ADDL CIT 2(3), MUMBAI vs. TATA INDUSTRIES LTD, MUMBAI

PER ARUN KHODPIA, ACCOUNTANT MEMBER:

1. a) The CIT(A) erred in allocating proportionate interest expenditure of Rs.41,70 Crores under the provisions of Section 14A of the Income Tax Act, 1961 (‘the Act’), for the purpose of computing Income from Business or Profession and also for computing the Adjusted Book Profit u/s 115JB of the Act. b) The CIT(A) erred in allocating administrative and establishment of Rs.11.69 Crores under the provisions of Section 14A of the Income-Tax Act, 1961 (‘the Act’), for the purpose of computing Income from Business or Profession and also for computing the Adjusted Book Profit u/s 115JB of the Act.

2. The CIT(A) erred in confirming Rs.28,38,00.000 as capital expenditure on the grounds that as the Appellants main activity is to acquire controlling interest in the company in which it makes investment and the same cannot be treated to be a business activity, hence interest and other expenses are not allowable.

3. The CIT(A) erred in treating sub-license fees received by the appellant of Rs. 1,39,38,000 as Income from other Source .

4. The CIT(A) erred in directing that the flat at the Andheri Housing society, owned by the appellant and occupied temporarily by sportsmen of the Tata sports club, be considered for the purpose of computing income from House property.

5. The CIT(A) erred in confirming the disallowance of expenditure of Rs. 20,75.457/- incurred as brokerage expenses for the purpose of computing income from Business or Profession.

6. The CIT(A) erred in confirming the disallowance of legal & professional fees of Rs.1,99,50,893/- paid by the Appellant, for the purpose of computing income from Business or Profession.

7. The CIT(A) erred in confirming the disallowance of legal & professional fees of Rs.18.51,209/- paid by the Appellant, for the purpose of computing income from Business or Profession under section 40(a)(ia) on the grounds on non-deduction of tax at source 8. The CIT(A) erred in confirming the disallowance of legal & professional fees of Rs.38,84,420/- paid by the Appellant, for the purpose of computing income from Business or Profession on the grounds of expenditure being capital in nature.

9. The CIT(A) erred in confirming the disallowance under section 40(a)(ia) of interest expenditure of Rs.12,62,87,403/- paid by the Appellant to a Trust of which a banking company was a Trustee on the grounds of non-deduction of tax at source 10. The CIT(A) erred in confirming the disallowance of Rs.10,01,707/- of Overseas Taxes paid by the appellant claimed under section 37 of the Income Tax Act, 1961.

& CO No. 144/MUM/2016 11. The CIT(A) erred in confirming the addition of Rs.24,75,371 being the unrealized foreign exchange loss incurred by the appellant.

12. Your Appellant craves leave to add to amend, alter, vary, omit or substitute the aforesaid ground of appeal

or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised. Additional / Supplementary Grounds of Appeal a) The CIT(A) erred in allocating proportionate interest expenditure of Rs. 41.70 crores under the provisions of Section 14A of the Income Tax Act, 1961 Act'), for the purpose of computing income from Business or Profession a for computing the Adjusted Book Profit under section 115JB of the Act. a - i) Without prejudice to the above and in the alternate, the disallowance of interest should be made in relation to investments of Rs. 301.23 crores (on which dividend income is received during the year) in the same proportion it bears the value of total investment; and that the interest expenditure should considered after reducing interest income of Rs. 0.58 crores. a - ii) Without prejudice to the above and in the alternate, the disallowance of interest should be made in the proportion to which the loan funds of Rs. 923.57 crores bears to the total funds of Rs. 2,239.97 crores; and that the interest expenditure should be considered after reducing interest income of Rs. 0.58 crores. b) The CIT(A) erred in allocating administrative and establishment of Rs. 11.69 crores under the provisions of Section 14A of the Income Tax Act, 196 Act'), for the purpose of computing income from Business or Profession also for computing the Adjusted Book Profit u/s 115JB of the Act. b - i) Without prejudice to the above and in the alternate, no disallowance administrative expenditure should be made, in absence of precise formulae (as held in CIT v. Dhanalakshmy Bank Ltd. and (other appeals) by Kerala High 344 ITR 259), in this regard. b - ii) Without prejudice to the above and in the alternate, the disallowance administrative expenditure should be made only of 2% of expenditure of Rs. 5.27 crores incurred by the Project and Investment Division of HO and not 90% of Rs. 12.99 crores of the expenditure of entire HO. For the purpose, the following amounts should be deducted: (a) Depreciation; (b) Disallowance made out of expenditure of said Division; and (c) Other expenses as stated hereunder & CO No. 144/MUM/2016 Sr. No. Particulars Rs.

1. Foreign Travel 16,76,298/- 2. Brokerage expenses 1,16,84,897/- 3. Legal and professional fees 3,03,31,382/- 4. Debenture and bond issue expenses 1,10,449/- Total 4,38,03,026/-

2. The CIT(A) erred in confirming Rs. 28,38,00,000/- as capital expenditure on the grounds that as the Appellants main activity is to acquire controlling interest in the company in which it makes investment and the same cannot be treated to be a business activity, hence interest and other expenses are not allowable. 2.1 The CIT(A) ought to have held that the expenditure incurred in relation to activities of HO is revenue expenditure allowable under the applicable provisions of the Act.

Without prejudice to the above and in the alternate 2.2 The CIT(A) ought to have held that the expenditure which can be disallowed as capital in nature has to be of the Project and Investment division only and not of entire HO.

3. The CIT(A) erred in treating sub-license fees received by the appellant of Rs. 139,38,000/- as Income from other Sources.

