9911796707
TMI Blog2007 (12) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of manufacturing and/or trading in consumer products such as soaps, detergents, cosmetics, industrial chemicals, oils, oilseeds, oil palm nursery and plantation, financial operations and letting of properties, having branches and factories all over the country. 4. During the course of assessment proceedings, assessee was asked to justify its claim of dividend of Rs. 569.06 lakhs for exemption under s. 10(33). It was submitted that the assessee claimed dividend receipt as exempt and what is claimed as exempt is dividend income as there is no expenditure whatsoever incurred in earning the dividend income. There is no borrowing attributable to the investments made by the assessee. It was further submitted, in respect of dividend of Rs. 6,34,17,603 received during the year under consideration. Rs. 5,69,06,124 was claimed as exempt under s. 10(33) as dividend of this amount was declared/paid on or after 1st June, 1997 and balance of Rs. 65,11,479 declared/paid prior to 1st June, 1997 was brought to tax. 5. However, the AO did not accept the claim of the assessee. He held, the assessee has not allocated any expenditure incurred for earning the dividend. In common pool of funds, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the above proposition assessee relied upon the decisions of the Hon'ble Calcutta High Court in the cases of CIT vs. Anniversary Investments Agencies Ltd. (1989) 78 CTR (Cal) 91 : (1989) 175 ITR 199 (Cal) and CIT vs. New India Investment Corpn. Ltd. (1978) 113 ITR 778 (Cal) and the decision of the Hon'ble Gujarat High Court in the case of Addl. CIT vs. Laxmi Agents (P) Ltd. (1980) 125 ITR 227 (Guj). 7. CIT(A) opined that it is not permissible for the AO to allocate interest on ad hoc basis and expenditure on estimate basis, pertaining to dividend income earned by the assessee. He held, the onus has not been discharged by the AO by pointing out any particular item of expenditure or investment has been made out of borrowed funds. It is not permissible to allocate expenditure on ad hoc basis and thereafter reduce exemption under s. 10(33). For the above proposition, he relied upon the decision of the Hon'ble Calcutta High Court in the case of CIT vs. United Collieries Ltd. (1993) 203 ITR 857 (Cal). He allowed the claim of the assessee vide paras 2.6 and 2.7 of his order, observing as under: "2.6 I have also perused the assessment orders upto asst. yr. 1994-95 which show that fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the cost of investments made during the year under consideration. There is no borrowing attributable to the acquisition of shares on which dividend has been received. Surplus realized by the assessee on sale of past investments in each and every year, has been ploughed back into the business activities of the assessee. Factually, there is no borrowing to fund an investment. On the contrary, the surpluses on sale of shares have funded the assessee's manufacturing operations. He further submitted, perusal of share capital and reserves and surplus in the balance sheet at the end of the year would reveal that reserves and surplus amount to Rs. 26206 lakhs and share capital amount to Rs. 6,514 lakhs. Amount in investments aggregates to Rs. 23,179.55 lakhs, which is much lower compared to capital employed, i.e. Rs. 32,720 lakhs and it is more than covered by reserves of the assessee company. Learned counsel submitted, one cannot notionally and on sheer conjecture ascribe expenses to the earning of dividend income when in actual fact no such expenses had been incurred. The onus is on the Revenue to show that expenses have been actually incurred for earning of dividend income. In suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such expenditure @ 5 per cent of the dividend of Rs. 43,70,884, which has been claimed exempt under s. 10(33) of the Act. Hence, the expenditure to be disallowed works out to Rs. 2,18,544." 12. Learned counsel submitted, for the asst. yr. 2000-01, Revenue has accepted the order of the learned CIT(A) on the very same point, which is in favour of the assessee. He further submitted that for the assessment year under consideration the assessee in fact sold investment worth Rs. 55 crores whereas assessee purchased and made investment only to the tune of Rs. 6 crores. On the premises of the above facts, there is no reason and there is no meaning in saying that the assessee had spent borrowed money to make the investment. Assessee is rot trading in shares. Assessee had made investment only in assessee's group concerns, where the assessee need not spend any labour for the above purpose. In support of assessee's contention that no disallowance could be made, learned counsel relied upon the following decisions: The Hon'ble Bombay High Court in the case of CIT vs. General Insurance Corporation of India (2002) 254 ITR 203 (Bom) held: "that the expenses incurred by the assessee on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought on record, we are of the view that the order of the learned CIT(A) does not call for any interference. Assessee is a big conglomerate. It is very difficult to come to a definite conclusion that the assessee has borrowed funds for investment, where assessee will get tax-free returns, particularly in view of the fact that assel8see has sold its own assets/shares to the tune of Rs. 55 crores whereas assessee has made investment to the tune of Rs. 6 crores and odd. In the light of the above fact, it is very difficult to come to the conclusion that the assessee has utilised borrowed funds to make investment in the tax-free returns. The appeal by the Revenue on this ground hence fails and it is dismissed. 15. Coming to next ground (ground No. 2) of objection taken by the Revenue it is directed against the order of the CIT(A) in allowing deduction under s. 35D to the tune of Rs. 90,17,700, without giving the AO an opportunity to re-examine the issue. 