2019 (11) TMI 411 - AT - Income Tax

Set off of Interest on Income Tax Refund with Interest charged on income tax demands - HELD THAT - As in BANK OF AMERICA NT AND SA. 2014 (12) TMI 551 - BOMBAY HIGH COURT Assessee claimed that this was business expenditure and this should have been allowed. The Assessee has received the interest of ₹ 1,07,57,930/-. It was submitted that the amount of interest paid by the Assessee should have been allowed to be set off against the interest deposited with the Department and taxed in the hands of the Assessee. The argument was that the interest paid to and received from is the same party i.e. Government of India and therefore, both transactions should be taken together. We do not find that the Tribunal has, in permitting this exercise, in any way violated any of the provisions of the Income Tax Act, 1961. It was a peculiar situation between the Assessee and the Department. The Tribunal has followed the similar exercise in the case of very Assessee on the prior occasion as well. Disallowance under section 14A of the Act read with Rule 8D - HELD THAT - AO is directed to recomputed the disallowance u/s 14A of the Act afresh under normal provisions of the Act. Accordingly, the grounds raised by the assessee as well as by the revenue in this regard are allowed for statistical purposes subject to directions mentioned hereinabove. Disallowance u/s 14A while computing the book profits u/s 115JB - HELD THAT - We find that this is a legal issue and goes into the root of the matter and does not involve any verification of facts and hence the same is admitted herein. We find that the Hon‟ble Special Bench of Delhi Tribunal in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI had categorically held that the computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in clause (f) of Explanation 1 to Section 115JB(2) of the Act. We find that the Special Bench further held that only the actual expenses debited to the profit and loss account that are relatable to earning of exempt income should be considered for the said purpose. We direct the ld AO to compute the disallowance in the light of the said Special Bench decision. Accordingly the Additional Ground No.2 A raised by the assessee is allowed for statistical purposes. Treating sale of 2% shares of Tata Consultancy Services Ltd (TCS) as Long Term Capital Gains as against business income taxed by the ld AO - HELD THAT - In view of the aforesaid CBDT circular which is binding on the revenue authorities,we do not find any infirmity in the action of the ld CITA in directing the ld AO to treat the gains on sale of shares to be treated as long term capital gains and consequently grant exemption u/s 10(38) of the Act since STT was duly suffered thereon. Disallowance being the amount of taxes withheld on foreign dividend - HELD THAT - Since the Indian tax applicable to the net foreign dividend amounts to ₹ 47,88,807/- which is in excess of ₹ 15,65,430/-, the assessee should be granted credit for double income tax of ₹ 15,65,430/-. We find that the ld AR had argued that this issue is settled in favour of the assessee in its own case for Asst Year 1995-96 and also by the decision of Hon‟ble Jurisdictional High Court in the case of CIT vs Ambalal Kilachand 1994 (4) TMI 67 - BOMBAY HIGH COURT . Per Contra, the ld DR submitted that for Asst Year 2000-01, the tribunal had decided the same issue against the assessee. But the ld DR did not file the copy of the said tribunal order relied upon by him in the grounds. In the absence of the said order, we do not have any option but to direct the ld AO to decide the impugned issue in the light of tribunal order passed for Asst Year 1995-96

Summary

Issues Involved:
1. Set off of Interest on Income Tax Refund with Interest charged on income tax demands.
2. Disallowance under section 14A of the Act read with Rule 8D of the Rules.
3. Treatment of sale of 2% shares of Tata Consultancy Services Ltd (TCS) as Long Term Capital Gains.
4. Deletion of disallowance of ?15.65 lakhs being the amount of taxes withheld on foreign dividend.

Issue-wise Detailed Analysis:

1. Set off of Interest on Income Tax Refund with Interest charged on income tax demands:
The assessee received interest of ?43.81 crores from the income tax department and paid ?6.57 crores as interest on tax demands. The assessee sought to set off the interest paid against the interest received. The Assessing Officer (AO) disallowed the interest paid, citing section 40(a)(ii) of the Income Tax Act, 1961, and taxed the gross interest received. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this action. However, the Appellate Tribunal referenced the decision of the Hon'ble Jurisdictional High Court in DIT (International Taxation) vs Bank of America NT and SA, which allowed such set-off as it did not result in a loss of revenue. Consequently, the Tribunal allowed the assessee's appeal on this ground.

2. Disallowance under section 14A of the Act read with Rule 8D of the Rules:
The assessee earned a significant amount of dividend income and claimed it as exempt. The AO disallowed expenses under section 14A read with Rule 8D. The CIT(A) directed the AO to recompute the disallowance, considering only the actual expenses related to earning exempt income. The Tribunal, considering various judicial pronouncements, directed the AO to:
a) Consider only investments that yielded exempt income while computing disallowance.
b) Permit netting off interest received with interest paid.
c) Include investments in subsidiaries and other strategic investments, provided they yielded exempt income.
The Tribunal also admitted an additional ground regarding section 14A disallowance while computing book profits under section 115JB, directing the AO to follow the Special Bench decision in Vireet Investments.

3. Treatment of sale of 2% shares of Tata Consultancy Services Ltd (TCS) as Long Term Capital Gains:
The assessee sold 2% shares of TCS, claiming long-term capital gains exempt under section 10(38). The AO treated the gains as business income, arguing that the shares were held for business purposes. The CIT(A) allowed the assessee's claim, referencing the consistent treatment of such gains in previous years and the CBDT Circular No. 6/2016, which supports treating gains from listed shares held for over 12 months as capital gains. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.

4. Deletion of disallowance of ?15.65 lakhs being the amount of taxes withheld on foreign dividend:
The issue involved tax credit for foreign dividend taxed in both India and Switzerland. The CIT(A) allowed the credit, and the Tribunal directed the AO to decide the issue in line with previous tribunal orders and the Hon'ble Jurisdictional High Court's decision in CIT vs Ambalal Kilachand. The Tribunal allowed the revenue's appeal for statistical purposes, directing the AO to re-examine the issue.

Conclusion:
Both appeals by the assessee and the revenue were partly allowed for statistical purposes, with specific directions provided for each issue. The Tribunal's order emphasized adherence to judicial precedents and proper computation methods as per established legal principles.