Section 14A applicable even if motive of assessee in acquiring shares is to obtain controlling interest in a company

The learned Counsel for the appellant relied upon various decisions of the High Court and of the Apex Court, but in none of the decisions, the question arisen before the respective Court as to whether the finding of fact recorded by the Tribunal can be disturbed or upset at the stage of appeal before this Court, which is limited to the question of law. All decisions proceed on the basis that the nexus is established, which as per the finding of fact recorded by the Tribunal is not established in the present case. Hence, the said decisions are of no help to the appellant.

Issue Under Consideration– 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 High Court– IN our view, the recent judgment of the Special  Bench in Bombay in ITO v. Daga Capital Management Pvt. Ltd., (2009) 312 ITR (AT) 1, is applicable to the facts of the present case. In this order, it has been held that section 14A is applicable even where the motive in acquiring the shares  was to obtain controlling interest in the companies.

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 appellant –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. In our view, 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.

Categories: Income Tax


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