Income Tax Appellate Tribunal - Mumbai
Tgs Investment & Trade P. Ltd, Mumbai vs Assessee on 3 March, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
"I" Bench, Mumbai
Before Shri R.V. Easwar, President
and Shri B. Ramakotaiah, Accountant Member
ITA No. 2233/Mum/2009
(Assessment Year: 2004-05)
TGS Investment & Trade Pvt. Ltd. Income Tax Officer - 3(3)(3)
212, T.V. Indusrial Estate Vs. Mumbai
52, S.K. Ahire Marg, Worli
Mumbai 400030
PAN - AABCT 6593 K
Appellant Respondent
Appellant by: Shri Yogesh Thar
Respondent by: Smt. Vandana Sagar
ORDER
Per B. Ramakotaiah, A.M.
This appeal by the assessee is against the order of the CIT(A)- XXXII, Mumbai dated 03.03.2009
2. Assessee has raised six grounds on various issues. Ground No. 1 pertains to disallowance of an amount of `63,29,217/-, expenditure incurred on making open offer for acquiring shares in another company disallowed under section 14A and ground Nos. 2, 3 & 4 pertain to further disallowance under section 14A of `68,50,301/- invoking Rule 8D by the CIT(A) and ground No. 5 pertains to capitalization of the amount spent for acquisition of shares of another company. Ground No. 6 pertains to not giving credit of TDS of `18,48,486/-. In the course of argument assessee withdrew ground No. 2 pertaining to the issue of natural justice of not giving opportunity before enhancement by the CIT(A). Therefore, ground No. 2 is treated as withdrawn.
3. The issues contested in ground Nos. 1,2 &3 is with reference to disallowance of expenditure of `63,29,217/- under section 14A by the AO being expenditure incurred for considering the validity and possibility of acquiring share capital of Indo Gulf Fertilisers Ltd and enhancement by 2 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
CIT(A). The facts pertaining to this disallowance are that during the year relevant for A.Y. 2004-05 assessee had acquired 51% stake in Indo Gulf Fertilisers Ltd. The stake was acquired by purchase of shares from the market and by making an open offer. For the above offer assessee incurred expenditure amounting to `92,71,202/- Out of this, assessee capitalized an amount of `16,57,235/- and the remaining amount of `76,13,867/- was treated as Revenue in nature. Further, out of the said amount assessee itself disallowed `12,25,000/- spent on account of Stamp Duty expenses while filing the return. The remaining expenditure of `63,88,867/- was claimed as deduction in full as revenue expenditure. Out of the said expenditure the A.O. disallowed an amount of Rs,.63,29,217/- under section 14A on the following grounds: -
"I. The expenses incurred for open offer were for investment purpose.
II. That investment is a long-term investment and this would earn dividend, which would be exempt from tax. III. That the intention of the Company (the Appellant) was to take over Indo Gulf Fertilisers Limited, taking over of company cannot be said to be business of the company. IV. That dividend income is exempt for tax, hence, expenditure incurred in this connection be disallowed under 14A of the Act."
