2018 (6) TMI 212 - AT - Income Tax

Addition u/s 14A - Disallowance of direct expenses paid for paid towards security transaction tax in relation to exempt dividend income - Applicability of Section 14A with regard to dividend income on which tax is paid u/s 115-O - Held that - The dividend income had been assessed to tax at lower rate u/s 115-O - following the judgement in case of GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VERSUS DY. COMMISSIONER OF INCOME-TAX & ANR. 2017 (5) TMI 403 - SUPREME COURT OF INDIA it is held that Section 14A of the Act would operate to disallow deduction of all expenditure incurred in earning the dividend income u/s 115-O which is not includible in the total income of the assessee. Addition u/s 14A r.w.r. 8D - Held that - Assessee had derived interest income of ₹ 1.12 crores as against interest expenditure of ₹ 64.10 lakhs - following the decision of Gujarat high court s decision in DCIT vs. Nirma Credit and Capital Pvt Ltd. 2018 (4) TMI 872 - ITAT AHMEDABAD - we hold that that such a disallowance is not sustainable in case of net surplus interest income based on netting method - thus not sustainable. Administrative expenditure disallowance u/s.14A - Held that - Taken as average value of opening and closing value of investments leads to administrative expenditure disallowance of ₹ 1,76,352/- only as against that of ₹ 2,17,750/- taken in the course of assessment. We therefore modify the instant disallowance figure to ₹ 1,76,352/- only. Rent received as treated as income from house property than from other sources - Held that - Relevant rent agreement has been correctly appreciated in the course of lower appellate proceedings - receipts as rent stand accepted as rent income in preceding assessment years - thus CIT(A) has rightly held the assessee s rent sums of ₹ 147,27,864/- as income from house property - Decided in favor of assessee.

Summary

Issues:

1. Disallowance under Section 14A r.w Rule 8D of the Income Tax Act, 1961.
2. Treatment of rental income as income from house property or other sources.

Issue 1: Disallowance under Section 14A r.w Rule 8D of the Income Tax Act, 1961:

The Revenue's appeal challenged the disallowance of ?14,04,497 related to the assessee's exempt dividend income of ?4,69,052 for the assessment year 2012-13. The CIT(A) held that Section 14A would not apply as the dividends had already been subjected to Dividend Distribution Tax u/s 115-O. The Revenue contended that this exclusion was erroneous, citing a Supreme Court decision in a similar case. The tribunal upheld the Revenue's argument partially, modifying the disallowance amount to ?1,92,609.

Issue 2: Treatment of rental income as income from house property or other sources:

The Revenue challenged the CIT(A)'s decision to treat the amount of ?1,47,27,864 as income from house property instead of other sources. The Revenue argued that the property should be in the assessee's ownership to be considered income from house property. However, the tribunal found that the rental income was correctly categorized as income from house property based on the agreement and past assessments. The Revenue's appeal was dismissed, and the assessee's cross objections were rendered infructuous.

In conclusion, the tribunal partly allowed the Revenue's appeal and dismissed the assessee's cross objections in the case involving disallowance under Section 14A and the treatment of rental income. The judgment provided detailed analysis and reasoning for each issue, ensuring a comprehensive understanding of the decision.