9911796707
TMI Blog2011 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... come and is chargeable to tax - ITA 1367/2008, 1368/2008 & ITA No.1391/2008 - - - Dated:- 12-12-2011 - MR SANJAY KISHAN KAUL AND MR RAJIV SHAKDHER JJ. Represented by: For the Appellant : Mr. Sanjeev Rajpal For the Respondents: Ms. Kavita Jha and Mr. Somnath Shukla RAJIV SHAKDHER, J 1. The captioned appeals being three (3) in number are directed against a common judgment of the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) dated 22.02.2008. ITA No.1367/2008 relates to Assessment Year 1991-1992; ITA No.1368/2008 pertains to Assessment Year 1990-1991, while ITA No.1391/2008 pertains to Assessment Year 1989-1990. 1.1 The short issue involved in these appeals is: whether common expenses incurred by an assessee can be allocated towards taxable and non-taxable income under the provisions of Section 14A of the Income Tax Act, 1961 (hereinafter referred to as the I.T. Act ) as it stood at the relevant point in time. 2. It is important to note that this court has passed orders from time to time in ITA No.1367/2008, which has been virtually treated as the lead case. On perusal of the order-sheets pertaining to ITA No.1367/2008, it is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1368/2008 are concerned, the revenue has averred that the tax effect in each appeal is Rs.12,67,867/-; while in ITA No.1391/2008, the tax effect is nil as income is assessed under section 115 J of the Income Tax Act, 1961 (in short, the IT Act). 8. Having regard to the aforesaid facts, one option available to us is to dismiss these appeals. The other option available is that, the matter be remanded to the Assessing Officer having regard to the observations made by the coordinate bench in the case of Maxopp Investment Ltd. (supra). In this regard, however, it is important to note that the bench of the Tribunal which initially heard the matter qua the assessee in respect of assessment year 1994-95 comprised of a Judicial Member and an Accountant Member; who rendered separate and divergent opinions. Consequently, the matter was referred to a third Member i.e., the Vice President of the Tribunal. The Vice President of the Tribunal agreed with the Judicial Member, which resulted in the appeal of the assessee for assessment years 1994-1995 being allowed. 8.1 In the impugned judgment, the Tribunal has extracted the relevant portion of the opinion rendered by the third member. A p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le applying the section there is no authority conferred by the section upon the Assessing Officer to deem or assume certain expenditure to have been incurred in relation to the tax free income. Common expenditure incurred at the head office cannot be broken up artificially to attribute or apportion a part thereof to the earning of the tax free income on the assumption that such part of the common expenditure was incurred in relation to the tax free income. Not only the incurring of the expenditure but also its relationship to the exempted income must be clear and must be capable of being ascertained on the face of assessing officer to not only show that some expenditure was factually incurred but also to show its relationship with the income exempt from tax. The section may have nullified the judgment of the Supreme Court cited above but only to the extent that even in an indivisible business consisting partly of taxable activities and partly of tax free activities, it is open to the Assessing Officer to identify expenditure if any, incurred in relation to the earning or non-taxable income and disallow the same. But the section cannot be taken beyond that and every item of expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. Finance Act, 2006 Expenditure incurred in relation to income not includible in total income 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by the Supreme Court in Walfort (supra), the basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure and on the same analogy the exemption is also in respect of net income. In other words, where the gross income would not form part of total income, it's associated or related expenditure would also not be permitted to be debited against other taxable income. 25. We are of the view that the expression "in relation to" appearing in Section 14 A of the said act cannot be ascribed a narrow or constricted meaning. If we were ITA 687/09 Ors Page 24 of 38 to accept the submission made on behalf of the assessees then sub-section (1) would have to be read as follows:- "For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee with the main object of earning income which does not form part of the total income under this Act. That is certainly not the purport of the said provision. The expression in relation to does not have any embedded object. It simply means in connection with or pertaining to . If the expenditure in question has a relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made under section 14A of the said Act. 10. Having regard to the observations made hereinabove, we are of the opinion that the impugned judgment of the Tribunal, which is entirely based on a view held in the case of the assessee pertaining to assessment year 1994-1995, would require reconsideration. We accordingly, set aside the impugned judgment and remand the matter to the Tribunal to examine the same in the light of the observations of this court in Maxopp Investments Ltd. (Supra). We have adopted this course so that the revenue s interest does not get impacted in the subsequent years, as the issue seems to be of a recurrent nature. It is this reason alone which has prompted us to take the second option. We make it clear that on remand parties will be free to address arguments on all issues, including on the aspect of re-assessment in view of observations made in paragraph 3 of the impugned judgment. 11. However, before we conclude we must record our displeasure in the manner in which the revenue has prosecuted the aforementioned appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
