Case Law Details
NDTV Networks Ltd. Vs DCIT (ITAT Delhi)
New Delhi: In a significant ruling for NDTV Networks Ltd., the Income Tax Appellate Tribunal (ITAT) Delhi bench has provided partial relief in a tax appeal for the assessment year 2014-15. The tribunal addressed key disputes, centrally including whether the investment activities of a holding company can be considered ‘business’ under tax law, and ultimately deleted substantial tax additions made by the authorities.
The appeal challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had largely upheld the disallowances made by the Deputy Commissioner of Income Tax (DCIT) during the assessment process. The case involved three main grounds of appeal raised by NDTV Networks.
Disallowance of business expenditure amounting to ₹3,62,94,780
The foremost contention revolved around the disallowance of business expenditure amounting to ₹3,62,94,780. The tax authorities, both the Assessing Officer (AO) and the CIT(A), had disallowed this expense. Their primary reason was that NDTV Networks was viewed merely as a holding company, holding investments in subsidiary companies, and thus was not engaged in active ‘business’ as defined by Section 2(13) of the Income-tax Act, 1961, nor had it reported income taxable as ‘profits and gains of business or profession’ during that year. The department contended that income from such investments would fall under other heads like capital gains or income from other sources.
NDTV Networks strongly contested this, arguing that its activities, particularly the strategic holding of investments in subsidiaries, were integral and essential to furthering the broader business interests of the NDTV group in the non-news television channel sector. The company maintained that this investment activity itself constituted a ‘business’ venture, undertaken in line with its memorandum of association, even if it did not generate immediate income. The assessee also highlighted that the tax department had accepted the same expenditure claim in the assessment year 2012-13.
Before the ITAT, NDTV Networks presented a compelling case by referencing several judicial precedents. These included significant rulings from the Supreme Court, specifically Mazagaon Dock Ltd. Vs. CIT (1958) 34 ITR 368 (SC) and CIT Vs. Distributors (Baroda) (P.) Ltd. (1972) 83 ITR 377 (SC), which have held that the activities of a holding company can indeed be treated as business. Further support was drawn from decisions of the Kerala High Court in CIT Up asana Hospital, (1997) 225 ITR 845 (Ker), the Madras High Court in CIT Vs. Amalgamations (P.) Ltd. (1977) 108 ITR 895 (Madras), and the Mumbai ITAT in ESSAR Investments Ltd. Vs. DCIT (2006) 7 SOT 378 (Mum). These judgments collectively support the principle that expenditure incurred for business purposes, including those related to investments by a holding company made in furtherance of group business, is allowable even if no income is earned in a particular year. The ITAT found substantial merit in the arguments presented by NDTV Networks and the judicial precedents cited. The tribunal agreed that the tax authorities were incorrect in disallowing the business expenditure solely because the company was a holding entity or had no current business income. Citing the weight of the judicial pronouncements, the ITAT concluded there was no basis to sustain the disallowance and directed its deletion.
Disallowance of ₹1,60,00,000 concerning Directors’ remuneration: ITAT remits issue to AO
The appeal also involved a disallowance of ₹1,60,00,000 concerning Directors’ remuneration, deemed excessive by the tax authorities based on compliance with company law. NDTV Networks offered an alternate explanation: the amount considered excessive had been reversed in the subsequent financial year 2014-15 and duly offered for taxation in that year’s assessment. The company argued that confirming the disallowance in the current year would lead to double taxation. The assessee also pointed to a previous ruling by the CIT(A)’s predecessor for AY 2012-13 which had resolved a similar double taxation issue in their favour. The ITAT acknowledged the potential for double taxation raised by the assessee’s alternate plea. Instead of issuing a final order on this point, the tribunal decided to restore this issue back to the Assessing Officer. The AO was directed to re-examine the matter, specifically verifying the reversal of the expense and its subsequent assessment to ensure there is no double taxation.
Section 14A is not attracted when no exempt income is earned
Finally, the appeal challenged a disallowance of ₹2,78,000 made under Section 14A of the Act, read with Rule 8D. This section deals with the disallowance of expenditure incurred to earn income that is exempt from tax. NDTV Networks contended that no exempt income was earned during the assessment year 2014-15, and thus Section 14A provisions should not be invoked. The tax authorities had applied the disallowance despite this fact. The Revenue argued that an Explanation added to Section 14A by the Finance Act, 2022 (effective from April 1, 2022), clarified that disallowance is applicable regardless of whether exempt income is actually received. However, the ITAT rejected the Revenue’s reliance on the 2022 amendment for the assessment year 2014-15. The tribunal strictly followed the settled legal position established by the jurisdictional Delhi High Court. It cited the judgment in Chemnivest Ltd. vs. CIT; (2015) 61 taxmann.com 118 (Del.), which clearly held that Section 14A is not attracted when no exempt income is earned. Furthermore, the ITAT referenced the Delhi High Court’s decision in PCIT Era Infrastructure (India) Ltd. (2022) 448 ITR 674 (Del), which specifically ruled that the Explanation to Section 14A introduced in 2022 has only prospective effect. Applying these binding High Court precedents, the ITAT concluded that the disallowance under Section 14A for AY 2014-15 was incorrect and ordered its deletion.