4. The CIT(A) erred in directing that the flat at the Andheri Housing society, owned by the appellant and occupied temporarily by sportsmen of the Tata sports club, be considered for the purpose of computing income from House Property.

6. The CIT(A) erred in confirming the disallowance of legal and professional fees of Rs. 1,99,50,893/- paid by the Appellant, for the purpose of computing Income from Business or Profession.

7. The CIT(A) erred in confirming the disallowance of legal and professional fees of Rs. 18,51,209/- paid by the Appellant, for the purpose of computing Income from Business or Profession under section 40(a)(ia) on the grounds on non-deduction of tax at source.

8. The CIT(A) erred in confirming the disallowance of legal and professional fees of Rs. 38,84,420/- paid by the Appellant, for the purpose of computing Income from Business or Profession on the grounds of expenditure being capital in nature.

& CO No. 144/MUM/2016 8.1 Without prejudice to the above an in the alternate, The CIT(A) ought to have granted an opportunity to the Appellant on the principles of natural justice and or otherwise before confirming the disallowance of legal and professional fees of Rs.38,84,420/- as being capital in nature and consequently, the disallowance so made should be deleted.

10. The CIT(A) erred in confirming the disallowance of Rs. 10,01,707/- of Overseas Taxes paid by the appellant claimed under section 37 of the Income Tax Act, 1961.

11. The CIT(A) erred in confirming the addition of Rs. 24,75,371/- being the unrealized foreign exchange loss incurred by the Appellant.

12. Your Appellant craves leave to add to amend, alter, vary, omit or substitute the aforesaid ground of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised.

4. At the outset, Ms. Aarti Vissanji, Authorized Representative on behalf of the assessee (in short “Ld. AR”) submitted that the assessee is not willing to press the grounds of appeal Nos: 1(a-ii), 1(b-i), 2.2, 3, 4, 6, 7, 8.1, 9, 9.1, 11, therefore, these grounds may be treated as withdrawn. Since the respondent revenue has no objection to the aforesaid request of the assessee, the assessee’s request is accepted, consequently, the mentioned grounds are dismissed as not pressed/withdrawn.

& CO No. 144/MUM/2016 5. Afterwards, Ld. AR of the assessee has pressed /argued on rest of the grounds of appeal in which are dealt with and adjudicated as under:

6. Ground No. 1(a), (a-i), (a-ii), (b), (b-ii): Regarding disallowance u/s 14A of the Income Tax Act.

6.1 Apropos, the aforesaid disallowance, Ld. AR referred to the relevant findings from the assessment order, according to which an amount of Rs.57.37 crores has been disallowed by the Ld. AO invoking provisions of section 14A r.w. rule 8D(2)(i), (ii) & (iii). The aggregate disallowance of Rs. 57.37 crores is reduced by Rs.29.92 crores, which was suo-moto disallowed by the assessee itself in its Return of income. Therefore, the additional disallowance of Rs. 27.45 crores was made.

Being aggrieved, assessee preferred an appeal before the Ld. CIT(A), wherein the issue was discussed, deliberated, observed and decided as under:

1. Ground 1 is regarding disallowance u/s 14A of Rs. 27,45,00,000/-. The AO has discussed the issue of disallowance u/s. 14A from Para 3.1 to Para 3.22 Page 2 to 18 of the assessment order and has mad disallowance as per Rule 8D. The appellant submitted that the Bombay High Court in case of M/s. Godrej Boyce Ltd. v/s. DCIT (328 ITR 81) has held that Rule 8D is applicable for A.Y. 2008-09 onwards. The appellant submitted that it has itself made disallowance of Rs.29.92 Crores. 1.1 I have gone through the order of the AO and submission of the appellant. 1.1.1 The Bombay High Court in case of M/s. Godrej & Boyce Ltd. v/s. DCIT (328 ITR 81) has held that Rule 8D is applicable for A.Y. 2008-09 onwards and for earlier years reasonable disallowance should be mad The reasonable disallowance in case of appellant is being discussed hereunder:

& CO No. 144/MUM/2016 1.1.2 The appellant has not incurred any direct expenditure towards earning of exempt income as that disallowance amounting to Rs.7.65 Crores as per computation under Rule 8D 2(i) is an estimation @10.59% of the total interest expenditure i.e. as a percentage of expenditure indirectly incurred, thus no amount is disallowable as direct expenses. 1.3 The proportionate interest expenditure incurred towards exempt income comes to Rs. 41.70 crores. The CIT(A)-XXX, Mumbai in case of the appellant for AY 2005-06 has examined this issue from Para 6 to Para 11 Pages 3 to 14 of the appeal order dated 26.03.2009. For the reasons recorded by my Learned Predecessor, it is found that the proportionate interest expenditure of Rs. 41.70 Crores can reasonably be attributed towards earning of exempt income. 1.1.4 The appellant has not attributed any administrative and establishment expense towards earning of exempt income. The total administrative expense and establishment expense other than interest is Rs.8575 (-) Rs. 7276 = Rs. 1299 Lacs as shown at Page No. 4 of the assessment order i.e. "' 12.99 Crores. The appellant's dividend income is Rs. 6.39 Crores, further the appellant's capital gain on transfer of shares in Information Technology Park amounting to Rs.52.35 Crores is held to be exempt while deciding Ground No. 11(a). Thus, the appellant's exempt Income is at 58.74 Crores. The appellant has already been allowed deduction with respect to income from other sources i.e. rent and interest of Income-tax refund and appellant's business income is basically a negative figure of Rs. 8.47 Crore as per assessment order at Page 40. Thus, it is obvious that appellant's main activity leads to Income in form of dividend and long term capital gain which are exempt. Under the circumstances, 90% of the administrative and establishment expenses can reasonably be attributed towards earning of exempt income as more than 90% of appellant's income are exempt. Thus, 11.69 Crore i.e. 90% of 12.99 Crores are attributed towards exempt income. 1.1.5 Thus, interest expenditure of Rs. 1.70 Crores and administrative & establishment expenses of Rs. 11.69 Crores totaling to 1"53.39 Crores can reasonably be attributed towards earning of exempt income. As the appellant has itself disallowed Rs. 29.92 Crores, the addition of 23.47 Crores is confirmed and the appellant gets a relief of Rs.3.98 Crores.

