Madras High Court
M/S.Eta Star Appliances Pvt. Ltd vs Assistant Commissioner Of Income ... on 10 August, 2021
T.C.A.No.219 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 10.08.2021
CORAM
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP
T.C.A.No.219 of 2017
M/s.ETA Star Appliances Pvt. Ltd.,
71, Sterling Road,
Chennai-600 034.
PAN: AABCE8102F .. Appellant
-vs-
Assistant Commissioner of Income Tax,
Corporate Circle – 2(1),
Chennai-600 034. .. Respondent
Appeal under Section 260A of the Income Tax Act, 1961 against the
order dated 05.10.2016 made in I.T.A.No.470/Mds/2016 on the file of the
Income Tax Appellate Tribunal 'A' Bench, Chennai for the assessment year
2012-13.
For Appellant : Ms.S.Sriniranjani
For Respondent : Mr.S.Rajesh, Standing Counsel
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T.C.A.No.219 of 2017
JUDGMENT
(Delivered by T.S.Sivagnanam, J.)
This appeal, by the appellant/assessee, filed under Section 260A of
the Income Tax Act, 1961 is directed against the order dated 05.10.2016,
made in I.T.A.No.470/Mds/2016 on the file of the Income Tax Appellate
Tribunal 'A' Bench, Chennai for the assessment year 2012-13.
2.The appeal was admitted on 07.04.2017 on the following
substantial questions of law:-
“(i) Whether on facts and in the circumstances of
the case, the Income Tax Appellate Tribunal is right in
law in holding that the claim of expenditure by the
appellant is subject to disallowance under the provisions
of Section 14A of the Income Tax Act, 1961 read with
Rule 8D of the Income Tax Rules, 1962?
(ii) Whether on the facts and in the circumstances
of the case, the Income Tax Appellate Tribunal is right in
law in holding that even if there is any income out of
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T.C.A.No.219 of 2017
investments in shares, the same would be exempt under
Section 10(33) of the Act and cannot be computed under
the head “income from other sources?
(iii) Whether the provisions of Section 14A of
Income Tax Act, 1961 read with Rule 8D of Income Tax
Rules, 1962 would be attracted even if there is no
expenditure incurred in connected with strategic
investment made in the group concern out of own source
of funds in the previous years not relevant to the
assessment year in question? and
(iv) Whether on the facts and in the circumstances
of the case, the Income Tax Appellate Tribunal is right in
law in not applying the amended provisions of Rule 8D
of Income Tax Rules, 1962 substituting sub-rule (2) and
omitting sub-rule (3) vide CBDR Notification
No.43/2016 dated 02.06.2016 in computing the
disallowance under Section 14A of Income Tax act,
1961?”
3.Heard Ms.S.Sriniranjani, learned counsel for the appellant/assessee
and Mr.S.Rajesh, learned Standing Counsel for the respondent/Revenue.
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T.C.A.No.219 of 2017
4.It is not in dispute that the substantial questions of law, which have
been framed for consideration, have been answered against the Revenue by a
Division Bench of this Court in T.C.A.Nos.732 and 733 of 2018 dated
07.07.2020 to which, one of us (TSSJ) was a party. The operative portion of
the judgment reads as follows:-
“4. We take up for consideration the substantial
question of law no.2 referred above. The tribunal in
paragraph No.8.1, held that the Assessing Officer is not
justified in making excessive disallowance and that the CIT(A)
rightly restricted the disallowance to the extent the dividend
income declared by the assessee. In fact the tribunal records
that the revenue could not controvert the findings rendered by
the High Court of Delhi in the case of Joint Investments
Private Limited Vs. CIT, reported in (2015) 372 ITR 0694
(Del).
5. It is relevant to point out that in the said decision the
Division Bench of the Delhi High Court referred the decision
in the case of Commissioner of Income Tax VI Vs. Taikisha
Engineering India Limited [ITA No.115/2014 decided on
25.11.2014.
6. Further, the Bombay High Court in the case of
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T.C.A.No.219 of 2017
Godrej & Boyce Manufacturing Company Limited, Mumbai
Vs. Deputy Commissioner of Income Tax, reported in (2010)
328 ITR 0081, has elaborated the procedure to be followed by
the Assessing Officer under Section 14A in the following
terms.
“The following principles would emerge from s.
14A : (a) the mandate of s. 14A is to prevent claims for
deduction of expenditure in relation to income which
does not form part of the total income of the assessee;
(b) sec. 14A(1) is enacted to ensure that only expenses
incurred in respect of earning taxable income are
allowed; (c) the principle of apportionment of
expenses is widened by s. 14A to include even the
apportionment of expenditure between taxable and
non-taxable income of an indivisible business; (d) the
basic principle of taxation is to tax net income. This
principle applies even for the purposes of s. 14A and
expenses towards non-taxable income must be
excluded; (e) once a proximate cause for disallowance
is established —which is the relationship of the
expenditure with income which does not form part of
the total income—a disallowance has to be effected.
All expenditure incurred in relation to income which
does not form part of the total income under the
provisions of the Act has to be disallowed under s.
