2020 (1) TMI 1148 - HC - Income Tax

Addition u/s 14A r.w.r. 8D - rule 8D applicability prospectively or retrospectively - HELD THAT - The said issue is no longer res integra in view of the decisions of the Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Essar Teleholdings Ltd 2018 (2) TMI 115 - SUPREME COURT and Godrej Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax and another 2017 (5) TMI 403 - SUPREME COURT in which the Hon'ble Supreme Court has laid down the provisions of Rule 8D of the Income Tax Rules cannot be applied retrospectively. The said Rules were introduced and brought on the Statute Book with effect from 24.03.2008 and the present assessment year involved in the present Appeal is Assessment Year 2002-03. - Decided against the Revenue.

Summary

Issues:
1. Interpretation of section 14A r/2 Rule 8D for Assessment Year 2002-03.

Analysis:
The High Court of Madras heard a Tax Case Appeal filed by the Revenue for Assessment Year 2002-03, focusing on the substantial question of law regarding the application of section 14A r/2 Rule 8D. Both counsels agreed that the issue had been settled by the Supreme Court in previous cases, specifically Commissioner of Income Tax Vs. Essar Teleholdings Ltd. and Godrej & Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax. The Supreme Court clarified that Rule 8D cannot be applied retrospectively, as it was introduced in 2008, while the assessment year in question was 2002-03. The judgments emphasized the need for a satisfaction in the Assessing Officer regarding the correctness of the claim of the assessee before applying Rule 8D or making a best judgment determination.

The judgment in Commissioner of Income Tax Vs. Essar Teleholdings Ltd. highlighted that Rule 8D is prospective and cannot be applied to any assessment year before 2008-09. The judgment in Godrej & Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax stressed the importance of establishing a reasonable nexus between the expenditure disallowed and the dividend income received. It also emphasized the need for consistency and strong reasons for a departure from a settled position in assessment proceedings. The court held that for the Assessment Year 2002-03, the assessee was entitled to the full benefit of the claim of dividend income without any deductions.

Ultimately, the High Court concluded that there was no merit in the Revenue's appeal, and the question of law was answered against the Revenue and in favor of the Assessee based on the Supreme Court decisions. The Appeal was dismissed with no costs incurred.