IT : Where all shares were acquired only in course of business of assessee, pro rata interest on funds relatable to such investment could not be held as outgo in capital field
IT : Section 14A is not applicable in respect of investment in share application money
IT : Intention with which shares were acquired is a relevant criterion for application of section 14A
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[2013] 33 taxmann.com 508 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'D'
MSA Securities Services (P.) Ltd.
v.
Assistant Commissioner of Income-tax, Company Circle - IV(3)*
ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND S.S. GODARA, JUDICIAL MEMBER
AND S.S. GODARA, JUDICIAL MEMBER
IT APPEAL NOS. 1523 & 1524 (MDS.) OF 2012
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
OCTOBER 17, 2012
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Interest] - Assessment year 2008-09 - Whether an assessee can take any amount of loan for purpose of its business and such loans can be used for purpose of acquiring fixed assets or current assets and as long as such fixed assets and current assets were relatable to its business, interest on loans paid for acquiring such assets are nothing but business expenditure of assessee - Held, yes - Whether further, where all shares were acquired only in course of business of assessee, pro rata interest on funds relatable to such investment could not be held as outgo in capital field - Held, yes [Para 11] [In favour of assessee]
Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income [Share dealing] - Assessment year 2008-09 - Whether section 14A is not applicable in respect of investment in share application money - Held, yes [Para 12] [In favour of assessee]
Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income [Share dealing] - Assessment year 2008-09 - Whether intention of assessee cannot be treated as irrelevant when assessee admittedly was a dealer in shares and was also in receipt of short-term capital gains on account of its share dealings - Held, yes - Whether, therefore, where assessee was in business of dealing in shares and sale consideration received on account of sale of shares was admitted as capital gains, disallowance under section 14A was not warranted - Held, yes [Para 17][In favour of assessee]
FACTS
| ■ | The assessee was in the business of dealing in shares and investment counselling. It had taken unsecured loans. It had invested in shares of 'SCPL' and had also paid share application money. | |
| ■ | The Assessing Officer having found that the assessee had invested in shares of 'SCPL' and also earned dividend income held that interest on borrowed funds insofar as it was utilised for acquiring shares and giving share application money could not be considered as business expenditure. Accordingly, pro rata disallowance was made. Further, the Assessing Officer also invoked provisions of section 14A and disallowed part of interest expenditure. | |
| ■ | The Commissioner (Appeals) upheld the order of the Assessing Officer. | |
| ■ | On second appeal: |
HELD
Whether pro rata interest on funds relatable to investment in shares was an outgo in capital field?
| ■ | It is not disputed that assessee had received a dividend. However, there is no finding by the Assessing Officer that the said dividend income had come from shares held in SCPL. At para 2 of the assessment order, it is clearly mentioned that assessee had converted its investment in shares into stock-in-trade on 1-4-2007, which is the first day of relevant previous year. The assessee had also returned short-term capital gains on the sale of shares effected by it. Acquisition of shares in SCPL, whether as investment or as stock-in-trade, in such circumstances, could not be considered as something done outside the course of business of assessee. Therefore, the finding of the Commissioner (Appeals) that pro rata interest on funds relatable to such investment was an outgo in capital field is incorrect. An assessee can take any amount of loan for the purpose of its business and such loans can be used for the purpose of acquiring fixed assets or current assets. As long as such fixed assets and current assets were relatable to its business, interest on loans paid for acquiring such assets are nothing but business expenditure of the assessee. | |
| ■ | Therefore, the view of the Assessing Officer that interest relatable to borrowed funds attributable to investment of shares of SCPL and for placing share application money with the said company could not be considered as business expenditure, cannot be accepted. Similarly, the view of the Commissioner (Appeals) that such interest expenditure could be in the capital field also cannot be accepted. Reason for discounting both these view is that all these shares were acquired and share application money placed with SCPL only in the course of business of the assessee. [Para 11] |
Whether section 14A was applicable in respect of investment in share application money?
| ■ | The assessee had earned both dividend income as well as short-term capital gains. Dividend income was claimed as exempt under Income-tax Act. A sum of Rs. 47.51 crores was placed by the assessee with SCPL as share application money. Till such period share application money got converted into shares, assessee was not entitled to any dividend. There is no case for the revenue that assessee had received any interest on such share application money. Share application money, till such point of time it was converted into shares, will not yield any income whatsoever, whether exempt or not. When there is no possibility of earning of any income at all, there can be no disallowance under section 14A. | |
| ■ | Thus, when there is no possibility of any income arising to the assessee from the investment, question of application of section 14A(1) would not arise at all. [Para 12] |
Whether intention with which shares were acquired is relevant for application of section 14A?