4. It was assessee's submission that it is a non-banking financial company registered with RBI and one of the main objectives is making investment for which it may be required to incur expenditure and hence the claim of the A.O. that the expenditure incurred was not for the purpose of business is not correct. Further it is also explained that in open offer procedure the company first considered the validity of open offer for purchase of shares. In this respect the company considered various factors and valuation reports and decided upon the price at which open offer can be made to the shareholders. Therefore, public offer was made to acquire shares of the shares of the target company (in this case Indo Gulf Fertilisers Ltd.) from the shareholders through a letter of offer made to the shareholders. After receipt of application from interested parties the company management decides the investment to be made and this is when 3 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
the investment has triggered. It was the contention that any expenditure which was incurred before the decision of the management to make the investment would be for open offer and would not result in investment so this is revenue in nature. It was further submitted, relying on the principles established by the Hon'ble Bombay High Court in the case of Bralco Metal Industries Pvt. Ltd. vs. CIT 206 ITR 477 (Bom), the assessee's business is just make investment and the expenditure incurred for arriving at a decision to invest is business decision and the expenditure is not capital in nature but revenue. Further, relying of the principles established by the Hon'ble P&H High Court in the case of CIT vs. Oswal Woollen Mills Ltd. 289 ITR 270 wherein the tour expenses were held as revenue expenditure even if no machinery was purchased assessee submitted that it has incurred expenses to decide the validity of the open offer, therefore, the basis of the said decision would result in revenue expenditure. Not only on the above principles, the assessee also submitted that the assessee earned only dividend income of `22,28,572/- and an amount of `1,09,470/- was also disallowed by the assessee and further shares acquired through open offer have not yielded any income in the form of dividend to the assessee, therefore, disallowance under section 14A does not arise. Assessee relied on the decision of the ITAT in the case of ACIT vs. Lafarge India Holding P. Ltd. 19 SOT 121 (Mum) and Shree Shyamkamal Finance & Leasing Co. P. Ltd. 21 SOT 42 (Mum). Without prejudice to the above assessee also made an alternate contention that any amount if disallowed should be capitalised to cost of investment and should be allowed as deduction in the year of sale of such investment. It was further submitted that this alternate claim is justified because the disallowance can be confirmed only if the expenses are in relation to such investment and if it is held that such expenses are in relation to the investments, then such expenses are to be allowed to be capitalized. Assessee relied on various case laws on the alternate submissions.
5. The CIT(A), however did not agree with any of the contentions of the assessee and invoked Rule 8D and disallowed 5% of the average value of investment and accordingly he computed disallowance at `1,32,8,988/- as 4 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
expenditure relating to exempt income. He disallowed further amount of `68,50,301/- contested in ground Nos. 3 & 4 by the assessee.
6. Drawing our attention to the issue and various details filed in the paper book, it was assessee's contention that invoking Rule 8D applicable for A.Y. 2008-09 was not correct. Therefore, the enhancement made by the CIT(A) and covered by ground Nos. 3 & 4 are to be allowed as Rule 8D was held to be applicable only prospectively and the decision of the ITAT Special bench in the case of Daga Capital Management P. Ltd 26 ASOT 603, relied upon by the CIT(A) was reversed by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT 328 ITR 81. With reference to disallowance of `63,29,217/- the learned counsel submitted that it is the business expenditure and similar issue was considered by the ITAT in the case of I-Ven Interactive Ltd. ITA No. 3256/Mum/2009 dated 27.10.2010 wherein the nature of the activity of assessee of investment in shares is considered as business activity, therefore, the claim of expenditure is allowable in accordance with the law. Further, the learned counsel relied on the decision of in the case of CIT vs. Srishti Securities P. Ltd. 183 Taxman 159 (Bom) to submit that whether funds were borrowed by an investment company for making investment in shares which may be held as investment or as stock-in-trade or for the purpose of controlling interest in other companies, interest paid on such borrowed funds would be deductible under section 36(1)(iii). It was submitted that this decision will apply to assessee's case as the assessee is investing in other companies and this is to be considered as business expenditure. Therefore, the amount spent for buying the shares of the company is to be considered as business expenditure.
