No. 2289/Ahd/2017 - - - Dated:- 1-10-2019 - Shri Mahavir Prasad, Judicial Member And Shri Amarjit Singh, Accountant Member For the Assessee : Shri S.N. Divetia Shri Mehul Talera, A.Rs. For the Revenue : Shri L.P. Jain, Sr. D.R. ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- This revenue s appeal for A.Y. 2014-15, arises from order of the CIT(A)-1, Ahmedabad dated 30-08-2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The solitary ground of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 14A is sustainable stating that the assessee company has acquired shares for the purpose of liquidating those shares whenever the share price goes up in order to earn profit. The ld. authorized representative has also placed reliance on the decision of Hon ble High Court of Punjab Haryana in the case of Principal Commissioner of Income Tax vs. State Bank of Patiala and decision of Hon ble Supreme Court in the case of Maxopp Investment Ltd. We have also gone through paper book filed by the ld. counsel comprising submission made before the ld. CIT(A) and copies of audited accounts of the assessee company. It is undisputed fact that assessee company was engaged in the business of trading in shares and securities as demonstrated from the schedule 9 to the profit and loss account statement for the year ended 31st March, 2014 placed in the paper book. At page 43 of the paper book, the assessee has also placed copy of decision of the Hon ble High Court of Karnataka in the case of CCI Ltd. 20 taxmann.com 196 (Karnataka). We have perused the decision of Hon ble High Court of Karnataka in CCI Ltd. vs. Jt.CIT 20 taxmann.com 196 (Kar) wherein it is held that when assessee had not retaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income. 33. There is no quarrel in assigning this meaning to section 14A of the Act. In fact, all the High Courts, whether it is the Delhi High Court on the one hand or the Punjab and Haryana High Court on the other hand, have agreed in providing this interpretation to section 14A of the Act. The entire dispute is as to what interpretation is to be given to the words 'in relation to' in the given scenario, viz. where the dividend income on the shares is earned, though the dominant purpose for subscribing in those shares of the investee company was not to earn dividend. We have two scenarios in these sets of appeals. In one group of cases the main purpose for investing in shares was to gain control over the investee company. Other cases are those where the shares of investee company were held by the assessees as stock-in-trade (i.e. as a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both taxable and non-taxable income, the entire expenditure in respect of said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. The principle of apportionment was made available only where the business was divisible. It is to find a cure to the aforesaid problem that the Legislature has not only inserted Section 14A by the Finance (Amendment) Act, 2001 but also made it retrospective, i.e., 1962 when the Income Tax Act itself came into force. The aforesaid intent was expressed loudly and clearly in the Memorandum explaining the provisions of the Finance Bill, 2001. We, thus, agree with the view taken by the Delhi High Court, and are not inclined to accept the opinion of Punjab Haryana High Court which went by dominant purpose theory. The aforesaid reasoning would be applicable in cases where shares are held as investment in the investee company, may be for the purpose of having controlling interest therein. On that reasoning, appeals of Maxopp Investment Limited as well as similar cases where shares were purchased by the assessees to have controlling interest in the investee companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as 'stock-intrade and not as 'investment'. We proceed to discuss this aspect hereinafter. 39 In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock-in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share Stock Brokers (P.) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO. 42. Civil Appeal No. 1423 of 2015 is filed by M/s. Avon Cycles Limited, Ludhiana, wherein the AO had invoked section 14A of the Act read with Rule 8D of the Rules and apportioned the expenditure. The CIT(A) had set aside the disallowance, which view was upturned by the ITAT in the following words: After considering the decision of the Hon ble Supreme Court in the Maxopp case as cited above, it is clear that the principle of apportionment of the expenditure was applicable and the expenditure apportioned to the exempt income or income not e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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