9911796707
TMI Blog2011 (5) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the charging of interest on the loan given by the assessee to its sister concern as against the LIBOR rate and the third issue being against the action of the Assessing Officer in not granting the TDS credit as claimed by the assessee. 4. In regard to the first issue being against the action of the Assessing Officer in making a disallowance under section 14A it was submitted by the learned authorised representative that originally the assessee had filed its return of income on 27-11-2006 wherein it had made disallowance under section 14A. Subsequently on the basis of expert advice the assessee had filed a revised return on 18-3-2008 wherein the assessee had withdrawn the disallowance made under section 14A to the extent of Rs. 30,89,60,575 in the original return. It was the submission that as a consequence of the revised return filed wherein the reason for the filing of the revised return was specifically mentioned. 5. There was a survey on the premises of the assessee on 20-8-2009. It was the submission that a draft assessment order was issued on the assessee on 29-12-2009 which was the subject-matter of reference before the Dispute Resolution Panel, Chennai. The Disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investments as on 31-3-2005 was to the extent of Rs. 97.63 crores. It was the submission that during the relevant assessment year the assessee had purchased shares in various companies to the extent of Rs. 18.21 lakhs. The main investment during the year was in the investment of shares of Tata Tele Services Ltd. (TTSL) to an extent of Rs. 884 crores. It was the submission that the said investment was through a share subscription agreement for the preferential allotment of shares. It was the submission that the shares had been purchased at a premium of 70 per cent. It was the submission that the assessee had also swapped shares held by the assessee company in Dishnet Wireless Ltd. of a value of Rs. 34.40 crores for shares in Aircel Televentures Ltd., a wholly owned subsidiary by the swap by which the assessee received the shares to the value of Rs. 129 crores. It was the further submission that the assessee had also disposed of certain other investments in some companies. It was the submission that as on the year ended 31-3-2006 the investments in the shares held by the assessee went up to Rs. 1,075 crores. It was the submission that the shares swapped by which the assessee got ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes. It was the submission that that Rs. 300 crores taken from IDFC Ltd. was not used for any investment in the shares as the same had been taken on 31-3-2005 and had also been used up substantially on 31-3-2005 itself and this loan amount was not available for making any investment prior to 31-3-2005 or immediately after 31-3-2005. It was thus the submission that from the Balance Sheet as on 31-3-2005 it is clear that if Rs. 300 crores secured loan which was the only secured loan was removed, then Rs. 97.62 crores representing the opening balance of the investment was also not out of any borrowed funds. It was the submission that during the year the assessee had taken a loan of Rs. 650 crores from Standard Chartered Bank and another Rs. 132 crores from Kalimati Investment Co. Ltd. Then Rs. 782 crores was used for making the investment in the preferential shares of Tata Teleservices Ltd. The investment in TTSL had also been done on 27-2-2006. It was thus the submission that the interest paid to IDFC Ltd. to an extent of Rs. 28.18 crores could not be considered for disallowance of interest under section 14A as no portion of the same had been used for making the investment. Rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny by way of dividends (whether interim or otherwise)". It was the submission that no amount had been declared, distributed or paid by TTSL by way of dividend in any manner whatsoever. He further drew our attention to section 8 of the Income-tax Act, 1961 under the head "dividend income" which also uses the words "declared by a company or distributed or paid by it". He also drew our attention to section 10(34) of the Act to support his contention that what was not includible in the total income of the previous year of any person was "any income by way of dividends referred to in section 115-O". He further drew our attention to section 14A(1) to submit that as per the said section it was only when there was any income which did not form part of the total income under the Act during any relevant assessment year no deduction in respect of the expenditure incurred for earning such income which does not form part of the total income, was allowable. It was the submission that during the relevant assessment year the assessee did not have any income which did not form part of the total income under the Act and therefore no disallowance by invoking the provisions of section 14A could be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court in the case of Rajendra Prasad Moody. He placed reliance on the decision of the Hon'ble jurisdictional High Court in the case of Visvas Promoters (P.) Ltd. v. ITAT [2009] 185 Taxman 145 (Mad.) to support his contention that the decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction. He also relied upon the decision of the Hon'ble Bombay High Court in the case of Geoffrey Manners & Co. Ltd. v. CIT [1996] 221 ITR 695/89 Taxman 287 for the same proposition. It was the further submission that as per the decision of the Hon'ble Supreme Court in the case of Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 the Hon'ble Supreme Court had categorically held that a shareholder who buys shares does not buy any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder in a company is that on buying shares he becomes entitled to participate in the profits of the company if and when the company declares, subject to the articles of association, that the profits or any portion thereof should be distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Walfort Share & Stock Brokers (P.) Ltd., referred to supra to come to the conclusion that the plain meaning of section 14A is that no deduction can be allowed in respect of expenditure incurred by an assessee in relation to an income which does not form part of the total income under the Act. It was the submission that in the decision of the Hon'ble Punjab & Haryana High Court in the case of Winsome Textile Industries Ltd., referred to supra, the assessee therein had used its own funds whereas in the present case the funds have clearly been admitted to be borrowed funds. It was the further submission that the assessee had in its own letter agreed that Rs. 32 crores of interest relates to the investments and now the assessee cannot be permitted to go back on the same. He also relied upon the decision of the co-ordinate Bench of this Tribunal in the case of Siva Ventures Ltd., a sister concern of the assessee in IT Appeal No. 1950 and 941/Mds/2008 dated 31-7-2009 wherein, it was submitted, the issue of section 14A had been held against the assessee. It was the further submission that the Assessing Officer did not apply the provisions of section 8D as one to one linki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock Brokers (P.) Ltd., referred to supra, and the following principles have been shown to emerge from section 14A and the decision in Walfort Share & Stock Brokers (P.) Ltd.: "(a) the mandate of section 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee; (b) section 14A(1) is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed; (c) the principle of apportionment of expenses is widened by section 14A to include even the apportionment of expenditure between taxable and non-taxable income of an indivisible business; (d) the basic principle of taxation is to tax net income. This principle applies even for the purposes of section 14A and expenses towards non-taxable income must be excluded; (e) once a proximate cause for disallowance is established - which is the relationship of the expenditure with income which does not form part of the total income - a disallowance has to be effected." As per the said decision, one of the main principles are that section 14A is to prevent claims of deduction of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assessment year is the total income computed as per the provisions of the Act. When computing the total income as per section 5 the income should be received or deemed to be received or accrued or arise or deemed to arise any income during the year or accrue or arise to him outside India during the year. An investment which does not give rise to any income deemed to accrue or arise cannot form part of the total income and therefore cannot form income which does not form part of the total income under the Act. Thus once there is no claim of income which does not form part of the total income under the Act, there cannot be any disallowance in relation to an investment which may or may not give rise to any income which does not form part of the total income. In the present case it is noticed that none of the investments made by the assessee has generated any dividend income which has been claimed by the assessee to be not to form part of the total income. In the circumstances, as it is noticed that the assessee does not have any income which does not form part of the total income nor has the assessee made such a claim, we are of the view that no disallowance under section 14A can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order was liable to be deleted. 10. In reply the learned DR submitted that LIBOR was applicable if the assessee advances loans in foreign currency. It was the submission that the source of funding is in Indian rupees and therefore prime lending rate was to be applied and not LIBOR. He vehemently supported the order of the Assessing Officer and relied upon the order of the TPO. 11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0 per cent optional convertible preferential shares. Thus it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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