ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-2(3)(1), MUMBAI vs. TATA SONS LIMITED, MUMBAI

PER SANDEEP SINGH KARHAIL, J.M.

The present cross appeals have been filed by the assessee and the Revenue challenging the impugned order dated 27/03/2017, passed

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 under section 250 of the Income Tax Act, 1961 (‘the Act’) by the learned Commissioner of Income Tax (Appeals)-58, Mumbai [‘learned CIT(A)’], for the assessment year 2011–12.

ITA no.4221/Mum./2017 Assessee’s Appeal – A.Y. 2011–12

“1) Reference to TPO before initiating the scrutiny assessment proceedings: The CIT(A) erred in upholding the reference made by the AO under section 92CA(1) to the TPO and holding it to be not bad in law though the same was made before initiating the scrutiny assessment proceedings under section 143(2). The CIT(A) further erred in accepting totally unsubstantiated belated contention of the AO that the reference to the TPO vide letter dated 2nd April, 2012, had been wrongly dated. 2) CIT approval not obtained before making reference to the TPO: The CIT(A) erred in permitting the reference made by the AO to the TPO, which is bad in law since the procedure of seeking prior approval of the Commissioner under section 92CA(1) was not followed by the AO subsequent to initiation of assessment proceedings by issue of notice u/s 143(2) on 10th April, 2012, upon considering it necessary or expedient to make a reference to the TPO. 3) Assessment Order-barred by limitation: Without prejudice to the above, the CIT(A) erred in not treating the assessment order under section 143(3) passed on 30th April, 2015 as non-est being beyond the prescribed time limit of 31 March, 2015. 4) Transfer Pricing adjustment. (i) The Transfer Pricing adjustments are bad in law, illegal, without/in excess of jurisdiction, contrary to statutory provisions (including sections 4, 5, 9, 92C, 92CA, etc.), contrary to principles of natural justice and therefore the said adjustments should be deleted and quashed. (ii) The CIT(A) erred in not accepting that the Learned Assessing Officer committed a gross error of law and fact in not applying his

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 mind and in not examining the issue of Transfer Pricing under the relevant statutory provisions. (iii) The CIT(A) erred in not accepting that the Transfer Pricing adjustments made by the Assessing Officer are completely violative of the statutory provisions, inter alia, on the grounds that the Learned Assessing Officer failed to arrive at a prima facie belief requiring a reference to the Transfer Pricing Officer and without being so satisfied that it is necessary and expedient to make a reference to the Transfer Pricing Officer. (iv) The CIT(A) erred in not accepting that the Learned Assessing Officer committed gross error of law and fact in making an automatic reference to the Transfer Pricing Officer without his own independent application of mind and therefore the proceedings before the Transfer Pricing Officer are bad in law, illegal, without/in excess of jurisdiction requiring the quashing of the Order passed by the Transfer Pricing Officer and the consequential adjustments made in the Assessment Order. (v) The CIT(A) erred in not accepting that the proceedings before the Transfer Pricing Officer and his Order and consequential adjustments are bad in law, illegal and contrary to the statutory provisions since the Commissioner of Income-tax granted an approval in a mechanical manner without an independent application of mind. (vi) The CIT(A) erred in not accepting that the Transfer Pricing adjustments made in the Assessment Order are bad in law and illegal and contrary to the statutory provisions because the Learned Assessing Officer and the Learned Commissioner of Income-tax did not examine the Transfer Pricing Reports and other documents and material and did not apply their minds to such statutory evidence. The Learned Assessing Officer and the Learned Commissioner of Income-tax did not discharge their necessary respective judicial functions conferred on them by the statute and this has totally vitiated the Transfer Pricing adjustment. (vii) The CIT(A) erred in not accepting that the Transfer Pricing adjustments are bad in law and illegal in as much as the conditions laid down in section 92C(3) are not satisfied before the passing of the final Assessment Order. (viii) On the facts and in the circumstances of the case, Transfer Pricing adjustments cannot be made without arriving at the finding that the intention of the assessee was to evade tax or manipulate prices or shift profits outside of India. Further, such finding of tax evasion or manipulation of prices or of shifting of profits is a condition precedent to making the Transfer Pricing adjustments. 5) The Transfer Pricing Order passed by the Additional Commissioner of Income Tax (Transfer Pricing) is illegal, bad in law, without authority of law, contrary to the statutory provisions and therefore,

