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TMI Blog2024 (9) TMI 1571X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, in earlier decision rendered in Deputy Commissioner of Income Tax, Circle - 4 (1) , Kolkata Versus M/s. Rav Dravya Private Limited [ 2022 (11) TMI 842 - ITAT KOLKATA ] while relying on decision of Delhi High Court in Pr.CIT Vs. Era Infrastructure (India) Ltd. [ 2022 (7) TMI 1093 - DELHI HIGH COURT ] has held that the Explanation inserted to Section 14A is applicable prospectively. However, the same Bench, while deciding the Miscellaneous Applications, preferred on behalf of the appellants subsequently has concluded that the decision of the Delhi High Court is not binding the Tribunal. - HON BLE THE CHIEF JUSTICE MR. VIJAY BISHNOI AND HON BLE MR. JUSTICE N. UNNI KRISHNAN NAIR For the Appellant: Mr. N.S. Saini, Advocate., Mr. Z. Islam, Advocates For the respondent: Mr. S. Chetia, Senior Standing Counsel, Income Tax Department JUDGMENT ORDER (CAV) [Vijay Bishnoi, CJ] The present appeals have been preferred by the appellant, viz, Williamson Financial Services Limited, under Section 260A of the Income Tax Act, 1961 (hereinafter to be referred as the Act of 1961 ) against the order dated 06.07.2022, passed by the Income Tax Appellate Tribunal (ITAT) Guwahati Bench, Guwahati [herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an argument since the new loans have replaced the old loans which were utilized for such advances. In view of above, interest on borrowed capital relevant to the investment in equity is to be disallowed u/s 14A. As already discussed, the assessee has not maintained separate books of accounts in respect of the activities involving income under the head dividends and also income from other activities. Therefore, the interest relatable to the funds invested in equity shares is determined in accordance with the method as provided under Rule 8D(1)(b)(ii) of the Income Tax Rule, 1961 as under: Aggregate of the following: (i) Rs.22,548,285/- (the amount of expenditure directly relation to income which does not form part of total income) (ii) Rs.7,93,22,426/- (Expenditure by way of interest not attributable to particular income or receipt) The proportionate amount to be calculated as follows: (A X B)/C Where, A= Rs.8,79,14,651/- (i.e. the amount of expenditure by way of interest other than the amount of interest directly relating to income which does not form part of total income) B= Rs.86,78,80,470/- (being the average of Rs.89,45,35,477/- Rs.84,12,25,463/-) (the average of value of inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, 1961. Charge interest u/s 234A/234/B/234C of Income Tax Act, 1961 as applicable. Give due credit for pre-paid taxes as reflected in the AST (ITD System) after due verification. Issue Demand Notice u/s 156 and Challan and copy of Assessment Order to the assessee accordingly. Tax calculation as per System shown separately. Being aggrieved with the assessment order dated 04.02.2016, the appellant Company preferred an appeal before the Commissioner of Income Tax (Appeals), Guwahati [hereinafter to be referred as CIT(A) ] under Section 250 of the Act of 1961 and the said appeal was partly allowed vide order dated 31.01.2019 affirming the action of invocation of provisions of Section 14A read with Rule 8D of the Income Tax Rules, 1962. However, the CIT(A) held that the disallowance under Section 14A of the Act of 1961 read with Rule 8D of Income Tax Rules, 1962 (hereinafter referred to be as the Rules of 1962 ) cannot exceed the income claimed exempt. The operative portion of the order passed by the CIT(A) dated 31.01.2019 is reproduced hereunder: In view of the above discussion and also the above judgments, I hold that the Ld AO had correctly invoked the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial amounts- in one case to the tune of `9.9 crores under Section 14A on the basis that huge amounts of borrowings, had been converted into equity holdings. The CIT(A) and the ITAT granted relief- the latter by following the decision of this Court in Commissioner of Income Tax v. Joint Investment Pvt. Ltd 372 ITR 694. In Joint Investment Pvt. Ltd. (supra), it was held that the disallowance under section 14A should not exceed the exempt income itself. Having regard to these circumstances especially that the ITAT followed the judgment of this Court which had settled this point of law, no question of law arises. The appeal is, therefore, dismissed. As against the above judgment of the Hon ble Delhi High Court, the SLP filed by the Revenue was dismissed by the Hon ble Supreme Court of India in the case of Pr. CIT vs. Moderate Leasing and Capital Services Pvt. Ltd [Special Leave Petition (Civil) Diary No(s).38584/2018, dated 19/11/2018] and thereby the judgment of the Hon ble Delhi High Court holding that the disallowance under Section 14A cannot exceed the exempt income has been affirmed by the Hon ble Apex Court. I therefore direct the Ld AO to restrict the disallowance under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial questions of law: A. Whether in the facts and circumstances of the case, the order dated 06.07.2022 passed by the learned Income Tax Appellate Tribunal in holding that the insertion of the Explanation to Section 14A of the Income Tax Act of 1961 is clarificatory and thereby retrospective in nature is erroneous as well as perverse and thereby the same is erroneous in law. B. Whether the finding of the learned Tribunal to the effect that the insertion of the Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory is contrary to the legislative intention as expressed in the Memorandum to the Finance Bill, 2022 whereby it was stated that the amendment shall be applicable from 01.04.2022 and the Assessment year 2022-2023 onwards and thereby whether the said order passed by the learned Tribunal is erroneous in law. 8. Learned counsel for the appellant Company has vehemently argued that the Tribunal has grossly erred in setting aside the orders dated 31.01.2019 passed by the CIT(A) while observing