THE COMMISSIONER OF INCOME vs. DEVWA PROPERTIES LTD

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TCA/234/2015HC Madras06 July 2020Bench: THE HON'BLE DR.JUSTICE VINEET KOTHARI5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the findings of the Tribunal in paragraph 6 of its order did not give rise to any substantial question of law under Section 260A of the Income Tax Act. The Court noted that the extent of expenditure to be disallowed under Section 14A naturally depends on the income earned by the assessee and the extent of exemption drawn. Since the Tribunal had discussed the relevant facts in detail, including the assessee's investments in private limited, unlisted companies and group concerns, and had found the disallowance of Rs. 2.00 Lakhs to be just and reasonable, the High Court found no perversity in the Tribunal's order. Consequently, the appeal filed by the Revenue was dismissed.

What were the facts?

The Revenue, Commissioner of Income Tax, Chennai, filed an appeal against the order of the Income Tax Appellate Tribunal (ITAT), Madras C Bench, Chennai, dated March 21, 2014. The ITAT's order was passed in ITA No. 2234/Mds/2013. The appeal concerns the assessment year(s) not explicitly stated but implied to be the year under consideration by the ITAT. The dispute revolves around the disallowance of expenditure under Section 14A of the Income Tax Act. The ITAT had reduced the disallowance to Rs. 2.00 Lakhs, which was challenged by the Revenue. The assessee, M/s. Dewa Properties Ltd, had made substantial investments in shares of private limited, unlisted companies, including group concerns, from its own funds.

What were the issues?

1. Whether the disallowance of Rs. 2.00 Lakhs made by the Income Tax Appellate Tribunal under Section 14A of the Income Tax Act, 1961, in the facts and circumstances of the case, gives rise to a substantial question of law requiring consideration by the High Court under Section 260A of the Act. Assessee's contention: The assessee argued that no substantial question of law arises from the Tribunal's order, thus the appeal under Section 260A should not be entertained. Revenue's contention: The Revenue contended that the Tribunal's order, specifically the reduction of disallowance to Rs. 2.00 Lakhs, was erroneous and ought to be reviewed. The Revenue relied on the principle that expenditure incurred in relation to earning exempt income is disallowable under Section 14A.

Which sections of the Income-tax Act were involved?

Section 14A,Section 260A

AI-generated summary — verify with the full judgment below

Judgt. dt.06.07.2020 1/5 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 06.07.2020 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARI AND THE HON'BLE MR.JUSTICE KRISHNAN RAMASAMY Tax Case (Appeal) No.234 of 2015 The Commissioner of Income tax, Chennai ... Appellant vs M/s.Dewa Properties Ltd No.770A, II Floor, Dewa Tower I Anna Salai , Chennai-600 002 ... Respondet Tax Case Appeal filed against the order of Income Tax Appellate Tribunal, Madras C Bench, Chennai dated 21.03.2014 passed in ITA No.2234/Mds/2013. For Appellant : Mr.T.Ravikumar Senior Standing Counsel For respondent : Mr.Sivaraman JUDGMENT (Delivered by DR.VINEET KOTHARI, J.) The Court was held by Video Conference, as per the Resolution of the Full Court dated 3 July 2020, by Judges at the respective residence offices and http://www.judis.nic.in Judgt. dt.06.07.2020 2/5 the counsel, staff of the Court appearing from their respective residences. 2. Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the appellant Revenue submitted that vide paragraph 6 of the order of the Tribunal, the Tribunal has held that disallowance of Rs.2.00 Lakhs in the facts and circumstances of the case, would be appropriate under Section 14A of the Act, which enables the Revenue to disallow the expenditure incurred in relation to earning an income which is exempt from payment of tax. 3. The order of the Tribunal in Paragraph 6 is quoted below for reference: 6. We have heard the submissions made by the representatives of both the sides and have also perused the orders of the authorities below. It is not disputed that the assessee has made investment to the tune of Rs.50.00 Crores in the shares of a private limited, un-listed companies from its own sources. It is not the case of Revenue that the assessee has made investments from interest bearing funds. During the AY under consideration, the assessee has made investment of ~2.36 Crores in the rights issue of M/s.Saregama India P. Ltd. The assessee is having investment portfolio of Rs.50.86Crores and these investments have been made over a period of time. The assessee must have been spending some amount in managing the http://www.judis.nic.in Judgt. dt.06.07.2020 3/5 portfolio. The CIT(Appeals) has made an estimation of Rs.10.00 Lakhs. Since the assessee has only invested in private limited, un-listed companies and one of the companies in which the assessee has made investment is its own group concern, we are of the view that the addition made by the CIT (Appeals) is on the higher side. In the facts of the case, we are of the considered opinion that Rs.Two Lakhs is just and reasonable amount towards dis- allowance u/s.14A of the Act. 4. Mr.Sivaraman, learned counsel for the Assessee also submitted that no question of law arises in the present case requiring consideration of this Court under Section 260A of the Act. 5. Having heard the learned counsel for both sides, we are of the clear opinion that the findings of the Tribunal given in paragraph 6 of the order quoted above, do not give rise to any substantial question of law in the present appeal under Section 260A of the Act. 6. The extent of expenditure to be disallowed under Section 14A of the Act would naturally depend upon the income earned by the Assessee and spending that income and extent of exemption they have drawn. Since the Tribunal has discussed the relevant facts in paragraph 6 quoted above, we do http://www.judis.nic.in Judgt. dt.06.07.2020 4/5 not find any perversity in the order passed by the Tribunal and the disallowance made under Section 14A of the Act appears to be just and reasonable and therefore, we do not find any substantial question of law in the present appeal by the Revenue, which requires our further consideration under Section 260A of the Act. Accordingly, the present appeal is liable to be dismissed and the same is dismissed. No costs. (V.K.,J.) (K.R.,J.) 06.07.2020

Index : Yes/No kpl/tar To M/s.Dewa Properties Ltd No.770A, II Floor, Dewa Tower I Anna Salai , Chennai-600 002. http://www.judis.nic.in Judgt. dt.06.07.2020 5/5 DR.VINEET KOTHARI, J. and

KRISHNAN RAMASAMY, J. (tar) Tax Case (A) No.234 of 2015 06.07.2020 http://www.judis.nic.in

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