M/S RANE BRAKE LININGS LIMIT vs. THE DEPUTY COMMISSIONER OF I

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TCA/246/2019HC Madras20 April 2021Bench: Hon`ble Mr Justice M.DURAISWAMY6 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court decided not to adjudicate the substantial questions of law due to subsequent developments. The Court was informed that the assessee had filed the requisite Forms 1 & 2 under Section 4 of the Direct Tax Vivad Se Vishwas Act, 2020. Consequently, the appeal was disposed of on the ground that the assessee had availed the benefit under the Act. The Court directed the Department to process the application at the earliest and communicate the decision to the assessee. The assessee was granted liberty to restore the appeal if the ultimate decision under the Vivad Se Vishwas Act was not in their favour. In such an event, the Registry was directed to entertain the restoration petition without insisting on a condonation of delay application. The substantial questions of law were left undecided.

What were the facts?

The assessee, M/s. Rane Brake Linings Limited, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 15.02.2018 passed by the Income Tax Appellate Tribunal (ITAT), Madras “A” Bench, for Assessment Year 2001-02. The appeal was admitted on substantial questions of law concerning the disallowance of proportionate interest expenditure related to investments in group companies and the presumption of using interest-free funds for investments. The High Court was informed that the assessee had availed the benefit under the Direct Tax Vivad Se Vishwas Act, 2020, by filing requisite forms on 08.01.2021.

What were the issues?

1. Whether the Tribunal's order was perverse in holding that the assessee invested interest-bearing funds in equity shares earning exempt dividend income, and that these investments were not for strategic purposes or commercial expediency (turning on the interpretation of facts and commercial expediency)? 2. Whether the Tribunal was correct in confirming the disallowance of proportionate interest expenditure related to investments in group companies, despite the assessee having sufficient retained earnings and capital, and not using borrowed funds for these investments (turning on the application of Section 36(1)(iii))? 3. Whether the Tribunal was correct in not appreciating the principle that if both interest-free and interest-bearing funds are available, a presumption arises that investments are made from interest-free funds if they are sufficient to meet the investments (turning on the principle of appropriation of funds)? 4. Whether the Tribunal was correct in confirming the lower authorities' orders by sitting in judgment on earlier years' matters in the current assessment year, where assessments were completed and the appellant provided details of cash from operating activities and reserves for investments (turning on the principles of res judicata and assessment year specific considerations)? Assessee's Contentions: The assessee argued that investments were not made from borrowed funds but from sufficient retained earnings and capital. They also contended that a presumption should arise that investments were made from available interest-free funds. Furthermore, they argued that the lower authorities improperly reviewed earlier years' assessments in the current assessment year. Revenue's Contentions: The judgment does not record specific contentions for the revenue.

Which sections of the Income-tax Act were involved?

Section 260A,Section 4

AI-generated summary — verify with the full judgment below

Tax Case Appeal No.246 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 20.04.2021 CORAM THE HON'BLE MR.JUSTICE M. DURAISWAMY AND THE HON'BLE MRS.JUSTICE R. HEMALATHA Tax Case Appeal No.246 of 2019 M/s.Rane Brake Linings Limited, (now known as Rane Brake Lining Limited) Plot No.30, Industrial Estate, Ambattur, Chennai – 600 058.

... Appellant Vs.

The Deputy Commissioner of Income Tax, Large Taxpayer Unit-II, Now Corporate Circle 5(1), Chennai. ... Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras “A” Bench, dated 15.02.2018 passed in I.T.A.No.1594/Mds/2014. For Appellant : Mr.R.Venkata Narayanan for M/s.Subbaraya Aiyar Padmanabhan