In summary, the ITAT Delhi partly allowed NDTV Networks Ltd.’s appeal. It deleted the disallowances related to business expenditure, affirming that a holding company’s investment activities can constitute business, and the disallowance under Section 14A due to the absence of exempt income based on jurisdictional High Court rulings. The issue concerning directors’ remuneration was sent back to the AO for verification regarding potential double taxation. The judgment reinforces key principles regarding business expenditure and the interpretation of Section 14A based on judicial pronouncements.
FULL TEXT OF THE ORDER OF ITAT DELHI
This assessee’s appeal for assessment year 2014-15, arises against the Commissioner of Income Tax (Appeals)-6 [in short, the “CIT(A)”], Delhi’s order dated 28.08.2018 passed in case no. CIT(A), Delhi-6/10346/2016-17, involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. Heard both the parties at Case file perused.
3. This assessee’s appeal raises the following substantive grounds:
“1. That on the facts and circumstances of the case, the order dated 28.08.2018 passed by the learned Commissioner of Income Tax (Appeals) [‘CIT(A)’] is without judicious appreciation of the facts and position in law, and thus, erroneous insofar as the same upholds the order dated 31.08.2016 passed by the Assessing Officer [‘AO’].
2. That the CIT(A) erred on facts and in law in confirming the disallowance of Rs.3,62,94,780 being the business expenditure incurred by the Appellant, and claimed as deduction, allegedly on the ground that:
(i) the activities of the Appellant do not qualify as ‘business as defined under Section 2(13) of the Income Tax Act, 1961 (‘the Act’); and
(ii) there was no ‘business’ income earned by the Appellant during the relevant previous year.
2.1 That the CIT(A) erred on facts and in law in ignoring the detailed submissions dated 06.2018 (submitted on 20.06.2018) filed by the Appellant whereby it was explained that the activities of the Appellant constitutes ‘business’ under Section 2(13) Act and also, that earning of business income is not a decisive factor for claiming business expenditure under Section 37(1) of the Act.
3. That the CIT(A) erred on facts and in law in confirming disallowance of Rs.1,60,00,000/-, being the excess Directors’ remuneration paid by the Appellant during the relevant year under consideration, without appreciating that such amount having been reversed and offered to tax in subsequent year, would amount to double taxation.
3.1 That the CIT(A) erred on facts and in law in not following order of her predecessor for the Assessment Year 2012-13 deciding the similar issue of double taxation in favour of the Appellant.
4. That the CIT(A) erred on facts and in law in confirming disallowance of 2,78,000 made by the AO under Section 14A of the Act read with Rule-8D of the Income Tax Rules, 1962 without appreciating that the Appellant did not earn any exempt income during the relevant year.
4.1 Without prejudice, that CIT (A) erred in confirming the action of the AO in invoking the provisions of Section 14A of the Act without appreciating that no satisfaction was recorded having regard to the books of accounts of the Appellant, that certain expenditure was actually incurred for earning any exempt income.
That the appellant seeks leave to add, alter, amend or withdraw any ground of appeal before or at the time of hearing of this appeal.”
4. We now advert to the basic relevant facts qua this assessee’s instant first and foremost substantive ground claiming business expenditure of Rs.3,62,94,780/-; made by the Assessing Officer and upheld in the lower appellate discussion reading as under:-
“4. Determination
4.1 Grounds of appeal Nos. 1 and 2 challenge the disallowance of business expenditure and consequently set-off of business loss of Rs. 3,62,94,780/- against interest income under 4.1.1 The AO noted that the assessee was holding shares in NDTV lifestyle Ltd which was reflected under the head non-current investments in the balance sheet. It was also noted that no business has been carried out by the assessee within the meaning of section 2(13) and there was no income which was chargeable under the head ‘Profits and gains of business of profession’. The AO further noted that holding investment income would yield income under the head ‘Capital gains’ in case there was a profit or loss on sale of shares or it would yield dividend income which would fall under the head ‘Income from other sources’. In the case of the assessee it was noted that merely terming the activity of holding of investment as “business to act as a holding company” does not entitled the assessee to claim it as a Hence, expenditure claimed by the assessee under section 37(1) was held to be not admissible since there was no income under the head ‘Profits and gains of business or profession’. The appellant has submitted that the company, which is a subsidiary of NDTV, was incorporated to further the business in non-news channel space by NDTV and the investment by the appellant company in the various companies was an essential business activity and was in furtherance of the main business.
