9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (4) TMI 652 - HC - Income TaxDisallowance u/s 14A r.w.r. 8D - investment in the form of share application money by the company would only result in exempt income - HELD THAT - As decided in M/S.QUEST GLOBAL ENGINEERING SERVICES PVT. LTD. 2021 (3) TMI 434 - KARNATAKA HIGH COURT only expenses proportionate to earning of exempt income could be disallowed under Section 14A of the Act and the decision of MAXOPP INVESTMENT LTD 2018 (3) TMI 805 - SUPREME COURT is an authority for the aforesaid proposition that the provision is relatable to earning of actual income. The object of Section 14A is to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. It is also clarified by us that while recording the conclusion in KINGFISHER FINVEST LTD. 2020 (10) TMI 518 - KARNATAKA HIGH COURT that disallowance under Section 14A has to be made even taxpayer has not earned any exempt income, this court has misread the ratio of the decision of the Supreme Court in MAXOPP INVESTMENT LTD supra and therefore, the aforesaid view being contrary to the law laid down by the Supreme Court is not a binding precedent. - Decided in favour of assessee.
Issues:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Interpretation of the provisions of Section 14A read with Rule 8D(2)(iii). 3. Applicability of Section 14A in cases where no exempt income has been earned. 4. The impact of the judgment in THE COMMISSIONER OF INCOME TAX, BANGALORE & OTHERS VS QUEST GLOBAL ENGINEERING SERVICES PVT. LTD. Issue 1: Disallowance under Section 14A of the Income Tax Act, 1961 The case involved an appeal arising from an order passed by the Income Tax Appellate Tribunal (ITAT) regarding disallowance under Section 14A of the Income Tax Act, 1961. The respondent company, owned by the Government of Karnataka, had declared nil income for the assessment year 2011-12. The Assessing Officer re-computed the disallowance under Section 14A for a specific amount, which was later deleted by the Commissioner of Income Tax (Appeals) (CITA). The ITAT upheld the decision of the CITA, leading to the appeal before the High Court. Issue 2: Interpretation of the provisions of Section 14A read with Rule 8D(2)(iii) The High Court admitted the appeal based on the substantial question of law regarding the correctness of setting aside the addition to the total income of the assessee under Section 14A read with Rule 8D(2)(iii). The question revolved around whether the Tribunal was correct in law in setting aside the addition without appreciating that the provision of Section 14A would apply due to the investment in the form of share application money by the company. Issue 3: Applicability of Section 14A in cases where no exempt income has been earned The respondent's counsel referred to a previous judgment regarding the applicability of Section 14A in cases where no exempt income had been earned. The Division Bench of the High Court had previously held that disallowance under Section 14A had to be made even when the taxpayer had not earned any exempt income. However, the High Court clarified that since no exempt income had accrued to the assessee in this case, the provisions of Section 14A did not apply. Issue 4: Impact of the judgment in THE COMMISSIONER OF INCOME TAX, BANGALORE & OTHERS VS QUEST GLOBAL ENGINEERING SERVICES PVT. LTD. The judgment in THE COMMISSIONER OF INCOME TAX, BANGALORE & OTHERS VS QUEST GLOBAL ENGINEERING SERVICES PVT. LTD. was cited to support the contention that the question of law raised in the present appeal had already been answered in a previous case. The High Court dismissed the present appeal based on the decision in the cited case, which had addressed a similar question of law related to the carry forward of loss on derivatives contracts. In conclusion, the High Court upheld the decision of the ITAT and dismissed the appeal, answering the substantial question of law in favor of the assessee and against the revenue. The judgment provided clarity on the interpretation and applicability of Section 14A of the Income Tax Act, particularly in cases where no exempt income had been earned, based on previous judicial precedents and legal principles.
|
