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2022 (9) TMI 1598 - AT - Income TaxCorrect head of income - income from sale of shares - STCG or business income - HELD THAT - We take respectful cognizance of the judgement of the Hon ble Supreme Court in the case of Raja Bahadur Kamakhya Narain Singh 1969 (9) TMI 2 - SUPREME COURT which was also vehemently relied on by the ld. Counsel of the assessee, wherein it was held by the Hon ble Apex Court that the magnitude of sale and purchase of shares is a determinant in treating an income as business income or capital gains income. We may again point out that the AO as well as the CIT(A) in the respective assessment and first appellate order, considered the facts and circumstances in which the assessee undertaken the impugned transaction and, thereafter, held that the magnitude of transaction and surrounding circumstances clearly shows that it is a business income and not short-term capital gain. Therefore, AO was right in treating the income accrued to the assessee as business income and the ld.CIT(A) was also justified in upholding the findings arrived at by the AO on this issue. Disallowance u/s 14A applying the provisions of Rule 8D - HELD THAT - As in Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI wherein it was held that only those investments are to be considered for computing the average value of investment under rule 8D(2)(iii) of the Rules, which yielded exempt income during the year. Therefore, we are unable to see any reason to interfere with the findings arrived at by the FAA on this issue in partly allowing the claim of the assessee in accordance with the judgement of the ITAT Special Bench (supra). Accordingly, ground No. 3 of the assessee is dismissed. TDS u/s 195 - non deduction of TDS on expenses incurred abroad on account of supervision charges at discharge port and expenses incurred abroad on professional and consultancy fees - HELD THAT - CIT-DR even though vehemently supported the orders of the authorities below, but, did not controvert that the Finance Act, 2010 got assent of the President of India on 08.05.2010, much later that the date when the assessee had made payments to these parties. On behalf of the Revenue, no contrary decision or order has been shown or placed before this Bench which could lead us take a different view. Therefore, we hold that the aforementioned amendment does not create any liability against the assessee as the legal position prevailing at the relevant time, i.e., during FY 2009-10 has to be considered when the payment was made by the assessee to the non-resident party. Accordingly, we hold that the assessee was not liable for deduction of tax u/s 195 of the Act and since the assessee was not liable at that time to deduct the tax, the disallowance u/s 40(a)(ia) of the Act cannot be made. Nature of expenses - contribution given to an school for construction of building - addition made by holding that it is in the nature of capital expenditure - HELD THAT - We are of the considered view that it is not the case of the AO or the ld.CIT(A) that the assessee has made any bogus or false claim or the assessee has acquired any capital asset by incurring the impugned expenses towards construction of school building and renovation of two temples in the vicinity of the assessee s mining and business activity area. So far as the conclusion of the authorities below regarding contribution towards school building is concerned, when the assessee has not acquired any capital asset and the expenditure has been made to create and build a cordial relation between the villagers residing around the mining area and business activity area of the assessee, then, in view of the order of M/s Prime Mineral Exports Pvt. Ld. 2013 (8) TMI 961 - ITAT PANAJI such expenditure has to be allowed as revenue expenditure. Expenditure incurred by the assessee on repair and renovation of two temples - Undisputedly, the temples were not owned by the assessee company, but, when the assessee has to conduct mining activity in the deep forest and village area, then, for creating and building cordial relations with the villagers residing in the surrounding locality of the mining and business area of the assessee, it is required by the assessee to have healthy relations with such villagers, so that a smooth business and mining activity can be undertaken. Therefore, this expenditure has to be held as incurred out of business expediency and, thus, the same is allowable as revenue expenditure. Decided in favour of assessee. Allowance of fluctuation loss on sale proceeds of EEFC account, while such a notional loss being contingent in nature cannot be allowed to be set off against the taxable income - CIT(A) concluded that the appellant s claim that the expenditure is attributable to revenue account - HELD THAT - We respectfully noted that their Lordships in case of CIT vs. Vinergy International 2016 (8) TMI 1041 - BOMBAY HIGH COURT noted that the CBDT Instruction No. 3/2010 is in respect of loss on account of foreign exchange derivatives and when in the present case it is clear that the loss was not on account of derivatives, but, in fact, the impugned losses and gains in foreign exchange relating to purchase and sale transactions, i.e., creditors and debtors outstanding as on 31st March, 2010. Then, in such circumstances the said Circular No. 3/2010 of the CBDT would have no application to the facts of the present case. Therefore, we respectfully hold that the issue is squarely covered in favour of the judgement of Woodward Governor 2009 (4) TMI 4 - SUPREME COURT and the judgement of Vinergy International (supra) and CBDT Circular No. 3/2010 (supra) has no application to assessee s case. Therefore, we are unable to see any valid reason to interfere with the findings arrived at by the ld. CIT(A) on this issue and, thus, we uphold the same. Accordingly, grounds No. 1 to 3 of the Revenue being devoid of merits are dismissed.
