TMI Blog2019 (1) TMI 1723X X X X Extracts X X X X X X X X Extracts X X X X ..... ot attracted at all. - Decided in favour of assessee - T. C. A. No. 567 of 2008 - - - Dated:- 23-1-2019 - Dr. Vineet Kothari And Dr. Ms. Anita Sumanth JJ. For the appellant : T. Ravikumar , Senior Standing Counsel For the respondent : N. V. Balaji JUDGMENT DR. VINEET KOTHARI J. - 1. The Revenue has filed this appeal under section 260A of the Income-tax Act, 1961 in short, the Act , aggrieved by the order passed by the learned Income-tax Appellate Tribunal, dated October 23, 2007, passed in I. T. A. No. 525/Mds/2006, for the assessment year 2002-03. 2. The substantial question of law, on which the present appeal was admitted by a Co-ordinate Bench of this court on July 7, 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 bor rowed for investment in shares, even when the income earned from the equity shares does not form part of the 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 includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 14A of the Act, was completely con trary 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 cir cumstance by taking recourse to rule 8D. 10.3 According to us, rule 8D, only provides for a method to deter mine the amount of expenditure incurred in relation to income, which does not form part of the total income of the assessee. 10.4 Rule 8D, in our view, cannot go beyond what is provided in section 14A 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] 392 ITR 633 (Mad) ; [2017] 77 tax mann.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 December 23, 2016, rejected the plea of the Revenue advanced in that behalf. 11.2 As a matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt 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 provisions 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 per cent. of the expenditure. The assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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. 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 inten tion for purchasing the share was not to earn dividend 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 con sideration in determining as to whether expenditure incurred is 'in relation to' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 pro fits. 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 here inabove. 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 the Revenue is without any foundation. The assessing authority misapplied the provisions of section 14A of the Act, which, in clear terms, stipulates that no deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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