7. The learned counsel further referred to the judgement of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT 328 ITR 81 to submit that the "proximate cause for incurring the expenditure is the takeover regulation of SEBI which has triggered when assessee has invested more than 20% of the share capital of a company and therefore relying of the principles established by the judgement of the Hon'ble Bombay High Court(supra), since the proximate cause for incurring 5 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
expenditure before making the investment is the takeover regulations of SEBI and so, the expenditure cannot be considered as expenditure of investment in nature and therefore has to be allowed as revenue expenditure. Further relying on the principles established by the Hon'ble Supreme Court in the case of LibertyIndia vs. CIT 183 Taxman 349 it was submitted that the first degree source principle for this expenditure was take-over regulations of SEBI and not the decision to invest in Indo Gulf Fertilisers Ltd., therefore, following the principles established by the Hon'ble Supreme Court the expenditure can only be related to the SEBI regulations and therefore cannot be related to the investment in shares. Therefore, even on the above principles since the first degree source for expenditure is not the decision of the investment, the expenditure has to be considered as revenue expenditure. The learned counsel further explained the proposition to submit that if the take-over Code of SEBI has not triggered, there is no need to spent the amount as there is no need for open offer to shareholders and till an offer was made and was accepted by the shareholders and a decision was taken, the expenditure pertains to compliance to SEBI take over code and therefore cannot be relate to the investment decision taken subsequently. It was further submitted that in the absence of proximate cause in earning income, the disallowance under section 14A cannot be made and the expenditure incurred by making the open offer cannot be considered as expenditure for earning exempt income. Further relying on the principles established by the Hon'ble Bombay High Court in the case of CIT vs. Elphinstone Spinning and Weaving Mills Co. Ltd. 100 ITR 139 and the decision of the Hon'ble Madras High Court in the case of CIT vs. Investment Trust of India ltd. 127 Taxman 168 and CIT vs. Modi Spinning and Weaving Mills Co. Ltd. 89 ITR 304 (All) it was the submission of the learned counsel that the expenditure is wholly and necessarily for the purpose of business, therefore, the same was allowable under section 37(1). The learned counsel in the alternate referred to the submission made before the CIT(A) that in the case this expenditure was considered to be that of investment in shares the alternate submission made before the CIT(A) that it should be allowed to be capitalised, contested in ground No. 5 should be considered.
6 ITA No. 2233/Mum/2009TGS Investment & Trade Pvt. Ltd.
8. The learned D.R. in reply referred to the facts of the case and submitted that the entire expenditure was incurred for acquiring the shares of another company Indo Gulf Fertilisers Ltd. to an extent of 51%. It was his submission, referring to the Memorandum and Articles placed on record, that the assessee company does not have any power to sell the shares as can be seen from the main objective of the company and therefore it is only for the purpose of investment and earning dividend thereon the expenditure was spent. Therefore, provisions of section 14A are applicable. Further it was the contention that eventhough the dividend was not earned during the year assessee was in receipt of dividend in later years from the investment made in Indo Gulf Fertilisers Ltd. Therefore, the case laws relied upon by the learned counsel that section 14A does not apply has no basis as the main purpose of the investment is with reference to investment in a company, the shares of which once acquired cannot be sold. It was further submitted that assessee itself has disallowed part of the expenditure as capital in nature and capitalised and so the balance of the expenditure incurred for the same purpose should be disallowed even on that ground. Contesting the argument of the learned counsel that the proximate cause of the first degree of expenditure is take-over code of the SEBI, it was submitted that the necessity for acquiring the shares was felt first by the company and then only the SEBI take-over guidelines came to be applied. Unless assessee decides to acquire more than the required minimum, naturally SEBI guidelines does not apply. Since it was Assessee Company's decision to acquire more than the minimum prescribed under the prescribed guidelines the said guidelines are applicable. Therefore, the expenditure was incurred in relation to acquisition of shares. The learned D.R. referred to the decision of the ITAT Kolkata "C" Bench in the case of DCIT vs. S.G. Investment and Industries Ltd. 89 ITD 44 to submit that the Hon'ble ITAT discussed the issue with reference to the word 'in relation to income' which has wider meaning than the word 'for the purpose of making or earning income' used in section 53 of the Act. Relying on para 18 of the above decision it was the submission of the learned D.R. that expression 'in relation to' used in section 14A has both direct significance as well as indirect significance 7 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
having regard to the context in which it is used. If such a wider meaning is given, said expression would encompass not only the direct or proximate expenditure incurred for the purpose of making or earning exempt income, but it would include all other expenses attributable or in relation to exempt income. The learned D.R. further submitted that the decision relied upon by the learned counsel with reference to the proximate cause or first degree source are not applicable as section 14A uses the word 'in relation to'. It was further submitted that the expressed intention must guide the Court. Another rule of construction which is relevant to the present is expressed in the maxim, generalia specialibus non derogent, which means that when there is a conflict between a general and a special provision, the latter shall prevail [quoted from Shahzada Nand and Sons 60 ITR 392 (SC)].