| ■ | Commissioner (Appeals) has given a finding that intention with which shares were acquired is not a criterion for application of section 14A. The intention of the assessee cannot be treated as irrelevant when assessee admittedly was a dealer in shares and was also in receipt of short-term capital gains on account of its share dealings. The assessee, being a trader in share, even if the shares were held as a part of its investment, such holding of shares could still be considered only as a part of its business. When such holdings were considered as a part of its business, whether the intention for such holding of shares was to receive the benefit of dividend has to be seen from the facts and circumstances. All along assessee's plea was that such shares were held by it as a part of its business and not for the purpose of earning dividend income. [Para 13] | |
| ■ | In the instant case, the assessee was in the business of dealing in shares and investment counselling. When shares held by it as investments were sold, it had admitted capital gains also. Against an investment of Rs. 10,99,00,000 for equity share in SCPL and share application money of Rs. 47,51,00,000 placed with the same company, the total dividend earned was a miniscule amount of Rs. 10,11,449. There is no finding whether even this dividend had come from such shareholding. Thus, facts clearly indicate that assessee had acquired or purchased the shares not with an intention of earning any dividend. The Commissioner (Appeals) fell in error when he held that whether shares were acquired to earn gains on sale thereof or to have controlling interest, were irrelevant factors. The circumstances, on the other hand, clearly show that dividend received was only incidental to assessee's business of dealing in shares. [Para 17] |
Conclusion
| ■ | In the circumstances of the case, disallowance under section 14A was not warranted. The acquisition of shares and placing share application money were in the course of business of the assessee and a disallowance under Section 36(1)(iii) also could not have been made. Interest paid on loans also could not be considered as an outflow of capital nature, since it was not in the nature of any pre-incorporation or pre-operative expenses. Thus there is no hesitation in deleting the disallowances made. [Para 17] |
CASE REVIEW
CCI Ltd. v. Jt. CIT [2012] 206 Taxman 563/20 taxmann.com 196 (Kar.) (para 17) and CIT v. Delite Enterprises Ltd. [IT Appeal No. 110 of 2009, dated 26-6-2007] (para 17) followed.
CASES REFERRED TO
CIT v. Walfort Share & Stock Brokers (P) Ltd. [2010] 326 ITR 1/192 Taxman 211 (SC) (para 7), Siva Industries & Holdings Ltd. v. Asstt. CIT[2011] 46 SOT 112 (URO)/11 taxmann.com 404 (Chennai) (para 9), Shriram Transport Finance Co. Ltd. v. ACIT [I.T.A. No. 701/Mds/2012, dated 28-6-2012] (para 9), Avshesh Mercantile (P.) Ltd. v. Dy. CIT [2012] 54 SOT 19 (URO)/26 taxmann.com 43 (Mum.)(SC) (para 9), CIT v.Delite Enterprises Ltd. [IT Appeal No. 110 of 2009 dated 26-6- 2009] (para 9), Maxopp Investment Ltd. v. CIT [2011] 203 Taxman 364/15 taxmann.com 390 (Delhi) (para 9), CCI Ltd. v. Jt. CIT [2012] 206 Taxman 563/20 taxmann.com 196 (Kar.) (para 9), Cheminvest Ltd. v. ITO[2009] 121 ITD 318 (Delhi)(SB) (para 14) and CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) (para 17).
R. Sivaraman for the Appellant. K.E.B. Rengarajan for the Respondent.
ORDER
Abraham P. George, Accountant Member - These are appeals of the assessees, directed against orders dated 31.5.2012 of Commissioner of Income Tax (Appeals)-V, Chennai. These appeals are considered together since grounds taken by the assessees are similar.
2. Appeal in I.T.A. No. 1524/Mds/2012 of assessee, M/s NMS Consultancy Private Ltd. is considered first for disposal.
3. Grievances of the assessee are that CIT(Appeals) upheld disallowance of interest of Rs. 1,38,93,443/- pertaining to certain investments made by the assessee in one M/s Sringaravalli Consultants Pvt. Ltd. and also held that Section 14A of Income-tax Act, 1961 (in short 'the Act') was applicable on interest paid on borrowed funds utilized for purchasing equity shares.
