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2022 (12) TMI 436 - AT - Income TaxSet off of current year business loss against foreign dividend income and upholding the levy of tax u/s 115BBD on gross foreign dividend income - whether the assessee would be entitled for deduction u/s 80G of the Act from the foreign dividend income forming part of Gross Total Income? - HELD THAT - We find that the non-obstante clause is provided in section 115BBD(1) of the Act itself. Hence it would be cover both current year loss as well as brought forward business loss. We hold that the assessee would be entitled for set off of brought forward business losses against foreign dividend income. Hence the assessee would also be eligible for set off of current year loss against foreign dividend income. We hold that assessee would be entitled for set off of current year loss with the foreign dividend income, assessee would be entitled for set off of brought forward business losses and unabsorbed depreciation of earlier years with the foreign dividend income and assessee would be eligible for deduction u/s 80G of the Act from the Gross Total Income subject to the restrictions provided in that relevant section. Disallowance u/s 14A both under normal provisions of the Act as well as in the computation of book profits u/s 115JB - HELD THAT - We find that the investments made in subsidiary companies for the purpose of holding dominant control over the same or for the purpose of strategic investments would also have to be considered for the purpose of working out the disallowance u/s 14A of the Act in the light of decisionin the case of Maxopp Investments 2018 (3) TMI 805 - SUPREME COURT The same could be considered only in respect of those investments which had actually yielded exempt income to the assessee company during the year under consideration. Obviously, the foreign dividend income which is chargeable to tax would be outside the purview of application of provisions of section 14A. CIT(A) had merely directed the ld. AO to exclude the investments which had yielded taxable income and to include only those investments which had actually yielded exempt income. This issue is now very well settled by the decision of Hon ble Supreme Court in the case of Maxopp referred to supra. Hence we do not find any infirmity in the order of the ld. CIT(A) giving directions to ld. AO to recompute the disallowance under normal provisions of the Act. Computation of book profits u/s 115JB - computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in clause f of Explanation 1 to section 115JB(2) of the Act as has been held by the Special Bench of Delhi Tribunal in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI However, the actual expenses incurred by the assessee thereon would have to be considered in clause f which has already been done by the assessee in the instant case, while computing book profits u/s 115JB of the Act. Hence the directions of the ld. CIT(A) are modified accordingly.
Issues Involved:
1. Set off of current year business loss against foreign dividend income. 2. Entitlement for deduction under Section 80G from foreign dividend income. 3. Allowability of brought forward business losses against foreign dividend income. 4. Disallowance under Section 14A both under normal provisions and in the computation of book profits under Section 115JB. Issue-wise Detailed Analysis: 1. Set off of Current Year Business Loss Against Foreign Dividend Income: The primary issue examined was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in denying the set off of current year business loss against foreign dividend income and upholding the levy of tax under Section 115BBD of the Income Tax Act, 1961 on the gross foreign dividend income. The Assessing Officer (AO) argued that Section 115BBD, introduced to provide tax incentives, mandates that foreign dividend income be taxed at 15% on a gross basis without allowing any set off of losses due to the non-obstante clause. The Tribunal, however, clarified that the determination of 'total income' under Section 115BBD should consider all provisions of the Act, including the set off of losses. It concluded that the assessee is entitled to set off current year losses against foreign dividend income. 2. Entitlement for Deduction Under Section 80G from Foreign Dividend Income: The Tribunal also addressed whether the assessee is entitled to deduction under Section 80G from the foreign dividend income forming part of the Gross Total Income. The AO had denied this deduction based on the non-obstante clause in Section 115BBD(2), which prohibits any deduction of expenditure or allowance in computing foreign dividend income. The Tribunal, however, held that the assessee is eligible for deduction under Section 80G from the Gross Total Income, subject to the restrictions provided in that section. 3. Allowability of Brought Forward Business Losses Against Foreign Dividend Income: The Tribunal examined whether the assessee could set off brought forward business losses from earlier years against foreign dividend income. The AO had denied this based on the non-obstante clause in Section 115BBD. The Tribunal, however, held that the assessee, being engaged in the business of making investments and promoting companies, could treat dividend income as business receipts. It cited various judicial precedents to support that the assessee is entitled to set off brought forward business losses and unabsorbed depreciation against foreign dividend income. 4. Disallowance Under Section 14A Both Under Normal Provisions and in the Computation of Book Profits Under Section 115JB: The Tribunal addressed the issue of disallowance under Section 14A for expenses related to exempt income. The AO had made additional disallowances under Rule 8D(2), which the CIT(A) directed to be reworked by excluding investments that yielded taxable income and those that did not yield any income during the year. The Tribunal upheld the CIT(A)'s direction to recompute the disallowance under normal provisions, aligning with the Supreme Court's decision in Maxopp Investments. However, for the computation of book profits under Section 115JB, the Tribunal modified the CIT(A)'s directions, stating that the computation mechanism in Rule 8D(2) cannot be applied, and only actual expenses incurred should be considered. Conclusion: The Tribunal allowed the assessee's appeal, granting the set off of current year losses and brought forward business losses against foreign dividend income, and entitlement to deduction under Section 80G. The revenue's appeal was partly allowed, with directions to recompute disallowances under Section 14A as per the Tribunal's guidelines.
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