Income Tax Appellate Tribunal - Delhi
Dlf Hotel Holdings Ltd., New Delhi vs Dcit, New Delhi on 28 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHE 'I-1', NEW DELHI
Before Sh. Bhavnesh Saini, Judicial Member
And
Sh. N. S. Saini, Accountant Member
ITA No. 1425/Del/2016 : Asstt. Year : 2011-12
DLF Hotel Holdings Ltd., Vs Dy. Commissioner of Income
9th Floor, DLF Centre, Sansad Tax, Circle-7(1),
Marg, New Delhi-110001 New Delhi-110002
(APPELLANT) (RESPONDENT)
PAN No. AACCD5033D
Assessee by : Sh. R. S. Singhvi, CA &
Sh. Satyajeet Goel, CA
Revenue by : Sh. Sanjay I. Bara, CIT DR
Date of Hearing : 27.02.2019 Date of Pronouncement : 28.02.2019
ORDER
Per N. S. Saini, Accountant Member:
Thi s i s an appeal filed by the assessee agai nst the orde r of Assessi ng Offi cer dated 29.01.2016 u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961.
2. The fi rst ground of a ppeal of the assessee i s di rected agai nst the order of the AO/DRP treati ng advancement of share appl i cati on money as an i nternational transacti on and thereby appl yi ng transfer pri ci ng provi si ons.
3. At the ti me of hearing, the AR of the assessee submi tted that the i ssue i s covered i n favour of the assessee by the Delhi Bench of the Tri bunal i n the case of the assessee itsel f for assessment year 2008-09 report ed i n 51 ITR(T) 499 (Del).
2 ITA No. 1425/Del/2016DLF Hotel Holdings Ltd.
Hence, he prayed that foll owi ng the same, the adjustment made of Rs.4,73,64,439/- shoul d be del eted.
4. The l d. DR concurred wi th the above submi ssi ons of the AR of the assessee.
5. After consi deri ng the rival submissi ons and perusi ng the materi al s avail abl e on the record, we fi nd that in the i nstant case, the a ssessee ha s advance d share a ppl i cati on money of Rs.2,23,57,60 ,800/- to i ts associ ated enterpri ses. The AO/DRP/TPO appl i ed internal CUP of 10.31% on the sai d amount for the pu rpose of com putati on of adjustment and added Rs.4 ,73,64,439/- to the i ncome of the assessee.
6. Before us, the assessee conten ded that the i ssue is covered i n favour of the assessee by the orde r of the Tri bunal i n the case of the assessee i tsel f i n assessment year 2008-09 and the DR has al so agreed wi th the above submi ssi on of the AR of the assessee.
7. We fi nd that the Tri bunal has hel d as under:
"We find that quasi capital can be said to be a category of debt ta ken by a company which in the context of transfer pricing issu es is not only an instrument of legitimate funding but is also a hybrid instrument pre-stipulated to be a l oan for a t ransitory period, the e conomic purpose of which is a future capital investment in all its forms including contribution to equity or subscription of capital an d cannot be justifiably be treated as a debt simplicitor.
Reliance has also been placed on the case of Bharti Airtel Ltd. (supra) in (Copy of which has been placed at book pa ges 38 to 94). Though reliance on the said decision has prima rily been placed qua Ground No. 2 in order to argue that without prejudice to the main 3 ITA No. 1425/Del/2016 DLF Hotel Holdings Ltd.
issue if at all interest was to be charge d on the interest free advances then the LIBOR rate w ould apply. The said proposition it has been argued is also supported by the decision of the Jurisdictional High Court in the case of Cotton Naturals (I) (P.) Ltd. (supra). However, apa rt from th e issue agitated in Ground No. 2, Bharti Airtel Ltd.'s case (supra) ha s also been relied in support of the primary issue for the proposition that the activity of interest fre e advances ultimately to be convert ed into equity by a holding company to a subsidi ary company doe s not give rise to an international transaction."
8. Further, we fi nd that the Hon'bl e Bombay Hi gh Court i n the case of PC IT Vs PMP Auto C omponents Pvt. Ltd. i n ITA No. 1248/2016, order dated 28 .01.20 19 where the assessee ha d entered i nto a transacti on of purchase of share of shares of an AE, has hel d that The TPO coul d not have treated such transacti ons as a l oan and charge i nterest thereon on noti onal basi s. In vi ew of the above, we set asi de the order of the Assessi ng Offi cer and del ete the addi ti on of Rs.4,73 ,64,439/- and all ow thi s ground of appeal of the assessee.
9. In ground no. 2 of the appeal , the gri evance of the assessee i s that the Assessi ng Offi cer erred i n di sall owi ng proporti onate interest cost on borrowi ngs u/s 36(1)(iii) of the Act, i gnori ng the fact that borrowed funds were not used to make i nvestment i n group enti ti es.
10. The facts of the case are that from the bal ance sheet of the assessee, the Assessi ng offi cer obse rved that the assesse e has made i nvestment in shares of grou p com pani es amounting to Rs.1240,62,57,500/- on whi ch no i ncome i n the shape of di vi dend or any other i ncome was earned. He obse rved tha t the company has taken secu red a nd unsecured l oans and pai d 4 ITA No. 1425/Del/2016 DLF Hotel Holdings Ltd.
i nterest of Rs.27,11,68 ,479/-. T hus, he observe d that the assessee has utili zed i nterest beari ng fund for maki ng i nvestment in group compani es. Therefore, he ma de the proporti onate di sall owance of interest of Rs.7,23 ,03,338/- whi ch was confi rmed by the DRP.
