Case Law Details
Max opp Investment Ltd. Vs. CIT (Supreme Court of India)
Background
In case of group of companies, normally a company hold shares in various subsidiaries / group companies. The dividend paid by these group companies is exempt in the hands of the parent company under section 10(34) of the Income-tax Act, 1961 (Act). Also, banking and investment companies are engaged in the business of trading of securities. They earn tax free income which is incidental to their main business.
Section 14A provides that any expenditure incurred in relation to exempt income is not allowed as a deduction for computing taxable income. There was a controversy that whether section 14A would be applicable in case where the shares are not held with the intention of earning dividend, but for retaining control over the subsidiaries (often referred to as ‘strategic investment’) or as stock-in-trade. Whether the intention or dominant purpose of holding shares would be relevant in determining applicability of section 14A.
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Author Bio
To ADD; Many of the points of view, founded on ‘first principles’, as canvassed for / shared in the published Article – (2009) 14 CPT 819 (pending to be UPDATED) do not seem to have been specifically or adequately addressed during the court proceedings in any of the decided /reported case law, including in Maxopp’s case. One such crucial point covered in that Article concerns the inescapable fact that sec 14A is not prefixed with a ‘non-obstante clause’, so as to be regarded to have an overriding effect on all the other related provisions of the IT Act.
And, in one’s personal conviction / utmost belief, had that clinching facet been focused on and eminently addressed in sufficient details , so as to enable the court(s) to duly consider, then it is quite possible that the judicial decision (s) may have turned out to be in assessees’ favour; thereby, settled the related controversies , and set at rest, once for all.
INSTANT
The view aired to the effect that the reported latest SC verdict marks the “End of……..” is too abrupt a conclusion to be taken any seriously; particularly on the main proposition on which the verdict has been handed down primarily relying upon and following inter alia the earlier apex court Judgment in Walfort case, and rejecting the assessee’s contentions based on and invoking the so called ‘Dominant Purpose’ Test.
On the contrary, in one’s independent perspective, and as personally viewed, that has brought to surface a dangerously fresh scope for more and more controversies, of a far reaching nature / consequences.
More importantly, the cited verdict in Maxopp’s case cannot, in one’s conviction, be rightly said to be a binding ”PRECEDENT” to every other case .across the board; that is, unless in a given case the income is ‘dividend’ and ‘interest’ is of the same kind as in Maxopp’s case. In saying so, one has in mind, apart from several other aspects of relevance, the legal meaning of ‘interest’ as specially defined in sec 2 (29A) and the whole host of other cases (i.e. types of ‘income”which are not includ-able /-ed in ‘total income’, by virtue of CHAPTER III – section 10, read together with CHAPTER VI-A, sections covered in ‘C’ thereunder.
For an elaboration of the personally thoughts and viewpoints shared, if so care to and mind, may look up the Posts on this and other tax websites (e.g,itatonline, taxsutra, etc., , also on FB and LInkedin.
To Admn. :Being connected on my timeline of the referred social media is requested to obligingly draw attention to or pass on the benefit of the information disseminated, to one and all concerned , including CAs to whom the topic ought to be of direct interest, regardless of whether engaged as assisting tax consultants or as financial and / or tax auditors.