16. AO observed, in the revised return the assessee had claimed deduction under s. 35D in respect of share issue expenses of Rs. 90,17,700. Assessee was asked to give working in respect of allowable expenditure, especially nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of rental income which may be assessed under house property, the following income was assessed under the head "Income from other source": Nature of Income Amount(Rs.In lakhs) (1) Miscellaneous Interest paid on fixed deposits 13.73 with banks (2) Leave and licence fees received from outside 206.21 parties in the nature of rent other than fees received from employees for staff quarters (3) interest on inter-corporate deposits 288.33 (4) Interest on investments 1.36 (5) Interest on income-tax refunds 121.09 ------ Total 630.71 ------ 24. AO has given the detailed reasons, which can be summed up as under: Firstly he held, computing income under specified heads is not only proper; it is, also obligatory on the part of the Revenue to do so. Income cannot be charged under a wrong head merely because the assessee returned it under a wrong head. Computation of income under each head is to be done independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted will be of revenue nature and chargeable to tax under s. 56 of the IT Act, 1961. He also placed reliance on the decision of the Hon'ble Rajasthan High Court in the case of CIT vs. Rajasthan Land Development Corporation (1995) 125 CTR (Raj) 261 : (1995) 211 ITR 597 (Raj), which laid the principles regarding taxability of interest under specified head. On the basis of the discussion contained at pp. 13 to 21, AO treated the income under the head "Income from other source". Aggrieved by the above order, assessee approached the first appellate authority. 25. Before the CIT(A) assessee contended that the assessment order was erroneous and the facts are clearly distinguishable from the decisions relied upon by the AO. Assessee was carrying on several business activities and at the end of the year assessee borrowed Rs. 448 crores and during the year assessee incurred interest expenditure of almost Rs. 66 crores. The finding that the assessee had invested its surplus funds is an erroneous finding. It was submitted from the details of interest earned that the amounts were actually kept as margin money for obtaining guarantees, bonds with statutory authorities, etc. In several cases mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invited the attention of the AO for the immediate preceding year where surplus income was allowed as income from business. If was submitted, assessee was having financial operations, which is one of the objects of the assessee company for the past several years and the income was always treated as income from business. Assessee has earned interest income by giving inter-corporate deposits, placing money on call deposits, etc. It was submitted, assessee had carried on this business of advancing money in an organized and systematic manner and earned such income, which was always treated as income from business. Learned counsel again brought our attention to paper book pp. 7 to 9, which is statement of facts. It was submitted. AO was wrong in treating the interest received on investment of surplus or idle funds as income from other sources, treating if temporary or short-term in nature and there was no compulsion for making such investment and further no business connection etc. The deposit was not placed with an intention to earn interest but it was in order to obtain securities, guarantees or as margin money with various authorities like customs, excise, etc. as per exigencies of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms on similar set of facts, have been allowed even by the AO in the subsequent as well in the preceding years. Though of course each year is independent, but on similar set of facts there cannot be divergent views for different years as far as the taxing of the subjects concerned. Regarding leave and licence fees received, assessee has brought on record that assessee had given on rent some of the business assets for better utilization of the same to assessee's advantage. Regarding miscellaneous interest, learned counsel for the assessee brought our attention to paper book p. 8, which argument has already been mentioned in the preceding para hereinabove. Briefly to repeat, the deposit was not intended to earn interest but to obtain securities, guarantees or was compelled to retain as margin money with customs, excise authorities etc. This item, we are of the view, should be remanded back to the me of AO, so as to verify the facts in detail. AO may allow the claim of the assessee if he is satisfied of the above contention of the assessee. The appeal by the assessee on this ground is allowed in part for statistical purposes. In short, item No. (1) remanded back to the file of AO for v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be reduced from book profit. He held, since the depreciation has been withdrawn from revaluation reserve account from balance sheet, therefore, it needs no adjustment as per provisions of s. 115JA. As such, assessee is not entitled for deduction of Rs. 242.25 lakhs on account of depreciation for revaluation of assets. Aggrieved, assessee approached the first appellate authority. 38. The learned CIT(A) concurred with the submissions advanced on behalf of the assessee and allowed deduction for the said amount. 39. After considering the rival submissions and perusing the relevant material on record. it is apparent from p. 27 of the paper book, being the annual report, that there is depreciation for the year on revaluation components of Rs. 2,42,26,000 transferred to the P L a/c. The AO has not disputed the fact that the revaluation reserve was created in the financial year 1992-93 without debiting the P L a/c. From the prescription of Expln. (1) to s. 115JA read with its proviso, it becomes clear that the amount withdrawn from the reserve in the previous year relevant to the assessment year commencing on or after 1st April, 1997 but ending before 1st April, 2001 shall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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