TMI Blog2022 (12) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee would be eligible for deduction u/s 80G of the Act from the Gross Total Income subject to the restrictions provided in that relevant section. Disallowance u/s 14A both under normal provisions of the Act as well as in the computation of book profits u/s 115JB - HELD THAT:- We find that the investments made in subsidiary companies for the purpose of holding dominant control over the same or for the purpose of strategic investments would also have to be considered for the purpose of working out the disallowance u/s 14A of the Act in the light of decisionin the case of Maxopp Investments [ 2018 (3) TMI 805 - SUPREME COURT] The same could be considered only in respect of those investments which had actually yielded exempt income to the assessee company during the year under consideration. Obviously, the foreign dividend income which is chargeable to tax would be outside the purview of application of provisions of section 14A. CIT(A) had merely directed the ld. AO to exclude the investments which had yielded taxable income and to include only those investments which had actually yielded exempt income. This issue is now very well settled by the decision of Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, earned from investments which are made with a view to exercise control and accordingly constituting business activity of the assessee. 2.1. We have heard the rival submissions and perused the materials available on record. At the outset, we deem it fit to admit the additional ground raised by the assessee vide letter dated 24/06/2021 as it is purely a legal issue not requiring any verification of facts and all the facts necessary for adjudicating the said additional ground are already on record of the lower authorities. 2.2. The assessee company is engaged in the business of providing business investment and finance and promotion of new companies in various fields to their customers. The ld. AO noted that the assessee company had received an amount of Rs 132,40,04,883/- as dividend from M/s Apex Investments (Mauritius) Holding Private Ltd ( a 100% foreign subsidiary of assessee company herein). The ld. AO further noted that in the computation of income, the assessee had set off current year business loss amounting to Rs 51,74,40,547/- against the aforesaid foreign dividend income . The assessee company claimed deduction under Chapter VIA of the Act amounting to Rs 1,27,24, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a special provision has been inserted by way of section 115BBD due to which resort cannot be made to provisions of set off of losses as per I. T. Act, 1961 because set off of losses are general provisions. g. With regard to claim of deduction Chapter VI-A, i.e. u/sec 80G, the section itself expressly provides in sub section (2) of section 115BBD that Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends referred to in sub-section (1) . Therefore No deduction is available under this section by way of any expenditure or allowance. 2.3. By making the aforesaid observations, the ld. AO concluded that the foreign dividend income is to be taxed at the rate of 15% on gross basis u/s 115BBD of the Act without allowing any set off of losses and deduction u/s 80G of the Act. Accordingly, the set off of current year business loss amounting to Rs 51,70,40,547/- and deduction u/s 80G of the Act amounting to Rs 1,27,24,300/- against the foreign dividend income was denied by the ld. AO. 2.4. The assessee reiterated its submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... biguous reading of the provisions of section 115BBD of the Act makes it clear that only after determination of total income as per the provisions of the Act, the remaining foreign dividend income included in the said total income would be taxed at the rate of 15% and remaining income (other than foreign dividend income) would be taxed at normal rate of tax. This could be better understood by the following examples:- If the total income is Rs 100, out of which foreign dividend income is Rs 30, then the tax payable by the assessee would be as under:- Tax @ 15% on Rs 30 being foreign dividend income 4.50 Tax @ 30% on remaining total income of Rs 70 Other than foreign dividend income - 21.00 Total Tax Payable 25.50 On the contrary, if there is a business loss of Rs 100 after considering foreign dividend income of Rs 30, then the total income would be Rs Nil. In this case, foreign dividend cannot be taxed on gross basis at the rate of 15% u/s 115BBD of the Act as the total income itself was Rs Nil. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question before us is whether the principle, which is applicable to the managing agency companies, can be applied to a company, which is carrying on the business of holding investments. As we have already seen, the decisions of the Supreme Court required a nexus between the business of the assessee and the expenditure that has been incurred. The business of the assessee is the holding of investments. If with reference to this business of the holding of investments any expenditure had been incurred, that would have been allowed as deduction. The business of holding investment and the businesses of the subsidiary companies are wholly separate and distinct. The expenditure that has been incurred in the present case cannot be said to be in carrying on the assessee's business of holding its investment. It could hold its investments and earn its dividends without incurring this expenditure. Before the introduction of the restrictive provision in the Companies Act of 1956, the respective companies were paying the directors for services rendered to them and they are now remunerated by the assessee. There was no change in the rendering of services. Merely because the law had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular year under one of the heads mentioned in section 6 of the 1922 Act against the profits under a different head in the same year, subsection (2) provides for the carrying forward of the loss of one year and setting off of the same against the profits or gains of the assessee from the same business in the subsequent year or years. The crucial words, therefore, are 'profits and gains of the assessee from the same business', i.e., the business in regard to which he sustained loss in the previous year. The question, therefore, was whether the securities formed part of the trading assets of the business and the income there from was income from the business. The answer to this question depended upon the scope of section 6 of the 1922 Act. The scheme of the Act is that income-tax is one tax. Section 6 of the 1922 Act only classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. Though for the purpose of computation of the income, interest on securities is separately classified, income by way of interest from securities does not cease to be part of the income from business if the securities are part of the tradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to business income. In other words, the dividend income received by such person is in reality his business income. Chennai Tribunal had given a finding that the assessee is engaged in promotion and development of new undertaking in the State and for the purpose, held shares in a number of joint undertakings for which the dividend income was received. Accordingly it held that the dividend income would form part of business of the assessee and accordingly taxable under the head income from business , although the same is assessable under the head income from other sources by virtue of specific provision contained