6.2 As the Ld. CIT(A) has allowed only the partial relief to the assessee, the assessee in appeal before us, to assail the addition sustained by the Ld. CIT(A).

6.3 Ld. AR of the assessee on the aforesaid issue has submitted that the total deemed income was earned by the assessee to the tune of Rs. 6,38,94,133/-, whereas in the assessment order, the total dividend income has been mentioned & CO No. 144/MUM/2016 at Rs.63,89,41,330/-. It is submitted that the aggregate disallowance in relation to provisions of section 14A exceed the exempt dividend income which was Rs.6.38 crores only. It is further submitted that the issue is squarely covered by the assessee’s own case for the assessment years 2004-05 and 2005-06. Ld. AR also placed her reliance on the decision of Hon’ble Apex Court in the case of PCIT vs. State Bank of Patiala (SC) 99 taxmann.com 286 (2018), according to which the amount of disallowance u/s 14A should be restricted to amount of exempt income only.

6.4 The next argument taken by the Ld. AR was that the disallowance of interest to be quantified in the ratio to which value of investment on which exempt income is received bears to the average value of assets. Accordingly, the disallowance should be 7.84 crores only. Ld. AR placed her reliance on the following decision:

(i) ACIT, Circle 17(1), New Delhi vs. Vireet Investment (P.) Ltd., [2017] 165 ITD 27/82 taxmann.com 415 (Delhi- Trib) (SB) (ii) ACIT vs. Tata Sons Ltd (ITA Nos 4630, 4637/Mum/2016) (Mumbai ITAT) (AY 2009-10) (07.08.2020) (iii)ACIT vs. Tata Sons Ltd. (ITA Nos. 3192, 3508 / Mum/2013) (Mumbai ITAT) (AY 2008-09) (06.11.2019)

& CO No. 144/MUM/2016 6.5 Ld. AR also submitted that the interest expenditure should be considered net of interest income and for this proposition she placed here reliance on the following decisions:

1. ACIT vs. TATA Sons Ltd (ITA Nos. 4630, 4637/Mum/2016) (Mumbai ITAT) Page 163, Para 5.5(a)] [AY 2009-10] (07.08.2020) 2. ACIT vs. TATA Sons Ltd. (ITA Nos. 3192, 3508/Mum/2013) (Mumbai ITAT) [Page 182 & 183, Para 3.6 b)] [AY 2008-09] (06.11.2019)

6.6 It is also submitted that the increase under expenditure (f) to Section 115JB is only of Direct Expenses, therefore, estimated disallowance u/s 14A cannot be added in computing book profit u/s 115JB of the Act. On this count, Ld. AR placed her reliance on the following decisions:

(i) ACIT, Circle 17(1), New Delhi vs. Vireet Investment (P.) Ltd., [2017] 165 ITD 27/82 taxmann.com 415 (Delhi- Trib) (SB) (ii) ACIT vs. Tata Sons Ltd (ITA Nos 4630, 4637/Mum/2016) (Mumbai ITAT) (AY 2009-10) (07.08.2020) Page No. 164, Para 6) (iii) ACIT vs. Tata Sons Ltd. (ITA Nos. 3192, 3508 / Mum/2013) (Mumbai ITAT) (AY 2008-09) (06.11.2019) page no. 183, Para 3.7 6.7 Regarding disallowance of administrative and establishment expenditure, it is submitted that the same should be restricted to 2% of expenses of HO for Rs. 12.99 crores in the relevant year which comes to Rs. 25.98 lacs only. It is & CO No. 144/MUM/2016 submitted that this issue is squarely covered by assessee’s own case vide order dated 10.11.2017 for AY 2007-08 (Mumbai ITAT), 87 taxmann.com 240.

6.8 While arguing on the issue of disallowance u/s 14A, Ld. AR also come up with a contention that Rule 8D was inserted by IT(Fifth Amdt.) Rule, 2008 w.e.f. 24.03.2008, accordingly, it was the submission that the Rule cannot be applied for the AY 2006-07 as the same is prospective in nature and has no retrospective applicability as has been settled by Hon’ble Courts.

6.9 With the aforesaid submissions, Ld. AR further submitted that without prejudice to the aforesaid contention in case, the additions if sustained, the same should not exceed the amount which the assessee has suo-moto disallowed in its computation of income in ITR for Rs. 29.92 crores.

6.10 Per contra, Ld. CIT DR, vehemently supported the orders of revenue authorities.

6.11 We have considered the rival submissions, perused the material available on record and case relied upon by the assessee and department. After a thoughtful consideration to the facts of the issue, on perusal of assessment order framed by the Ld. AO, appellate order by the Ld. CIT(A) and the submissions of the assessee & CO No. 144/MUM/2016 stating that the issues regarding additions u/s 14A is squarely covered by assessee’s own case as well as other decisions by the Hon’ble High Courts and Hon’ble Apex Court, we are of the considered view that the disallowance u/s 14A should be computed afresh by the Ld. AO considering the following principles emerging from the various decisions relied upon:

(a) As held in the assessee’s own case on AY 2004-05 that the disallowance u/s 14A cannot exceed the amount of exempt income earned by the assessee during the year under consideration. Which is covered by the decision of Hon’ble Apex Court in the case of PCIT vs. State Bank of Patiala (supra).

