Case Law Details
DLF Universal Ltd Vs DCIT (ITAT Delhi)
Ld AO has applied 0.5% of investment of Rs. 53.51 crores whereas the ld CIT(A) restricting 0.5% only Rs. 30.84 holding that balance investment of approximately Rs. 22 crores was made in the subsidiary companies and there was no intention of earning any dividend income. The ld CIT(A) while holding so relied upon the decision of the Chennai Bench in case of EIH Associated Hotels Vs. Dy. CIT ITA No. 1503/Mds/2012 dated 27.05.2013 and also of Delhi bench in Pioneer Radio Trading Services Vs. Department of Income Tax in ITA No. 4448/Del/2013 dated 19.01.2015. The main logic behind this is that investments are made for strategic purposes. We find that this controversy has come to an end by the decision of the Hon’ble Supreme Court in case of Maxxop Investment Ltd Vs. CIT Civil Appeal No. 104/20162018] 91 taxmann.com 154 (SC)/[2018] 254 Taxman 325 (SC)/[2018] 402 ITR 640 (SC)/[2018] 301 CTR 489 (SC) wherein, it has been held that dominant purpose for which investment into shares are made is not relevant for disallowance u/s 14A of the Act. The Honourable supreme court held that :-
“34. Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word ‘in relation to the income’ that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act. This is so held in Walfort Share & Stock Brokers (P.) Ltd., relevant passage whereof is already reproduced above, for the sake of continuity of discussion, we would like to quote the following few lines therefrom.”
Therefore, we find that the decision relied upon by the ld CIT(A) wherein, could not be applied . In view of this we hold that there is no justification for reducing the sum of Rs. 22.67 crores being investment in subsidiaries out of total investment in equity shares of Rs. 53.51 Therefore, we find that disallowances of Rs. 26,75,393/- should have been confirmed by the ld CIT(A). Anyway as the disallowance u/s 14A cannot exceed the exempt income of Rs. 22,34,355/- ,we direct the ld AO to restrict the disallowance only to the extent of Rs. 22,34,355/-.
FULL TEXT OF THE ORDER OF ITAT DELHI
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