2016 (12) TMI 1483 - HC - Income Tax

Application of Rule 8D of the Income Tax Rules to disallow expenses on exempt income - Held that - Tribunal followed the decision of this Court in Godrej & Boyce Manufacturing Co. Ltd., v/s. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT wherein it has been held that for the assessment years prior to Assessment Year 2008-09, Rule 8D of the Income Tax Rule will not be invoked to work out the disallowance of expenditure under Section 14A of the Act. The Court held that till Assessment Year 2008-2009, the disallowance of expenditure has to be done on a reasonable basis. The impugned order of the Tribunal on application of the reasonable method, disallowed expenditure to the extent of 1% of exempted dividend income under Section 14A of the Act. No substantial question of law Entrance fees paid for club membership - revenue or capital receipt - Held that - The impugned order of the Tribunal has allowed ex-parte membership fee following the order of this Court in Otis Elevator Co. (India) Ltd. Vs. CIT 1991 (4) TMI 53 - BOMBAY High Court paid for admission in a club as revenue expenditure. No substantial question of law

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for Assessment Year 2006-07.
2. Disallowance under Section 14A of the Income Tax Act.
3. Allowability of entrance fee paid to Gymkhana as an expense.

Analysis:

Issue 1: Challenge to the Tribunal's Order
The appeal under Section 260A of the Income Tax Act challenges the Tribunal's order dated 23.08.2013 for Assessment Year 2006-07. The revenue raises questions of law regarding the disallowance under Section 14A and the allowability of entrance fee paid to Gymkhana as an expense.

Issue 2: Disallowance under Section 14A
The Tribunal's order limited the disallowance under Section 14A to 1% of the dividend income, citing the decision of the High Court in the case of Godrej Boyce. The High Court noted that until Assessment Year 2008-09, Rule 8D of the Income Tax Rule was not to be invoked for disallowance under Section 14A. The Tribunal's order followed a reasonable method in disallowing expenditure based on exempted dividend income. Since the Tribunal's decision aligned with the High Court's ruling in Godrej Boyce, no substantial question of law arose from this issue.

Issue 3: Allowability of Entrance Fee
Regarding the entrance fee paid to Gymkhana, the Tribunal allowed it as an expense, referring to the High Court's decision in Otis Elevator Co. (India) Ltd. Vs. CIT. The High Court upheld the Tribunal's decision, stating that the entrance fee for club membership was considered a revenue expenditure based on the precedent set by the Otis Elevator case. Consequently, no substantial question of law was raised in this matter.

In conclusion, the High Court disposed of the appeal, emphasizing that no useful purpose would be served by further adjournments. The Court considered the questions proposed by the Revenue on their merits and found that they did not give rise to substantial questions of law. Therefore, the appeal was decided in favor of the respondent-assessee, with no order as to costs.