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2021 (8) TMI 666 - HC - Income TaxAddition u/s 14A - Whether no exempt income was earned by the assessee? - HELD THAT - We note of the decision of the Hon'ble Supreme Court in the case of CIT vs. Chettinad Logistice (P.) Ltd., 2018 (7) TMI 567 - SC ORDER wherein, the decision of the High Court holding that Section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year was affirmed. The decision in the case of Redington (India) Ltd. vs. Additional Commissioner of Income-tax 2017 (1) TMI 318 - MADRAS HIGH COURT would also come to the aid and assistance of the assessee. - Decided in favour of the assessee
Issues:
1. Interpretation of Section 14A of the Income Tax Act, 1961 regarding the disallowance of expenditure. 2. Application of Section 10(33) of the Act on income from investments in shares. 3. Relevance of Section 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962 in cases of strategic investments. 4. Applicability of amended provisions of Rule 8D of Income Tax Rules, 1962 in computing disallowance under Section 14A. Issue 1: Interpretation of Section 14A - Disallowance of Expenditure The High Court analyzed whether the Income Tax Appellate Tribunal was correct in holding that the claim of expenditure by the appellant is subject to disallowance under Section 14A of the Income Tax Act, 1961. The Court referred to previous judgments and emphasized the principle of preventing claims for deduction of expenditure in relation to income not forming part of the total income. It highlighted the need for the Assessing Officer to determine the expenditure incurred by the assessee in relation to non-taxable income, following a prescribed method if not satisfied with the assessee's claim. The Court upheld the Tribunal's decision, dismissing the appeal filed by the revenue. Issue 2: Application of Section 10(33) on Income from Shares The Court examined whether income from investments in shares would be exempt under Section 10(33) of the Act and cannot be computed under the head "income from other sources." It discussed the relevance of exempt income and the need to disallow expenditure related to such income. The Court upheld the Tribunal's decision in favor of the assessee, emphasizing the correct application of the legal provisions. Issue 3: Relevance of Section 14A in Strategic Investments The Court considered whether Section 14A of the Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962 would apply even if no expenditure was incurred in connection with strategic investments made in the group concern from own source of funds in previous years not relevant to the assessment year. The Court reiterated the importance of disallowing expenses related to income not forming part of the total income. It upheld the Tribunal's decision against the revenue, emphasizing the objective basis for determining expenditure in relation to non-taxable income. Issue 4: Applicability of Amended Rule 8D in Disallowance Calculation The Court examined whether the Tribunal was correct in not applying the amended provisions of Rule 8D of Income Tax Rules, 1962 in computing disallowance under Section 14A. It discussed the procedural aspects and principles guiding the determination of expenditure related to exempt income. The Court upheld the Tribunal's decision in favor of the assessee, emphasizing the correct application of the law and relevant legal precedents. In conclusion, the High Court's judgment addressed various issues related to the interpretation and application of provisions under the Income Tax Act, 1961. It provided detailed analyses of each issue, citing legal principles and previous judgments to support its conclusions. The Court consistently upheld the Tribunal's decisions, emphasizing the importance of correctly applying the law to determine the disallowance of expenditure and the treatment of income from investments in shares and strategic investments.
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