CIT vs. BARMALT INDIA PVT LTD

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ITA - 71 / 2012HC Delhi09 May 20122 pages
For Petitioner: ABHISHEK MARATHA
AI SummaryRemanded

What did the High Court hold?

The High Court, noting the agreement of both parties, decided to remand the matter to the Assessing Officer. The Court stated that Rule 8D would not be applied. Instead, the Assessing Officer was directed to compute the disallowance under Section 14A by calculating the direct or indirect expenses incurred to earn the exempt income. The Court observed that the question of law was answered partly in favour of the Revenue, and the appeal was disposed of. The ratio decidendi is that for the assessment year in question, the method prescribed by Rule 8D was not to be applied, and disallowance under Section 14A should be computed based on actual direct or indirect expenses. The operative direction is a remand to the Assessing Officer for fresh computation.

What were the facts?

The assessee, Baiju Malt India Pvt. Ltd., is a company. The assessment year involved is 2007-08. The assessee earned tax-free dividend income of Rs. 5,90,08,347, which is exempt under Section 10(34) of the Income Tax Act, 1961. The Assessing Officer disallowed an amount of Rs. 23,29,215 under Rule 8D of the Income Tax Rules, 1962. The Commissioner of Income Tax (Appeals) [CIT(A)] held that Rule 8D was not applicable and calculated the disallowance at 0.05% of the average investment, amounting to Rs. 2,32,921. The Income Tax Appellate Tribunal (Tribunal) confirmed the order of the CIT(A). The Revenue has appealed this decision to the High Court.

What were the issues?

1. Whether the Income Tax Appellate Tribunal was right in holding that Rule 8D of the Income Tax Rules, 1962 is not applicable and the CIT(A) was correct in calculating the disallowance under Section 14A at 0.05% of the average investment? Assessee's contentions: The assessee, through its counsel, agreed that the matter should be remanded to the Assessing Officer in view of the High Court's decision in Maxopp Investment Ltd. Vs. Commissioner of Income Tax dated 18.11.2011 (ITA No. 687/2009). This implies that the assessee accepted the principle that some disallowance under Section 14A is warranted, but contested the applicability of Rule 8D and the quantum calculated by the Assessing Officer. Revenue's contentions: The Revenue, through its counsel, also agreed that the matter should be remanded to the Assessing Officer in view of the High Court's decision in Maxopp Investment Ltd. Vs. Commissioner of Income Tax. This suggests the Revenue accepted the High Court's precedent regarding the method of calculation or applicability of Rule 8D for the relevant period, leading to a remand for fresh computation.

Which sections of the Income-tax Act were involved?

Section 14A,Section 10(34)

AI-generated summary — verify with the full judgment below

,\ $-15 * IN THE HIGH COURT OF + ITA 7t/2012 CI'T Through: DELHI AT NEW DELHI ..... Appellant Mr. Abhishek Maratha" Adv. € VETSUS BAIU\4ALT INDIA PVT LID ..... Respondent Through: Mr. S. Kumar, Advocate. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V.EASWAR ORDER 09.05.20L2 Ilaving heard learned counsel for the parties, the following substantial question of law is fi'aned:- "Whether Income fax Appcllate Tribunal r,vas right in holding that Rule 8D of the Income 'I-ax Rules, 1962 is not applicable and the CIT(A) was colrect in calculation of disallowance under Scction I4A @ 0.05% of the average investment?" 2. Thc assessee is a company and the assessment year involved is 2007- 08. Ihe assessee had earned tax free dividend of Rs. 5,90,08,347l-,'exempt under Section 10(34) of the Incomc Tax Act, 1961. 3. I'hc Assessing Offrcer disallowed an amount of Rs.23,29,2151- uncler Itulc 8D of the Income'I'ax Rules, 1962 (for short, 'Rule'). page I of2 I'A 1. a L',tA 71/2012 2012:DHC:9840-DB

/>- 4. The CIT(A) held that the Rule 8D was not applicable and worked out the disallowance at 0.05% of the averase investment i.e. I{s. 2,32,921/-. The aforesaid order has O""n "lonfirmed by the Tribunal in the impugned order dated I1.3.2011. 4. Learned counsel for the parties agree that the matter has to be remanded to the Assessing Officer in view of the decision of this Court in the case of Maxopp Investm€nt Ltd. Vs. Commissioner of Income Zax dated 18.1 1 .2011 in ITA No.687l2009. 5. The Assessing Officer will accordingly compute the disallor.vance under Section 14A. Rule 8D will not be applied. Direct or indirect expenscs incurred to eam the exempt income shall be computed/calculated. 6. The question of law is accordingly answered partly in favour of the Revenue. The appeal is accordingly disposed of. No costs. 4 . (-1 ll (. - ' LL (- SANJIV KTIANNA, J l. ["],(..^--t' R.V.EASWAR, J MAY 09,2012 r{K. t a ITA 7t/2012 page 2 of2 2012:DHC:9840-DB

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