(b) Following the analogy drawn by the decision of Special Bench of ITAT, Delhi in the case of Vireet Investment Pvt. Ltd. (supra), wherein it is held that only those investments are to be considered for computing the average value of investments from which yielded exempt income during the year.

(c) Following the judgement in the case of ACIT vs. Tata Sons (supra) by ITAT, Mumbai for AY 2009-10, the disallowance under rule 8D(2)(i), 8D(2)(ii) and 8D(2)(iii) are to be made by considering only those investments which had actually yielded exempt income to the assessee. We find that this issue is also covered in favour of the assessee in its own case by the decision of this Tribunal in for AY 2008-09 dated 06.11.2019 and Vireet Investment & CO No. 144/MUM/2016 Pvt. Ltd. (supra). However, such workings need not be made for the year under consideration for the reasons described in para (d) hereunder.

(d) In present matter, which pertains to AY 2006-07, the question of applicability of Rule 8D is also raised by the assessee, which according to the Judgment of Hon’ble Apex Court in the case of Commissioner of Income Tax-5, Mumbai vs. M/s Essar Teleholdings Ltd., Civil Appeal No. 2165 of 2012 dated 31.07.2018 cannot be applied retrospectively, the same would have prospective applicability, it is held that Rule 8D, which is framed to give effect to provisions of sub-section(2) and (3) of Section 14A cannot operate from any date prior to the AY 2008-09, therefore, the year under consideration would be out of the ambit of Rule 8D and no disallowance following the provisions of Rule 8D can be apply in the present matter. This issue was also discussed at length by the Hon’ble Mumbai High Court in the case of Godrej & Boyce Manufacturing Company Ltd. vs. DCIT, Mumbai & Anr., reported in (2010) 328 ITR 81 (Bom), wherein the decision of ITAT observing that the Rule 8D is only prospective was challenged by the revenue, but the appeal of revenue has been dismissed by the Hon’ble High Court, which view was thereafter sustained by the Hon’ble Supreme Court. We, therefore, respectfully following the principle of law laid down by Hon’ble Apex Court are convince with the contention raised by the Ld. AR that the provisions of Rule 8D which are inserted in IT(Fifth Amdt.) Rule, & CO No. 144/MUM/2016 2008 w.e.f. 24.03.2008 shall come into effect only from AY 2008-09, therefore, no disallowance in terms of provisions of Rule 8D can be made for the year under consideration i.e., AY 2006-07.

(e) That the interest expenditure should not be considered alone, it should be reduced by the interest income. As per the judgement in the case of ACIT vs. Tata Sons (supra).

(f) That the estimated disallowance u/s 14A cannot be added while computing the book profit u/s 115JB of the Act, as per analogy drawn by Special Bench of ITAT, Delhi in case of Vireet Investments (P) Ltd (supra).

(g) That the disallowance of administrative expenses restricted to 2% as held by ITAT, Mumbai in assessee’s own case for AY 2007-08 (87 taxmann.com 240), wherein the ITAT, Mumbai has held has under:

“We find that the FAA had considered the total expenditure incurred by the assessee for making disallowance. In our opinion, expenditure incurred for earning exempt income only can be disallowed. As stated earlier, Rule 8D was not applicable for the year under appeal. But, the honorable Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra) has held reasonable disallowance can be made u/s 14A of the Act for the year under appeal. Therefore, we hold that disallowance should be restricted to 2% of the expenses of HO. First ground of appeal is decided in favour of the assessee.”

(h) We also find substance in the argument of Ld. AR that adjustment u/s 115JB for computing the book profit in accordance with the analogy drawn by Special (i) Considering all the aforesaid principles extracted from various judgments / decisions, the computation shall be made for working out the substantive addition u/s 14A as well as the disallowance of interest expenditure in terms of aforesaid principle of law mentioned in para “(a) to (h)” hereinabove, however, the same shall not be less than the amount of suo-moto disallowance offered by the assessee for Rs. 29.92 crores, which has been very fairly conceded by the Ld. AR on behalf of the assessee.

6.12 In backdrop of aforesaid observations, the aforesaid matter is restored back to the file of Ld. AO, only for exercising the computation of disallowance u/s 14A in terms of aforesaid directions. The assessee is also directed to assist and providing necessary information to Ld. AO in the aforesaid matter. Consequently, the ground of appeal no. 1 along with its sub grounds are partly allowed.

7. Ground No. 2. Regarding expenditure incurred towards investment activities:

7.1 On the aforesaid issues, Ld. AO has made an addition of Rs. 28.38 crores u/s 37 of the Act, which is an amount of interest expense and other expenses of & CO No. 144/MUM/2016 HO, claimed by the assessee for Rs.85.75 crores, the amount is reduced by Rs.57.37 crores which has already been disallowed u/s 14A of the Act by the Ld. AO. Ld. CIT(A) on this issue has not allowed any relief to the assessee and have confirmed the findings of Ld. AO by stating that the ‘the appellant’s main activity is to acquire controlling interest in the company in which It makes investment and the same cannot be treated to be a business activity, and hence, interest and other expenses are not allowable. The observations of Ld. CIT(A) on the issue are as under:

2. Ground 2 is regarding treating Rs. 28,38,00,000/- as capital expenditure. The AO at Page 19 Para 3.23 observed, "an activity of investments to gather controlling interest in the capital of the other entity cannot be treated as a business activity. Hence the expenses of the HO also call for disallowance u/s 37. Since a total of 57.37 Crore is already disallowed u/s 14A, the balance interest expenses (of HO) and Other Expenses (of HO) of "' 28.38 Crore (85.75 - 57.37) are disallowed u/s 37 being capital expenditure." The appellant's main activity is to acquire controlling interest in the company in which it makes investment and the same cannot be treated to be a business activity, and hence, interest and other expenses are not allowable. The action of the AO is, therefore, confirmed. Ground 2 is dismissed.