4. Facts as culled out from assessment order are that assessee, dealing in shares and also doing investment counselling, had filed return of income declaring a loss of Rs. 3,48,57,095/- for the impugned assessment year. Such loss was reduced to Rs. 3,45,49,595/- through a revised return filed. During the course of assessment proceedings, it was noted by the Assessing Officer that assessee had substantial unsecured loans coming to Rs. 1,27,13,79,000/- as at the end of the relevant previous year. Assessing Officer further noted that assessee had invested in shares of one M/s Sringaravalli Consultants Pvt. Ltd. for a sum of Rs. 10,99,00,000/- and had also paid share application money of Rs. 47,51,00,000/- to the same company. Profit & Loss account of the assessee showed a sum of Rs. 3,95,63,859/- as interest charged on the loans taken by it. Assessing Officer was of the opinion that interest on borrowed funds insofar as it was utilised for acquiring shares and giving share application money could not be considered as business expenditure. A pro rata disallowance of Rs. 1,38,93,443/- was made.
5. Assessing Officer also found from Profit & Loss account that assessee had received dividend income of Rs. 10,11,449/-, which was exempt from tax. As per the A.O., this called for application of Section 14A of the Act. Total expenditure debited in Profit & Loss account of the assessee for relevant previous year came to Rs. 4,57,84,435/-. As per the A.O., expenditure incurred in earning exempt income could not be allowed and Rule 8D of Income-tax Rules, 1962 had to be applied. He, therefore, applied sub-clause (2) of Rule 8D and made a further disallowance of Rs. 2,35,73,989/- for interest. While computing such interest disallowance, Assessing Officer deducted from the total interest of Rs. 3,95,63,859/-, the interest amount Rs. 1,38,93,443/- which he disallowed as non-business expenditure. In other words, while applying the formula mentioned in sub-clause (2) of Rule 8D, A.O. took only the balance interest after considering the disallowance made by him for non-business expenditure. Under Rule 8D(2)(iii), he made a further disallowance taking 0.5% of the average investment and such disallowance came to Rs. 15,93,169/-. The effective disallowance under Rule 8D came to Rs. 2,51,67,158/-. The assessment was completed accordingly.
6. Aggrieved, assessee moved in appeal before CIT(Appeals). Its argument was that the investment in M/s Sringaravalli Consultants Pvt. Ltd. (SCPL) was in the course of its business of dealing in shares. As per the assessee, the shares acquired in M/s SCPL formed part of its stock-in-trade and could not be considered as an investment which would result in exempt income. According to assessee, sale of such shares would give rise to capital gains which was includible in the total income, and further, it had got controlling right in such company by the acquisition of shares. As per the assessee, the investment was made for business expediency and not for the purpose of earning dividend income. It was, therefore, argued that Section 14A had no application. Thus, the main crux of its argument was that dividend income was only an incidental income, whereas, main income of the assessee was on account of trading in equity shares.
7. However, CIT(Appeals) was not impressed. According to him, amounts spent for the purchase of shares in SCPL and share application money paid to the said company were shown by the assessee as investment in its books of accounts. In the opinion of CIT(Appeals), such investment yielded dividend which was exempt from tax. Just because capital gains would also arise when such shares were sold, would not alter the position in any manner. As per the CIT(Appeals), the intention with which the expenditure was incurred was not a criteria to be adopted for applying Section 14A of the Act. Expenditure incurred by the assessee had direct nexus with earning dividend income. Further, as per the CIT(Appeals), loans on which interest was paid by the assessee, were fully utilized in making investment and therefore, expenditure in the nature of interest on such loans, would be in capital field and could not be justified as allowable on the reasons of business expediency. CIT(Appeals) also found that Rule 8D clearly specified that expenditure whether direct or indirect, not attributable or relatable to earning of taxable income, had to be disallowed. Assessee having admitted dividend income of Rs. 10,11,449/-, it could not say that Section 14A and Rule 8D would not apply. Relying on the decision of Hon'ble Apex Court in the case of CIT v.Walfort Share & Stock Brokers (P) Ltd. [2010] 326 ITR 1/192 Taxman 211, he dismissed the appeal of the assessee.