Issues Involved:
1. Treatment of Short Term Capital Gains as Business Income. 2. Disallowance under Section 14A read with Rule 8D. 3. Disallowance under Section 40(a) for non-deduction of TDS on foreign payments. 4. Nature of expenditure on community development as capital or revenue. 5. Allowability of foreign exchange fluctuation loss on EEFC account. Detailed Analysis of the Judgment: 1. Treatment of Short Term Capital Gains as Business Income: The primary issue was whether the short-term capital gains from the sale of shares of Sesa Goa Ltd. should be treated as business income. The Assessee argued that the shares were held as investments and not as stock-in-trade, consistently showing such investments in its books. The Revenue contended that due to the magnitude and nature of transactions, the gains should be treated as business income. The Tribunal upheld the Revenue's view, emphasizing that the magnitude of transactions and the strategic nature of acquiring shares in a company operating in a similar business indicated a business motive rather than an investment intention. The Tribunal relied on various judicial precedents, including the Supreme Court's decision in Raja Bahadur Kamakhya Narain Singh, which highlighted that the magnitude of transactions is a determining factor in such cases. 2. Disallowance under Section 14A read with Rule 8D: The Assessee challenged the disallowance made under Section 14A read with Rule 8D for expenses incurred in earning exempt income. The Tribunal referred to the ITAT Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that only those investments yielding exempt income during the year should be considered for computing the disallowance. The Tribunal directed the AO to recompute the disallowance by excluding the investment in shares of Sesa Goa Ltd., which were treated as business income, thereby partly allowing the Assessee's appeal. 3. Disallowance under Section 40(a) for non-deduction of TDS on foreign payments: The Assessee incurred supervision charges and professional fees abroad without deducting TDS, leading to disallowance under Section 40(a). The Tribunal noted that the retrospective amendment to Section 9(1) by the Finance Act, 2010, which deemed such payments as accruing in India, came into effect after the payments were made. Citing the ITAT Panaji Bench decision in ACIT vs. Ajit Ramakant Phatarpekar, the Tribunal held that the Assessee could not be penalized for non-compliance with a law that was not in force at the time of payment. Thus, the Tribunal allowed the Assessee's appeal on this ground. 4. Nature of expenditure on community development as capital or revenue: The Assessee claimed deductions for contributions towards the construction of a school building and repairs of temples, arguing these were revenue expenditures incurred for business expediency. The Tribunal agreed, citing the ITAT Panaji Bench decision in M/s Prime Mineral Exports Pvt. Ltd. and the Supreme Court's judgment in L.H. Sugar Factory & Oil Mills (P) Ltd. vs. CIT. The Tribunal held that such expenditures, aimed at maintaining cordial relations with the local community, were allowable as revenue expenditures since no capital asset was acquired by the Assessee. 5. Allowability of foreign exchange fluctuation loss on EEFC account: The Revenue disallowed the foreign exchange fluctuation loss on the EEFC account, considering it notional and contingent. The Tribunal, however, upheld the Assessee's claim, referencing the Supreme Court's decision in CIT vs. Woodward Governor India (P) Ltd. and the Bombay High Court's ruling in CIT vs. Vinergy International Pvt. Ltd. The Tribunal concluded that the loss, being on revenue account and in accordance with AS-11, was allowable, and the CBDT Circular No. 3/2010 did not apply as the loss was not related to derivative transactions. Conclusion: The Tribunal's consolidated order addressed multiple issues, providing detailed reasoning for each decision. The Assessee's appeal was partly allowed, and the Revenue's appeal was dismissed, with specific directions for recomputation and allowance of certain claims.
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