Bombay High Court
The Commissioner Of Income Tax-6 vs M/S.Hindalco Industries Limited on 16 August, 2012
Author: S.J. Vazifdar
Bench: S.J. Vazifdar, M.S. Sanklecha
itxa6392-10
vai
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.6392 OF 2010
The Commissioner of Income Tax-6,
Aaykar Bhavan, M.K. Road,
Mumbai - 400 020. ....Appellant
Versus
M/s.Hindalco Industries Limited,
Century Bhavan, 3rd Floor,
Dr.A.B. Road, Worli,
Mumbai - 400 025. ....Respondent
Mr.Suresh Kumar i/b Mr.Vimal Gupta for the Appellant.
Mr.S.E. Dastur, Senior Counsel with Mr.Madhur Agarwal and
Mr.Pankaj Toprani i/b Mr.Pankaj Toprani for the Respondent.
CORAM : S.J. VAZIFDAR AND
M.S. SANKLECHA, JJ.
DATE : 16TH AUGUST, 2012.
JUDGMENT (PER S.J. VAZIFDAR, J.) :-
1. This is an appeal under section 260(A) of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal dated 28.11.2008 in ITA No.3668/Mum/2005 in relation to the assessment year 2003-2004.
2. The appeal is admitted on the substantial questions of law as stated in paragraph 4 (b), (c), (d), (e), (g), (k), (l) (only partly 1/8 ::: Downloaded on - 09/06/2013 18:59:35 ::: itxa6392-10 insofar as it relates to rent but not insofar as it relates to interest) (m),
(n) and (o). However, question (n) is reframed as under :-
"Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT are justified in law in holding that turnover attributable to sales of items sold only locally is to be excluded for the purpose of calculation of total turnover for the purpose of deduction under section 80HHC(3) of the Income Tax Act ? "
3. The appeal is dismissed insofar as it relates to the questions sought to be raised in paragraph 4 (a) and (l) (only partly insofar as it relates to interest but not insofar as it relates to rent).
4. The order thus far is based on the order passed by us on 7.8.2012 in Income Tax Appeal No.1846 of 2010 in respect of the same respondent / assessee.
In addition, the appellant has raised the following questions of law stated in paragraph 4 (f), (h), (i) and (j) :-
"(f) Whether on facts and in the circumstances of the case the Hon'ble Tribunal was justified in law in not allowing interest to be allocated to dividend income for deduction under Section 80-M of the Income-tax Act ?
(h) Whether on facts and in the circumstances of the case the Hon'ble Tribunal was justified in law in allowing the payment of Rs.36,75,000/- to N.M.Rothschild & Sons for financial advisory and due diligent services with regard to utilisation of own sources of basic raw material for its copper even though the expenditure was capital in nature ?
(i) Whether on facts and in the circumstances of the case the Hon'ble Tribunal was justified in law in 2/8 ::: Downloaded on - 09/06/2013 18:59:35 ::: itxa6392-10 allowing the claim of the Assessee Company for exemption of interest of Rs.6,58,12,396/- received from DHIL under Section 10(23G) of the Act on a gross basis even though the Assessee Company has claimed the interest paid to DHIL as an expenditure ?
(j) Whether on facts and in the circumstances of the case the Hon'ble ITAT was justified in law in allowing the charges incurred by the Assessee Company towards Depository Services and Dematerialisation of share certificates amounting to Rs.3,09,870/- as a business expenditure even though the aforesaid expenses were clearly linked to making of investments and not for business activity of the Assessee Company ?"
Re. : Question (f)
5. It is admitted that in Income Tax Appeal No.690 of 2007 filed in this Court, the appellant sought to raise a similar issue in question (e). The same was dismissed by a judgment dated 5.8.2011. As noted by the CIT (A), even during the previous years, it had been found that no part of interest was attributable to earning income from dividend, as the respondent had sufficient funds for making the said investments. The Tribunal also upheld the order of the CIT (A).
6. The appellate authorities came to a finding of fact which do not raise a substantial question of law.
Re. : Question (h)
7. The issue is covered by our order dated 7.8.2012 in Income Tax Appeal No.1846 of 2010 in respect of the same 3/8 ::: Downloaded on - 09/06/2013 18:59:35 ::: itxa6392-10 assessee / respondent. A similar question was sought to be raised in ground (g) regarding the expenditure towards the professional charges for Techno Economical Feasibility Study of Aluminium Dye Cast components paid to the agency. It was found that the issue did not raise a question of law. The Tribunal had found that there was a close nexus between the business carried on by the respondent and the feasibility study in respect of the professional charges which had been incurred. In the present case also, it was held that the payments had been made for financial advice and for due diligence services with regard to utilization of resources / raw material for the respondent's plant and therefore, had to be allowed as an allowable business expenditure. The decision was based on the facts of the case which do not give rise to a substantial question of law :-
Re. : Question (i)
(i) Whether on facts and in the circumstances of the case the Hon'ble Tribunal was justified in law in allowing the claim of the Assessee Company for exemption of interest of Rs.6,58,12,396/- received from DHIL under Section 10(23G) of the Act on a gross basis even though the Assessee Company has claimed the interest paid to DHIL as an expenditure ?