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 the whole order is vitiated and unsustainable. and accordingly, the resultant Transfer Pricing Adjustment made by the Assessing Officer, and included in the Assessment Order, should be deleted and quashed. 6) The Assessing Officer (AO) erred in making a reference under section 92CA(1) of the Act to the Addl. CIT of Income-tax Act, an officer not having jurisdiction in accordance with the Explanation to section 92CA inserted for the purpose of this section. 7) The Addl. CIT (TP), the officer not covered under the definition of Transfer Pricing Officer (TPO) for the purpose of this section erred in passing the order under section 92CA(3). 8) Transfer Pricing Adjustment-Guarantee Fees: i) The CIT(A) erred in not accepting that the guarantee given by the appellant on behalf of its wholly owned subsidiary. Tata Ltd. UK. is not an international transaction, as there is no cost and no bearing on profits, income, losses or assets of the Appellant. ii) The CIT(A) erred in not accepting the fact that providing corporate guarantee is a shareholder activity and therefore it is not an international transaction. iii) Without prejudice to the above grounds, the CIT(A) erred in not restricting the guarantee commission fee rate in the range of 0.20% to 0.50% as per recent jurisdictional decisions. iv) The CIT(A) further erred in applying a rate of 1.102%, in connection with guarantees given by the appellant on behalf of its wholly owned subsidiary, Tata Ltd. UK, without appreciating the facts and the submissions made by the appellant. v) The CIT(A) further erred in failing to distinguish between a corporate guarantee given on behalf of a 100% subsidiary, as in the appellant's case and guarantees given by Banks, as adopted by the TPO. vi) The CIT(A) further erred in splitting the benefit of interest saved methodology in the ratio of 60:40 between the appellant (i.c. guarantor) and its 100% subsidiary (Tata Limited. UK), instead of the ratio of 50:50 as considered by the appellant. 9) Income from House Property: The CIT(A) erred in not allowing deduction of the expenses incurred towards salaries, security charges and electricity, which were specifically incurred by the appellant towards it's additional obligations as the landlord, for the benefit/ enjoyment by the tenants/users of the house property and for which service charges were collected and offered to taxation over and above the rent.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 10) Disallowance of Interest & Other Expenses U/S.14A & Sec 37 & 115JB: i) The CIT(A) erred in upholding the enhancement of disallowance under Rule 8D and disregarding the erroneous conclusion reached by the AO, that the appellant has not computed disallowance u/s 14A as per Rule 8D, when in effect, the disallowance u/s.14A amounting to Rs. 825.92 crore as stated in the Tax Audit Report (TAR) was computed as per Rule 8D. ii) The CIT(A) erred in effecting double disallowance by not excluding interest disallowed u/s.43B from the gross interest amount, whilst computing disallowance under Rule 8D(2)(ii). iii) The CIT(A) further erred in computing the disallowance under Rule 8D(2)(ii) by failing to restrict the disallowance of interest, by not considering only those investments in respect of which exempt dividend income is received during the year. iv) The CIT(A) further erred in not computing the disallowance under Rule 8D(2)(ii), by failing to not consider average value of those investments from which dividend income is received during the year instead of average value of total investments. v) The CIT(A) further erred in not allocating the interest expense incurred on borrowings deployed for earning interest income and further erred thereafter in not allocating the said net interest between exempt dividend income and taxable Brand income. vi) The CIT(A) further erred in not allowing capitalization of the amount of interest and other expenses disallowed and to enhance the cost of investments. 11) Disallowance of Pension amount: The CIT(A) erred in disallowing net provision for pension of Rs.21.94 crore, provided on an actuarial basis. 12) Additional Ground: Adjusted Book Profit under section 115JB: The assessing officer erred in not including the income as computed under the head Capital Gains in accordance with the 3rd Proviso to Sec, 10(38).”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 29/03/2013, declaring total income of Rs. 271,27,97,470 under normal provisions and Rs. 585,84,00,919 under section 115 JB of the Act. The assessment in the case of the assessee was concluded under section 143(3) section 144C (3) of the Act determining total income at Rs. 1064,93,71,750 under normal provisions of the Act.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 7. The brief facts of the case pertaining to the above issue, as emanating from the record, are: The assessee on 29/09/2010 provided a corporate guarantee to Tata Ltd, UK (its wholly owned subsidiary) on a GBP 63 million term loan facility issued by Standard Chartered Bank. The guarantee was of a continuing nature and shall remain in force till the loan amount is repaid in full by the borrower or by the guarantor (if the borrower defaults). During the year under consideration, assessee charged the guarantee commission fees at the rate of 0.88%. In its transfer pricing study report, assessee claimed that the international transaction of receipt of guarantee fees in respect of corporate guarantee provided to its subsidiary is at arm’s length. Pursuant to the reference by the Assessing Officer (‘AO’), the Transfer Pricing Officer (‘TPO’) vide order dated 30/01/2015 passed under section 92CA (3) of the Act by applying the SBI tariff card rate along with a markup determined arm’s length guarantee commission fees at 3%. Accordingly, the TPO, inter-alia, proposed adjustment of Rs. 7,10,30,009.77 in respect of international transaction of receipt of guarantee fees. In appeal, learned CIT(A) vide impugned order, following the approach adopted in assessment year 2009–10, determine the arm’s length guarantee fees at 1.102%. Since the assessee had already charged guarantee fees at the rate of 0.88%, accordingly, the adjustment was restricted to the difference between arm’s length guarantee fee and the amount charged by the assessee, i.e. 0.222%. Being aggrieved, the assessee is in appeal before us.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 8. Having considered the submissions of both the parties and perused the material available on record, we find that in preceding assessment years the coordinate bench of the Tribunal in assessee’s own case upheld corporate guarantee fee at the rate of 0.5% in respect of similar international transaction with Tata Ltd, UK. In ACIT v/s Tata Sons Ltd, in ITAs No. 4630 and no.4637/Mum/2016, vide order dated 07/08/2020, for assessment year 2009–10, the Co–ordinate Bench of the Tribunal directed the TPO to consider arm’s length price of corporate guarantee fees at 0.5%, by observing as under:

“2.5. At the time of hearing, the Id. AR fairly submitted that the grounds raised by the assessee with regard to the fact that the issue of corporate guarantee would not fall within the ambit of international transaction is not pressed by her. The same is reckoned as the statement made from the Bar and accordingly, the grounds raised by the assessee that the corporate guarantee issue is not an international transaction are hereby dismissed as not pressed. We find that the Hon'ble Jurisdictional High Court in number of occasions had restricted the Arm's Length Price (ALP) from the guarantee fee to be at 0.5%. We find that these decisions were subsequently followed by the Co-ordinate benches of this Tribunal and one such decision which was quoted by the Id. AR at the time of hearing in the case of Virgo Engineers Ltd. vs. DCIT in IT(TP)A No.3718/Mum/2017 for A.Y.2011-12 dated 08/01/2019 wherein by placing reliance on the decision of Hon'ble Jurisdictional High court in the case of Everest Kanto Cylinder Ltd., vs. DCIT reported in 34 Taxmann.com 19, the ALP of corporate guarantee fee was restricted to 0.5%. Respectfully following the same, we direct the Id. TPO to consider the ALP of corporate guarantee fee at 0.5% and further reduce 0.25% already charged by the assessee and make adjustment accordingly. Accordingly, the ground No.1 raised by the assessee is partly allowed.”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 fees at 0.25%, which was ultimately determined to be at 0.5% by the coordinate bench of the Tribunal. However, in the present case, as noted above, the assessee has already charged guarantee fees at the rate of 0.88% for the similar transaction with Tata Ltd, UK. As the corporate guarantee fees charged by the assessee during the year under consideration is more than the arm’s length guarantee fees determined by the coordinate bench of the Tribunal in preceding assessment years, therefore, we find no reason to uphold the adjustment made pursuant to impugned order. As a result, grounds no. 8 (iii) to 8 (vi) raised in assessee’s appeal are allowed.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 security expenses and other expenses either from the annual value under section 23 or under section 24 of the Act. The AO further held that 30% deduction available from annual letting value covers all other expenses incurred for house property and therefore security charges, maintenance charges etc. are not allowed separately. Accordingly, the AO computed the income from house property without allowing the deduction of expenses claimed by the assessee. In appeal, learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 13. We find that coordinate bench of the Tribunal in assessee’s own case in ACIT vs Tata Sons Ltd, in ITAs No. 4630 and 4637/Mum/2016, vide order dated 07/08/2020, for assessment year 2009 – 10, while restoring similar issue to the file of AO, observed as under:

“3.1. We have heard rival submissions and perused the materials available on record. We find that the assessee while computing income from house property, the assessee had reduced Rs.30,55,040/- from the annual value in addition to the other statutory deduction including 30% deduction allowed towards repairs u/s. 24. The assessee had submitted that these expenditures represent maintenance facilities like salaries, security charges and electricity of house property. The Id. AO observed that assessee is entitled only for deduction for municipal tax paid and flat deduction @30% for repairs under head 'income from house property' and no other deduction shall be permissible under the Act. The assessee had received Rs.1,73,90,000/- towards amenities and service charges which were duly offered to tax as rent under the head 'income from house property' against which, this expenditure of Rs.30,55,040/- was deducted by the assessee under the head 'income from house property'. It is not in dispute that assessee had duly offered rental income as well as amounts received towards amenities and service charges under the head 'income from house property'. We find that the Id. AR referred to the decision rendered in group companies case of the assessee by this Tribunal in the case of Ewart Investments Ltd., vs. DCIT in ITA No.3623/Mum/2017 dated 28/02/2019 for A.Y.2012-13 wherein this issue was restored to the file of the Id. AO. The Id. AR fairly prayed for similar direction to be given in the impugned case. We have gone through the said decision and respectfully following the said decision, we deem it fit and appropriate to restore this issue to the file of the Id. AO and decide the issue before us on the same lines as directed by this Tribunal in ITA No.3623/Mum/2017 dated 28/02/2019 from para 5 & 6 thereon. Accordingly, the ground No.2 raised by the assessee is allowed for statistical purposes.”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 issue arising in the present case is recurring in nature and has been decided by the coordinate bench of the Tribunal in assessee’s own case for preceding assessment years. Thus, respectfully following the aforesaid decisions, we deem it appropriate to restore this issue to the file of AO with similar directions, as were passed by the coordinate bench of the Tribunal in aforesaid decisions. As a result, ground No. 9 raised in assessee’s appeal is allowed for statistical purpose.