8. Now before us learned A.R., strongly assailing the orders of lower authorities, submitted that assessee was doing share business both as investment and trade. Investments were in the course of its business only. Dividends which the assessee earned, were only incidental. Though assessee had earlier shown such amount as investment, it had converted it into stock-in-trade at the beginning of the relevant previous year. Whether investment or stock-in-trade, sale of such shares yielded capital gains or business income, both of which were exigible to tax. Therefore, according to learned A.R., it could not be stated that investments were for earning exempt income. It might be true that assessee had dividend income of Rs. 10,11,449/-, but nevertheless, such dividend was small when compared to the shares acquired and this itself would show that such investment was made not for the purpose of earning dividend, but only in the course of its business for earning capital gains or business income. Section 14A could not be applied in such a situation.
9. In any case, according to the learned A.R., substantial portion of investment made in M/s SCPL was by way of share application money. It could not be considered that share application money would yield any dividend at all. Learned A.R. pointed out that Assessing Officer had made disallowance of interest of Rs. 1,38,93,443/- for a reason that it was not business expenditure. Again, when he was calculating a disallowance under Rule 8D, a part of the interest charged to Profit & Loss account was disallowed. This also resulted in excess disallowance of interest. Ld. CIT(Appeals) had applied Section 14A while justifying both the disallowances made by the A.O., but, nevertheless, ignored the double disallowance of interest. Reliance was placed by the learned A.R. on the decision of co-ordinate Bench of this Tribunal in the case of Siva Industries & Holdings Ltd. v. Asstt. CIT [2011] 46 SOT 112 (URO)/11 taxmann.com 404 (Chennai), that of Shriram Transport Finance Co. Ltd. v. ACIT [I.T.A. No. 701/Mds/2012, dated 28.6.2012], that of Mumbai Bench of the Tribunal in the case of Avshesh Mercantile (P.) Ltd. v. Dy. CIT [2012] 54 SOT 19 (URO)/26 taxmann.com 43 and that of Hon'ble Bombay High Court in the case of CIT v. Delite Enterprises Ltd. [I.T.A. No. 110 of 2009 dated 26th June, 2009). According to him, in the case of Shriram Transport Finance Co. Ltd. (supra), this Tribunal had considered judgment of Hon'ble Delhi High Court in the case ofMaxopp Investment Ltd. v. CIT [2011] 203 Taxman 364/15 taxmann.com 390, where it was clearly held that recording of dissatisfaction with the correctness of the claim of expenditure or claim of no expenditure made by the assessee was a pre-requisite for invocation of Rule 8D. In any case, according to learned A.R., Hon'ble Delhi High Court had, in the latter case, held that Rule 8D would apply only from 24.3.2008 and not prior to that. Strong reliance was placed on the decision of Hon'ble Karnataka High Court in the case of CCI Ltd. v. Jt. CIT [2012] 206 Taxman 563/20 taxmann.com 196 for arguing that when shares were retained, not with an intention of earning dividend income and dividend income was incidental, there could be no disallowance under Section 14A of the Act.
10. Per contra, learned D.R. submitted that investment made by the assessee in M/s SCPL was shown by the assessee itself as investment in its balance sheet. Investment had also resulted in a dividend income of Rs. 10,11,449/-. It is not necessary that there should be substantial dividend income received by an assessee for application of Section 14A. Assessee had made such investment for building up of an infrastructure of investments, which would later result in substantial dividend income. Intention of the assessee was to earn dividend income and dividend income was indeed earned during the relevant previous year. Once assessee had shown dividend income and claimed it exempt, it could not say that the investments were not for the purpose of earning dividend income but for some other purpose. Therefore, according to him, the disallowance of interest as well as disallowance made under Rule 8D were justified. Regarding the case laws relied on by the assessee, learned D.R. submitted that these were related to years prior to assessment year 2008-09 when Rule 8D was not in existence. Learned D.R., therefore, argued that there is no infirmity in the orders of lower authorities.
