THE TAMILNADU ROAD DEVELOPME vs. THE DEPUTY COMMISSIONER OF I

TCA.No.485 of 2020 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 05.01.2021 CORAM : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Ms.Justice R.N.MANJULA Tax Case Appeal No.485 of 2020 The Tamilnadu Road Development Co.Ltd., No.171, II Floor, South Kesava Perumal Puram Pasumpon Muthuramalingam Road, (Greenways Road), R.A.Puram, Chennai - 600 028. PAN: AABCT3389H ...Appellant Vs The Deputy Commissioner of Income Tax, Corporate Circle - 3(1), No.121, Mahatma Gandhi Road, Chennai - 600 034. ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 31.01.2019 made in ITA.No.2721/Chny/2018 on the file of the Income Tax Appellate Tribunal, "A" Bench, Chennai for the assessment year 2014-15. For Appellant: Mr.A.S.Sriraman For Respondent: Mr.M.Swaminathan Senior Standing Counsel 1/8 https://www.mhc.tn.gov.in/judis/ TCA.No.485 of 2020 JUDGMENT (Delivered by

T.S.Sivagnanam,J

) This appeal filed by the assessee, The Tamilnadu Road Development Co.Ltd., under Section 260A of the Income Tax Act, 1961 ('the Act' for brevity) is directed against the order dated 31.01.2019 passed by the Income Tax Appellate Tribunal, Chennai "A" Bench ('the Tribunal' for brevity) in ITA.No.2721/Chny/2018 for the assessment year 2014-15. 2. The assessee has raised the following substantial question of law for consideration: “1.Whether the provisions of Section 14A of the Income tax Act, 1961 is applicable for maintaining tax free portfolio/investments in the absence of tax-free/divident income from such investments?" 3. Heard Mr.A.S.Sriraman, learned counsel appearing for the appellant/assessee. 4. The assessee is wholly owned Government of Tamilnadu undertaking engaged in the activities of building, developing and operating 2/8 https://www.mhc.tn.gov.in/judis/ TCA.No.485 of 2020 of the East Coast Road for 113.2 kms under Build, Operate and Transfer (BOT) basis. The assessee filed its return of income for the assessment year under consideration (AY 2014-15) admitting an income of Rs.8,10,00,146/-. The said return was selected for scrutiny and notice dated 03.09.2015 was issued under Section 143(2) of the Act. The assessee's contention was that during the assessment year under consideration, they held a investment of Rs.34,05,00,000/- as on 31.03.2014 in their subsidiary company, but did not receive any dividend income. 5. The Assessing Officer, while completing the scrutiny assessment vide order dated 29.06.2015, disallowed an amount of Rs.17,02,500/- by invoking the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as “the Rules”). This assessment order was put to challenge before the Commissioner of Income Tax (Appeals)-11, Chennai (CIT(A)), which was dismissed by order dated 29.06.2018 largely on the basis that the constitutional validity of Section 14A has been upheld by the Hon'ble Supreme Court in the case of M/s.Godrej & Boyce Manufacturing Co. Ltd. (394 ITR 449)(SC.). Aggrieved by the same, the assessee preferred an 3/8 https://www.mhc.tn.gov.in/judis/ TCA.No.485 of 2020 appeal before the Tribunal which, by order dated 31.01.2019, dismissed the appeal. This order is impugned in the present appeal. 6. Before us, the assessee would contend that the Tribunal ought to have seen that the Assessing Officer has not recorded his satisfaction on the incurring of expenses for maintaining tax-free portfolio/for earning tax- free income, so as to justify the invocation of power under Section 14A of the Act. Therefore, it is submitted that in the absence of satisfaction being recorded by the Assessing Officer in the course of completion of assessment, Section 14A of the Act cannot be mechanically applied and consequently, the disallowance of notional expenses under Rule 8D is not justified. 7. We have heard Mr.M.Swaminathan, learned Senior Standing Counsel appearing on behalf of the respondent/Revenue on the above submission. 