Amount as Addition per rule (Rs. in Description 8D(2) crore) (Rs. in crore) The amount of expenditure directly 0 relating to income which does not 0 (i) form part of total income. In a case where the assessee has (ii)

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with following formula, namely:– A x B 903 C

Where A = amount of expenditure by 1032 way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = The average value of 33356 investment, income from which does not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = The average of total assets 38105 as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) An amount equal to one-half percent of the average of the value of investment, income from which does 167 167 not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. 1070 Total disallowance u/s 14A

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 under section 14A of the Act on various aspects. Learned CIT(A) vide impugned order, inter-alia, dismissed certain grounds raised by the assessee in respect of disallowance under section 14A of the Act. Being aggrieved, assessee is in appeal before us.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 20. We have considered the rival submissions and perused the material available on record. Section 14A of the Act disallows the expenditure incurred in relation to income which does not form part of the total income under the Act. On the other hand, under section 43B expenditure of the nature mentioned in the said section are allowable only on the payment basis, irrespective of the method of accounting regularly followed by the assessee. Thus, there could be certain expenditures which may fall under both the sections for the purpose of disallowance. In such a situation, question arises whether the same expenditure can be disallowed under both the aforesaid sections and thus resulting in double disallowance. It is pertinent to note that the Act is silent on this aspect. In this regard, it is relevant to note following observations of Hon’ble Supreme Court in Jain Brothers vs Union of India, [1970] 77 ITR 107 (SC):

“It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted, they cannot be so interpreted as to tax the same subject twice over to the same tax..... If any double taxation is involved the legislature itself has, in express words, sanctioned it. It is not open to anyone thereafter to invoke the general principles that subject cannot be taxed twice over.”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 has already been disallowed by the assessee under section 43B of the Act, therefore, interest amount to that extent be excluded by the AO from the gross interest, while computing disallowance under Rule 8D(2)(ii). Otherwise, same will result in double disallowance of interest of Rs. 83.91 crore under section 14A as well as under section 43B of the Act. We order accordingly. Further, it is pertinent to note that under section 14A the expenditure incurred in relation to income which does not form part of the total income is disallowed as the corresponding income is also not taxable. In the present case, assessee has already disallowed interest of Rs. 83.91 crore, though under section 43B of the Act. Thus, even though the corresponding income is exempt, the expenditure is also not claimed by the assessee, which suffices the purpose of section 14A of the Act. However, at the same time, we cannot be oblivious to the aspect that expenditure under section 43B of the Act are allowable on payment basis and the expenditure suo moto disallowed by the assessee, during the year under consideration, is allowable in the year when the same is paid by the assessee. Thus, for the very same amount of Rs. 83.91 crore assessee shall be entitled to claim deduction under section 43B of the Act in the year of payment. Therefore, in view of the above, we deem it fit to further direct the AO to disallow the interest expenditure of Rs. 83.91 crore under section 14A of the Act in the year in which said sum will be claimed and allowed as deduction under section 43B of the Act. This approach will avoid the situation of double disallowance of the interest amount of Rs. 83.91 crore under the aforesaid provisions in any given

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 year. With above directions, ground no. 10(ii) raised in assessee’s appeal is allowed for statistical purpose.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 expenditure, i.e. after adjusting the interest earned, for the purpose of computing the disallowance under section 14A read with rule 8D. In this regard, we find that this issue is already covered in favour of the assessee in its own case by order dated 06/11/2019 passed by the coordinate bench of the Tribunal in ITA Nos. 3192 and 3508/Mum/2013, for assessment year 2008-09. The aforesaid decision rendered in assessment year 2008–09 has been consistently followed in assessee’s own case for assessment years 2009–10 and 2010–11 cited supra, by the coordinate bench of the Tribunal. Thus, respectfully following the judicial precedents in assessee’s own case, ground no. 10(v) raised in assessee’s appeal is allowed. The other aspect raised in aforesaid ground pertaining to allocation of net interest between exempt dividend income and taxable brand income was not pressed during the course of hearing. Therefore, the said part of ground no. 10(v) is dismissed as not pressed.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 reply, assessee submitted that the provision for pension has been made based on actuarial valuation and considering the mercantile system of accounting followed by the company. The assessee further submitted that the amount was payable in recognition of the services rendered by the whole time Directors during the tenure. The AO vide order passed under section 143(3) read with section 144C(3) of the Act rejected the submission of the assessee and held that provision for pension is not an expense incurred during the relevant year and is merely a notional amount not allowable as business expenditure. In appeal, learned CIT(A) dismissed the appeal filed by the assessee on this issue, by following the decision rendered by its predecessor in assessee’s own case for earlier assessment years. Being aggrieved, assessee is in appeal before us.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 year 2009 – 10 as well as decision of Hon’ble Calcutta High Court in case of Brooke Bond India Ltd vs JCIT, [2011] 337 ITR 482. We find that in its appeal for assessment year 2009–10, being ITA Nos. 4630 and 4637/Mum/2016, the assessee did not press similar ground and thus same was dismissed by the coordinate bench of the Tribunal as not pressed. Thereby, resulting in no decision on merits by the coordinate bench of the Tribunal in earlier assessment year. However, in the year under consideration, assessee has pressed this ground.

“ii. Whether on the facts and in the circumstances of the case, and in law, the Tribunal was justified in allowing deduction of expenditure of Rs. 50 lakhs incurred by the assessee towards contribution to retired

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 employees benefit scheme ignoring the provision of section 40A(9) of the Act which provide for deduction only for payment to approved/recognized funds as referred to section 36(1)(iv) & (v) of the Income Tax Act, 1961?"