9. The learned D.R. further submitted that reliance on the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT 328 ITR 81 by the learned A.R. and some portions of the order is not correct and referred to the finding in page 120 and 121 of the order to submit that the action of the A.O. in disallowing under section 14A is correct. While admitting that the Hon'ble Bombay High Court has held that Rule 8D was not applicable prior to A.Y. 2008-09, the A.O. has to enforce the provisions of sub-section 1 of section 14A 'for that purpose the A.O. is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. Further referring to sub-para(vii) of para 74 in the above said order the learned D.R. submitted that 'the A.O. shall determine as to whether the assessee has incurred any expenditure, direct or indirect, in relation to dividend income/income from capital funds which does not form part of the total income as admissible under section 14A. The learned D.R. also relied on the decision of the P&H High Court in the case of Haryana Land Reclamation and Development Corporation Ltd. vs. CIT 302 ITR 28 to submit that the provisions of section 14A will come into force where no expenditure can be allowed in case corresponding income is exempt. Therefore, since the dividend income is exempt it was submitted that the expenditure cannot be allowed as claimed by the assessee. The learned D.R. 8 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
also relied on the principles established by the Hon'ble Supreme Court in the case of Hemalata Gargya vs. CIT 259 ITR 1 to submit that Revenue can question the issue even if it is accepted in another decision and relied on the principles of Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works P. Ltd. 198 ITR 297 to submit that it is not proper to record a word, clause or sentence given in the judgement of the Hon'ble Supreme Court diverse from its context, as containing full expression of law on a question which do not even fall in the scope of judgement. Relying on the above principles, it was the submission of the learned D.R. that the decision given in the case of Liberty India (supra) was in the context of income derived under section 80IA/IB. Therefore, reliance on the above judgement by the learned counsel is not correct. She then submitted a copy of the submission made for A.Y. 2005-06 by the assessee company and Annexure C to the Annual Report to submit that assessee admitted the main activity comprises of making long term investment in shares, securities, etc. with a view to earn dividend on units of mutual funds and giving loans, etc. Then she referred to the amounts invested in various companies and dividend earned of `6.43 crores on the shares of Indo Gulf Fertilisers Ltd., which has been claimed as exempt income under section 10(34) of the I.T. Act. It was submitted that the entire expenditure was incurred for acquiring the shares, which are treated as investment, therefore, the expenditure should not be allowed as revenue expenditure.
10. The learned counsel in reply, however, relied on various principles. While admitting that assessee company's Memorandum and Articles does not permit sale of shares it was submitted that assessee is in the business of investing, therefore the expenditure is allowable as revenue expenditure.
11. We have considered the issue and rival arguments. As seen from the facts assessee decided to acquire 51% share capital in Indo Gulf Fertilisers Ltd., which is a group company. First it was the decision to acquire the shares more than the minimum required under the SEBI guidelines.As per the guidelines assessee has to make an open offer for acquiring shares from the public. It is on record that the total expenditure incurred except the 9 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
above said expenditure was treated as capital expenditure and was capitalised to the share acquisition account and treated as investment made in acquiring shares. The reason why this expenditure was claimed as revenue expenditure is that the expenditure was not in relation to investment in shares but in relation to SEBI take-over Code. Various principles of law were relied upon by the assessee before the CIT(A) as well as before us to submit that the expenditure is revenue in nature. Before adverting to the legal principles of the issue it is necessary to extract the nature of expenditure claimed by the assessee as revenue expenditure.
Sr.
Particulars Amount (`)
No.
