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TMI Blog2020 (8) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... that the functional profile of the assessee is as under:- Tata Sons Ltd("TSL") established as a trading firm by Jamshetji Tata in 1868 is the promoter of all the key/major Tata Companies and holds the majority promoter holding in the Tata Companies. It is the owner of the 'Tata' name and the 'Tata' trademark, which are registered in India and several other countries. These are used by various Tata companies in relation to their products and services. The terms of use of the TATA Trademark by Tata companies are governed by the Brand Equity and Business Promotion Agreement, which is by TSL and individual Tata companies. Apart from this, the company's activities are: To maintain shareholding in main operating companies; To invest in operating companies to facilitate growth; and To promote the group's entry into new businesses. Tata Sons has two divisions: Tata Quality Management Services: Helps Tata companies achieve business excellence through the TBEM. There are various programmes like Business Excellence Leaders' Programme, Practising Business Excellence and Management of Business Ethics. The basic co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o assessee, the assessee has utilised the Interest Saving (IS) approach based on External CUP method. The ld. TPO disregarded the approach of the assessee and adopted yield approach to benchmark the guarantee transaction of the assessee with its AE based on the credit rating of the assessee and yield on interest rate for one year unsecured bond period as the guarantee given by the assessee was for a period of 364 days. Accordingly, the ld. TPO applying CUP method adopted the yield on interest rate for one year unsecured bond of 6.878% per annum and compared the same with credit rating of the AE which was at BB rating and for which the yield on interest rate for one year unsecured bond for 3.121% per annum. Accordingly, the ld. TPO arrived at the benefit accrued to the AE on account of guarantee given by the assessee at 3.757% (6.878-3.121). From that the ld. TPO also gave benefit of better bargaining power of the assessee and reduced 0.751% and finally arrived at the ALP of guarantee fee at 3.006% per annum (3.757-0.751) and made an adjustment of Rs. 6,84,44,433/- after reducing the guarantee fee received by the assessee in the sum of Rs. 58,03,767/-. 2.3. We find that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and perused the materials available on record. We find that the assessee while computing income from house property, the assessee had reduced Rs. 30,55,040/- from the annual value in addition to the other statutory deduction including 30% deduction allowed towards repairs u/s. 24. The assessee had submitted that these expenditures represent maintenance facilities like salaries, security charges and electricity of house property. The ld. AO observed that assessee is entitled only for deduction for municipal tax paid and flat deduction @30% for repairs under head 'income from house property' and no other deduction shall be permissible under the Act. The assessee had received Rs. 1,73,90,000/- towards amenities and service charges which were duly offered to tax as rent under the head 'income from house property' against which, this expenditure of Rs. 30,55,040/- was deducted by the assessee under the head 'income from house property'. It is not in dispute that assessee had duly offered rental income as well as amounts received towards amenities and service charges under the head 'income from house property'. We find that the ld. AR referred to the decision rendered in group compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1. We have heard the rival submissions and perused the materials available on record including the judicial pronouncements relied upon by both the sides at the time of hearing. We find that the ld AR placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of DIT (International Taxation) vs Bank of America NT and SA in Income Tax Appeal No. 177 of 2012 dated 3.7.2014 wherein the Hon'ble High Court approved the action of this tribunal had held as under:- "3 Even with regard to the question No.2 we do not find that it is a substantial question of law. The Tribunal found that the Assessee Bank received interest on refund of taxes paid. It also paid interest on the taxes which were payable. The Assessee sought to set off the interest paid against the interest received and offered the net interest received to tax. We do not see that such findings of the Tribunal are vitiated in law. All that the Tribunal has done earlier and now is that in the case of this Assessee simply because the exercise carried out by it does not result in loss of revenue and there could not be any prohibition for the same, allowed it. That is how the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under:- (a) Under Rule 8D(2)(i) - Rs. 39.30 Crores (b) Under Rule 8D(2)(ii) (without giving the benefit of netting of Interest expenditure with interest income) - Rs. 661 Crores (c)Under Rule 8D(2)(iii) - Rs. 125.50 Crores Total Rs. 825.80 Crores 5.2. From this figure, we find that the ld. AO reduced the amount already disallowed by the assessee in the sum of Rs. 474.19 Crores and made disallowance for the remaining sum of Rs. 351.61 Crores in the assessment. 5.3. We find that the ld. CIT(A) had observed in para 9.4.2. of his order in page 54 that the activity of controlling, managing, administrating and financing various companies by the assessee is an elaborate activity which is not only for the purpose of earning dividend income but variety of other purposes including development of brand value, setting up of new enterprises, receiving royalty, rendering business development activity with respect to the member companies. For this, the company is remunerated in variety of ways and not merely through earning of dividend. Such remuneration includes royalties, cost sharing arrangement, other charges, int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of disallowance of interest u/s.36(1)(iii) of the Act. If the borrowed funds have been used for making investment for shares which inturn had yielded exempt income to the assessee, then, the allowability of interest need to be looked into from the angle of Section 14A of the Act r.w.r. 8D(2)(ii) of the Rules. This fact has been correctly dealt, in our considered opinion, by the ld. CIT(A) in his order. We also find that this issue is also covered in favour of the assessee's group company case by the order of this Tribunal in the case of Tata Industries Ltd., vs. ITO in ITA No.4894/Mum/2008 dated 20/07/2016 wherein this