“11. Analysing the question, we find that this issue does not appear from the question raised. The issue which is raised is whether the provision regarding Rs. 82, 64, 000/- was in the nature of a contingent liability and thus not allowable. Neither was the issue raised in the way Mr. Agarwal has sought to raise it now, before the Tribunal. Learned counsel tried to submit that on application of Section 40A (7) and Section 36 (1) (iv) of the said Act, these provisions being one for benefit of employees on superannuation ought to be approved by the appropriate authority and in the absence of that the deduction was not admissible. We find on examination of the order of the Tribunal that its decision was based on Bharat Earth Movers v. CIT [2000] 112 Taxman 61/245 ITR 428 where the Supreme Court held that the liability was not a contingent liability. In

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 that case, the Supreme Court was concerned with beneficiary schemes for encashment of leave of the assessee company Bharat Earth Movers. In this case a scheme for medical benefit post retirement was involved. The tribunal treated the liability as accrued and to be discharged in the future, based on the above Supreme Court decision. In our opinion, this finding of the tribunal is based on standard accounting principles and consequential application of the law laid down by the Supreme Court in Bharat Earth Movers (supra). We find no infirmity in the reasoning or conclusion reached by the Tribunal.”

“16. Having heard rival parties, the submissions made by Mr. Dastur deserve acceptance. No fault can be found with the view taken by the Tribunal. The judgment in National Insurance Co. of India's case (supra) relied upon by Mr. Dastur is based on the earlier view of the Calcutta High Court in the case of CIT v. Eastern Spinning Mills Ltd.[1980] 126 ITR 6861, which in turn was based on the earlier judgments of the Apex Court amongst others in the case of Indian Molasses Co. Ltd. v. CIT[1959] 37 ITR 66 (SC) and Standard Mills Co. Ltd. v. CWT[1967] 63 ITR 470 (SC); wherein more or less similar issues were involved. The High Court ruled that a prudent businessman is always bound to make a fair estimate of his liability under the Act from year to year and is entitled to make provision for such liability. While considering the liability arising on account of payment of gratuity the High Court ruled that such liability is always in the form of deferred payment of wages of the employees concerned as such the said deduction can be allowed on the actuarial valuation. Respectfully agreeing with the above view, we do not find any fault with the view taken by the Tribunal. We, in the result, answer question No. 7 in the affirmative i.e., in favour of the assessee and against the revenue.”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 rendered during the tenure as whole time Directors. Further, it is also not disputed that during the year under consideration assessee has made payment of Rs. 4.45 crore. The assessee has made an estimate on reasonable basis of such liability on the basis of actuarial valuation. In this regard, it is relevant to note following observations of the Hon’ble Supreme Court in Bharat Earth Movers vs CIT, [2000] 245 ITR 428 (SC):

“4. The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 profit under section 115JB of the Act. Since it is a legal issue and goes to the root of the matter and does not involve any verification of facts, therefore, the same is admitted for adjudication. It is the submission of the assessee that only the actual expenditure disallowed under Rule 8D(2)(i) that is relatable to earning of exempt income should be considered for computation of book profit under section 115 JB of the Act. We find that coordinate bench of the Tribunal in assessee’s own case cited supra, for assessment year 2008–09, decided similar issue by following Special Bench’s decision in Vireet Investment (supra). The relevant findings of the coordinate bench of the Tribunal are as under:

“3.7. We find that the assessee had raised an additional ground vide Ground No. 2A in respect of disallowance u/s 14A of the Act while computing the book profits u/s 115JB of the Act. We find that this is a legal issue and goes into the root of the matter and does not involve any verification of facts and hence the same is admitted herein. We find that the Hon'ble Special Bench of Delhi Tribunal in the case of Vireet Investments reported in 165 ITD 27 had categorically held that the computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in clause (f) of Explanation 1 to Section 115JB(2) of the Act. We find that the Special Bench further held that only the actual expenses debited to the profit and loss account that are relatable to earning of exempt income should be considered for the said purpose. We direct the Id AO to compute the disallowance in the light of the said Special Bench decision. Accordingly the Additional Ground No.2 A raised by the assessee is allowed for statistical purposes.”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 recurring in nature and has been decided by the coordinate bench of the Tribunal in assessee’s own case for preceding assessment years. Thus, respectfully following the aforesaid decisions, we direct the AO to compute the disallowance in light of the aforesaid judicial precedents. Accordingly additional ground No. 10 A is allowed for statistical purpose.

