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2013 (7) TMI 18 - AT - Income TaxDeduction u/s. 80IA - non granting of deduction stating that the approval from Ministry of Commerce & Industry under the Industrial Park Scheme and subsequent notification in this regard by CBDT has not been received by the assessee - Held that - As at the time of making initial application by the assessee to DIPP there was no scheme under Industrial Policy Scheme, 2002. A new scheme was framed and gazetted only on 8th January 2008 and this scheme has been implemented with effect from 1st April 2006. Being so, it cannot be held that the 2002 scheme continued to be in operation till 8th January, 2008. Being so, the assessee cannot take advantage or benefit u/s. 80IA(4)(iii). A new scheme was framed on 8th January 2008 and made applicable with effect from 1st April, 2006. Thus the assessee is not duly approved by the competent authority for availing benefit of deduction u/s. 80IA(4) which is mandatory in nature. Mere moving an application to the Central Government for being notified under clause (iii) of section 80IA(4) on 8th January, 2007 to the Secretary, DIP & P, Ministry of Commerce & Industry, New Delhi cannot confer the benefit when the 2002 scheme was not in operation and not applicable. The benefit u/s. 80IA(4)(iii) could be availed by the assessee only after the approval by the DIPP under the scheme. Accordingly, the assessee cannot claim deduction u/s. 80IA(4). Against assessee. Disallowance towards interest expenditure u/s 14A - Held that - There is no necessity for using the borrowed funds for investment in sister concerns. However, there is no finding that any investments in sister concerns have been made in this assessment year out of borrowed funds on which interest is payable by the assessee. Unless there is a finding that interest is directly related to the diverted funds to the sister concerns, we are not in a position to hold that interest incurred by the assessee is for non-business purposes. Thus it cannot be held that interest incurred by the assessee is for nonbusiness purposes. Therefore, the provisions contained in Rule 8D(2)(ii) cannot be made applicable. If the assessee diverted any interest bearing funds to the sister concern then it is business taken by the assessee to make such an investment and even if it is resulted no income to the interest, notional interest cannot be disallowed on the reason that the assessee should have used its non-interest bearing funds for the purpose of its own business purposes instead of using borrowed funds for its business. The Assessing Officer cannot sit in the armchair of businessman and decide what the assessee has to do to maximise his profits. In favour of assessee. Treatment of income from relinquishment of right in the property - business income v/s capital gain - Held that - The word transfer is inclusive of definition which inter alia provides 6 situations under which there can be transfer in relation to the capital asset. Relinquishment of any rights in the capital asset is one of the situation enumerated in section 2(47). The word relinquishment denotes that relinquishment should be only in the case of capital asset with reference to the word transfer has been defined. The right of the assessee over the landed property which was part and parcel of the business undertaking of the assessee is a capital asset. The moment assessee losses the right attached to a part of the business undertaking of the assessee there is relinquishment of right over the said property. The relinquishment of assets or extinguishment of any right in it which may not amount to a sale can also be considered as a transfer. Therefore, do not agree with the findings of the CIT(A) that there is no transfer u/s. 45 and the assessee has done only business transaction. Thus the income accrued to the assessee out of relinquishment of right over the property is to be chargeable u/s. 45 and computation of capital gain has to be done in accordance with section 48. In favour of assessee.
Issues Involved:
1. Non-granting of deduction under section 80IA. 2. Disallowance of interest expenditure under section 14A. 3. Treatment of income from relinquishment of right in the property as business income instead of long-term capital gain. Issue-wise Detailed Analysis: 1. Non-granting of Deduction under Section 80IA: The primary issue revolves around the non-granting of the deduction under section 80IA due to the absence of approval from the Ministry of Commerce & Industry under the Industrial Park Scheme and subsequent notification by the CBDT. The assessee claimed a deduction of Rs. 9,90,34,561 under section 80IA for developing an IT Park. The application for approval was made on 8th January 2007, during a period when the applicable scheme had lapsed (ended on 31.3.2006). The new scheme was notified on 8.1.2008 but applied retrospectively from 1.4.2006. The assessee's application was returned, and the delay was attributed to procedural delays by government authorities. The Assessing Officer disallowed the deduction, and the CIT(A) upheld this decision, noting that the approval from the Ministry of Commerce & Industry and subsequent notification by the CBDT is a sine qua non for claiming any deduction under section 80IA. The Tribunal agreed, stating that mere submission of the application does not entitle the assessee to the deduction without the necessary approvals. 2. Disallowance of Interest Expenditure under Section 14A: The next issue concerns the disallowance of Rs. 22,65,906 towards interest expenditure incurred by the assessee company by invoking the provisions of section 14A of the Act. The assessee had made substantial investments in subsidiary companies but did not offer any income from these investments while incurring significant interest liability on borrowed funds. The Assessing Officer, relying on the judgment of the Kerala High Court in CIT vs. V.I. Baby & Co., disallowed the proportionate interest. However, the Tribunal found that there was no clear finding that borrowed funds were used for making investments in the subsidiaries. The Tribunal emphasized that unless there is a clear nexus between the borrowed funds and the investments, the disallowance of notional interest is not justified. The Tribunal allowed the ground in favor of the assessee, citing the Supreme Court judgment in SA Builders and other relevant case laws. 3. Treatment of Income from Relinquishment of Right in Property: The third issue pertains to treating the income from relinquishment of right in the property amounting to Rs. 17,46,79,200 as business income instead of long-term capital gain. The assessee entered into an MOU for purchasing land and later relinquished its rights for a substantial sum, which it offered as long-term capital gain. The Assessing Officer treated this as business income, and the CIT(A) confirmed this view. The Tribunal, however, examined the intention behind acquiring the asset and the nature of the right relinquished. It held that the right to obtain conveyance of immovable property is a capital asset under section 2(14) and that relinquishment of such a right constitutes a transfer under section 2(47). The Tribunal concluded that the income from relinquishment should be treated as capital gain, not business income, and directed the Assessing Officer to compute the income under the head of capital gain. Conclusion: The Tribunal partially allowed the appeal, granting relief to the assessee on the issues of interest expenditure disallowance and the treatment of income from relinquishment of property rights, while upholding the denial of deduction under section 80IA due to lack of necessary approvals.
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