7.2 In this context, Ld. AR before us has submitted that the aforesaid issue is squarely covered by assessee’s own case for AYs 2004-05, 2007-08 and 2016-17, which is decided by the jurisdictional bench of ITAT, Mumbai in favour of the assessee, wherein the relevant findings recorded for AY 2007-08 reported in (2017) 87 taxmann.com 240, were as under:

& CO No. 144/MUM/2016 5.3 Ground 1.2 is about disallowance of Rs.1.33 crores pertaining to projects and investment Department of HO. The FAA had held that expenditure was capital nature and hence was not allowable u/s 37 of the Act. 5.3.1 Before us, the AR stated that identical issue was decided in favour of the assessee by the Tribunal in its order dated 20.07.2016, while deciding the appeal for the assessment year 2004-05 (ITA-4894/Mum/2008). We are reproducing paragraphs 16 to 19 of the said order and it reads as under: 16. The Hon'ble Supreme Court in the case of "S.A. Builders vs. CIT" (supra) has held that no disallowance of interest expenditure is called for on account of advancing loans to sister concerns, if it is found that said advances were made for commercial expediency and those sister concerns have not used the amounts for personal purposes. The Hon'ble Apex Court has categorically held that what is to be seen as to whether the assessee has advanced loan to its sister concern or to a subsidiary as a measure of commercial expediency? The Hon'ble Supreme Court, while referring to section 37 of the Act, has held that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency and it is immaterial if a third party also gets benefitted thereby. The Hon'ble Supreme Court further explained the expression "commercial expediency" as under: "The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency."

Respectfully, following the above Ground 1.2 is allowed.

7.3 On the other hand, Ld. CIT-DR vehemently supported the orders of revenue authorities.

7.4 We have considered the rival submissions and have carefully appreciated the facts as well as interpretation of law qua the issue. On perusal of the decision & CO No. 144/MUM/2016 in assessee’s own case for earlier years as decided by the jurisdictional bench of ITAT, Mumbai, since it is held that the expenditure incurred towards investment activities for exercising controlling interest constitutes business activity and hence allowable as deduction, which is not even otherwise contradicted by the revenue by way of any further submission or arguments or placing on record and contrary decision supporting the contentions of the revenue. We, therefore, hold that the subject expenditure incurred under the head ‘interest and other expenses of HO’ was not capital in nature and, therefore, the same is allowable u/s 37 of the Act. Resultantly, the Ground No. 2 of the appeal is allowed.

. It was brought to our notice that while deciding the appeal for the AY 2004

05. (supra), the Tribunal had decided the issue in favour of the assessee. We are reproducing paragraphs 35 and 36 of the order and same reads as under: 35. “Ground No. 7:

& CO No. 144/MUM/2016 Ground No. 7 relates to the issue of disallowance of expenditure in the shape of upfront fees and brokerage etc. paid for issuing the non-convertible debentures. The AO concluded that since the term of the debentures was spread over two years, hence benefit arrived at by the assessee was of enduring nature spread over two years. The AO therefore calculated the expenses pertaining to the year under consideration and disallowed the remaining expenses.

8.1 Since the issue is squarely covered by assessee’s own case, we are unable to persuade and subscribe to the findings of Ld. CIT(A) to adopt a view contrary to the decision of the jurisdictional ITAT. We, therefore, reverse the decision of Ld. CIT(A) and hold that the brokerage expenses paid for arrangements for ICD’s/ term loans is an incidental expenditure to carry the business activities of the assessee qualifies as allowable expenditure, consequently, the disallowance made by the Ld. AO stands deleted. Resultantly, Ground No. 5 of the appeal of the assessee is allowed.

& CO No. 144/MUM/2016 9. Ground No. 8: Regarding disallowance of legal and professional fees of Rs. 38,84,420/- by the Ld. AO stating that the same was not incurred for the purpose of business or profession of the assessee company and the same is in the nature of capital expenditure.

9.1 On this issue, Ld. AR placed before us the orders of Jurisdictional Bench of ITAT, Mumbai in assessee’s own case for AY 2004-05 and 2007-08, it is also submitted that the issue is identical to the issue raised in ground no. 2 of the present appeal, therefore, the expenditure on legal and professional fees incurred by the assessee in the business of acquisition of shares which was not considered by the Ld. CIT(A) as assessee was involved in such activity, whereas the facts are contrary and are duly demonstrated by the assessee which is accepted by the jurisdictional ITAT also in its decisions for AY 2004-05, 2007-08 and 2016-17.

9.2 Per contra, Ld. CIT-DR vehemently supported the orders of revenue authorities.

9.3 We have considered the rival submissions, perused the material available on record and decisions relied upon by the assessee. Since the expenditure are incurred for the business activities of the assessee our decision in ground no. 2 shall apply mutatis mutandis for ground no. 8 also. Accordingly, ground no. 8 of present appeal of assessee stands allowed.

10.2 Aggrieved with the aforesaid findings of Ld. AO, assessee preferred an appeal before the Ld. CIT(A), wherein the Ld. CIT(A) has also coincided with & CO No. 144/MUM/2016 the findings of Ld. AO and has dismissed the contentions of the assessee and have observed that the assessee is not eligible for relief u/s 90/91 of the Act, therefore, would attract the provisions of section 40(a)(ii) and accordingly, such overseas taxes paid by the assessee cannot be allowed as expenditure u/s 37 of the Act.