11. We have perused the orders and heard the rival submissions. Facing sheet of the assessment order mentions assessee's business as investment counselling. Nevertheless, at para 1of the assessment order, the Assessing Officer also states that the assessee was a dealer in shares. Read together, this would clearly imply that assessee was both, doing investment as well as share trading as a part of its business. Assessee had invested a sum of Rs. 10,99,00,000/- in the share of M/s SCPL. In addition, it had also placed share application money with same company to the tune of Rs. 47.51 Crores. It is not disputed that assessee had received a dividend of Rs. 10,11,449/-. However, there is no finding by the Assessing Officer that the said dividend income had come from shares held in M/s SCPL. At para 2 of the assessment order, it is clearly mentioned that assessee had converted its investment in shares into stock-in-trade on 1.4.2007, which is the first day of relevant previous year. Assessee had also returned short-term capital gains on the sale of shares effected by it. Acquisition of shares in M/s SCPL, whether as investment or as stock-in-trade, in such circumstances, could not be considered as something done outside the course of business of the assessee. Therefore, the finding of the CIT(Appeals) that pro rata interest on funds relatable to such investment was an outgo in capital field is, in our opinion, incorrect. An assessee can take any amount of loan for the purpose of its business and such loans can be used for the purpose of acquiring fixed assets or current assets. As long as such fixed assets and current assets were relatable to its business, interest on loans paid for acquiring such assets are nothing but business expenditure of the assessee. Therefore, the view of the A.O. that interest relatable to borrowed funds attributable to investment of shares of M/s SCPL and for placing share application money with the said company could not be considered as business expenditure, cannot be accepted. Similarly, the view of the CIT(Appeals) that such interest expenditure could be in the capital field also cannot be accepted. Reason for discounting both these view is that all these shares were acquired and share application money placed with M/s SCPL only in the course of business of the assessee.
12. This leaves us with the aspect of application of Section 14A of the Act. As already mentioned by us, assessee had earned both dividend income as well as short-term capital gains. Dividend income was claimed as exempt under Income-tax Act. What we find is that a sum of Rs. 47.51 Crores was placed by the assessee with M/s SCPL as share application money. Till such period share application money got converted into shares, assessee was not entitled to any dividend. There is no case for the Revenue that assessee had received any interest on such share application money. Share application money, till such point of time it was converted into shares, will not yield any income whatsoever, whether exempt or not. When there is no possibility of earning of any income at all, there can be no disallowance under Section 14A of the Act. Sub-section (1) of Section 14A clearly bars deduction being allowed on expenditure incurred by the assessee in relation to income which does not form part of total income. Thus, when there is no possibility of any income arising to the assessee from the investment, question of application of 14A(1) would not arise at all.
13. CIT(Appeals) has given a finding that intention with which shares were acquired is not a criterion for application of Section 14A of the Act. In our opinion, intention of the assessee cannot be treated as irrelevant when assessee admittedly was a dealer in shares and was also in receipt of short-term capital gains on account of its share dealings. Assessee, being a trader in share, even if the shares were held as a part of its investment, such holding of shares could still be considered only as a part of its business. When such holdings were considered as part of its business, whether the intention for such holding of shares was to receive the benefit of dividend has to be seen from the facts and circumstances. All along assessee's plea was that such shares were held by it as a part of its business and not for the purpose of earning dividend income. Now the question boils down to the relevance of the intention of the assessee insofar as application of Section 14A is considered.
14. Though learned D.R. did not rely on the decision of Maxopp Investment Ltd. (supra) of Hon'ble Delhi High Court, it is very relevant since ld. CIT(Appeals) has mentioned that one of the claim made by the assessee before him was that shares were held for having controlling interest. Argument of the assessee in Maxopp Investment Ltd. (supra) also was that such shares were held as a part of its business for acquiring control over the companies in which it was holding the shares. Hon'ble Delhi High Court rejected this line of reasoning and held that even if shares were acquired for getting controlling interest, still Section 14A applied, if dividend income is received from such shares and such dividend income was claimed exempt. Their Lordship held that the words "in relation to" used in Section 14A was a very broad expression and wide import having direct and indirect significance depending on context. Nevertheless, their Lordship observed that if an A.O. rejected a claim of taxpayer that no expenses were incurred or a particular amount alone was expended for earning the exempt income, the A.O. would have to give cogent reasons for doing so. At this juncture, it will be inappropriate if we do not do a real time check of the decision of Special Bench of this Tribunal in Cheminvest Ltd. v. ITO [2009] 121 ITD 318 (Delhi), where an argument was raised that unless income is earned and claimed as exempt, Section 14A cannot be applied. Repulsing this line of reasoning, Special Bench held that for application of Section 14A, it was not necessary that actual earning of exempt income was necessary, but the intention to earn such exempt income by virtue of the investment would suffice.