11. Before us, the AR of the assessee submi tted that the i ssue i s covered by the Hon'bl e Del hi Hi gh Court i n the case of the assessee i tsel f for assessme nt year 2010-11 wherei n on i denti cal facts, di sall owance of i nterest was del eted. He prayed that foll owi ng the same, the di sallowance of i nterest shoul d be del eted.
12. The l d. DR agreed wi th the submissi ons of the AR of the assessee.
13. We fi nd that the Hon'bl e Del hi Hi gh Court has hel d as under:
"6.The Tribunal vide orde r dated 9thApril, 2018 ha s affirmed findings of the Commissioner of Income Tax (Appeals) deleting addition of Rs.5,33,01,263/- made by the Assessing Officer a s being contra ry t o law and in particular Section 36(1)(iii) of the Act. The Tribunal observed that investment in subsidiaries/ joint venture com panies wa s one of the main objects of the re spondent-assessee an d hence expenditure in the nature of interest incurred for the purpose of making investments cannot be disallowed under Secti on 36(1)(iii) of the Act.
7. Apart from the incongruities in the reasoning and calculations made by the Assessing Office r referred to in the orde r of the Commissione r of Income Tax (Appeal s), which have been accepted by the Tribunal, the issue raised i s covered against the Revenue by the decision of the Su preme C ourt in S.A. 5 ITA No. 1425/Del/2016 DLF Hotel Holdings Ltd.
Builders Limited versus Commissioner of Income Tax an d An other,(2007 ) 288 ITR 1 (SC) and in Munjal Sales C orporation ve rsus Commissioner of Income Tax,(2008) 298 IT R 298(SC). The Supreme Court in S.A. Builders Limited(supra)held as follows:-
"24. In our opini on, the decisions relating t o Section 37 of the Act will also be applicable t o Section 36(1)(iii) because in Section 37 also the expression use d is "for the purpose of business". It has been consistently held in decisions relating to Section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby.
25. Thus in Atherton v. British Insulated & Helsby Cables Lt d.[(1925) 10 TC 155 : 1 KB 42 1 : 132 LT 288 (CA)] it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate the carrying on of the business. The above test in Atherton case[(1925) 10 TC 155: 1 KB 421 : 132 LT 288 (CA)] has been approved by this Court in several decisions e.g. Eastern Investments Ltd. v. CIT[(1951) 20 ITR 1 : AIR 19 51 SC 278], CIT v. Chandulal Keshavlal & Co.[(1 960) 38 ITR 601 : AIR 1960 SC 738] , etc.
26. In ou r opinion , the High C ourt as well a s the Tribunal an d other Income Tax Authoritie s should have approached the question of allowability of interest on the borrowed funds f rom the above angle. In other words, the High Court and other authorities should have enquired as t o whether the interest-free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of 6 ITA No. 1425/Del/2016 DLF Hotel Holdings Ltd.
commercial expe diency, and if it was, it shoul d have been allowed.
27. The expression "commercial expediency"
is an expression of wide import and includes such expenditure as a prude nt businessman incurs f or the purpose of business. The expenditure may not have been incurred under any legal obligati on, but yet it is allowa ble as a business expenditure if it was incurred on grounds of commercial expediency .
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37. We wish to make it clear t hat it is not ou r opinion that in every case interest on borrowe d loan has to be allowe d if the assesse e advances it to a sister concern. It all depends on the facts and ci rcumst ances of the respective case . For instance, if the Directors of the sister conce rn utilise the amount advanced to it by the assessee for thei r personal benefit, obviously it cannot be sai d that such money wa s a dvanced as a mea sure of commercial expediency. Howe ver, money can be said t o be advanced t o a si ster concern for commercial expediency in many other circumstances (which need not be enumerated here). However, it is obvious that a holding company has a deep interest i n its subsidiary, and hence if the holding company advances borrowe d money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordina rily be entitled to deduction of interest on its borrowed l oans.
The Assessing Officer had referred and followe d some of the judgments in Com missioner of Income Tax versus Abhishe k Indust ries Limited,(2006) 286 ITR 1(P&H) and others, which have been overruled by the Supreme Court in S.A. Builders Limited(supra).
7 ITA No. 1425/Del/2016DLF Hotel Holdings Ltd.
8. As the issue is completely covere d by the aforesaid two de cisions of the Supreme Court , no substantial question of l aw arises for consideration and accordingly the appeal is dismissed."
14. Facts bei ng i denti cal , respectfull y foll owi ng the precedent, we set asi de the orde r of the AO and vacate the di sall owance of i nterest expendi ture of Rs. 7,23,03,338/- and al l ow thi s ground of appeal of the assessee.
15. In the resul t, the appeal of the assessee i s all owed. (Orde r Pronounced i n the Open Court on 28/02/2019) Sd/- Sd/-
(Bhavnesh Saini) (N. S. Saini)
Judicial Member Accountant Member
Dated: 28/02/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
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