United Breweries Limited vs. DCIT (Karnataka High Court)

The question arose whether s. 14A applies to a case where the motive of the assessee is to acquire controlling interest in a company and not to earn dividends. The Tribunal followed the judgement of the Special Bench in ITO v. Daga Capital Management Pvt. Ltd (2009) 312 ITR (AT) 1 and held that section 14A is applicable even where the motive in acquiring the shares was to obtain controlling interest in the companies. The Tribunal upheld in principle the applicability of section 14A but remanded the matter to the Assessing Officer to ascertain from the facts of the case as to how much interest bearing borrowings was utilized to acquire shares in the companies. In appeal by the assessee to the High Court, the following substantial question of law was raised:

Whether in law, the provisions of Section 14A of the Act are applicable to the expenses incurred by the appellant towards interest and others on the loan borrowed for advances made to the subsidiaries in the course of business for its expansion?

HELD by the High Court dismissing the appeal:

The Tribunal after holding in principle the applicability of Sec. 14A, has further directed the Assessing Officer to ascertain from the facts of the case as to how much interest bearing borrowings was utilized to acquire shares in the companies and the matter is relegated to the Assessing Officer. As per the language in Sec.14A, the enquiry has to be undertaken by the Assessing Officer which has been so ordered by the Tribunal. Hence, it can be said that the Tribunal has exercised the discretion where rights of both sides are kept open for admissible deduction under Sec.14A. When such a discretion is exercised and the rights of the assessee is also kept open to satisfy the Assessing Officer, it cannot be said that any substantial questions of law would arise for consideration, as sought to be canvassed. At the stage of enquiry under Sec.14A, it is open to the Assessing Officer to independently consider the matter for admissibility of the interest on borrowings and if yes to what extent. Hence, when the question at large is further to be considered by the Assessing Officer, we do not find that any further observations are required to be made in this regard. In any case, the question of law as sought to be canvassed would not arise for consideration at this stage on the said aspects as sought to be canvassed.