8. The respondent had received interest from Dahej Harbour and Infrastructure Ltd. (DHIL), a wholly own subsidiary of the respondent and had credited the same to its profits and and loss account. The respondent was also paying interest to DHIL in respect 4/8 ::: Downloaded on - 09/06/2013 18:59:35 ::: itxa6392-10 of an entirely different contract / transaction from the one in respect whereof DHIL paid interest to the respondent. The AO held that exemption under section 10 (23G) can be allowed only on the net interest received by the respondent.
9. The CIT (A) held that there was no connection between the transaction in respect whereof DHIL paid the respondent interest and the transaction in respect whereof the respondent paid DHIL interest. He further held that there was no provision in section 10(23G) to allow exemption only on the net interest amount arrived at in this manner. He therefore, held that subject to necessary approval from the Central Government, the deduction under section 10(23G) ought to be allowed without adjusting interesting paid by the respondent. The Tribunal upheld the order.
10. Section 10 (23G) of the Act reads as under :-
"10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included - (23G) any income by way of dividends, other than dividends referred to in section 115-O, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company or a co-operative bank from investments made on or after the 1st day of June, 1998 by way of shares or long-
term finance in any enterprise or undertaking wholly engaged in the business referred to in sub-section(4) of section 80-IA or sub-section (3) of section 80-IAB or a housing project referred to in sub-section (10) of section 80-IB or a hotel project or a hospital project and which has been approved by the Central 5/8 ::: Downloaded on - 09/06/2013 18:59:35 ::: itxa6392-10 Government on an application made by it in accordance with the rules made in this behalf and which satisfies the prescribed conditions."
11. The DHIL had paid interest to the respondent in respect of the loans advanced by the respondent to DHIL. The respondent paid interest to DHIL in respect of the outstanding bills issued by DHIL.
There was no connection between the two transactions. The section does not require or permit the netting of payments under two independent contracts albeit between the same parties. That DHIL is a wholly own subsidiary of the respondent makes no difference. It is not contended that the transactions are colourable or that there is any connection between them. It was not suggested that the transactions were structured to avoid tax.
The issue raised in paragraph (i) does not raise a substantial question of law.
Re. : Question (j)
(j) Whether on facts and in the circumstances of the case the Hon'ble ITAT was justified in law in allowing the charges incurred by the Assessee Company towards Depository Services and Dematerialisation of share certificates amounting to Rs.3,09,870/- as a business expenditure even though the aforesaid expenses were clearly linked to making of investments and not for business activity of the Assessee Company ?"
12. The assessee incurred expenses in the sum of Rs.3,09,870/- towards the depository services and charges for 6/8 ::: Downloaded on - 09/06/2013 18:59:35 ::: itxa6392-10 dematerialisation of share certificates. A major amount related to expenses in connection with the dematerialisation of the respondent's investments in shares.
13. The AO held that the expenses had been incurred by the respondent for keeping its capital assets in a dematerialised form instead of in physical form and that therefore, the expenses incurred are capital in nature and cannot be allowed as a deduction. He also held that the respondent had not kept the shares as stock in trade but as an investment and that therefore the expenses cannot be allowed as business expenditure. The AO accordingly added the amount to the respondent's income.
14. The CIT (A) agreed with the respondent's contention that by having its investments in shares in a dematerialised form, no new capital assets had come into existence. Moreover, the respondent dematerialised its shares in compliance with the SEBI guidelines. He therefore, held that the depositary and dematerialisation charges are allowable as normal business expenditure and directed the AO to allow the deduction.
The Tribunal upheld the order.
15. We are in respectful agreement with the decision of the appellate authorities. Every expenditure in respect of a capital asset is not necessarily capital in nature. As rightly submitted by Mr.Dastur, 7/8 ::: Downloaded on - 09/06/2013 18:59:35 ::: itxa6392-10 the learned senior counsel appearing on behalf of the respondent , the expenditure would either be business expenditure or expenditure to earn dividend. Either way the respondent would be entitled to a deduction in respect thereof.
16. The dematerialisation of shares did not result in either a quantitative or qualitative enhancement or improvement in the respondent's assets viz. the said shares. It resulted in the respondent's complying with the SEBI regulations. It indeed facilitated the respondent's receiving dividends in respect of the investments. It did not however, affect the value of the shares to any extent whatsoever.
17. The appellate authorities observed that the expenditure was allowable as normal business expenditure. Even assuming that is incorrect for the respondent is not engaged in the business of investments, as rightly submitted by Mr.Dastur, as the said expenditure was incurred to earn dividend, the respondent would in any event be entitled to claim a deduction under section 57.
The issue therefore, does not raise a substantial question of law.
(M.S. SANKLECHA, J.) (S.J. VAZIFDAR, J.) 8/8 ::: Downloaded on - 09/06/2013 18:59:35 :::