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14A. Income which does not formpart of the total
income is broadly adverted to as exempt income as an
abbreviated appellation. Under sub-s. (2), the AO is
required to determine the amount of expenditure
incurred by an assessee in relation to such income
which does not form part of the total income under the
Act in accordance with such method as may be
prescribed. The method, having regard to the
meaning of the expression 'prescribed' in s. 2(33),
must be prescribed by rules made under the Act. What
merits emphasis is that the jurisdiction of the AO to
determine the expenditure incurred in relation to such
income which does not form part of the total income,
in accordance with the prescribed method, arises if
the AO is not satisfied with the correctness of the claim
of the assessee in respect of the expenditure which the
assessee claims to have incurred in relation to income
which does not form part of the total income.
Moreover, the satisfaction of the AO has to be arrived
at, having regard to the accounts of the assessee.
Hence, sub-s. (2) does not ipso facto enable the AO to
apply the method prescribed by the rules straightaway
without considering whether the claim made by the
assessee in respect of the expenditure incurred in
relation to income which does not form part of the
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total income is correct. The AO must, in the first
instance, determine whether the claim of the assessee
in that regard is correct and the determination must
be made having regard to the accounts of the
assessee. The satisfaction of the AO must be arrived at
on an objective basis. It is only when the AO is not
satisfied with the claim of the assessee, that the
legislature directs him to follow the method that may
be prescribed. Sub-s. (3) of s. 14A provides for the
application of sub-s. (2) also to a situation where the
assessee claims that no expenditure has been incurred
by him in relation to income which does not form part
of the total income under the Act.”
7. The above legal position has been rightly followed by
the tribunal while deciding the assessee's case and therefore,
rightly dismissed the appeal filed by the revenue. Thus, we find
that the Substantial Question of Law No.2 has to be answered
against the revenue and in favour of the assessee.
8. So far as Substantial Question of Law No.1 is
concerned, it has to be seen as to whether the income derived
from letting out of the property in an industrial park/SEZ
including the amenities and the income received by the owners
for such property and the amenities therein would be business
income in the hands of the owner of the property.
9. We need not labour much on this issue, on account of
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T.C.A.No.219 of 2017
the circular No.16 of 2017 issued by the CBDT dated
25.04.2017. The CBDT after taking note of the two decisions
of the Karnataka High Court held that it is now a settled
position that in the case of an undertaking which develops,
develops and operates or maintains and operates an industrial
park/SEZ notified in accordance with the scheme framed and
notified by the Government, the income from letting out the
premises / developed space along with other facilities in an
industrial park/SEZ is to be charged to tax under the head
'Profits and Gains of Business'.
10. As rightly pointed out by Mr.R.Vijaya Raghavan, the
emphasis is on not only letting out of the premises / developed
space but along with other facilities in an industrial park/SEZ.
The tribunal in this regard followed a decision of the Division
Bench of this Court in the case of CIT Vs. Elnet Technologies
Limited, reported in (2013) 30 Taxmann.com 63 (Mad). In
the said decision, at paragraph No.11, the Division Bench, has
held as follows:
"11. In considering whether the income arising
on the leasing of the property was business of the
assessee, one has to get into the nature of the business
of the assessee, to find out the receipts are assessable
under the head of income from house property or as
business income and if receipts does not fall in any of
those classified heads, would fall consideration under
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T.C.A.No.219 of 2017
the residuary head of income as income from other
sources."
11. After referring to the decision in the case of CIT Vs.
Chennai Properties and Investments Limited, reported in
(2005) 274 ITR 117, it was pointed out that income derived
from letting out of the property with all amenities and facilities
would be income from business and cannot be assessed either
as income from house property or as income from other
sources. The said decision of the Hon'ble Division Bench was
appealed against by the revenue before the Hon'ble Supreme
Court in SLP No.11638 of 2013 and we are informed that the
appeal was dismissed on 27.01.2020 on the ground of Low
Tax Effect.
12. Considering all those facts as wells as the circular
issued by CBDT, substantial question of law No.1, has to be
answered against the revenue and in favour of the assessee.
The Tax Case Appeals are dismissed and the Substantial
Questions of Law are answered against the revenue. No
Costs.”
5.Furthermore, it is relevant to take note of the decision of the Hon'ble
Supreme Court in the case of CIT vs. Chettinad Logistice (P.) Ltd., [(2018)
257 Taxman 2 (SC)] wherein, the decision of the High Court holding that
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T.C.A.No.219 of 2017
Section 14A cannot be invoked where no exempt income was earned by the
asssessee in the relevant assessment year was affirmed. The decision in the
case of Redington (India) Ltd. vs. Additional Commissioner of Income-
tax [2017] 392 ITR 633 (Madras) would also come to the aid and
assistance of the assessee.
6.Thus, following the aforementioned decisions, this tax case appeal is
allowed and the substantial questions of law are answered in favour of the
assessee. No costs.
(T.S.S., J.) (S.S.K., J.)
10.08.2021
Index: Yes/ No
Speaking Order : Yes/ No
abr
To
1.The Assistant Commissioner of Income Tax,
Corporate Circle – 2(1),
Chennai-600 034.
2.The Income Tax Appellate Tribunal 'A' Bench, Chennai.
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T.C.A.No.219 of 2017
T.S.Sivagnanam, J.
and
Sathi Kumar Sukumara Kurup, J.
(abr)
T.C.A.No.219 of 2017
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