10.3 On the aforesaid issue, Ld. AR of the assessee before us have submitted that the relevant AY under consideration is AY 2006-07 and explanation 2 to section 40(ii) was inserted w.e.f. 01.04.2006 therefore, the same has no applicability in the present case which concerns a year subsequent to the date of insertion of the said provision. On this issue, Ld. AR placed his reliance on the following judgments:

Reliance Infrastructure Ltd Vs. CIT (Bombay High Court) dated 20.12.2016

(n) However, to the extent tax is paid abroad, the Explanation to Section 40(a)(ii) of the Act provides / clarifies that whenever an Assessee is otherwise entitled to the benefit of double income tax relief under Sections 90 or 91 of the Act, then the tax paid abroad would be governed by Section 40(a)(ii) of the Act. The occasion to insert the Explanation to Section 40(a)(ii) of the Act arose as Assessee was claiming to be entitled to obtain necessary credit to the extent of the tax paid abroad under Sections 90 or 91 of the Act and also claim the benefit of tax paid abroad as expenditure on account of not being covered by Section 40(a)(ii) of the Act. This is evident from the Explanatory notes to the Finance Act, 2006 as recorded in Circular No.14 of 2006 dated 28th December, 2006 issued by the CBDT. The above circular inter alia, records the fact that some of the assessee who are eligible for credit against the tax payable in India on the global income to the extent the tax has been paid outside India under Sections 90 or 91 of the Act, were also claiming deduction of the tax paid abroad as it was not tax under the Act. In view of the above, Explanation inserted in 2006 to Section 40(a)(ii) of the Act, would require in the context thereof that the definition of the word "tax" under the Act to mean also the tax which is eligible to the benefit of Sections 90 and 91 of the Act. However, this departure from the meaning of the word "tax" as defined in the Act is only restricted to the above and gives no license to widen the meaning of the word "tax" as defined in the Act to include all taxes on income / profits paid abroad. (o) Therefore, on the Explanation being inserted in Section 40(a)(ii) of the Act, the tax paid in Saudi Arabia on income which has accrued and / or arisen in India is not eligible to deduction under Section 91 of the Act. Therefore, not hit by Section 40(a)(ii) of the Act. Section 91 of the Act, itself excludes income which is deemed to accrue or arise in India. Thus, the benefit of the Explanation would now be available and on application of real income theory, the quantum of tax paid in Saudi Arabia, attributable to income arising or accruing in India would be reduced for the purposes of computing the income on which tax is payable in India. (p) It is not disputed before us that some part of the income on which the tax has been paid abroad is on the income accrued or arisen in India. Therefore, to the extent, the tax is paid abroad on income which has accrued and/or arisen in India, the benefit of Section 91 of the Act is not available. In such a case, an Assessee such as the applicant assessee is entitled to a deduction under Section 40(a)(ii) of the Act. This is so as it is a tax which has been paid abroad for the purpose of arriving global income on which the tax payable in India. Therefore, to the extent the payment of tax in Saudi Arabia on income which & CO No. 144/MUM/2016 has arisen / accrued in India has to be considered in the nature of expenditure incurred or arisen to earn income and not hit by the provisions of Section 40(a)(ii) of the Act. (q) The Explanation to Section 40(a)(ii) of the Act was inserted into the Act by Finance Act, 2006. However, the use of the words "for removal of dobuts" it is hereby declared "......." in the Explanation inserted in Section 40(a)(ii) of the Act, makes it clear that it is declaratory in nature and would have retrospective effect. This is not even disputed by the Revenue before us as the issue of the nature of such declaratory statutes stands considered by the decision of the Supreme Court in CIT Vs. Vatika Township (P) Ltd. 367 ITR 466 and CIT Vs. Gold Coin Health Foods (P) Ltd. 304 ITR 308. (r) In the above facts and circumstances, question (iii)(a) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee. Question (iii)(b) is answered in the negative i.e. against the Revenue and in favour of the applicant assessee.

Tata Consultancy Service Ltd. vs. ACIT in (AY 2009-10) and IT(TP)A No. 5823/Mum/2016 (AY 2009-10) dated 30.10.2019.

10.4 In terms of aforesaid observations by the Hon’ble Mumbai High Court in the case of Reliance Infrastructure Ltd. (supra), which is further discussed and deliberated upon by the ITAT, Mumbai in the case of Tata Consultancy Service Ltd. (supra), respectfully following the same, the issue is allowed in favour of the assessee with the directions to Ld. AO to verify whether the overseas taxes paid by the assessee are eligible for any relief u/s 90 of the Act and if not so, the claim of assessee u/s 37 should be allowed. Ground No. 10 of the assessee, therefore, is allowed in terms of our aforesaid observations.

& CO No. 144/MUM/2016 10.5 Resultantly, of the assessee is partly allowed, as per our observations hereinabove.

11. The aforesaid Cross Objection (CO) has been filed by the revenue challenging the eligibility of the assessee company in raising the additional grounds.

11.1 Since the additional grounds raised by the assessee are already withdrawn before us, therefore, the Cross Objection filed by the revenue became infructuous. As this fact is conceded by both the parties herein accordingly, CO No. 144/MUM/2016 filed by revenue stands dismissed without any adjudication to the same.

12.1 An addition was made by the Ld. AO, observing that the assessee is utilizing its property for the sports-men of Tata Sports Club for training and technical part in various competitions, however, no rent income for the said & CO No. 144/MUM/2016 premises was declared. Ld. AO has worked out the Annual Lettable Value (ALV) of the said property at Rs. 85,876/- (Rs. 8.55 psqft x 837 sqft x 12 months). Matter carried before Ld. CIT(A), wherein the issue is directed back to Ld. AO to adopt annual value of the house property as per rent control Act. In accordance with the decision which was deliberated in assessee’s own case for AY 2005-06.

