9911796707
TMI Blog2012 (3) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... July, 2004. 2. That the CIT(A) erred on facts and in law in directing the Assessing Officer to recompute the disallowance u/s 14A of the Act applying the Special Bench decision of the Tribunal in the case of Daga Capital Management Pvt. Ltd., without affording any opportunity of being heard to the appellant. 3. That the CIT(A) erred on facts and in law confirming the action of the Assessing Officer in charging the interest u/s 234B and 234D of the Act. The appellant craves leave to add, to amend, alter or vary from the above grounds of appeal at or before the time of hearing. 2. Adverting first to ground nos. 1 2 in the appeal, facts, in brief, as per relevant orders are that return declaring income of `Rs.5,45,00,000/- and exempted income of `Rs.276,75,30,877/- filed on 31.10.2005 by the assessee, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), was selected for scrutiny with the service of notice u/s 143(2) of the Act. Inter alia, a following note was appended at the end of computation of income enclosed with the return: Section 94(7) of the Income-tax Act ( the Act ) prior to its amendment by the finance (No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 378, M/s Mitsu Industries Ltd. Vs. DCIT (2005) 98 TTJ 990 (Ahd), ITAT decision in the case of JCIT Vs. Arihant Industries Ltd. and Vinod Krishna Kaul, IPS Vs. UOI: AIR 1996 SC 753 (1996)1 SSC 41. However, the AO did not accept the submissions of the assessee and disallowed the amount of `Rs.4,69,15,726/- in terms of amended provisions of section 94(7) of the Act, relying inter alia, on the decisions in Tea Estates India vs. CIT,241 ITR 778(Mad.);K. Krishnaveni Vs. AAC,151 ITR 83(Mad.); CIT Vs. Mir Osman Ali Bahadur (1966) 59 ITR 666 (Supreme Court); CIT Vs. Hongkong Oceans Shipping and Others,238 ITR 955 (Madras) . 3. On appeal, the ld. CIT(A) upheld the findings of the AO in the following terms: 4.4 I have carefully considered the submissions of the appellant and facts of the case. The issue involved is whether transactions entered into by the appellant during previous year before the introduction of proposed amendment in section 94(7) by the Finance (No.2) Bill, 2004 in the Parliament on 8th July 2004 shall be governed by the pre amended provisions of section 94(7) of the Act or shall be governed by the provisions as amended by the Finance (No.2) Act, 2004 w.e.f. 01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cardinal principle of tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. Karnataka High Court in the case of Mithy Granite (P) Ltd. vs. ITO (2004) 266 ITR 151 (Ka) has also held as under: The law that is required to be applied is that in force during the assessment year, unless otherwise provided expressly or by necessary implication. The only way to understand the amendment made to section 80HHC(2)(b)(ii) is to understand that is only from the date of coming into force of the said provision, that cut and polished granite would be entitled for the benefit of section BHHC of the Act while all other types of granites are not entitled for the benefit of the said provision. In the case of CIT vs Orkay Silk Mills Pvt. Ltd. vs. CIT (1998) 230 ITR 108 (Bom.) , the Bombay High Court has also held under: (ii) That it is well-settled that though the subject of charge under the Income-tax Act is income of the previous year, the law to be applied is that in force in the assessment year unless otherwise stated or implied. Therefore, for determining the liability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent years. The above circular clearly explains intention of the legislature for introduction of the amendment which clearly provides that it was felt that for units the holding period of three months prior to sales did not provide sufficient deterrence to tax avoidance and, therefore, clause (b) of section 94(7) was substituted to increase the holding period in respect of units from three months to nine months after the record sale. In such cases the purposive construction should be applied, which is also known as mischief rule' as described in Heydon's case. Four aspects are to be taken into consideration while applying the principle of 'mischief rule' i.e. (i) what was the law before making the act (amendment), (ii) what was the mischief or defect for which the law did not provide, (iii) what is the remedy that the act (amendment) has provided; and (iv) what is reason for remedy. Thus, the construction of the statute should be in such a manner, which would suppress the mischief and advance the remedy. The construction of the provisions should fulfill the intention of the legislature. Now in the instant case the amendment was made in