|COURT:||Delhi High Court|
|CORAM:||S. Muralidhar J, Vibhu Bakhru J|
|CATCH WORDS:||Disallowance u/s 14 & Rule 8D, exempt income|
|DATE:||September 2, 2015 (Date of pronouncement)|
|DATE:||September 9, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|No disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the assessee. S. 14A also does not apply to shares bought for strategic purposes|
The High Court had to consider the following substantial question of law:
“Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?” HELD by the High Court:
(i) The expression “does not form part of the total income” in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. The decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is “for the purpose of making or earning such income”. Section 14A of the Act on the other hand contains the expression “in relation to income which does not form part of the total income”. The decision in Rajendra Prasad Moody cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act.
(ii) The investment by the Assessee in the shares of Max India Ltd. is in the form of a strategic investment. Since the business of the Assessee is of holding investments, the interest expenditure must be held to have been incurred for holding and maintaining such investment. The interest expenditure incurred by the Assessee is in relation to such investments which gives rise to income which does not form part of total income.
(CIT v. Holcim India (P) Ltd. (decision dated 5th September 2014 in ITA No. 486/2014), Maxopp Investment Ltd. v. Commissioner of Income-tax, New Delhi (2012) 347 ITR 272 (Del), decision of the Special Bench of the ITAT in Cheminvest Ltd. v. CIT (2009) 317 ITR 86, Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl. (decision dated 2nd April 2014 of the High Court of Punjab and Haryana in ITA No. 970/2008), CIT v. Hero Cycles Limited  323 ITR 518 and CIT v. Winsome Textile Industries Ltd.  319 ITR 204, Commissioner of Income Tax-I v. Corrtech Energy (P) Ltd.  223 Taxmann 130 (Guj.), Commissioner of Income Tax, Kanpur v. Shivam Motors (P) Ltd. (decision dated 5th May 2014 in ITA No. 88/2014) and CIT v. Rajendra Prasad Moody  115 ITR 519 (SC) referred)
CBDT vide circular 5/2014 had clarified that Income need not pertain to that previous year for triggering disallowance, the circular find no mention in the judgment? SO what does it mean, is the circular still valid or effectively over ruled by this judgment?