ITA no.4323/Mum./2017 Revenue’s Appeal – A.Y. 2011–12

“On the facts and in the circumstances of the case and in law, the armed CTTCA) on credi wing ell the user to the extent impugned in the grounds enumerated below 1. Whether on the facts and the circumstances of the case and in Law, the Lil CMA) was right in holding that the adjustment to arm length price should be only to the extent of 0.822% as against 5 80% made by the TPO in conformity with Section 92CA/31/92CA) of the IT Act, 1961 2. On the facts and in the circumstances of the case and in law, the Ld. CITIAL has erred in deleting the disallowance of Rs. 91.00 crore u/s 14A rws 8D(2) holding that interest expenses towards earning taxable income should be excluded, ignoring the fact that the Rule 8D(2) entire interest expenses debited to P/L account should be considered to work out the proportion as per the formula stated therein. 3. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in holding that interest on investments is

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 allowable to the assessee u/s 36(1),subject to the provisions of Sec. 14A, without appreciating that loans have been taken for the purpose of earning income under the head capital gains' and hence, cannot be stated to be taken for the purposes of business and this fact has been confirmed by the CIT(A) in the order dated 15.5.2012 for AY. 2006-07 in assessee's own case. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the payments made to M/s. Vaishnavi Corporate Communications Pvt. Ltd. (VCCPL) as consultancy fees on adhoc basis. without appreciating the facts and in law that the assessee has not discharged its onus that the expenses claimed had nexus to the business of the assessee and were expended wholly and exclusively for the purpose of the assessee's business. 5. On the facts and in the circumstances of the case and in Law, the Ld. CIT (A) has erred in directing to examine the claim of the assessee wherein the Ld. CITIA)'s for earlier A.Y. 2009-10 has dismissed the ground of the assessee stating that the interest charged under the Income tax Act assumes the character of tax and is not an allowable expenditure. 6. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO restored.”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 the conclusion reached by the AO that assessee is not engaged in any business activity. Accordingly, the learned CIT(A) held that the interest on investments is allowable to the assessee under section 36(1)(iii), subject to provisions of section 14A of the Act. Being aggrieved, the Revenue is in appeal before us. We find that similar issue has been decided in favour of the assessee in its own case by the coordinate bench of the Tribunal, for assessment year 2009–10, in ITA No. 4630 and 4637/Mum/2016 (supra). The relevant observations of the coordinate bench of the Tribunal, in aforesaid decision, are as under:

“5.4 We find that the ld. CIT(A) had further observed that borrowed funds utilised in making investments which had yielded tax free income to the assessee would be governed by the provisions of Section 14A of the Act and not Section 36(1)() of the Act. Accordingly, the id. CIT(A) held that interest on borrowed capital utilised for making investments would be eligible for deduction u/s 36(1)() subject to the provisions of Section 14A of the Act. Against this observation, we find that revenue is in appeal before us. We find that assessee is a promoter investment holding company and exercise controlling interest in various Tata companies. Out of these investments, the assessee receives income by way of dividends, interest on investments, royalty income from brand, capital gains etc.. Out of this only dividend income is exempt. All other receipts thereon are taxable receipts. Even otherwise, there is absolutely no bar for allowability of interest u/s.36(1)() of the Act if the borrowed funds were utilised for making investments which are meant for the purpose of business of the assessee. There is absolutely no dispute that assessee is a promoter investment holding company thereby, it had to exercise controlling interest in various Tata group companies. For the purpose of making these investments if the assessee had to use the borrowed funds, if any, then the interest paid on such borrowings would be governed by the provisions of Section 36(1)(i) of the Act and would be squarely allowable as deduction. The findings recorded by the Id. CIT(A) that borrowed funds utilised for investment in shares of Tata group companies for acquiring the controlling stake in those companies would be treated as capital in nature is to be looked Into from this perspective. We hold that the business and commercial expediency of assessee making investments in these Tata group companies either with or without the use of borrowed funds have been proved beyond doubt in the instant case. The assessee company had earned both taxable income as well as tax free income out of these investments as detailed supra. Hence, there is absolutely no question of disallowance of interest

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 u/s.36(1)(iii) of the Act. If the borrowed funds have been used for making investment for shares which inturn had yielded exempt income to the assessee, then, the allowability of interest need to be looked into from the angle of Section 14A of the Act r.w.r. 8D(2)(ii) of the Rules. This fact has been correctly dealt, in our considered opinion, by the Id. CIT(A) in his order. We also find that this issue is also covered in favour of the assessee's group company case by the order of this Tribunal in the case of Tata Industries Ltd., vs. ITO in ITA No.4894/Mum/2008 dated 20/07/2016 wherein this Tribunal by placing reliance on various decisions of the Hon'ble High Courts including the Hon'ble Jurisdictional High Court in the case of CIT vs. Phil Corporation Ltd., reported in 202 Taxman 368 had decided the issue in favour of the assessee with regard to allowability of interest. Hence, we do not find any infirmity in the observation made by the Id. CIT(A) that the interest on borrowed funds used for making investments would be allowable u/s.36(1)(ii) of the Act subject to the provisions of Section 14A of the Act. This observation made by the Id. CIT(A) is correct in the facts and circumstances of the instant case, which in our considered opinion, does not require any interference. Accordingly, ground No.2 raised by the revenue is dismissed.”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 46. The issue arising in ground No. 4, raised in Revenue’s appeal, is pertaining to allowance of consultancy fees paid to M/s Vaishnavi Corporate Communication Pvt. Ltd.

