2019 (1) TMI 1330 - AT - Income Tax

Correct Head of income - Treating the long term capital gain shown from sale of land as business income - Held that - This issue becomes a binding judicial precedent and no contrary view can be taken in this year. Moreover when in all the years, the assessee has been showing the land which is in dispute as a part of fixed assets which stood accepted year after year as an investment / fixed assets, then sale of such land will only give rise to capital gain chargeable u/s 45(2). Thus, the order of the AO and CIT (A) in treating it as a business income is reversed and the assessee s claim for taxability of such gain on sale of land under the head capital gain is affirmed. In the result, ground raised by the assessee on this score is allowed. Addition u/s 40(a)(ia) on account of non deduction of TDS on guarantee commission paid to Bank - Held that - On perusal of the CBDT Circular No. 56/2012 it is seen that CBDT has clarified that no TDS is required to be deducted on bank guarantee Commission, etc. Such a circular was brought to reduce the hardship and the compliance cost of the assessee. Once a benevolent circular has been issued to remove the hardship for the assessee then it cannot he held that any such payment made prior to the said circular which was causing hardship to the assessee should continue. It is a well settled proposition that CBDT Circular removing the hardship in favour of the assessee has to be treated as retrospective and accordingly, we hold that no disallowance u/s 40(a)(ia) can be made for non deduction of TDS. In the result this issue is decided in favour of the assessee. Disallowance u/s 14A - Held that - Admittedly there is no dividend on exempt income earned by the assessee and accordingly no disallowance u/s 14A can be made in view of the issue in the case of Cheminvest vs. ITO. 2015 (9) TMI 238 - DELHI HIGH COURT wherein as held that once there is no exempt income earned by the assessee, then no disallowance u/s 14A can be triggered. Accordingly, in view of the binding judicial precedent in the case of Cheminvest Ltd. (SUPRA), we hold that in absence of any exempt income earned by the assessee, no disallowance can be made u/s 14A. Thus, this issue is allowed in favour of the assessee.

Summary

Issues Involved:
1. Treating the long-term capital gain from the sale of land as business income.
2. Addition under Section 40(a)(ia) for non-deduction of TDS on guarantee commission paid to the bank.
3. Disallowance of expenses under Section 14A.

Detailed Analysis:

1. Treating the Long-Term Capital Gain from Sale of Land as Business Income:
The assessee, a private limited company, reported a long-term capital gain of ?117,67,97,883/- from the sale of land. The Assessing Officer (AO) reclassified this gain as business income, arguing that the assessee was engaged in real estate business and had sought a development license for the land, indicating a business intent. The CIT(A) upheld this view, noting continuous transactions of land purchase and sale, and the main business objective of the assessee being real estate development.

However, the Tribunal found that the assessee consistently treated the land as a capital asset in its books from AY 2006-07 onwards, with no development activity or business expenditure claimed on it. The Tribunal's earlier decision, upheld by the Delhi High Court, confirmed the land was a capital asset, and gains from its sale should be treated as long-term capital gains, not business income. The Tribunal reiterated that the nature of the asset as a capital asset did not change despite the assessee's business objectives or any development agreements entered into for other lands.

2. Addition under Section 40(a)(ia) for Non-Deduction of TDS on Guarantee Commission Paid to the Bank:
The AO disallowed ?4,05,970/- under Section 40(a)(ia) for non-deduction of TDS on bank guarantee commission, referencing CBDT Circular No. 56/2012, which clarified that no TDS was required on such payments from January 1, 2013. The CIT(A) upheld this disallowance.

The Tribunal, however, noted that the CBDT circular was intended to reduce compliance costs and hardships for taxpayers. It held that such benevolent circulars should be applied retrospectively to alleviate past hardships, thus ruling that no disallowance under Section 40(a)(ia) should be made for non-deduction of TDS on bank guarantee commission.

3. Disallowance of Expenses under Section 14A:
The AO disallowed ?40,55,600/- under Section 14A, which pertains to expenses incurred in relation to income not includible in total income. The CIT(A) confirmed this disallowance.

The Tribunal referenced the Delhi High Court's judgment in Cheminvest vs. ITO, which established that no disallowance under Section 14A can be made if no exempt income is earned during the year. Given that the assessee did not earn any exempt income, the Tribunal ruled that no disallowance under Section 14A was warranted.

Conclusion:
The Tribunal allowed the appeal of the assessee on all counts, ruling that the gain from the sale of land should be treated as long-term capital gains, no disallowance should be made under Section 40(a)(ia) for non-deduction of TDS on bank guarantee commission, and no disallowance under Section 14A should be made in the absence of exempt income. The order was pronounced in the open court on January 21, 2019.