1 Legal & Professional Charges
Paid to Haribhakti & Co. for Valuation 2,70,000
Paid to Amarchand & Mangaldas for Legal 75,000
Opinion on provisions of Takevoer code
Paid to Gulam Vahanvati for Legal Opinion on 1,00,000
acquisition of shares
Paid to DSP Merrill Lynch for Advisory Fees 19,47,789
Paid to Amarchand & Mangaldas for Legal 50,000
Opinion on MRTP applicability provisions
Paid to Amarchand Mangaldas for Legal 1,00,000
Opinion on acquisition of shares
2 Advertisement Expenses
Paid to 'Concept Communication' for 4,53,928
advertisement
3 Open Offer Expenses (direct expenses) 28,12,261
4 Printing & Stationery
Paid to Orient Printers for printing 5,20,239
Total expenses on account of Open Offer 63,29,217
12. It is also a fact that the assessee company purchased 8,57,143 shares of M/s. Indo Gulf Fertilisers Ltd. from the market on which it has received dividend of `22,28,572/- purchased during the period 20.05.2003 to 05.06.2003. The expenditure on the above purchase of shares was treated as capital in nature including the stamp fees paid. Assessee further acquired total 51% shares of Indo Gulf Fertilisers Ltd. at a total cost of `17.96 crores and for this purpose they acquired shares by making an open offer to the general public to acquire equity shares representing 20% of the voting share capital of Indo Gulf Fertilisers Ltd. It is also a fact that the company was 10 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
incorporated on 09.05.2002 and as on 01.04.2003 the company did not make any investment in shares of any company. As on 31.03.2004 the company owns 51% share of Indo Gulf Fertilisers Ltd. This expenditure is not in the nature of expenditure described in section 30 to 36 of the Act. Assessee, eventhough contested that it was in the business of investment as seen from the Memorandum and Articles the assessee can invest by way of investment in shares, stock and debentures and the main object of the company as per the Memorandum and Article placed on record at page 43 of the paper book is as under: -
"1. To carry on business of an investment company and to buy, underwrite, invest in, acquire, hold shares, debenture stock, bonds, obligations and securities or any kind issued or guaranteed by any company constituted or carrying on business in India and abroad and debenture, debenture-stock, bonds, obligations and securities, issued or guaranteed by any Government, state, dominions, sovereign, rule commissioners, public body or authority, supreme, municipal, local or otherwise, firm or person whether in India and aboard.
2. To hold by way of investment, shares, stocks, debentures, debenture-stocks, bonds, obligations, units, securities and other investments.
3. To carry on business as general merchants and traders in coal on ready or forward basis, commission agents, buying and selling agents, brokers, Importers, exporters and to act as representatives."
13. Interestingly the assessee does not have any object to sell the shares and can only buy or acquire and hold shares. This indicates that assessee cannot do any trading business in buying and selling of shares but can only invest in other companies. Not only that the learned D.R. placed on record Annexure C to the notes to the account in which the assessee company for F.Y. 2004-05 admitted that its main activity comprises making long term investment in shares and securities with a view to earn dividend. Therefore, this cannot be considered as assessee's business as assessee is in the nature of investment company only. Therefore, the reliance on the decision of the Coordinate Bench in the case of I-Ven Interactive Ltd. ITA No. 3256/Mum/2009 dated 27.10.2010 is not applicable. In that case assessee has in the object clause of engaging itself to carry on business buying and 11 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
selling of shares and holding shares, which was analysed by the ITAT and held that assessee is in the business whereas in the present case the facts indicate that assessee is only acquiring and holding by way of investment in shares, stocks, debentures, etc. and has no right to sell. Therefore, it cannot be considered as assessee is in the business of acquiring shares for the purpose of business. Object clause A (3) do indicate that assessee can carry on business as general merchant and trader in coal but not in shares or stock or debentures of other companies covered by item No. 1 & 2. In view of this we are of the opinion that the decision of the Coordinate Bench (supra) does not apply to the facts of the case. Therefore, since the investment in group companies is not the business of assessee many of the decisions relied upon by the assessee, particularly the decision of the Hon'ble Bombay High Court in the case of Srishti Securities P. Ltd. (supra) does not apply. In