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TMI Blog2020 (5) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... e - It is incumbent on the part of the assessee that having promoted industries in the State and having undertaken to participate in the day to day affairs in the management of those undertakings by participating in crucial decision making process. The assessee had to maintain its 24% equity stake in those undertakings at every point in time, so as not to lose controlling interest over the respective undertakings. With regard to yet another observation made by the Ld.CIT in his order that in Schedule VII of the Balance sheet, the assessee company had shown investments other than subsidiaries and had shown market value of investments thereon. We find that this disclosure requirement is made in accordance with Schedule VI of the Companies Act, 1956, which has got absolutely no relevance for the purpose of Income Tax Act. The assessee was all along getting returns only in the form of dividend and had never participated in any profit sharing with those public sector undertakings right from the inception of the assessee company. Hence, the case laws relied upon by the Ld.AR which were passed by this Tribunal and by the Hon ble Jurisdictional High Court in the assessee s own cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of book profits u/s115JB. In the profit and loss account, the assessee has profit for the year as ₹ 1,24,22,827/- but profit after prior period adjustment carried over to the balance sheet is ₹ 1,66,61,370/-. The prior period adjustments are shown in Schedule 20 to the accounts. This is the net amount of ₹ 42,58,543/- after adjusting prior period income of ₹ 63,73,938/- against expenditure of ₹ 21,15,395/-. In the computation of book profit, the assessee has added an amount of ₹ 33,64,300/- as prior period income. The actual amount of prior period income shown in Schedule 20 is ₹ 63,73,936/-. Thus, there is difference of ₹ 30,09,638/- which was not added in the computation. The assessee was asked vide my letter dated 11.03.2008 to furnish item-wise adjustment and explain how the same is in accordance with law. In my letter dated 11.02.2008, I have specifically pointed out this difference. The assessee has not furnished the reconciliation between prior period income as shown in Schedule 20 of ₹ 63,73,938/- and Income of ₹ 33,64,300/- added to book profit. One major item which has been included in the prior period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this clause, deduct from book profits the amount utilized out of the reserve for payment of gratuity leave salary etc. The adjustment made by the assessee is, therefore, erroneous and prejudicial to the interest of the revenue. The AO is therefore directed to re-compute the book profit after withdrawing this adjustment. We find from the aforesaid observation of CIT, the issue was set aside to the file of the Assessing Officer for making verification on merits. The Ld.AR fairly conceded before us that since, this is only a matter of factual verification by the Ld.AO and hence, he has no objection for the same. He only prayed that let the Ld.AO decide all those issues in accordance with law for which necessary direction may be given to him. The Ld.DR also fairly conceded to the said request of the Ld.AR. Accordingly, we hold that the order of the Ld.CIT in respect of the aforesaid issues is only set aside to the file of the Ld.AO for verification. Hence, we hold that the Ld.AO has to decide the taxability of those issues in accordance with law. Accordingly the order of the Ld.CIT in respect of those issues alone is upheld and the grounds raised by the assessee in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the Revenue by allowing the set-off of brought forward loss. We find that it is undisputed that the assessee company is engaged in the promotion of industries in TamilNadu by making investment in various companies as well as having joint venture thereon. The amounts invested in those companies were by way of investment in shares for which the resultant income would be in the form of dividend till the time of holding of those shares. The said dividend income according to the assessee was to be reflected under the head income from business and exemption, if any, provided U/s.10 of the Act should be claimed thereon. The main contention of the Ld.AR is since the assessee company is engaged in the business of promotion of industries by way of making investment in shares, the resultant income in the form of dividend would partake the character of business receipt and not income from other source . If the said dividend income is included as business income, then the assessee would be entitled for set-off of brought forward business loss against the same. The Ld.AR in this regard drew our attention to the agreement entered into with various industries wherein it is very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be on the income which is included in the total income. The situation, however, changes when the income, though per Se, is dividend income but has a different complexion on account of the activity carried out by the assessee. If the assessee is not an investor, but a trader in shares or is one like the assessee before us, then the dividend income changes its complexiont obusiness income. In other words, the dividend income received by such person is in reality his business income. In such a case, the entire dividend income will go into the total income when the computation of income is made. It is equally true that expenditure incurred to earn an income which is not taxable, is not allowable. Thus, if various activities are carried out by an assessee, and if the activities can be conveniently segregated, then, expenditure attributable to the exempt income will have to be disallowed. Therefore, the crux lies in examining whether the activities carried out by the assessee are divisible or indivisible. It is in this connection that the Supreme Court laid down certain principles in the case of Rajasthan State Warehousing Corporation vs. CIT (2000) 159 CTR (SC) 132 : (2000) 242 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be that of investing upcoming industries by way of subscription to the capital of such companies. It this second activity, which according to the Departmental Representative an investment activity and therefore expenditure incurred to earn dividend income from this second activity has tob e disallowed. I am not agreeable with this proposition of the learned Departmental Representative for two reasons. Firstly, it is well established since the inception of the company that the assessee company is a development organisation. This is being declared year after year in the notes to the accounts. However, the learned Departmental Representative has given importance to the fact that investments are on a long-term basis. In my opinion, it may be so, but the fact remains that investment is made by the assessee in its role of a development organization and not as an investor to earn dividend income. In fact, the written submission of the learned departmental Representative supports this view. It is mentioned that the assessee invests in upcoming organization and not as an investor. The submission of the learned Departmental Representative further states that once a particular company is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already seen, the decisions of the Supreme Court required a nexus between the business of the assessee and the expenditure that has been incurred. The business of the assessee is the holding of investments. If with reference to this business of the holding of investments any expenditure had been incurred, that would have been allowed as deduction. The business of holding investment and the businesses of the subsidiary companies are wholly separate and distinct. The expenditure that has been incurred in the present case cannot be said to be in carrying on the assessee's business of holding its investment. It could hold its investments and earn its dividends without incurring this expenditure. Before the introduction of the restrictive provision in the Companies Act of 1956, the respective companies were paying the directors for services rendered to them and they are now remunerated by the assessee. There was no change in the rendering of services. Merely because the law had changed and the managed company was not in a position to pay the same remuneration because of the restrictive statutory provision, it does not mean that what was prior to 1956 Act expenditure of the subsidiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed U/s.263 of the Act, by referring to the relevant observation made by the Ld.CIT that even though the assessee is engaged in the business of promotion of industries in the State by way of making investment in shares in various joint sector undertakings, and thereby the resultant income in the form of dividend thereon would partake the character of business income, the subsequent investment made by the assessee company in those respective joint sector undertakings were not meant for promotion of industries and hence the dividend income would be taxable only under the head income from other sources and not under the head income from business . Accordingly the Ld.DR argued that the findings given by this Tribunal and the Hon ble Jurisdictional High Court in assessee s own case cannot be applied in perpetuity in favour of the assessee. In this regard, the Ld.AR countered the arguement of the Ld.DR by stating that the subsequent investments were made only pursuant to fresh issue of shares made by those joint sector undertakings to all the existing shareholders including the assessee. As per the original agreement with the joint sector undertakings entered into by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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