2017 (2) TMI 1005 - HC - Income Tax

Addition on 14A - Tribunal setting aside the issue of interest expenses to the file of the Assessing Officer and deleting the other expenses towards earning exempt income - Held that - No fault can be found with the impugned order of the Tribunal holding that the Assessing Officer should show fallacies in the computation of disallowance done by the respondent assessee. Thus, there is no reason to discard the disallowance done by the respondent assessee. Nevertheless, the impugned order of the Tribunal has restored the issue of disallowance of interest to the Assessing Officer to determine the extent of its tax free investments out of own funds and out of borrowed funds. So far as the claim with regard to the disallowance made in respect of the other expenditure (other than interest which has been restored to the Assessing Officer to find out the source of funds in the investment made), the impugned order has held it to be reasonable and calling for no further disallowance. This finding of the Tribunal is a finding of fact and the same has not been shown to us to be perverse in any manner. In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. Appeal is admitted on question nos. (i), (ii), (iv) and (v). (i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the sales tax exemption benefit for the A.Y. 2008-09 is a capital receipt not liable to income tax? (ii) Whether the respondent assessee is eligible for deduction under Section 80IA of the Income Tax Act by urging that the Rail system is not a profit center but a cost saving exercise undertaken in terms of subsection (4) of Section 80IA? (iv) Whether on the facts and circumstances of the case, the Tribunal was justified correct in law, in setting aside the issue of allowability of ESOP expenses to the file of the Assessing Officer for fresh consideration in the light of the findings of the Special Bench of the Hon ble Tribunal in the case of Biocon Ltd. Vs. DCIT 2014 (12) TMI 838 - ITAT BANGALORE ? (v) Whether on the facts and circumstances of the case, the Tribunal was correct in law, in holding that the receipt from Certified Emission Reduction (CER) generated out of capital projects registered with United Nations Framework Conversation of Climate Change (UNFCCC), amounting to ₹ 7.64 crore, was a capital receipt ?

Issues:
1. Sales tax exemption benefit as a capital receipt for A.Y. 2008-09.
2. Eligibility of respondent assessee for deduction under Section 80IA.
3. Disallowance of interest and other expenses for earning exempt income.
4. Allowability of ESOP expenses.
5. Characterization of receipt from Certified Emission Reduction (CER) as a capital receipt.

Analysis:

Issue 1: Sales tax exemption benefit as a capital receipt for A.Y. 2008-09
The Tribunal held that the sales tax exemption benefit for the Assessment Year 2008-09 is a capital receipt not liable to income tax. The Revenue challenged this decision, questioning the justification of the Tribunal's ruling. This issue revolves around the classification of the sales tax exemption benefit and its tax implications as a capital receipt.

Issue 2: Eligibility of respondent assessee for deduction under Section 80IA
The question raised was whether the respondent assessee is eligible for deduction under Section 80IA of the Income Tax Act by arguing that the Rail system is a cost-saving exercise and not a profit center. This issue involves interpreting the provisions of Section 80IA and determining the eligibility criteria for claiming deductions under this section.

Issue 3: Disallowance of interest and other expenses for earning exempt income
The Tribunal partly allowed the respondent assessee's appeal regarding the disallowance made by the Assessing Officer under Section 14A of the Act. The dispute arose from the disallowance of expenditure incurred to earn exempt income, with the Assessing Officer applying Rule 8D of the Income Tax Rules to determine the disallowance amount. The Tribunal restored the issue of disallowance of interest to the Assessing Officer for further examination and upheld the disallowance of other expenses, finding no further disallowance necessary.

Issue 4: Allowability of ESOP expenses
The Tribunal set aside the issue of the allowability of ESOP expenses to the Assessing Officer for fresh consideration based on the findings of a Special Bench of the Tribunal in a specific case. This issue involves determining the treatment of ESOP expenses and whether they are allowable deductions under the Income Tax Act.

Issue 5: Characterization of receipt from Certified Emission Reduction (CER)
The Tribunal held that the receipt from Certified Emission Reduction (CER) generated from capital projects registered with the United Nations Framework Convention of Climate Change (UNFCCC) was a capital receipt. This issue focuses on the characterization of income generated from CER as a capital receipt and its tax implications.

In conclusion, the High Court admitted the appeal on specific questions while upholding the Tribunal's decisions on certain issues. The judgment provides a detailed analysis of each issue raised, addressing the legal aspects and interpretations of the Income Tax Act in the context of the specific facts and circumstances of the case.

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