PRINCIPAL COMMISSIONER OF vs. M/S.L&T INFRASTRUCTURE DEVEL

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TCA/692/2018HC Madras26 August 2022Bench: Hon`ble Mr Justice R. MAHADEVAN6 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court noted that the Revenue brought to its notice Circular No. 17/2019 dated 08.08.2019 issued by the Central Board of Direct Taxes. This circular stipulates that appeals shall not be filed or pursued by the Department before the High Court if the tax effect does not exceed Rs. 1,00,00,000/- (Rupees One Crore). The learned counsel for the Revenue submitted that the tax effect in these appeals was less than the threshold limit. Consequently, the High Court dismissed the present appeals as withdrawn, stating that the substantial questions of law were kept open for determination in appropriate cases. No costs were awarded.

What were the facts?

The appeals were filed by the Principal Commissioner of Income Tax-4 (Revenue) against the order of the Income Tax Appellate Tribunal (ITAT), Madras 'B' Bench, dated 11.08.2016. The ITAT's order pertained to assessment years 2009-10 and 2011-12, concerning M/s. L & T Realty Ltd. (Assessee). The Revenue challenged the ITAT's decision to delete disallowances made under Section 14A of the Income Tax Act, 1961, and also additions made to book profits under Section 115JB. The appeals were preferred under Section 260A of the Income Tax Act, 1961.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Appellate Tribunal was correct in law in holding that investment made in sister concerns are not liable for disallowance under Section 14A when the provisions of the said Section as well as Rule 8D do not provide for any such exception? 2. Whether the Appellate Tribunal was justified in not appreciating that investment in shares of sister concerns also yielded only dividend income, which is exempt from income tax, and hence provisions of Section 14A are applicable, ignoring the decision of Karnataka High Court in United Breweries Ltd. Vs. FCIT (24) Taxman 299) on an identical issue? 3. Whether the Appellate Tribunal was correct in law in deleting the disallowance under Section 14A holding that free funds in the form of reserves and surplus held by the assessee were more than the investment made in assets yielding exempt income, when the assessee maintained a mixed bag of funds and failed to substantiate that such investment was out of interest-free funds? 4. Whether the ITAT was correct in law in deleting the addition made to book profits computed under Section 115JB being expenditure incurred to earn exempt income, even though Clause (f) of Explanation 1 to Section 115JB specifically provides for it? Assessee's contentions were not recorded. The Revenue argued that Section 14A and Rule 8D do not provide exceptions for investments in sister concerns and that the assessee failed to prove investments yielding exempt income were not out of interest-free funds. The Revenue also relied on the Karnataka High Court decision in United Breweries Ltd. Vs. FCIT.

Which sections of the Income-tax Act were involved?

Section 14A,Section 115JB

AI-generated summary — verify with the full judgment below

T.C.A.Nos.692 & 694 of 2018 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 26.08.2022 CORAM : THE HON'BLE MR. JUSTICE R. MAHADEVAN AND THE HON'BLE MR. JUSTICE MOHAMMED SHAFFIQ T.C.A.Nos.692 & 694 of 2018 The Principal Commissioner of Income Tax-4, No.121, Mahatma Gandhi Road, Chennai - 600 034. ... Appellant in both TCAs' Versus M/s.L & T Realty Ltd., (Formerly known as L & T Urban Infrastructure Ltd.,) P.B.No.979, Mount Poonamallee Road, Manapakkam, Chennai - 600 089. ... Respondent in both (PAN No.AAB CL 1958 B) TCAs'

Appeals preferred under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras “B” Bench, dated 11.08.2016 in I.TA.Nos.2336/Mds/2015 & 2338/Mds/2015. For Appellant in both TCAs' : Mr.Karthick Ranganathan Standing Counsel For Respondent in both TCAs' : Mr.N.V.Balaji Page 1/6 https://www.mhc.tn.gov.in/judis T.C.A.Nos.692 & 694 of 2018 C O M M O N J U D G M E N T (Judgment was delivered by R.MAHADEVAN, J.) These tax case appeals have been filed by the appellant / Revenue, challenging the common order dated 11.08.2016 passed by the Income Tax Appellate Tribunal, Madras 'B' Bench in I.T.A.Nos.2336/Mds/2015 and 2338/Mds/2015, relating to the assessment years 2009-10 and 2011-12 respectively, by raising the following substantial questions of law:- "(i) Whether the Appellate Tribunal is correct in law in holding that investment made in sister concerns are not liable for disallowance under Section 14A when the provisions of the said Section as well as Rule 8 D does not provide for any such exception? (ii) Whether the Appellate Tribunal is justified in not appreciating the fact that investment in shares of sister concerns also yielded only divided income, which is exempt from income tax and hence provisions of Section 14 A are applicable ignoring the decision of Karnataka High Court in United Breweries Ltd., Vs. FCIT (24) Taxman 299) on identical issue? (iii) Whether the Appellate Tribunal is correct in law in deleting the disallowance under Section 14A holding that free Page 2/6 https://www.mhc.tn.gov.in/judis T.C.A.Nos.692 & 694 of 2018 funds in the form of reserves and surplus held by the assessee is more than the investment made in assets yielding exempt income, when due assessee was maintaining mixed bag of funds and failed to substantiate that such investment in assets yielding income are out of interest free funds? (iv) Whether the ITAT is correct in law in deleting the addition made to book profits computed under Section 115JB being expenditure incurred to earn exempt income even though Clause (f) of Explanation 1 to Section 115JB specifically provides for it?" 2. When the matters were taken up for consideration, the learned counsel for the appellant / Revenue brought to the notice of this court the Circular No.17/2019 dated 08.08.2019 issued by the Central Board Direct Taxes, wherein, it is stipulated that appeal shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). It is also submitted that the tax effect in these appeals is less than the threshold limit. 3. In the light of the aforesaid submissions made by the learned counsel for the appellant / Revenue, the present appeals, wherein, the tax effect is said to be less than the monetary limit imposed, are dismissed as withdrawn, Page 3/6 https://www.mhc.tn.gov.in/judis T.C.A.Nos.692 & 694 of 2018 keeping open the substantial questions of law for determination in appropriate cases. No costs. (R.M.D., J.) (M.S.Q., J.) 26.08.2022 r n s

Internet : Yes.

Index : Yes / No. Page 4/6 https://www.mhc.tn.gov.in/judis T.C.A.Nos.692 & 694 of 2018 To 1. The Income Tax Appellate Tribunal Madras 'C' Bench, Chennai. 2. The Commissioner of Income Tax, (Appeals)-8, Chennai. 3. The Deputy Commissioner of Income Tax, Corporate Circle 4 (1), Chennai. Page 5/6 https://www.mhc.tn.gov.in/judis T.C.A.Nos.692 & 694 of 2018 R. MAHADEVAN, J. and MOHAMMED SHAFFIQ, J. r n s T.C.A.Nos.692 & 694 of 2018 26.08.2022 Page 6/6 https://www.mhc.tn.gov.in/judis

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