For Respondent : Mrs.R.Hemalatha

Standing Counsel

Page 1/6 https://www.mhc.tn.gov.in/judis/ Tax Case Appeal No.246 of 2019 J U D G M E N T (Delivered by M. DURAISWAMY, J) The appeal filed by the assessee under Section 260A of the Income Tax Act, 1961 ('the Act' for brevity), is directed against the order, dated 15.02.2018, passed by the Income Tax Appellate Tribunal, Madras “A” Bench, Chennai ('the Tribunal' for brevity) in I.T.A.No.1594/Mds/2014 for the Assessment Year 2001-02. The above appeal was admitted on 09.11.2020 on the following Substantial Questions of Law: “1.Whether the order of the Tribunal is perverse in holding that the assessee has invested its interest bearing funds in equity shares earning dividend income which is exempt from tax and that these investments were not made for strategy purposes or due to commercial expediency? 2.Whether the Tribunal was right in law in confirming the disallowance of proportionate interest expenditure as relating to investment of borrowed funds in group companies without appreciating that the Appellant had sufficient funds by way of retained earnings and capital for making the investment in the group companies and the assessee had not used any borrowed amount for making investment? Page 2/6 https://www.mhc.tn.gov.in/judis/ Tax Case Appeal No.246 of 2019 3.Whether the Tribunal was right in law in not appreciating the Principle that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. 4.Whether the Tribunal was right in law in confirming the order of lower authorities sitting in judgment on matters relating to earlier years in the current assessment year, where the assessments have been completed and the appellant filed details in support of its claim that it had cash from operating activities and reserves and surplus for making investments?" 2. We have heard Mr.R.Venkata Narayanan for M/s.Subbaraya Aiyar Padmanabhan, learned counsel for the appellant/ assessee and Mrs.R.Hemalatha, learned Standing Counsel for the respondent/Revenue. 3. It may not be necessary for this Court to decide the Substantial Questions of Law framed for consideration on account of certain subsequent developments. The Government of India enacted the Direct Tax Vivad Se Vishwas Act, 2020 (Act 3 of 2020) to provide for resolution of disputed tax and for matters connected therewith or incidental thereto. The Act of the Page 3/6 https://www.mhc.tn.gov.in/judis/ Tax Case Appeal No.246 of 2019 Parliament received the assent of the President on 17th March 2020 and published in the Gazette of India on 17th March 2020. 4. We are informed by the learned counsel for the appellant/assessee that the assessee has already filed the requisite Forms 1 & 2 on 08.01.2021 under Section 4 of the Act. 5. In the light of the fact that the assessee has already availed the benefit under the Act, no useful purpose would be served in keeping the appeal pending. At the same time, safeguarding the interest of the assessee in the event the order to be passed by the Department under the Act is not in favour of the assessee. Accordingly, the Tax Case Appeal stands disposed of on the ground that the assessee has already filed the requisite Forms 1 & 2 and the Department shall process the application at the earliest in accordance with the said Act and communicate the decision to the assessee at the earliest. As observed, the assessee is given liberty to restore the appeal in the event the ultimate decision to be taken on the declaration filed by the assessee under Section 4 of the said Act is not in favour of the assessee. If such a prayer is made, the Registry shall entertain the prayer without insisting upon any application to be filed for condonation of delay in restoration of the appeal and Page 4/6 https://www.mhc.tn.gov.in/judis/ Tax Case Appeal No.246 of 2019 on such request made by the assessee by filing a Miscellaneous Petition for Restoration, the Registry shall place such petition before the Division Bench for orders. 6. With this observation, the Tax Case Appeal stands disposed of with the aforementioned liberty and consequently, the Substantial Questions of Law are left open. No costs. [M.D., J.] [R.H., J.] 20.04.2021 (2/2) Index : Yes/No Internet : Yes mkn To 1.The Income Tax Appellate Tribunal, Madras “A” Bench 2.The Deputy Commissioner of Income Tax, Large Taxpayer Unit-II, Now Corporate Circle 5(1), Chennai. Page 5/6 https://www.mhc.tn.gov.in/judis/ Tax Case Appeal No.246 of 2019 M. DURAISWAMY, J. and R. HEMALATHA, J. mkn Tax Case Appeal No.246 of 2019

20.04.2021 (2/2) Page 6/6 https://www.mhc.tn.gov.in/judis/

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