2014 (10) TMI 653 - AT - Income Tax

Addition of various incomes deleted - Income from Business Service Centre, letting out services like communication, couriers, provision of electricity, air- conditioning and DC sets are assessable under the head income from other sources in connection with the letting out of business services centre Held that - As decided in assessee s own case for the earlier assessment year, it has been rightly held that it is a case wherein income from lease of premises has to be segregated from the income from services and only income from lease should be assessed as income from house property against which only standard announce of 30% should be allowed - The other receipts should be assessed as income from other sources and expenditure incurred on the provision of such services should he allowed as per sec.57 after verification - This proposal was accepted even by the assessee - the incomes should be assessed separate as income from house property and service charges collected to be assessed separately as income from business and profession after allowing expenditure incurred against provision of such services after verification of the same. Accordingly this ground is partly allowed - this ground of appeal is partly allowed as a part of the service charges collected is to be considered as Income from Business and Profession / Income from Other Sources thus, the order of the CIT(A) is to be upheld - Decided against revenue. Non-deduction of TDS on commission paid to directors u/s 40(a)(ia) Requirement u/s 194H fulfilled or not Held that - The tax deducted at source was deposited before the due date of filing the return under section 139(1) of the Income Tax Act following the decision in CIT vs. Rajinder Kumar 2013 (7) TMI 454 - DELHI HIGH COURT the proviso to section 40(a)(ia) as amended by the Finance Act, 2010 are free from any ambiguity and doubt and clearly support the view that the expression said due date in clause (A) to the proviso to unamended section refers to the time specified in section 139(1) of the Act - the amendment vide Finance Act, 2010 as a remedial and therefore the payment of tax deducted at source before the due date of return of income u/s 139(1) is sufficient compliance of provisions of section 40(a)(ia) and no disallowance of the expenditure can be made the order of the CIT(A) is upheld Decided against revenue. Disallowance u/s 14A read with Rule 8D Held that - Out of total investment of ₹ 59.22 crore, the investment to the extent of ₹ 33.80 crore is in the subsidiaries of the assessee - even in the subsidiaries of the assessee the investment of ₹ 32.80 crore has been made in CG International BV which is a foreign company and the dividend on such investment is not tax free as per the provisions of section 10 - the provisions of section 14A are not attracted to the extent of the investment in the foreign company the AO is directed to exclude the investment made in the foreign company for the purpose of disallowance under section 14A. Sufficiency of funds - Whether the assessee had sufficient funds for the investment which generates the tax free income Held that - Out of the total investment of ₹ 59.22 crore during the year an investment of ₹ 32.80 crore is in the foreign company and therefore after excluding the investment the investment during the year generating the tax free income comes to ₹ 26.42 crore only - there is an increase in the assessee s own fund to the tune of ₹ 300 crore and at the same time there is a decrease in the loan funds during the year to the tune of ₹ 228 crore. Therefore, even if its presumed that out of the ₹ 300 crore increase in the assessee s own fund a sum of ₹ 228 crore is used for repayment of the loan during the year, still the assessee would have a sum of ₹ 72 crore available for investment - Since the investment in the domestic companies is only to the extent of ₹ 26.42 crore during the year, the assessee s own fund is more than sufficient to meet the investment during the year - no disallowance u/s 14A is called for on account of interest expenditure when the assessee s own fund is more than sufficient for the investment generating tax free income. Administrative expenses Held that - For taking an investment decision a high level thought process is required and therefore when the assessee has made investment during the year the provisions of section 14A are applicable on account of administrative expenses - out of the total investment of ₹ 59.22 crore a sum of ₹ 33.80 crore has been invested in the subsidiary companies, therefore for the purpose of disallowance under section 14A by applying rule 8D the investment made in the subsidiaries and in the foreign company shall be excluded - The apportionment of the administrative expenses can be made only by considering the investment in the domestic companies other than the subsidiary company the AO is directed to re- compute the disallowance under section 14A in respect of the administrative expenses by excluding the investment in the subsidiaries and in the foreign companies Decided partly in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made on account of income from Business Service Centre.
2. Non-deduction of TDS on commission paid to directors under section 40(a)(ia).
3. Disallowance under section 14A of the Income Tax Act.

Issue-wise Analysis:

1. Deletion of Addition Made on Account of Income from Business Service Centre:

The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 2,05,94,938/- made by the AO, treating income from the Business Service Centre as income from house property rather than business income. The Tribunal noted that this issue had been previously adjudicated in the assessee's favor for the assessment years 2002-03 to 2007-08. The CIT(A) followed the Tribunal's earlier decision, which distinguished the case from the Supreme Court's decision in Shambhu Investments Pvt. Ltd. v/s. CIT. The Tribunal upheld the CIT(A)'s order, directing the AO to segregate income from the lease of premises (to be assessed as income from house property) and service charges (to be assessed as income from business and profession after verification).

2. Non-Deduction of TDS on Commission Paid to Directors Under Section 40(a)(ia):

The AO disallowed Rs. 3,20,80,000/- being commission payable to directors, as TDS was paid after the end of the year. The CIT(A) deleted this disallowance, relying on the Kolkata High Court decision in Virgin Creators and other Tribunal decisions, which treated the amendment by the Finance Act, 2010 as retrospective. The Tribunal upheld the CIT(A)'s order, citing the Delhi High Court's decision in CIT vs. Rajinder Kumar, which clarified that compliance with TDS provisions by the due date of filing the return under section 139(1) is sufficient, thus no disallowance under section 40(a)(ia) was warranted.

3. Disallowance Under Section 14A of the Income Tax Act:

The assessee challenged the disallowance of Rs. 13,800,000/- under section 14A read with Rule 8D, arguing that no expenditure was incurred for earning exempt income and that the calculation was furnished under the AO's direction. The AO made the disallowance based on the working provided by the assessee. The CIT(A) confirmed the disallowance, noting that the assessee's own funds were sufficient for the investments generating tax-free income. The Tribunal directed the AO to exclude investments in foreign subsidiaries and re-compute the disallowance for administrative expenses, considering only investments in domestic companies other than subsidiaries.

Conclusion:

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, upholding the CIT(A)'s decisions on the treatment of income from the Business Service Centre and the deletion of disallowance under section 40(a)(ia). For the disallowance under section 14A, the Tribunal directed a re-computation, excluding investments in subsidiaries and foreign companies.