clause (b) of section 94 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April of the assessment year 2005-06 shall govern the assessment of the relevant assessment year. 4.4.3. It may also be noted that the case of Vinod Krishna Kaul, IPS Vs. Union of India (supra) relied upon by the appellant relates to the administrative law and not related to the fiscal law and, thus, the ratio of this decision is not applicable for income-tax purposes. It is a well settled principle in administrative law that no amendment can be made with retrospective effect, whereas in the Income-tax Act the amendment can be made by the legislature with retrospective effect also. In this regard, the Hon ble Supreme Court in the case of CIT Vs. Varas International P. Ltd. (2008) 283 ITR 484 (S.C.) held as under:- Held, that it has been consistently held by the Supreme Court that for an amendment of a statute to be construed as being retrospective, the amended provision itself should indicate either in terms or by necessary implication that it is to operate retrospectively and that there was no conflict of decisions which required resolution. In the amendment of clause (b) of section 94(7), it has been stated in clear terms that it would be effective from 01.04.2005. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee replied that investment was made in the shares of various companies in order to retain the controlling interest of HCL group of companies and that it was difficult to segregate the expenses . However, the AO did not accept the submissions of the assessee and disallowed an amount of `25,26,726/- on account of portfolio management fee besides an estimated amount of ` `5 lacs out of administrative expenses, in terms of provisions of sec. 14A of the Act, the assessee having not furnished the relevant details of such expenses. 7. On appeal, the ld. CIT(A), following the view taken in the decision of ITAT Special Bench, Mumbai in the case of ITO vs. Daga Capital Investment (P) Ltd. In ITA no. 8057/Mum./2003 directed the AO to recompute the disallowance u/s 14A(2) (3) of the Act. 8. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the out set, both the parties agreed that the issue is required to be re-adjudicated in terms of decision dated 18.11.2011 of the Hon ble jurisdictional High Court in Maxopp Investment Ltd. vs. CIT,[2011] 15 taxmann.com 390 (Delhi). 9. We have heard both the parties and gone through the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act . In the past , there have been cases in which deduct ion has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses, incur red to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e. , gross income minus the expenditure. On the same analogy the exempt ion is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of sect ion 14A. In sect ion 14A, the first phrase is for the purposes of computing the total income under this Chapter which makes it clear that various heads of income as prescribed under Chapter IV would fall within sect ion 14A. The next phrase is, in relation to income which does not form part of total income under the Act . I t means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of sect ion 14A. Further, sect ion 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-section (2) of section 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method. 42. Thus, the fact that we have held that sub-sections (2) (3) of section 14A and Rule 8D would operate prospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the ld. CIT(A) did not have the benefit of aforesaid decision of the Hon ble jurisdictional High Court, we consider it fair and appropriate to modify the direct ions of the ld. CIT(A) and restore the matter to the file of the AO for deciding the issue of disallowance u/s 14A raised in the ground no. 2 in the appeal, afresh in accordance with law in the light of aforesaid judicial pronouncements, including that of the Hon ble jurisdictional High Court and of course after allowing sufficient opportunity to the assessee. With these observations, ground no. 2 in the appeal of the assessee is disposed of. 11.. Ground no.3 relates to levy of interest U/s 234B and 234D of the Act. The ld. AR on behalf of the assessee did not make any submissions on this ground. The levy of interest u/s 234B 234D of the Act being mandatory [Commissioner Of Income Tax. vs Anjum M. H. Ghaswala And Others,252 ITR 1(SC), affirmed by Hon'ble Apex Court in the case of CIT v. Hindustan Bulk Carriers [2003] 259 ITR 449(SC) and in the case of CIT v. Sant Ram Mangat Ram Jewellers [2003] 264 ITR 564(SC)], this ground is dismissed. However, the AO shall allow consequential relief ,if any, while giving ef ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