8. We need not labour much to decide the substantial question of law framed, as identical issue was considered in the case of Commissioner 4/8 https://www.mhc.tn.gov.in/judis/ TCA.No.485 of 2020 of Income Tax, Chennai vs M/s.Celebrity Fashion Ltd. in T.C.A.No.26 of 2018 dated 21.09.2020. In the said appeal, which was filed by the Revenue, identical question of law was framed for consideration and the same was answered against the Revenue and in favour of the assessee on the following lines: "24. We had an occasion to consider a similar question in the case of CIT, Corporate Circle-3, Chennai Vs. Visual Graphics Computing Services India Pvt. Ltd. [TCA.No.414 of 2018 dated 19.8.2020]. In the said appeal, question of law No.5, which was framed for consideration, was as to whether the Tribunal was right in holding that the provisions of Section 14A of the Act read with Rule 8D of the said Rules will have no applicability if there is no exempt income earned or received during the previous year though the disallowance is linked to expenditure incurred on investment fetching exempt income. The said case was decided in favour of the assessee and against the Revenue and in doing so, we have followed the decision of the Hon'ble Division Bench of this Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. [reported in (2017) 80 Taxmann.com 221]. This decision would come to the 5/8 https://www.mhc.tn.gov.in/judis/ TCA.No.485 of 2020 aid and assistance of the assessee. ........ 28. In fact, an identical argument was raised for consideration before the Hon'ble Division Bench of this Court in the case of Chettinad Logistics Pvt. Ltd., and such a contention was rejected by rendering the following findings: “13. Mr.Senthil Kumar, seeks to distinguish the judgment in Redington (India) Ltd. case (supra) based on the fact that Rule 8D had not kicked-in by AY 2007-08, which was the AY being considered in the said case. 14. According to us, this was not the argument, put forth, before the Division Bench. As a matter of fact, the Revenue relied heavily on Rule 8D. 14.1 Mr.Ravikumar, who appeared for the Revenue, in that matter and who is present in this Court, informs us that he had in fact argued that the Rule was clarifactory in nature and would apply retrospectively, and that, the Division Bench, therefore, discussed the impact of Rule 8D of the Rules. 15. However, it is, our view, as indicated above, independent of the reasoning given in Redington (India) Ltd. case (supra) that Rule 8D cannot be read in a manner, which takes it beyond the scope and content of the main provision, which is, Section 14 A of the Act. 15.1 Therefore, as adverted to above, Rule 8D, cannot come to the rescue of the Revenue. 15.2 In any event, the Tribunal, via, the impugned judgment has remitted the matter to the Assessing Officer. 15.3 Therefore, for the foregoing reasons, 6/8 https://www.mhc.tn.gov.in/judis/ TCA.No.485 of 2020 we are of the view, that no interference is called for qua the impugned judgment.” As against the decision of this Court in the case of Chettinad Logistics Pvt. Ltd., the Revenue preferred appeals before the Hon'ble Supreme Court and the special leave petitions were dismissed on the ground of delay as well as merits in the decision reported in (2018) 95 Taxmann.com 250." 9. Thus, by applying the above decision, this Tax Case Appeal is allowed and the substantial question of law is answered in favour of the appellant/assessee. No costs. (T.S.S.,J.) (R.N.M.,J.) 05.01.2021 Index: Yes/No Internet:Yes/No Speaking Judgment/Non speaking Judgment hvk/cse To 1. The Income Tax Appellate Tribunal, Chennai 'A' Bench. 2. The Deputy Commissioner of Income Tax, Corporate Circle - 3(1), No.121, Mahatma Gandhi Road, Chennai - 600 034. 7/8 https://www.mhc.tn.gov.in/judis/ TCA.No.485 of 2020 T.S.SIVAGNANAM,J AND R.N.MANJULA,J hvk TCA.No.485 of 2020 05.01.2021 8/8 https://www.mhc.tn.gov.in/judis/