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TMI Blog2017 (6) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... as pointed out by the Ld.CIT(A) in his order at para No.5.2.1, then to that extent disallowance has to be sustained by virtue of Section 14A of the Act. Interest income earned from intercorporate deposits treated as business expenditure - Held that:- The assessee has parked its surplus funds in other companies and earned interest. Such income has to be necessarily assessed under the head ‘Income from other source’ as per Section 54 of the Act, as held by the Ld.AO. Hence, we hereby direct the Ld.AO to assess the interest earned from the bank and inter-corporate deposits under the head ‘Income from other source’. - I .T.A. No. 2018/Mds/2016 - - - Dated:- 6-6-2017 - Shri A. Mohan Alankamony, Accountant Member And Shri Duvvuru RL Reddy, Judicial Member Appellant by : Shri A.V. Sreekanth, JCIT Respondent by : Shri R. Sivaraman, Advocate ORDER Per A. Mohan Alankamony, AM:- This appeal by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)- 15, Chennai dated 18.03.2016 in ITA No.592/CIT(A)-15/13-14 for the assessment year 2011-12 passed U/s.250(6) r.w.s. 143(3) of the Act. 2. The Revenue has raised three el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Ld.AO by observing as under:- 5.1.2 I have considered the findings given by the Assessing Officer. The appellant has relied upon the decision of ITAT D Bench, Chennai in the case of ACIT V/s. M/s. M.M. Forging Ltd. In ITA No.2679/Mds/2014 dated 19.06.2015. The commission paid to foreign agents for procuring orders cannot be called either to rendering of technical services or managerial or consultancy services. The Hon ble Delhi High Court in the case of director of Income Tax (International Taxation)-II, v/s. Panalfa Auto Elektrik Ltd. 49 Taxmann.com 412 has held that the services rendered for procurement of export orders etc. cannot be termed as managerial services provided by the non-residents. As per DTAA agreement, no tax at source it to be deducted. Therefore, the Assessing Officer is directed to allow professional tax of ₹ 25,89,854/-. These ground of appeal are allowed. 4.1 Before us the Ld. DR reiterated the findings of the Ld.AO and argued in support of the same, while as the Ld.AR relied on the order of the Ld.CIT(A). 4.2 We have heard the rival submissions and carefully perused the materials on record. At the outset we find merit in the Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managerial remuneration and other staff expenses are interlinked and it would be difficult to allocate individually. 5.1 On appeal the Ld.CIT(A) directed the Ld.AO to delete the addition of ₹ 4,30,98,790/- observing as under:- The fact that the assessee incurs routine expenditure to maintain its establishment and towards administration, a portion of which can be attributable to the activity of earning dividend. The managerial staff and the Directors of the assessee company are involved in the decision making process on investments made; the assessee claims the managerial remuneration in whole as an expenditure. Therefore, a portion of the expenditure of the assessee could be attributable towards the dividend earned by the assessee which is to be exempt u/s.10 5.2 Before us the Ld.DR argued in support of the order of the Ld.AO, while as the Ld.AR relied on the order of the Ld.CIT(A) and further submitted that most of the investments made by the assessee company were in its sister concerns. The Ld.AR further submitted that the Tribunal on many earlier instance had held that the provisions of Section 14A of the Act will not be applicable when investments are mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making process which is allowable as business expenditure. In the case of the assessee it is submitted that no interest cost was incurred as the entire investments were made out of own funds. Further in the decision of the Tribunal in ITA No.115/Mds/2015 dated 06.01.2016, extracted herein below, it has been held that section 14A of the Act will not be applicable when investments are made in sister companies. 5. We have heard both the parties and carefully perused the materials available on record. On the identical issue as pointed out by the Ld. A.R. the Chennai bench of the Tribunal in ITA No.156/Mds/2013 vide order dated 20/08/13 for the assessment year 2009-10 has remitted back the matter to the Ld. Assessing Officer to decide the matter once again afresh based on the findings whether the assessee had actually incurred any expenditure in earning the dividend income. The relevant portion of the order is extracted herein below for reference:- Further, on the identical issue various Benches of the Tribunal and the Hon ble Bombay High Court have held as follows:- i) Garware wall Ropes Ltd., Vs. ACIT reported in (2014) 65 SOT 086 (Mum.) held as follows:- Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the investments in sister concerns were made by the assessee out of interest free funds and therefore no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. (vi) EIH Associated Hotels Ltd Vs. DCIT reported in 2013-TIOL- 796-ITAT-MAD . The investments made by the assessee in the subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by the assessee to promote subsidiary company into the hotel industry. The assessee is not into the business of investment and the investments made by the assessee are on account of business expediency. Any dividend earned by the assessee from investment in subsidiary company is purely incidental. Therefore the investment made by the assessee in its subsidiary is not to be reckoned for disallowance U/s.14A r.w.r.8D. The Assessing Officer is directed to re-compute the average value of investment under the provisions of Rule 8D after deleting investments made by the assessee in subsidiary company. Taking note of the above decisions and the decision of the Chennai bench of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A where investments are made in sister concerns such as equity shares and share application money. However, if the investments are made from borrowed funds, section 14A of the Act would be applicable and learned Assessing Officer shall compute the disallowance under section 14A read with rules 8D in accordance with law. 6.1 Accordingly we hereby remit back the matter to the file of the Ld. AO to consider the issue afresh in the light of the above order of the Tribunal and pass appropriate order in accordance with merits and law. We also make it clear that for the investments made in mutual funds, provisions of Section 14A read with Rule 8D will be applicable since the assessee would incur some expenditure at least for the decision making process as to in which mutual fund the investment has to be made and at what point of time exit from such funds. It is ordered accordingly. Accordingly in this case of the assessee also, we hereby remit the matter back to the file of the Ld. AO for fresh consideration so as to pass appropriate Order as per merit and law and in the light of the above Order of the Tribunal. In view of the above decision of the Chennai benches of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies is assessable under the head Business . The Assessing Officer s opinion that since the appellant is in the business of property development, the interest is not assessable under the head Business is not correct. As regards the Bank Interest, the same is assessable under the head Business as in the light of the Hon ble Karnataka High Court decision in the case of Eveready Industries India Limited vs. Commissioner of Income Tax (323 ITR 312). 6.2 After hearing both sides, we don t find merit in the Order of the Ld.CIT(A). The assessee has parked its surplus funds in other companies and earned interest. Such income has to be necessarily assessed under the head Income from other source as per Section 54 of the Act, as held by the Ld.AO. The Ld.AO s decision is in accordance with the decision of the Hon ble Apex court which is cited by the Ld.AO in his order. Hence, we hereby direct the Ld.AO to assess the interest earned from the bank and inter-corporate deposits under the head Income from other source . 7. Accordingly, Ground No.i with respect to deletion of professional fees of ₹ 25,89,854/- is held against the Revenue, Ground No.2 with respect to ..... 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