2014 (3) TMI 1030 - HC - Income Tax

Disallowance u/s 14A - Held that - Substantial questions of law as proposed and formulated are concluded by the Judgment of this Court in the case Godrej and Boyce Mfg. Co. Ltd. Vs. Deputy Commissioner of Income Tax and another 2010 (8) TMI 77 - BOMBAY HIGH COURT held that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1) - The company is chargeable to tax on its profits as a distinct taxable entity and it pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis - The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid - The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution - the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record.

Summary

Issues:

1. Interpretation of substantial questions of law proposed and formulated.
2. Application of Tribunal's judgment in the assessee's own case for the assessment year 2005-2006.
3. Determination of whether the Tribunal committed any error of law in following its own order.

Analysis:

1. The High Court, comprising S.C. Dharmadhikari and G.S. Kulkarni, JJ., after hearing both sides, found that the substantial questions of law proposed and formulated were already addressed in a previous judgment titled "Godrej and Boyce Mfg. Co. Ltd. Vs. Deputy Commissioner of Income Tax and another" reported in "(2010) 328 ITR 81 (Bom)." The Court concluded that these questions were settled by the aforementioned judgment.

2. Regarding the substantial question of law formulated in paragraph 4(C), the Court observed that the Tribunal had applied the judgment and order in the assessee's own case for the assessment year 2005-2006. The Tribunal's consistent view, as reproduced in the paper book, did not indicate any error of law in following its own order and applying the same principle to the current assessment year. The Court noted that the Tribunal's exercise in this case did not give rise to a substantial question of law.

3. Consequently, the Court determined that there was no need to entertain the appeal, and therefore, the appeal was rejected. The judgment highlighted the Tribunal's application of the same principle in the current assessment year as in the previous year for the same assessee, emphasizing the absence of any legal error in the Tribunal's decision-making process.