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TMI Blog2016 (8) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration. The alternative contention of the ld. counsel for the assessee is accordingly accepted. Interest income - business income or income from other sources - Held that:- There was a direct nexus between the earning of interest income in question as well as the business income of the assessee, inasmuch as the same was earned on Fixed Deposits kept by the assessee as margin money with NSE through its broker in order to enable it to trade in Future & Options. The interest income earned on the said Fixed Deposits thus was directly attributable to the business of the assessee and the ld. CIT(Appeals), in our opinion, is fully justified in treating the same as business income of the assessee instead of income from other sources by relying on the decision of the Hon'ble Supreme Court in the case of Govinda Choudhury & Sons (1992 (4) TMI 8 - SUPREME Court) as well as Chinna Nachimuthu Constructions (2007 (11) TMI 40 - HIGH COURT, KARNATAKA ). - I.T.A. No. 1351/KOL/ 2013 - - - Dated:- 8-6-2016 - Shri P.M. Jagtap, Accountant Member and Shri N.V. Vasudevan, Judicial Member For The Department : Shri S.S. Alam, JCIT, Sr. D.R. For The Assessee : Shri Subas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellant has received dividend income of ₹ 92,64,034/- on shares which have been held as stock-in-trade. The balance-sheet of the appellant company reveals that it had the stock-in-trade amounting to ₹ 10,10,27,014/- and ₹ 60,97,40,236/- as at 31.03.2009 and 31.03.2008 respectively. The balance sheet also reveals that all the shares held by the appellant has been shown as stock-in-trade. The ld. A.R. has informed that the AO has calculated the disallowance u/s 14A by treating the stock- in-trade as investment in shares. In this regard, the ld. AR has relied on the decision of the Karnataka High Court in the case of CCI Limited vs.- JCIT [2012] 206 Taxman 563 (Ker.). In this case, the Hon'ble Court has held that when the assessee has not retained the shares with the intention of earning dividend and the dividend income is incidental to his business of sale of shares, which remained unsold, it could not be said that the expenditure incurred in acquiring the shares can be apportioned to the extent of dividend income and that can be disallowed under section 14A. The ld. AR has also relied on the decision of the Hon'ble Kerala High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the decision of the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra) by holding that the same is squarely covered by the principles laid down by the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra). 6. The ld. counsel for the assessee, on the other hand, strongly supported the impugned order of the ld. CIT (Appeals) holding that section 14A and Rule 8D have no application to make a disallowance on account of expenditure in relation to the exempt dividend income which is earned on shares held as stock-in-trade and not investment. He also cited by the decision of the Hon'ble Kerala High Court in the case of CIT vs. - Smt. Leena Ramachandran [339 ITR 296 (Ker.)] relied upon by the ld. CIT(Appeals) in his impugned order, wherein it was held that the assessee would be entitled for deduction of interest under section 36(1)(iii) of the Act on the funds borrowed and utilized for the acquisition of shares as stock-in-trade and the disallowance under section 14A is attracted only when the acquisition of shares is in the form of investment and the benefit derived by the assessee is only in the form of dividend income, which is exempt fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra) relied upon by the ld. D.R., the ld. counsel for the assessee contended that the issue involved in the said case before the Hon'ble High Court was in regard to applicability of section 14A with respect to investment in shares and not stock-in-trade . He contended that although there was a reference to business of trading in shares in Question No. (ii) referred to the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra), the same was of no consequence as it was only a part of entire indivisible/composite business, which also included granting of loans and advances and investment in shares. He contended that even though in the Third Member decision rendered by the Mumbai Bench in the case of D.H. Securities (P) Ltd. (supra), the decision of the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra),was followed to decide a similar issue against the assessee by holding that the same is squarely covered by the said decision, the Third member decision has already been overruled impliedly by the decision of the Hon'ble Bombay High Court rendered in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1331 1423/KOL/2011 dated 19.06.2013), wherein it was held that the value of only those shares are required to be considered in computation as per Rule 8D, which have yielded dividend income. He pointed out that the said decision rendered by the Coordinate Bench of this Tribunal in the case of REI Agro Ltd. (supra) has been affirmed by the Hon'ble Calcutta High Court vide its order dated 19.04.2014 in ITAT No. 220 of 2013. He contended that even if section 14A read with Rule 8D is held to be applicable in the case of the assessee, the Assessing Officer may be directed to compute the disallowance as per Rule 8D by taking into consideration only those shares, which have yielded dividend income in the year under consideration. 11. In the rejoinder, the ld. D.R. invited our attention to the provisions of section 14A and submitted that sub-section (1) of section 14A spells out in unambiguous terms that the expenditure incurred by the assessee in relation to income which does not form part of the total income of the Act is to be disallowed. He contended that the reference here is to the income which does not form part of the total income without making any further distinction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, wherein it has been further clarified and emphasized that legislative intent behind introduction of section 14A is to allow only that expenditure which is relatable to earning of income and it, therefore, follows that the expenses, which are relatable to exempt income are to be considered for disallowance. 