Tribunal by placing reliance on various decisions of the Hon'ble High Courts including the Hon'ble Jurisdictional High Court in the case of CIT vs. Phil Corporation Ltd., reported in 202 Taxman 368 had decided the issue in favour of the assessee with regard to allowability of interest. Hence, we do not find any infirmity in the observation made by the ld. CIT(A) that the interest on borrowed funds used for making investments would be allowable u/s.36(1)(ii) of the Act subject to the provisions of Section 14A of the Act. This observation made by the ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted and taken up for adjudication. We find that assessee had actually disallowed the sum of Rs. 474.19 Crores by identifying the actual expenditure under normal provisions of the Act. We find that the Special Bench of Delhi Tribunal in the case of Vireet Investments reported in 165 ITD 27 had held that actual expenditure alone should be considered for disallowance in terms of Clause(f) to Explanation 1 to Section 115JB of the Act. Accordingly, we direct the ld. AO to disallow Rs. 474.19 Crores u/s.14A while computing book profits u/s.115JB of the Act. Accordingly, the additional ground No.4A raised by the assessee is partly allowed. 7. The ground No.5 raised by the assessee and ground No.3 raised by the revenue is with regard to disallowance of payments made to Media Relations Agency. 7.1. The facts as recorded in the assessment order with regard to this trader are that the assessee has shown an expenditure of Rs. 12.66 Crores as payment given to M/s. Vaishnavi Corporate Communications Pvt. Ltd., (VCCPL) owned by Ms. Nira Radia towards consultancy fees. The assessee was asked to submit the details of services obtained for which consultancy fees was paid. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding that the same are not meant for purpose of business of the assessee company. It was specifically submitted before the ld. CIT(A) that broad purpose of the services delivered by the VCCPL was to create a unified media focus for the company, pro-active strategic planning for image building, branding initiatives, market related public relation and training. The assessee submitted the details of services provided by VCCPL as under:- i. Media Relations (including Television, Print and the Internet)- This includes creating resource bank comprising of Corporate backgrounders, fact sheets, profile, etc; Drafting and dissemination of press releases, receiving and answering queries from the media; handling of all interaction involving the companies and the media; gathering information on media coverage, etc. ii. Strategic Planning (this includes putting together short term and long term media engagement plans), creating backgrounders and research material on various industry segment, putting together communication material for different branding events, measuring and analyzing media coverage of companies competitors of industry segment. 7.3. The ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded in the overall payment of Rs. 12.66 Crores made by VCCPL, only a portion of these payment relates to these services. Accordingly, he proceeded to contribute 50% of the amount paid to VCCPL as being for an activity which was not related to assessee company. The ld. CIT(A) finally concluded that 50% of the amount is to be held not for the purpose of the business of the assessee and also clarified that this is not a routine disallowance and the amount has been held to be disallowable only because of the financial services having been rendered by VCCPL in respect of other persons during that year, for which payment was received from the assessee. He categorically mentioned in his order that this disallowance should not be taken on a year on year basis. 7.4. Aggrieved by this observation, both assessee as well as the revenue are in appeal before us. 7.5. We have heard rival submissions and perused the materials available on record. We find that the following documents were duly placed on record before the lower authorities:- (a) Copy of media relations, strategic planning and public affairs services agreement entered into between assessee and VCCPL dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid list, admittedly, it could be seen that Tata Realty Investment and Infrastructure Ltd., does not figure in the said list. From the aforesaid agreement dated 21/11/2006, it could also be seen that Ms. Nira Radia is a media relations professional and VCCPL was a company promoted by her as a private limited company on 01/11/2001 and the said company has been in the business of public relation management and communication strategies and has rendered services in those areas to the assessee company and other Tata companies since 01/11/2001. These facts are not disputed by the revenue before us. We find that primarily the assessee herein has made investments of Rs. 1700/- Crores in its subsidiary company Tata Realty Investment and Infrastructure Ltd. The said subsidiary company had utilised the said funds to buy lands from Unitech Group and it was Unitech group which had ultimately acquired 2G telephone spectrum licenses from Department of Telecommunications, Government of India which are governed by Telecom Regulatory Authority of India (TRAI) regulations. Hence, the primary transactions of amounts invested by the assessee in Tata Realty Investment and Infrastructure Ltd., and its co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee is allowed and ground No.3 raised by the revenue is dismissed. 8. The ground No.6 raised by the assessee is with regard to disallowance of pension amount. 8.1. We find that assessee had raised a ground challenging the action of the ld. CIT(A) in confirming the disallowance of provision for pension of Rs. 4.88 Crores provided on actuarial basis. This aspect of the ground was stated to be not pressed by the ld. AR at the time of hearing before us and the same is reckoned as statement made from the Bar and accordingly, dismissed as not pressed. 8.2. We find that the assessee had raised a ground challenging the action of the ld. CIT(A) in suo moto enhancing disallowance on account of pension payment of Rs. 89 lakhs. We have heard rival submissions and perused the materials available on record. We find that assessee has debited Rs. 5.77 Crores as provision for pension payable to former Directors out of which a sum of Rs. 89 lakhs was actually paid. The remaining sum of Rs. 4.88 Crores was payable which was the subject matter in the aforesaid ground 6(i) which is not pressed by the assessee before us as stated supra. The assessee contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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