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 coordinate bench of the Tribunal in assessee’s own case for assessment year 2009 – 10, in ITA No. 4630 and 4637/Mum/2016 (supra). The relevant findings of the coordinate bench of the Tribunal, are as under:

“7.1. The facts as recorded in the assessment order with regard to this trader are that the assessee has shown an expenditure of Rs.12.66 Crores as payment given to M/s. Vaishnavi Corporate Communications Pvt. Ltd. (VCCPL) owned by Ms. Nira Radia towards consultancy fees. The assessee was asked to submit the details of services obtained for which consultancy fees was paid. The assessee through its letter dated 26/03/2013 submitted that the payments made to VCCPL were on account of fees for media relations, strategic planning and public affairs services. It was also submitted that the said payment includes creating resources bank, creating media universe, drafting dissemination of press releases, interacting with company Senior Executives and Directors, Media familiarization, gathering information and media coverage, creating communication plans and competitive analysis, facilitating the interaction between company and public officials and agencies. The Id. AO further observed that assessee had invested Rs.1700 Crores in Tata Realty Investment and Infrastructure Ltd., which was utilised for buying lands from Unitech group by Tata Realty Investment and Infrastructure Ltd. It was noticed by the Id. AO that the Unitech Group in turn had utilised the funds for acquiring the 2G mobile telephone spectrum license. The Id. AO observed that as per the report dated 23/06/2011 sent by DIT (Investigation), New Delhi, Unitech Group during the course of investigation had admitted that Ms. Nira Radia was rendering various consultancy services to Unitech Group and Tata Realty Investment and Infrastructure Ltd., However, it was claimed by both Unitech group and Tata Realty Investment and Infrastructure Ltd., that no payments were made to VCCPL. Based on this, the ld. AO concluded that the payments made by the assessee company to VCCPL were in respect of land transactions and acquisition of 2G licenses. The Id. AO further concluded that both these transactions are not meant for the purpose of assessee's business and since, assessee had not produced the details of specific services rendered by VCCPL for which the alleged media relation fees was paid, he proceeded to disallow this sum of Rs.12,66,38,000/- as expenditure incurred not for the purpose of business of the assessee in the assessment. 7.2. Before the ld. CIT(A), the assessee submitted that similar payments were made to VCCPL for media relation services rendered under the agreement entered into with them on 21/11/2006 and the same were being allowed from A.Y.2007-08 onwards u/s.143(3) proceedings by the Id. AO. The assessee further submitted before the Id. CIT(A) that the ld. AO erroneously treated the said payment towards purchase of land and for acquisition of 2G licenses and thereby concluding that the same are not meant for purpose of business of the assessee company. It was specifically submitted before the Id. CIT(A) that broad purpose of the

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 services delivered by the VCCPL was to create a unified media focus for the company, pro-active strategic planning for image building, branding initiatives, market related public relation and training. The assessee submitted the details of services provided by VCCPL as under: i. Media Relations (including Television, Print and the Internet)- This includes creating resource bank comprising of Corporate backgrounders, fact sheets, profile, etc; Drafting and dissemination of press releases, receiving and answering queries from the media; handling of all interaction involving the companies and the media; gathering information on media coverage, etc. ii. Strategic Planning (this includes putting together short term and long term media engagement plans), creating backgrounders and research material on various industry segment, putting together communication material for different branding events, measuring and analyzing media coverage of companies competitors of industry segment. 7.3. The Id. CIT(A) observed that before him the assessee had filed a copy of the media relations, strategic planning and public affairs services agreement entered into by the assessee with VCCPL on 21/11/2006 which clearly describes the various services to be rendered by VCCPL to the assessee. The Id. CIT(A) further observed that VCCPL is in the area of corporate communications and has been rendering services to the assessee company in earlier years also. The Id. CIT(A) further observed that assessee being a holding company on number of occasions has an agreement with these corporates for rendering such services and receives payments from these companies for the same. It is also seen that the name of the Tata Realty Investment and Infrastructure Ltd., does not appear in the list of Tata entities covered by the agreement. The Id. CIT(A) observed that in the light of the fact that services have been rendered by VCCPL with respect to the transaction noted by the Id. AO, no consideration has been passed on either by Tata Realty Investment and Infrastructure Ltd., or by Unitech group and the fact that none of the other parties have any agreement with VCCPL for rendering of services, it is clear that VCCPL was appointed by the assessee to carryout these activities. This is actually the observation made by the Id. AO in his assessment order. But the Id. CIT(A) had observed that however, it could not be stated that the entire payment represents payment for services rendered by VCCPL towards Tata Realty Investment and Infrastructure Ltd., and Unitech group. He summarises the entire transaction as under: Two facts are admittedly dear that VCCPL rendered certain services  to Tata Realty Investment and Infrastructure Ltd., and Unitech Group that received investment of Rs.1700/- Crores in Tata Realty Investment and Infrastructure Ltd., and after use of these funds for obtaining 2G licenses and that both these companies did not make any payment to VCCPL. The Id. CIT(A) concluded that it is clear that VCCPL rendered the above services at the instance of the assessee company. The assessee, being the only company having functional control over the activities of the VCCPL with respect to services to be rendered to Tata group, he observed that these services did not relate to the normal functional profile or mandate

