2018 (12) TMI 60 - HC - Income Tax

Addition of forfeiture of warrants u/s 28(iv) - Held that - On a plain reading of Section 28 (iv) of the Income Tax Act, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke this provision, the benefit which is received has to be in some other form rather than in the shape of money. If that is because of the remission loan liability as in this case, then, this section would not be attracted. - Decided in favour of the Assessee and against the Revenue Addition u/s 14A - Held that - Revenue may be correct in pointing out that in the context of present case which concerns the assessment year 2009-10, Rule 8D was already brought in the statute. However, a pre-condition to applicability to Rule 8D is that as per Sub-section 2 of Section 14A, the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of the expenditure in relation to income which does not form part of the total income under the Act. When we find that consistently it is a finding of the fact in case of assessee over a period of time that the assessee had own sufficient funds for making investments in shares, the disallowance of interest expenditure under Section 14A. Tax Appeal dismissed.

Summary

Issues:
1. Deletion of addition of forfeiture of warrants under section 28(iv) of the Income Tax Act.
2. Recomputation of average investments based on CIT(A)'s order for certain assessment years.
3. Disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1961.

Issue 1: Deletion of addition of forfeiture of warrants under section 28(iv) of the Income Tax Act:
The High Court analyzed the Tribunal's decision in the context of remission of loan liability and referred to the Supreme Court's judgment in Commissioner v/s Mahindra and Maindra Limited. The Supreme Court clarified that for Section 28(iv) to apply, the income taxed must arise from business or profession and the benefit received must be in a form other than money. If the benefit is due to the remission of loan liability, the section does not apply. The Court concluded that the issue was in favor of the Assessee based on the Supreme Court's judgment, dismissing the appeal by the Revenue.

Issue 2: Recomputation of average investments based on CIT(A)'s order for certain assessment years:
The second issue involved the disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1961. The Assessing Officer disallowed expenditure related to investments yielding tax-free dividends. The Tribunal directed the Assessing Officer to restrict the disallowance based on earlier assessments where it was found that no interest-bearing funds were used for tax-free income investments. The Revenue argued that Rule 8D was applicable for the assessment year in question and the Tribunal erred in ignoring it. However, the Court noted that the investment in shares was made from the Assessee's own funds, as consistently found in earlier assessments, making the disallowance under Section 14A unwarranted.

Conclusion:
The High Court dismissed the appeal by the Revenue, stating that the issues raised did not present substantial questions of law. The Court upheld the Tribunal's decisions based on the facts that the Assessee had sufficient own funds for investments in shares and that the remission of loan liability did not fall under the purview of Section 28(iv) of the Income Tax Act.