15. Pitted against the above are the judgments of Hon'ble Karnataka High Court in the case of CCI Ltd. (supra) dated 28.2.2012 and that of Hon'ble Bombay High Court in the case of Delite Enterprises (supra). In the former case, assessee had spent Rs. 27.24 lakhs as brokerage for arranging loans, which were utilised for acquiring shares in one M/s Kurlon Ltd. and certain other companies. It earned dividend income of Rs. 46.67 lakhs and A.O. held Rs. 27.24 lakhs as expenses relating to earning exempt income and made a disallowance under Section 14A of the Act. In further appeals of assessee, this Tribunal held that in addition to disallowance of brokerage, A.O. ought have made a disallowance for the part of indirect expenses under Section 14A, as well. When the matter reached the Hon'ble High Court, it was held that when the shares were retained not with an intention of earning dividend income and dividend income was incidental to assessee's business of selling shares, which arose on shares remaining unsold, it could not be said that expenditure incurred in acquiring the shares had to be apportioned to the extent of dividend income and should be disallowed. It was held by Hon'ble Karnataka High Court at para 5 of its judgment, as under:-
"5. When no expenditure is incurred by the assessee in earning the dividend income, no notional expenditure could be deducted from the said income. It is not the case of the assessee retaining any shares so as to have the benefit of dividend. 63% of shares, which were purchased, are sold and the income derived therefrom is offered to tax as business income. The remaining 37% of the shares are retained. It has remained unsold with the assessee. It is those unsold shares have yielded dividend, for which, the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside."
In other words, Hon'ble Karnataka High Court held that there could be no disallowance when shares were held not with an intention of earning dividend income.
16. In the case of Delite Enterprises Ltd. (supra), Hon'ble Bombay High Court affirmed a decision of the Mumbai Tribunal holding that when exempt income is not there, there cannot be a disallowance under Section 14A of the Act. Of course, this decision was in relation to interest payment for funds used for investment in capital of a partnership firm, which was disallowed for a reason that share income from a firm was exempt under Section 10(2A) of the Act. Mumbai Tribunal in the case of Avshesh Mercantile (P.) Ltd. (supra), placed on record by learned A.R., held that refusal of Hon'ble High Court to entertain the question in this regard raised by the Revenue in Delite Enterprises Ltd. (supra), gave the stamp of authority on the proposition of law enunciated by the Tribunal in the same case.
17. In the case before us also, assessee was in the business of dealing in shares and investment counseling. When shares held by it as investments were sold, it had admitted capital gains also. Against an investment of Rs. 10,99,00,000/- for equity share in M/s SCPL and share application money of Rs. 47,51,00,000/- placed with the same company, the total dividend earned was a miniscule amount of Rs. 10,11,449/-. There is no finding whether even this dividend had come from such shareholding. Thus, facts clearly indicate that assessee had acquired or purchased the shares not with an intention of earning any dividend. In our opinion, ld. CIT(Appeals) fell in error when he held that whether shares were acquired to earn gains on sale thereof or to have controlling interest, were irrelevant factors. The circumstances, on the other hand, clearly show that dividend received was only incidental to assessee's business of dealing in shares. Decisions of Hon'ble Karnataka High Court in the case of CCI Ltd. (supra) and that of Hon'ble Bombay High Court in the case of Delite Enterprises Ltd. (supra) definitely come to the aid of the assessee. When two reasonable constructions can be given to a Section, then the one which helps the assessee has to be given preference, by virtue of decision of Hon'ble Apex Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. In the circumstances of the case, we are of the view that disallowance under Section 14A was not warranted. The acquisition of shares and placing share application money were in the course of business of the assessee and a disallowance under Section 36(1)(iii) of the Act also could not have been made. Interest paid on loans also could not be considered as an outflow of capital nature, since it was not in the nature of any pre-incorporation or pre-operative expenses. We thus have no hesitation in deleting the disallowances made.
18. Now coming to appeal of the assessee in I.T.A. No. 1523/Mds/2012, we find that the fact situation is very much similar to assessee in I.T.A. No. 1523/Mds/2012. However, here assessee is aggrieved only on the disallowance of Rs. 2,38,203/- made by the A.O. under Section 14A of the Act, which was sustained by CIT(Appeals). For the same reason as stated by us at paras 11 to 17 above, we allow the appeal of assessee here also.
19. To summarize the result, the appeals filed by both the assessees are allowed.
Regards
Prarthana Jalan
__._,_.___
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