12.2 Before us, Ld. AR of the assessee has submitted that the issue is restored back to the Ld. AO for adopting the annual value of house property as per rent control act, however, no relief was granted giving effect to the order of Ld. CIT(A) and the assessee has also not contested the same. Ld. AR on this issue has placed her reliance on the decision of Hon’ble Mumbai High Court in the case of Tip Top Typography. It is also submitted that the decision rendered by the Ld. CIT(A) for AY 2005-06 was never appealed against by the revenue also no addition was made on this issue in the subsequent years thus, should not have been assailed by the revenue in the year under consideration.

12.3 Ld. CIT-DR on the other hand supported the order of Assessing Officer.

12.4 After considering the aforesaid facts, circumstances and submissions, we find substance in the contentions raised by Ld. AR, thus, in absence of any & CO No. 144/MUM/2016 cogent reasoning by the revenue as to why the decision taken by Ld. CIT(A) in restoring the matter back to Ld. AO for adopting the annual value of property as per Rent Control Act, the decision of Ld. CIT(A) was not found to be suffering with any infirmity, we, therefore, approve the same. Consequently, Ground No. 1 of the revenue’s appeal in stands dismissed.

13.2 This issue was dealt with by Ld. CIT(A) and has held as under:

& CO No. 144/MUM/2016 11.1 The AO has discussed this issue at Para 12 Page 27 to 37 of the assessment order. After detailed discussed of the facts of the case and the provisions of section 10(23G), the AO observed that the intention of legislature was to provide tax exemption only to such 'Infrastructure capital funds' or 'infrastructure capital companies' which are established for the purpose of mobilizing resources for financing infrastructure facilities. The assessee was neither established for the purpose of mobilizing resources for financing infrastructure facilities nor can it be turned-as 'Infrastructure Capital Company'. The AO has referred to CBDT Circular No. 762 dated 18.02.1998 being explanatory note on the provisions of Finance Act (No.2) 1996 and quoted Para 17.4 of the circular at Circular at Page 33 of the assessment order and Para 17.2 on Page 34 and further discussed principles of statutory interpretation and observed that no word is redundant or superfluous in an statue and as the assessee company is neither an "an Infrastructure fund" "Infrastructure Co" or "Co-operative Bank", they do not qualify u/s 10(23G) of the Income Tax Act. The AO computed LTCG on transfer of 14 Crore Equity Share of face value of 10/- each and sale consideration of "' 13.50 per share by giving benefit of indexation at Rs.15.68 Crores. 11.2 The appellant submitted as under : "Exemption of Long Term Capital Gain under section 10(23G) Tata Industries Limited (TIL) was incorporated on April 07, 1945 TIL is a company incorporated under the Companies Act, 1913 and is registered with the Reserve Bank of India as a non- banking financial institution u/s 45-IA of the Reserve Bank of India Act, 1934. TIL is an-investment company and a loan company and is engaged in the promotion of new business ventures. It however, does not carry on activities like Leasing, Hire Purchase etc., no trading in shares but is essentially one of the main promoter and holding companies of the Tata Group. TIL was incorporated as the Managing Agency Company for a number of Tata Group Companies. Its aim was to implement the Tata approach to enterprise management. After the end of the managing agency system in 1969 it continued its role as one of the main Tata holding companies and thereafter also acting as a promoter company.

& CO No. 144/MUM/2016 TIL has two operating divisions. One of these is Tata Interactive Systems (TIS) which is engaged in the design and development of customized e-learning solutions. TIS currently has about 700 employees and has development centers at Mumbai and Kolkata. TIS also has two subsidiaries viz. Tata Interactive Systems AG, lug, Switzerland and Tata Interactive Systems, GmbH, Germany. The other division is Tata Strategic Management Group which acts as strategic management consultants to clients both within and outside the Tata Group. Clause 9 of the Objects Clause in the Memorandum of Association of the Company states as under: 'To acquire any shares, stock, debentures, debenture-stock, bonds, obligations or securities by original subscription, participation in syndicates, tender, purchase, exchange or otherwise and to subscribe for the same, either conditionally or otherwise, and to guarantee the subscription thereof and to exercise and enforce all rights and powers conferred by or incidental to the ownership thereof. Section 10 (23G) Section 10(23G) was introduced in the Finance Bill No. 2 of 1996. Honorable Finance Minister in his speech while introducing the Budget for 1996-97 has at Para 88 stated as under: "Infrastructure funds have become an important source of capital to finance infrastructure projects. In order to encourage such funds established to mobilise resources for financing infrastructure facilities. I propose to exempt them from income- tax. Any dividend, interest or long -term capital gains of such funds or companies from investments in the form of shares_ or long-term finance in any enterprise set up to develop, maintain and operate an infrastructure facility will be free from income-tax.

