2020 (10) TMI 1211 - HC - Income Tax

Disallowance u/s 14A read with Rule 8D - whether there is no exempt income received even if the investments have been made in the subsidiary company of the Assessee? - HELD THAT - Tribunal found that the investments were made in by their assessee and this cannot be construed that investment is made for earning exempt income. Tribunal rightly held that the provisions of Section 14A of the Act would not stand attracted. Therefore the order passed by the Tribunal requires to be confirmed.- Decided in favour of assessee. Section 43A Applicability - Assessee is acquiring the assets in India and in consequence of loan taken in Indian currency for acquisition of such asset which was converted into foreign currency loan increasing the liability as expressed in Indian Currency - HELD THAT - Tribunal decided the said position against the Revenue in the assessee s own case 2020 (10) TMI 1164 - MADRAS HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 14A read with Rule 8D regarding exempt income and investments in subsidiary companies.
2. Application of Section 43A in cases of asset acquisition and loan conversion.

Analysis:

Issue 1:
The appeal filed by the Revenue under Section 260 A of the Income Tax Act, 1961 challenged the order passed by the Income Tax Appellate Tribunal for the Assessment Year 2013-14. The Revenue raised Substantial Questions of Law regarding the applicability of Section 14A read with Rule 8D when there is no exempt income received despite investments in the assessee's subsidiary company. The Tribunal held in favor of the assessee, citing that investments in wholly owned subsidiary companies are made for business purposes, not for earning exempt income. The Tribunal referred to a previous judgment by the Madras High Court which stated that without exempt income, disallowance under Section 14A cannot be justified. The Tribunal confirmed the order, dismissing the Revenue's appeal.

Issue 2:
Regarding the application of Section 43A, the Tribunal granted depreciation relief in favor of the assessee, which was challenged by the Revenue. The Tribunal's decision was upheld in favor of the assessee, leading to the dismissal of the Revenue's appeal. The Court highlighted that the Tribunal rightly held that the provisions of Section 14A would not be attracted in the case at hand. The Court also referenced a previous judgment in the assessee's own case where the Second Substantial Question of Law was decided against the Revenue. Consequently, the Tax Case Appeal was dismissed, and the Substantial Questions of Law were answered against the Revenue, with no costs awarded.

In conclusion, the judgment delved into the interpretation of tax laws concerning exempt income, investments in subsidiary companies, and asset acquisition with loan conversion. The Court provided a detailed analysis of each issue, citing relevant legal provisions and precedents to support its decision in favor of the assessee and against the Revenue.