4.1.2 I have considered the assessment order and the submissions of the appellant. It is to be noted that as per the memorandum of Association, the main object of the assessee company has been stated to be to carry on the business of development, establishment and running of networks and distribution of non-news and current affairs television channels. arranging band placements, seeding of set-top boxes etc. within India and abroad across different mediums etc. Another of the main objects is to produce, buy, sell, import, export or otherwise deal in television programs etc. and to carry on the business of consultancy and management of projects in News and broadcasting sectors. As noted by the AO it is seen that no income from these activities is apparent from the financial statements of the assessee even though the said company was incorporated on 10/06/2010.From the balance sheet it is also noted that the assessee has no fixed assets, both tangible as well as intangible. Hence it cannot be said that the assessee was pursuing its main objects as per the Memorandum of Association. The view of the AO that the assessee has no income which is chargeable under the head ‘Profits and gains of business or profession’ is upheld. Further, as has also been pointed out by the AO, once there is no income which is chargeable under the head ‘Profits and gains of business or profession’, deductions which are specific to the said head of income are not admissible. Hence, the disallowance made is upheld. Since expenditure claimed under the head ‘Profits and gains of business or profession’ has been disallowed, there is no question of set-off of the loss against interest income. Grounds of appeal Nos. 1 and 2 are dismissed.”
5. Suffice to say, there would be hardly any dispute between the parties that both the learned lower authorities have rejected the assessee’s impugned business expenditure claim on the ground that it was neither carrying on any business within the meaning of section 2(13) of the Act, nor there was any income declared under the head “profits and gains from business or profession”. The Revenue’s case accordingly is that once the assessee was only a company, holding investments in subsidiaries, it could not be held as entitled for the expenditure claim in This is what leaves the assessee aggrieved.
6. We have given our thoughtful consideration to the assessee’s and Revenue’s vehement rival submissions. We find no reason to sustain the impugned disallowance. Learned counsel first of all takes us to the Assessing Officer’s section 143(3) assessment for AY 2012-13 accepting this very expenditure claim. He next quotes various judicial precedents i.e Mazagaon Dock Ltd. Vs. CIT (1958) 34ITR 368 (SC); CIT Up asana Hospital, (1997) 225 ITR 845 (Ker); CIT Vs. Distributors (Baroda) (P.) Ltd. (1972) 83 ITR 377 (SC); CIT Vs. Amalgamations (P.) Ltd. (1977) 108 ITR 895 (Madras) and ESSAR Investments Ltd. Vs. DCIT (2006) 7 SOT 378 (Mum) that a business expenditure could not be disallowed even in an instant of a holding company having made investments in subsidiary as such an activity could indeed be treated as business itself. We find merit in the assessee’s instant first and foremost substantive ground to delete the impugned disallowance, in very terms.
7. Next comes the second substantive issue between the parties regarding correctness of both the lower authorities’ action disallowing the assessee’s directors’ remuneration on the ground that the same was over and above that held allowable under the companies Learned counsel, inter alia, invites our attention to the assessee’s alternate plea that it had already reversed the alleged excess expenses in financial year 2014-15 and got assessed for the same. That being the case, we are of the considered view that the instant issue deserves to be restored back to the learned Assessing Officer for his afresh appropriate verification/computation. Ordered accordingly.
8. Lastly comes the assessee’s third substantive ground that both the learned lower authorities have erred in law and on facts in making section 14A read with Rule 8D disallowance of Rs.2,78,000/- despite the fact that it had not derived any exempt income in the relevant previous year.
9. The Revenue vehemently quotes section 14A Explanation inserted by the Finance Act, 2022 w.e.f. 01.04.2022 that the actual except income being derived is no more the condition precedent for the purpose of making the disallowance herein. We find no merit in the Revenue’s foregoing arguments as not only the jurisdictional high court in Chemnivest Ltd. vs. CIT; (2015) 61 taxmann.com 118 (Del.) has settled the issue prior to the above amendment that the impugned disallowance does not get attracted in absence of any exempt income but also in PCIT Era Infrastructure (India) Ltd. (2022) 448 ITR 674 (Del), their lordships have held that the above statutory amendment carries only prospective effect. We thus accept the assessee’s instant last ground, in very terms.
10. No other ground or argument has been pressed before us.
11. This assessee’s appeal is partly allowed.
Order pronounced in the open court on 4th April, 2025
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