Memorandum explaining the Finance Bill stated as under: FOR INFRASTRUCTURE DEVELOPMENT AND INDUSTRIALIZATION Income-tax exemption to infrastructure development funds and companies & CO No. 144/MUM/2016 The availability of adequate infrastructure facilities is vital for accelerating the economic development of the Country. In recognition of this-fact, the existing provisions of the Income-tax Act provide a five year tax holiday to an enterprise carrying on the business of developing maintaining and operating any infrastructure facility. However, in order to attract further investment in this sector, an urgent need has been felt for providing more tax incentives to investors. It is therefor, proposed to provide tax exemption to such infrastructure capital funds and companies which are established for the purpose of mobilizing resources for financing infrastructure facilities. Accordingly, any income by way of dividends, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investments made by way of shares or long-term finance in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility which fulfills the conditions specified in sub-section (4A) of section 80-IA is proposed to be exempt from income tax. The expression “infrastructure capital fund” shall mean a fund operating under a trust deed registered under the provisions of the Registration Act, 1908 established to raise moneys for investments by way acquiring shares or providing long-term finance to an enterprise engaged in providing infrastructure facility. The expression "infrastructure capital company" shall mean a company which has made investment by way acquiring shares or providing long-term finance to enterprise engaged in the business of providing infrastructure facility. The expression "infrastructure facility" shall mean a road, highway, bridge, airport, port, a rail system or any other public facility of a similar nature as may be notified by the Central Board of Direct Taxes in this behalf in the Official Gazette. It will also include water supply projects, sewerage, sanitation, or irrigation systems. The expression "Long-term finance” shall mean any Joan or advance which is repayable along with the interest during a period of Jess than 7 years. The proposed amendment will take effect from 1st April, 1997 and will, accordingly, apply in relation to Assessment Year 1997-98 and subsequent years.

& CO No. 144/MUM/2016 From the above it is clear that the introduction of section 10(23G) was specifically made in order to provide exemptions to investors/financers who have made investments by way of acquiring shares or providing long-term finance to an enterprise engaged in the business of providing infrastructure facility.”

11.3 I have gone through the order of the AO and submission of the appellant.

11.3.1 Explanation (a) of section 10(23G) is as under:

(a) "infrastructure capital company" means such company as has made investments by way of acquiring shares or providing long-term finance to an enterprise wholly engaged in the business referred to in this clause;- Thus, a company which has made investment by way of acquiring shares in a business referred to in sub section (4) of section 80IA would mean an "infrastructure capital company".

13.3 Being aggrieved with the relief granted by the Ld. CIT(A), the revenue is in appeal before us.

13.4 On the aforesaid issue, Ld. AR has made the following submissions: "Infrastructure capital company Explanation (a) to s. 10(23G) 1.

"means such company as has made investments by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastructure facility" 2. The Company (TIL) falls within the definition of Infrastructure capital company having made an investment in shares of an enterprise which is engaged in the business of infrastructure facility. 3. The CIT(A) in 11.3.4 and 11.3.5 of CIT(A) Order had held as under:

& CO No. 144/MUM/2016 11.3.4. The entire discussion of AO regarding interpretation of status and its conclusion is basically meaningless as the AO has ignored the definition of the term "infrastructure capital company" are provided in clause (a) of Explanation (1) of sub-section 23G of section 10. Basically the definition refers to any company which has made investment by way of acquiring share or providing long term finance to an enterprise wholly engaged in the business referred in section 10(23G) 11.3.5. As the appellant is an infrastructure capital company" coming within the definition of 10(23G)(1)(a) and, it has made investment in the Information Technology Park Ltd, Whitefield Road, Bangalore, the appellant qualifies for exemption u/s 10(23G) of the Income-tax Act, Ground No. 11(a) is therefore allowed. Legal decision (Favour) 1. Jammu & Kashmir Bank Limited v. ACIT [2009] 118 ITD 146 (Amritsar ITAT) [Page 26 to 29, Para 9] Held: There is no dispute about the fact that the assessee is a banking company. The essential feature of the business of a banking company is to mobilise resources from the public and lend it on interest to various sectors. The revenue has not denied that assessee had indeed made investment in shares and providing long-term finance to enterprises engaged in infrastructural facility. Therefore, all the conditions laid down for claiming exemption under section 10(23G) are fulfilled by the assessee. Therefore, we are of the opinion that it is not proper to take a narrow view of the issue when the assessee had in fact made investments in shares and financed the enterprises engaged in providing infrastructure. facilities on long-term basis, We therefore, feel that it is not necessary that the 'Infrastructure Capital Company' should be formed solely for the purpose of mobilising resources for financing infrastructure facilities. If it includes one of the objects of the Banking business, the same should be sufficient to entitle the assessee to claim exemption of its income under section 10(23G). This view also finds support from the fact that subsequently this benefit of section 10(23C) has been extended to Co-operative Banks, though such banks have also not been set up for the purpose of mobilising resources for financing the infrastructure facilities. Therefore, we arc of the opinion that the assessee falls in the category of Infrastructure capital company entitled to exemption under section 10(23G)-

2. DCIT - Circle 3(1) Vs ICICI Bank Limited (Mumbai ITAT), and CO 127/Mum/2010 - Assessment year • 2004-05 (At page 41 and 42, Para 3.5) following Jammu & Kashmir Bank Limited & CO No. 144/MUM/2016 13.5 In back drop of the aforesaid submission, respectfully following the decision cited, we do not find any infirmity in the decision of Ld. CIT(A) in allowing the exemption u/s 10(23G) of the Act to the assessee company, we thus, approve the same. Accordingly, Ground No 2(a) & (b) of the revenue in therefore stands dismissed.

ITA 5690/MUM/2015 (by revenue)

14.1 Since substantial quantum additions are dealt with us in and 4109/MUM/2012 as per our observations herein above, the penalty imposed on such additions / disallowances being consequential in nature needs to be revisited by Ld. AO. Thus, the matter is restored to the file of AO for fresh adjudications following our decision in the main appeals of the assessee as well as revenue for the year under consideration. of the revenue is Partly Allowed for Statistical Purposes, as per our observations hereinabove.

& CO No. 144/MUM/2016 15. In combined result of assessee is partly allowed, CO No. 144/MUM/2012 of the revenue stands dismissed, of the revenue is partly allowed for statistical purposes.

Order pronounced in pursuance of Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 on 19.11.2025.