the above said case there was a finding that the assessee company borrowed funds, which were utilised in its business of acquiring shares by way of investment as well as by way of stock in trade. In that context the Hon'ble Bombay High Court in the case of Srishti Securities P. Ltd. 183 Taxman 159 held that whether the funds are borrowed by the investment company for making investment in shares or as stock in trade or for the purpose of controlling interest in other companies the interest paid on such borrowed funds would be deductible under section 36(1)(iii). It is also noticed that the said judgement was delivered in the context relevant to interest on borrowed capital under section 36(1)(iii) and not in relation to section 14A, the provisions of which are all together different. Likewise the reliance on the decision of Hon'ble Supreme Court in the case Liberty India (supra) is also not correct as the expression 'derived from industrial undertaking' was considered by the Hon'ble Supreme Court in the above judgement to reach that first degree source for deriving income was not the industrial undertaking but the government scheme. In that case the issue was with reference to allowability of profits and gains from industrial undertaking for deduction under section 80IA and 80-IB. In that context the Hon'ble Supreme Court held that DEPB benefits do not form part of any profit or the eligible undertaking and would not constitute independent source of income beyond 12 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
the first degree nexus between the profits and the industrial undertaking. This judgement given in the context of analysing the expression "derived from" cannot be considered while considering the expenditure 'in relation to' used in section 14A. Eventhough the Hon'ble Supreme Court established the test which has been enunciated in Walfort Shares and Stock Brokers P. Ltd. 321 ITR 421 that there has to be a proximate cause for disallowance which is in relationship with the tax exempt income, once the test of proximate cause is established with tax exempt income the disallowance would have to be effected under section 14A (Godrej & Boyce Mfg. Co. Ltd. supra)
14. Analysing further on the basis of the principles established by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra) the proximate cause for the above expenditure is certainly the decision to invest in group company of Indo Gulf Fertilisers Ltd. Unless the assessee decided to acquires more than the minimum required without attracting SEBI Code there is no need for going for the regulations of the SEBI with reference to take over Code. Eventhough the assessee tried to analyse that the expenditure is incurred with reference to the take over code the proximate cause for the take over code is the decision to invest in Indo Gulf Fertilisers Ltd more than the minimum required.It cannot be stated that SEBI take over code guidelines are applicable before the assessee took the decision to acquire the shares. It is the decision which was taken first to acquire at 51% of the share capital of the Indo Gulf Fertilisers Ltd. and accordingly upto the limits prescribed by minimum i.e. upto 20%, the assessee can acquire from open market. The balance can only be acquired under the SEBI guidelines by giving an open offer to the existing shareholders and going through the formalities. Therefore, in our view the expenditure incurred entirely not only for acquiring the shares from the market but also acquiring through open offer is with reference to the decision to invest in Indo Gulf Fertilisers Ltd. at 51% of share capital. Since the proximate cause for disallowance is in relation to investment in shares of group companies at 51%, we are of the opinion that the entire expenditure incurred is capital in nature and the A.O. is right in disallowing the same under section 14A. Eventhough income was not earned fully on the entire 13 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
shares acquired during the year, there was a dividend income from Indo Gulf Fertilisers Ltd. to the extent of `22,28,578/- and to the extent of `6.53 crores in later year. Since the entire decision to acquire the shares is for the purpose of investment, the expenditure cannot be allowed as revenue expenditure and has to be certainly disallowed under section 14A. To that extent ground No. 1 raised by the assessee is rejected.
15. Ground Nos. 3 & 4 pertains to Rule 8D and enhancement is to be allowed as the Hon'ble Bombay High Court held that application of Rule 8D is from A.Y. 2008-09. The A.O. already disallowed the amounts invoking section 14A on reasonable basis, therefore, there is no need for enhancement of the amount as was done by the CIT(A) invoking Rule 8D. Therefore ground Nos. 3 & 4 pertaining to enhancement are allowed.
