PRINCIPAL COMMISSIONER OF INCOME TAX 2 vs. GUJARAT LEASE FINANCING LTD

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TAXAP/1022/2018HC GujaratGJHC24043974201813 August 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no question of law arose for consideration on the first issue regarding the addition under Section 36(1)(iii). The Tribunal had relied on the Supreme Court judgment in S.A. Builders and noted that the loans and advances were given to subsidiary companies for their business purposes and were utilized as such. For the second issue concerning depreciation on lease assets, the Tribunal allowed depreciation on the ground that the transaction was genuine, the assessee demonstrated ownership and genuineness of the lease, and the lease rentals were accepted and taxed. The Court found that this was a finding of fact and that the Assessing Officer had accepted the lease rentals as income, making the denial of depreciation unsustainable. The third and fourth issues, concerning the Section 14A disallowance, were also held not to raise a question of law. The Tribunal had noted that the assessee had sufficient interest-free funds for investments in tax-free income-earning assets and had apportioned Rs. 2,00,000 for administrative expenses. The Court found no question of law arising from this restriction. Consequently, the tax appeal was dismissed.

What were the facts?

The Principal Commissioner of Income Tax 2 filed an appeal before the High Court of Gujarat at Ahmedabad challenging the order of the Income-tax Appellate Tribunal (ITAT) dated November 16, 2017. The appeal raised four questions of law. The ITAT had reversed the order of the CIT(A) concerning an addition of Rs. 5,84,300 on account of interest under Section 36(1)(iii). The ITAT also deleted the disallowance of depreciation of Rs. 16,45,341 on lease assets and restricted a disallowance under Section 14A from Rs. 46,35,567 to Rs. 2,00,000. The revenue contended that the ITAT erred in these decisions, particularly regarding the application of the 'theory of apportionment' in relation to expenses.

What were the issues?

1. Whether the Appellate Tribunal was right in law and on facts in reversing the order of the CIT(A) and deleting the addition of Rs. 5,84,300 made on account of interest under Section 36(1)(iii) of the Act? 2. Whether the Appellate Tribunal erred in law and on facts in deleting the disallowance of depreciation of Rs. 16,45,341 in respect of lease assets? 3. Whether the Appellate Tribunal was justified in restricting the disallowance of Rs. 46,35,567 under Section 14A of the Act to Rs. 2,00,000? 4. Whether the Appellate Tribunal erred in not following the decision of the Hon'ble Supreme Court in Maxopp Investment Ltd. vs. CIT, New Delhi, which applied the 'theory of apportionment' of expenses (including interest)? Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The revenue, as the appellant, raised the above questions of law, arguing that the ITAT's decisions on the deletion of interest addition, depreciation disallowance, and restriction of Section 14A disallowance were erroneous. Specifically, the revenue argued that the ITAT failed to follow the Supreme Court's decision in Maxopp Investment Ltd. regarding the theory of apportionment of expenses.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 14A

AI-generated summary — verify with the full judgment below

C/TAXAP/1022/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1022 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 2 Versus GUJARAT LEASE FINANCING LTD ========================================================== Appearance: MR MR BHATT, SENIOR ADVOCATE with MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 13/08/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1.

This   appeal   is   filed   by   challenging   the judgment of the Income­tax Appellate Tribunal dated   16.11.2017.   Following   questions   have been raised for our consideration. “(A)     Whether   the   Appellate   Tribunal   is right in law and on facts in reversing the order of the CIT(A) and thereby deleting the   addition   of   Rs.5,84,300/­   made   on account of interest u/s.36(i)(iii) of the Act ?

(B)   Whether the Appellate Tribunal erred  in   law   and   on   facts   in   deleting   the  disallowance

depreciation

of Rs.16,45,341/­   in   respect   of   lease assets ?

Page 1 of 4

C/TAXAP/1022/2018 ORDER (C)     Whether the Appellate Tribunal was justified in restricting the disallowance of Rs.46,35,567/­ under Section 14A of the Act to the extent of Rs.2,00,000/­ ?

(D)     Whether the Appellate Tribunal has  erred in not following the decision of the  Hon'ble   Supreme   Court   in   the   case   of  Maxopp Investment Ltd vs. CIT, New Delhi,  which   has   applied   the   “theory   of  apportionment”   of   expenses   (including  interest) ?” 2.   The fist question pertains to the addition  under   Section   36(1)(iii)   of   the   Income­tax  Act,   1961  made   by   the  Assessing   Officer.  While   deleting   addition   Tribunal   relied   on  the judgment of the Supreme Court in the case  of S. A. Builders, reported in 288 ITR page­ 1.  The Tribunal noted that undisputedly the  loans and advances were given by the assessee  to the subsidiary companies for the purpose  of their business and there was no dispute  that   such   advances   were   utilized   by   the  subsidiaries   for   their   businesses.   No  question   of   law   in   this   regard   therefore  arises.

3.

Second question pertains to the assessee's claim  of  depreciation  on  the  leased  asset. Assessing Officer was of the opinion that the transaction   itself   was   not   genuine   and therefore

the

assessee's

claim

for Page 2 of 4

C/TAXAP/1022/2018 ORDER depreciation was not sustainable. Tribunal in the

impugned

judgment

allowed

such depreciation, inter alia, on the ground that the transaction was genuine. The assessee had demonstrated   ownership   of   the   assets, genuineness of the lease transaction, user of leased asset for the purpose of the business of earing lease rental. Such lease rental was accepted by the Assessing Officer and taxed the same.

4.

Quite   apart   from   such   finding   of   the Tribunal   regarding   genuineness   of   the transaction   being   a   finding   of   fact   what emerges further is that the Assessing Officer had accepted lease rental as income of the assessee and taxed the same. It was on this ground that the Tribunal was of the opinion that the depreciation of leased asset cannot be denied. This question therefore also does not require consideration. We are conscious that   in   case   of   this   very   assessee,   the question   is   admitted   by   the   High   Court notably in Tax Appeal No.1464 of 2009. The order of admission dated 7.3.2011 is produced before   us.   However,   upon   more   careful examination of facts on record in our opinion this   question  does  not  require  any  further consideration. Page 3 of 4

C/TAXAP/1022/2018 ORDER

5.

Third   and   fourth   questions   overlap   and essentially   put   into   restricting   the disallownace under Section 14(A) of the Act to   Rs.2   lacs   as   compared   to   much   larger disallowance made by the Assessing Officer. In this context the Tribunal had noted that the   assessee   had   sufficient   interest   free funds for making investment in assets earning tax free income. It was in this background that   the   Tribunal   deleted   the   disallownace but apportioned Rs.2 lacs for administrative expenses. Here also no question of law arises therefore, tax appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) K.K. SAIYED Page 4 of 4

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