in section 56(2)(i) of the Act. . Accordingly, it had held that assessee would be entitled to set-off of brought forward business loss and unabsorbed depreciation of earlier years against the said dividend income. f) Mumbai Tribunal in the case of Tata Motors Ltd vs DCIT in ITA No. 3424/Mum/2019 for A.Y. 2013-14 dated 06/03/2020. In this case, it was held- 7. Considered the rival contentions and the material placed on record, we notice from the record that the assessment was completed u/s 143(3) r.w.s. 144C of the Act and assessee has submitted all the informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act i.e. first to compute the total income based on the Chapter-IV and then apply the Chapter-VI and VIA in order to compare the aggregation and set off of losses. After determining the taxable income by applying the above Chapters and if still there is profit, then such taxable profit has to be taxed according to the prevailing rates as per the various applicable provisions of the Act. Since assessee is having substantial loss and as per the provision of Chapter-VI, the taxable income has to be adjusted first before applying any other provisions contained in the Act particularly when there is no specific provision contained in section 115BBD wherein to impose restriction on carrying forward any loss similar to provision contained in section 115BBE and section 115BBDA. Therefore, we do not see any reason to treat this assessment as erroneous nor it is passed by erroneous interpretation of facts or law. Accordingly, the order passed u/s 263 of the Act by Ld. CIT is not as per provisions contained therein or as per the jurisdictional precedence. Hence, it is set aside. Resultantly, the grounds raised by the assessee are allowed. 2.9. We find that the non-obstante cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent; and (b) the amount of income-tax with which the assessee, would have been chargeable had its total income been reduced by the aforesaid income by way of dividends. (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance, shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends referred to in sub-section (1). (3) In this section,- (i) dividends shall have the same meaning as is given to dividend in clause (22) of section 2 but shall not include sub clause (e) thereof; (ii) specified foreign company means a foreign company in which the Indian company holds twenty-six per cent or more in nominal value of the equity share capital of the company. 35. The above section clearly provides that where the total income of the assessee includes income by way of dividend declared, distributed or paid by a specified foreign company, then such dividend income shall be subject to tax at 15% (plus applicable surcharge, and cess) and balance part of the total income, that is, as reduced by foreign dividend income would be subjected to tax at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is any foreign dividend income, the same shall be taken into account while computing the total income and if there is a loss, then the same shall be set off in accordance with section 71 of the Act. 39. On the contrary, there is another section 115BBDA, which deals with dividend received from domestic companies. In this section there is a specific restriction not only for allowance of expenditure deduction in respect of any expenditure or allowance but also restriction on set off of loss. For the sake of ready reference, section 115BBDA is reproduced as under:- 115BBDA. (1) Notwithstanding anything contained in this Act, where the total income of (a specified assessee) resident in India, includes any income in aggregate exceeding ten lakh rupees, by way of dividends declared, distributed or paid by a domestic company or companies (on or before the 31st day of March 2020), the income tax payable shall be the aggregate of a) the amount of income tax calculated on the income by way of such dividends in aggregate exceeding ten lakh rupees, at the rate of ten per cent and b) the amount of income tax with which the assessee would have been chargeable had the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver Legislature has intended not to allow deduction or set off of loss, it has been clearly provided in the statute and wherever only restriction is for not allowing the deduction in respect of any expenditure or allowance, then same has to be confined to the language given in the statute and nothing can be inferred or read into to import any other restriction in the said provision, i.e., the set off of loss should also be read into. Section 115BBD is similar to section 115BBF, which is tax on income on patent and there only restriction provided in sub section (2) is with regard to non-allowability of non-deduction in respect of any expenditure or allowance. No amendment has been brought in section 115BBD in sub section (2) as was brought in sub section (2) of section 115BBE w.e.f. 01.04.2017. 42. Further, whenever income is proposed to be taxed on gross basis at a specified rates without grant of any deduction towards expenditure allowance or any set off of loss, then it is expressly provided in statute which in the case of foreign dividend income u/s 115BBD, no such restriction has been provided for not allowing the set off of loss, albeit the only restriction is for allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed . (Emphasis supplied by us) 2.11. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that a) assessee would be entitled for set off of current year loss with the foreign dividend income; b) assessee would be entitled for set off of brought forward business losses and unabsorbed depreciation of earlier years with the foreign dividend income ; and c) assessee would be eligible for deduction u/s 80G of the Act from the Gross Total Income subject to the restrictions provided in that relevant section. 2.12. Accordingly, the grounds raised by the assessee and the additional ground raised by the assessee are allowed. ITA No. 421/Mum/2020 Revenue Appeal Asst Year 2016-17 3. The only issue to be decided in this appeal is with regard to the disallowance u/s 14A of the Act both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. 3.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee company received dividend income from subsidiaries and others amounting to Rs 118. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40(SC). However, the same could be considered only in respect of those investments which had actually yielded exempt income to the assessee company during the year under consideration. Obviously, the foreign dividend income which is chargeable to tax would be outside the purview of application of provisions of section 14A of the Act. We find that the ld. CIT(A) had merely directed the ld. AO to exclude the investments which had yielded taxable income and to include only those investments which had actually yielded exempt income. This issue is now very well settled by the decision of Hon ble Supreme Court in the case of Maxopp referred to supra. Hence we do not find any infirmity in the order of the ld. CIT(A) giving directions to ld. AO to recompute the disallowance under normal provisions of the Act. 3.6. However, with regard to computation of book profits u/s 115JB of the Act, computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in clause f of Explanation 1 to section 115JB(2) of the Act as has been held by the Special Bench of Delhi Tribunal in the case of Vireet Investments reported in 165 ITD 27. However, the actual expenses incurred by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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