16. Ground No. 5 pertain to the alternate contention that the expenditure should be capitalised is a valid contention. Assessee itself has capitalised part of the expenditure and added to the investment, therefore, the expenditure to the extent of `63,21,217/- incurredfor the purpose of acquiring share capital in Indo Gulf Fertilisers Ltd. is also to be treated as expenditure to be capitalised to the investment account. Reliance is placed on the principles established in the case of Bharat Nidhi Ltd. vs. Union of India 92 ITR 1. Therefore assessee's ground No. 5 is allowed.
17. Ground No. 6 pertains to the issue of excess TDS on shares acquired. During the previous year relevant to A.Y. 2004-05 the assessee had deducted tax on considerations payable to non-residents shareholders in relation to the open offer for acquisition of stake in Indo Gulf Fertilisers Ltd. However, after remittances were made, few shareholders protested on tax deduction and provided certificates for deduction at lower rates under section 195/197 of the Act. Assessee remitted the excess tax deducted at source of `18,48,486/- to such non-resident shareholders and claimed credit of excess tax paid which was borne by the appellant.
18. The CIT(A) without examining the submission on merits directed the A.O. to compute after verifying the claim of credit of additional TDS of `18,48,486/-. It was assessee's submission that the A.O. has not given 14 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
credit for this amount and accordingly the ground was raised. The learned counsel also relied on the decisions of the ITAT in the case of ACIT vs. M/s. KEC International. Ltd. ITA No. 1990/Mum/2998 dated 09.10.2003 to submit that the claim was allowable.
19. After hearing the learned counsel and the learned D.R. we are of the opinion that this mater should be restored to the file of the A.O. as the facts indicate that the assessee deducted tax as under: -
TDS that Net TDS paid should have Sl. Name of the payee Gross amount Excess on been deducted No. (Seller of shares) Amount paid on TDS 16.12.03 as per 18.12.03 certificates 1 Kantilal Chandulal 3570000 1178100 239100 199749 978351 Kothari 2 HarshilKantilal 3000000 990000 2010000 167865 822135 Kothari 3 MalkaBhavesh Shah 45000 13500 31500 4500 9000 4 Bhavesh 90000 27000 63000 9000 18000 Laxmichand Shah 5 MalkaBhavesh Shah 54000 13500 31500 4500 9000 6 DiannBillimoria 60000 18000 42000 6000 12000 Total 6810000 2240100 4569900 391614 1848486
20. The tax originally deducted and paid was without considering the non- deduction or less deduction certificate submitted by the respective persons. Therefore, there was excess TDS deducted in the case of above persons to the extent of Rs.18,48,486/-. Assessee brought this to the notice of the Addl. CIT vide letter dated 16.08.2004 with a prayer to grant refund of excess tax deducted at source. Subsequently assessee while filing the return treated the amount as prepaid tax and while computing the tax took credit for the amount of `18,48,486/- in its computation as advance tax paid. The total pre-paid tax were arrived at by the assessee at `79,05,671/- (including the above amount of `18,48,486/-). The A.O. while issuing the demand notice under section 156, however, has not considered the claim of excess TDS. This ws brought to CIT(A) vide ground No. 4 raised before him but the CIT(A) instead of analyzing the nature of claim directed the A.O. to give credit. Considering the submissions of the assessee, we restore the issue 15 ITA No. 2233/Mum/2009 TGS Investment & Trade Pvt. Ltd.
back to the file of the A.O. to consider the claim and pass necessary orders in this regard. Ground is restored to the file of the A.O.
21. In the result, appeal is partly allowed.
Order pronounced in the open court on 31st May 2011.
Sd/- Sd/-
(R.V. Easwar) (B. Ramakotaiah)
President Accountant Member
Mumbai, Dated: 31st May 2011
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - XXXII, Mumbai
4. The CIT- III, MumbaiCity
5. The DR, "I" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.