that the Explanation to Section 14A of the Act of 1961 inserted by Finance Act, 2022 being clarificatory in nature has retrospective effect. It is contended that the said fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant has further invited our attention to the fact that the Bench of the Tribunal which had passed the impugned order, later on, while relying on the decision of the Delhi High Court rendered in Pr.CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022 (supra) has passed an order on 09.11.2022 in ITA No.103/Kol/2021 and held that abiding by the principle of judicial hierarchy, the Hon ble Delhi High Court being a higher Court, the Tribunal is obliged to follow the same. However, subsequently, the same Bench of the Tribunal, vide order dated 02.01.2023 passed MA Nos.2 to 4/GTY/2022 and MA No.5/GTY/2022, has dismissed the Miscellaneous Applications filed on behalf of the appellants while holding that the Delhi High Court is of a non-jurisdictional High Court and therefore, its decision is not binding upon the Tribunal. It is submitted by the learned counsel for the appellant that though the same Bench of the Tribunal, on 09.11.2022 has held that the decision of the Delhi High Court is binding on it, however, on 02.01.2023, the same Bench of the Tribunal has declared that the judgment of Delhi High Court is not binding upon it. It is submitted that the said conduct of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income was not accrued/received during the year, it amounts to holding that Rs.20,000 would be allowed as deduction against non-exempt income of Rs.1.5 lakh even though this expense was not incurred wholly and exclusively for the purpose of earning non-exempt income. Such an interpretation defeats the legislative intent of both Section 14A as well as Section 37 of the Act. 4. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert an Explanation to section 14A of the Act to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. 5. This amendment will take effect from 1st April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income-tax act and provide that no deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stood. The relevant extract of the said judgment is reproduced herein below (page 316 of 279 ITR) The High Court did not refer to the 1999 Explanation in upholding the inclusion of salary for the field break periods in the assessable income of the employees of the appellant. However, the respondents have urged the point before us. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CIT v. S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] was followed in 1989 by a Division Bench of the Gauhati High Court in CIT v. Goslino Mario [(2000) 241 ITR 314 (Gau)] . It found that the 1983 Explanation had been given effect from 1-4-1979 whereas the year in question in that case was 1976-77 and said (page 318) : It is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere fact that the assessments in question had somehow remained pending on 1-4-1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to apply prospectively [See CIT v. Patel Bros. Co. Ltd., (1995) 4 SCC 485, 494. It was also understood as such by CBDT which issued Circular No. 779 dated 14-9-1999 containing Explanatory Notes on the provisions of the Finance Act, 1999 insofar as it related to direct taxes. It said in paras 5.2 and 5.3 : 5.2 The Act has expanded the existing Explanation which states that salary paid for services rendered in India shall be regarded as income earned in India, so as to specifically provide that any salary payable for the rest period or leave period which is both preceded and succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India. 5.3 This amendment will take effect from 1-4-2000, and will accordingly, apply in relation to Assessment Year 2000- 2001 and subsequent years. The departmental understanding of the effect of the 1999 Amendment even if it were assumed not to bind the respondents under Section 119 of the Act, never the less affords a reasonable construction of it, and there is no reason why we should not adopt it. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are it is declared or for the removal of doubts . 18. There was and is no ambiguity in the main provision of Section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word earned had been judicially defined in S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] by the High Court of Gujarat, in our view, correctly, to mean as income arising or accruing in India . The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, income payable for service rendered in India . 19. When the Explanation seeks to give an artificial meaning to earned in India and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on inserted to Section 14A by Finance Act, 2022 will be applicable prospectively. The operative portion of the decision in Avantha Realty Ltd. (supra) reads as under: Substantial questions Nos. D E pertain to the deletion of the disallowance made under Section 14A of the Act. The learned Tribunal took note of the decision of the High Court of Delhi in Era Infrastructure (India) Ltd. (supra), which had taken note of the decision in the case of Cheminvest Ltd. (supra), wherein it was held that amendment by the Finance Act, 2022 of Section 14 A of the Act by inserting a non-obstante clause and explanation we take effect from 01.04.22 and cannot be presumed to have retrospective effect and, therefore, on facts the amendment cannot be applied to the assessment year under consideration. We find no error in such conclusion arrived at by the learned Tribunal. Accordingly, substantial questions of law No.D E are decided against the revenue. 18. Later on, the Delhi High Court, in Uniparts India Ltd. (supra), has made a specific statement that so far as the applicability of Explanation inserted to Section 14A by Finance Bill, 2022 is concerned, it is settled that the same will apply prospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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