2021 (11) TMI 918 - AT - Income Tax

Correct head of income - income arising out of shares - business income or income from capital gains - HELD THAT - In this case the assessee has purchased shares of Induslnd Bank on 18.12.2009 and sold the same on 23.03.2011. The holding period of the shares is more than 12 months and only single activity carried by the assessee. In the balance sheet also it has shown as an investment. In view of the above facts, we are of the opinion that the activity carried by the assessee cannot be treated as a business activity. As laid down in the CBDT circular No. 4/2007, the substantial nature of transactions and the manner of maintaining books of accounts plays an important role in determining the nature of transaction. Also, as depicted by the Circular No. 06/2016, in the present case, the appellant has treated the shares as investment and not as stock-in-trade and there are no fine grounds to say that the appellant is a dealer in shares and not an investor especially when the sale of shares was a single solitary transaction - Decided against revenue. Disallowance u/s. 14A - assessee has disallowed an amount suo-moto as expenses attributable to the earning of the exempt dividend income - HELD THAT - We find that the Ld. CIT(A) only directed the A.O. to verify entire investments and exclude investments which has no exempt income yielded and direct the A.O. to re-compute disallowance of Rule 8D(2)(iii) of the Rules r/w s. 14A of the Act. Hence, we find no infirmity in the order passed by the Ld. CIT(A). Disallowance of Board meeting expenditure - assessee has conducted a Board meeting at Chennai on various dates and has incurred the above expenditure towards travelling, boarding, lodging, credit card expenditure AND that the assessee's registered office is situated in Delhi, there is no purpose of holding the Board meeting in Chennai - CIT-A deleted the addition - HELD THAT - We find that when the assessee is having subsidiary and associated offices in Chennai and some of the Directors are staying at Chennai, it is a business convenience of the assessee to conduct the Board meeting. The A.O. cannot decide where the assessee has to conduct the Board meeting. In view of the above, we are of the opinion that the Ld. CIT(A) rightly deleted the addition. Disallowance of car hire charges - case of the A.O. is that the assessee has taken a Honda Civic car on rent which is registered in Chennai and the assessee is having no business connection in Chennai therefore, the above expenditure incurred by the assessee is not a business purpose it is only personal purpose - HELD THAT - We find that when the assessee is having a subsidiary companies in Chennai and some of the Directors are residing at Chennai and the assessee has hired a car for his Directors for the purpose of business, it cannot be said that it is a personal in nature therefore, the Ld. CIT(A) rightly deleted the addition made by the A.O. By considering the above order passed by the Ld. CIT(A), we find no infirmity in the order passed by the Ld. CIT(A). Revenue appeal dismissed.

Summary

Issues Involved:
1. Nature of income arising from shares - business income or capital gains?
2. Disallowance u/s. 14A of the Act.
3. Disallowance of Board meeting expenditure.
4. Disallowance of car hire charges.

Detailed Analysis:

Nature of Income from Shares:
The appeal addressed whether income from shares should be classified as business income or capital gains. The assessee purchased shares on 18.12.2009 and sold them on 23.03.2011, holding them for more than 12 months. The A.O. treated the transactions as business income based on past treatment, contested by the assessee. The Ld. CIT(A) ruled in favor of the assessee, considering the shares as investments. The Tribunal upheld this decision, emphasizing the single transaction and holding period, concluding it was not a business activity.

Disallowance u/s. 14A of the Act:
The A.O. disallowed expenses related to exempt dividend income under s. 14A, invoking Rule 8D(2)(iii). The Ld. CIT(A) partially allowed the appeal, directing the A.O. to re-compute disallowance by excluding investments not yielding exempt income. The Tribunal found no fault in this decision, supporting the exclusion of non-exempt income investments from the disallowance calculation.

Disallowance of Board Meeting Expenditure:
The A.O. disallowed Board meeting expenditure as personal, conducted in Chennai despite the registered office in Delhi. The Ld. CIT(A) overturned this decision, noting the business convenience due to subsidiary and associated offices in Chennai. The Tribunal upheld this ruling, emphasizing the assessee's prerogative to decide the meeting location based on business needs.

Disallowance of Car Hire Charges:
The A.O. disallowed car hire charges as personal, incurred for business purposes in Chennai. The Ld. CIT(A) reversed this decision, considering the business nature of the expenditure. The Tribunal supported this decision, highlighting the business purpose of hiring cars for Directors and the presence of subsidiary companies in Chennai.

In conclusion, the Tribunal dismissed all grounds of appeal raised by the Revenue, upholding the decisions of the Ld. CIT(A) on various issues, including the nature of income from shares, disallowance u/s. 14A, Board meeting expenditure, and car hire charges.