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TMI Blog2012 (6) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... done so. Rigours of Section 40(a)(ia) is attracted - Decided in favor of Revenue Dis-allowance u/s 14A - assessee considered pro rata interest on investments made to earn dividend income on ground that borrowed money was invested in various companies and shares were not allotted in some of such companies, hence, interest could not be attributed to earning of any dividend income on such investments - Held that:- Intention of the assessee for earning dividend income could not be attributed to the amounts invested in share application money, unless and until there is a commitment brought on record by the concerned company for allotment of shares, and the share application money can at the best be considered only as a loan given by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that no shares were allotted to it for the investments made with M/s North Chennai Power Company Limited and the money invested in such company was lying as share application money. Therefore, according to assessee, interest could not be attributed to earning of any dividend income on such investments. However, the A.O. was not impressed. According to him, whether shares were allotted or not was not relevant. The funds having been advanced for allotment of shares, the investment was made with the purpose of earning dividend income. Such dividend income being exempt from tax, interest on borrowed funds had to be disallowed. Relying on the decision of Special Bench of this Tribunal in the case of ITO v. Daga Capital Management (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application money were also considered while making disallowance under Section 14A of the Act. 6. Learned A.R. submitted that as long as the money was lying as mere share application money, no intention could be attributed for earning dividend income. According to him, this aspect was not considered by the authorities below. 7. Per contra, supporting the order of ld. CIT(Appeals), learned D.R. submitted that Rule 8D was correctly applied based on the decision of Special Bench of this Tribunal in the case of Daga Capital Management (P.) Ltd. ( supra ). 8. We have perused the orders and heard the rival submissions. Insofar as application of the decision of Special Bench of this Tribunal in the case of Daga Capital Management ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t available on record. Revenue has also not examined whether it is a case where despite such dates for allotment, being declared by the company, it had failed to issue shares on the application money placed by the assessee. Share application money with no known date on which shares are to be allotted, cannot be equated with an investment made for the purpose of earning dividend income. There is no question of any dividend unless and until the shares are allotted against the share application money. Assessee will not also be eligible for any interest on such money unless there is any agreement to that effect with the company. We are of the opinion that intention of the assessee for earning dividend income could not be attributed to the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as interest in view of the definition of term "interest" given in Section 2(28A) of the Act. Payment of interest could be made only to banking companies as per Banking Regulations Act, 1949 without deduction of tax at source. Since M/s Cholamandalam DBS Finance Limited was not a banking company, as per the A.O., Section 2(28A) applied. Assessee having failed to deduct tax at source, disallowance as mandated under Section 40(a)(ia) of the Act was made. 10. In its appeal before ld. CIT(Appeals), argument of the assessee was that fees for processing loans were charges levied by the lender and it could not be considered as interest covered by Section 194A of the Act. According to assessee, definition of "interest" under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s borrowed or debt incurred or in respect of any credit facility which has not been utilized." The definition is clear in that it includes all the charges in respect of moneys borrowed or debt incurred or in respect of any credit facility whether it has been utilized or not. There is no dispute that the loan processing fees paid by the assessee was in respect of loans being raised from M/s Cholamandalam DBS Finance Limited. Therefore, without doubt, such loan processing fee fell within the definition "interest" under Section 2(28A) of the Act. Now the question is whether the said definition of "interest" can be transported to Section 194A of the Act. Section 194A does not define "interest" as such. It simply casts a duty on a person who i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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