13. The ld. D.R. finally reiterated that the issue under consideration is squarely covered by the decision of the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra) in favour of the Revenue and submitted that although the ld. counsel for the assessee has placed reliance on various case laws in support of the assessee's case on this issue, there is no decision either of the Hon'ble Supreme Court or that of the Hon'ble Calcutta High Court rendered subsequently taking a view contrary to the decision rendered in the case of Dhanuka Sons (supra). He contended that even the Mumbai Bench of this Tribunal in its Third Member decision rendered in the case of DH Securities (P.) Ltd. (supra) has held categorically that the issue under consideration is squarely covered by the principles laid down by the Hon'ble Calcutta High Court in the case of Dha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income has been earned on the shares held as stock-in-trade 15. At the time of hearing before us, the first contention raised by the ld. counsel for the assessee is that the decision of the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra) is not directly applicable to the issue under consideration and the same has wrongly been read by the ld. Third Member in the case of DH Securities Pvt. Limited (supra) while applying the same to decide the issue against the assessee. However, as rightly contended by the ld. D.R., the Third Member decision in the case of DH Securities (P.) Ltd. (supra) is binding on us having the force of a Special Bench and it is, therefore, not permissible for us to take a different view than the one taken in the Third Member decision rendered in the case of DH Securities (P.) Ltd. (supra) regarding the applicability of the decision of the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra) to the issue under consideration. Moreover, a perusal of the judgment passed by the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra) shows that it was clearly mentioned in Question No. 2 itself referred to the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered by the Hon'ble Bombay High Court while dismissing the appeal filed by the Revenue against the order of the Tribunal in the case of India Advantage Securities Ltd. (supra). Be that as it may, the fact that remains to be seen is that the issue under consideration is squarely covered by the principles laid down by the Hon'ble Calcutta High Court in the case of Dhanuka Sons (supra) as held by the ld. Third Member in the case of DH Securities (P.) Ltd. (supra) and as further explained by us and there is no decision of the Hon'ble Supreme Court or the decision of the Hon'ble Calcutta High Court rendered subsequently taking a different view, which has been brought to our notice. The decision of the Hon'ble Calcutta High Court in the case of Dhanuka Sons upholding the applicability of section 14A for making a disallowance on account of expenditure incurred in relation to the exempt income in the form of dividend earned by the assessee on shares held as stock-in-trade thus still holds the field and respectfully following the said decision of the Hon'ble Jurisdictional High Court, we hold that the provision of section 14A can be invoked in a case of exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee from shares held as stock-in-trade thus was upheld by the Tribunal in its Third Member decision rendered in the case of DH Securities (P.) Ltd. (supra) and respectfully following the same, we reject the contention of the ld. counsel for the assessee that the disallowance in the case of the assessee can be restricted only to direct expenses incurred in relation to the earning of exempt dividend income by applying Rule 8D(2)(i). 18. Before us, the ld. counsel for the assessee has raised an alternative contention that even if section 14A read with Rule 8D is held to be applicable in the case of the assessee, the Assessing Officer may be directed to compute the disallowance as per Rule 8D by taking into consideration only those shares which have yielded dividend income in the year under consideration. Since this issue raised by the ld. counsel for the assessee as an alternative contention is squarely covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in the case of REI Agro Ltd. (supra), we direct the Assessing Officer to compute the disallowance as per Rule 8D by taking into consideration only those shares, which have yielded dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove Margin Money. The broker in turn paid the interest of ₹ 52,84,426/ - to the appellant. The Assessing Officer has assessed the interest income of ₹ 52,84,426/ - as income from other sources without assigning any reason. The ld. AR has relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Govinda Choudhury Sons (supra) wherein it has been held that interest can be assessed under the head Income from Other Sources only if it cannot be brought within one or the other of the specific heads of charge and the interest payable to the assessee partakes of the same character as the receipt for the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between them. The ld. AR has relied on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Koshika Telecom Ltd. [2006] 286 ITR 479 (Del) wherein it has been held that where the income in the nature of interest flows from deposits made by the assessee which deposits are in turn inextricably linked to the business of the assessee, the income derived on such deposits cannot be treated as income from other sour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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