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 given to VCCPL and that since, the payment for these services was included in the overall payment of Rs.12.66 Crores made by VCCPL, only a portion of these payment relates to these services. Accordingly, he proceeded to contribute 50% of the amount paid to VCCPL as being for an activity which was not related to assessee company. The Id. CIT(A) finally concluded that 50% of the amount is to be held not for the purpose of the business of the assessee and also clarified that this is not a routine disallowance and the amount has been held to be disallowable only because of the financial services having been rendered by VCCPL in respect of other persons during that year, for which payment was received from the assessee. He categorically mentioned in his order that this disallowance should not be taken on a year on year basis. 7.4. Aggrieved by this observation, both assessee as well as the revenue are in appeal before us. 7.5. We have heard rival submissions and perused the materials available on record. We find that the following documents were duly placed on record before the lower authorities: (a) Copy of media relations, strategic planning and public affairs services agreement entered into between assessee and VCCPL dated 21/11/2006 together with Annexure-A containing list of Tata companies that are part of this agreement; (b) Annexure-8 defining various services to be rendered by the parties concerned; (c) Annexure-C defining the data code of conduct; (d) Annexure-0 defining the data code of conduct for prevention of insider trading and code of corporate disclosure practices (enclosed in pages 20- 63 of the paper book). 7.6. We have already gone through the agreement entered by the assessee company with VCCPL dated 21/11/2006 referred to supra wherein in Annexure-A, the following are the list of companies that are listed out as belonging to Tata Group of companies which are covered within the ambit of this agreement: Tats companies  The Tata companies are substantively those that have signed the  TATA Brand Equity and Business promotion agreement with TSL. Key companies (including their operating divisions and subsidiaries)  are: Tata Sons Limited and the Tata Trusts  Tata Industries Limited  The Tata Iron and Steel Co. Ltd.  Tata Motors Ltd.  The Tata Power Co. Ltd.  Tata Chemicals Ltd.  The Indian Hotels Co. Ltd. 

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 Tata Tea Limited  Tata Consultancy Services Ltd.  Tata Teleservices Limited including  Tata Teleservices (Maharashtra) Ltd. Videsh Sanchar Nigam Limited  Rallis India Limited  Tata Elxsi Limited.  Voltas Ltd.  Tata Coffee Ltd.  Trent Ltd.  Titan Industries Ltd  CMC Limited.  Tata International Limited  Tata Autocomp Systems Ltd.  7.7. From the aforesaid list, admittedly, it could be seen that Tata Realty Investment and Infrastructure Ltd., does not figure in the said list. From the aforesaid agreement dated 21/11/2006, it could also be seen that Ms. Nira Radia is a media relations professional and VCCPL was a company promoted by her as a private limited company on 01/11/2001 and the said company has been in the business of public relation management and communication strategies and has rendered services in those areas to the assessee company and other Tata companies since 01/11/2001. These facts are not disputed by the revenue before us. We find that primarily the assessee herein has made investments of Rs.1700/ Crores in its subsidiary company Tata Realty Investment and Infrastructure Ltd. The said subsidiary company had utilised the said funds to buy lands from Unitech Group and it was Unitech group which had ultimately acquired 2G telephone spectrum licenses from Department of Telecommunications, Government of India which are governed by Telecom Regulatory Authority of India (TRAI) regulations. Hence, the primary transactions of amounts invested by the assessee in Tata Realty Investment and Infrastructure Ltd., and its consequential funding to Unitech group and Unitech group's consequential utilisation for acquiring 2G licenses cannot be linked with payments made by the assessee to VCCPL. What is to be seen here is the purpose of payments by the assessee company to VCCPL. For this purpose what is relevant is the copy of media relations, strategic planning and public affairs services agreement entered between assessee company and VCCPL dated 21/11/2006 which are part of the records before the lower authorities as stated supra. We find that this agreement clearly defines the scope of services to be rendered by VCCPL to the assessee which has got absolutely nothing to do with Tata Realty Investment and Infrastructure Ltd., or Unitech group. That is why, rightly the name of Tata Realty Investment and Infrastructure Ltd., had not figured in the list of companies enclosed in Annexure-A of the aforesaid agreement dated 21/11/2006. The various services to be rendered by VCCPL have already been listed above. We find that the ld. CIT(A) had also partially agreed that services were indeed rendered by VCCPL to the assessee company. Since, the assessee having made investments in various group companies would certainly like to have a unified media focus for the entire Tata group and since VCCPL is a company which has got the necessary expertise of providing such services, the assessee had entered into the agreement

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 dated 21/11/2006 with them and has made payments of Rs.12.66 Cores towards media relation agency fees. We also find that similar services were rendered by VCCPL to the assessee in earlier years as well as in subsequent years which were duly allowed as deduction by the Revenue as under: Fees Paid (excluding service tax) Amount (Rs. in crore) Year 8.07 A.Y. 2004–05 9.12 A.Y. 2005–06 9.12 A.Y. 2006–07 10.45 A.Y. 2007–08 12.31 A.Y. 2008–09 12.31 A.Y. 2009–10 12.31 A.Y. 2010–11 12.31 A.Y. 2011–12 7.18 A.Y. 2012–13 (upto 31st Oct. 2011) 7.8. Hence, in view of the aforesaid observations and applying the principle of consistency as has been held by the Hon'ble Supreme Court in the case of Radhasaomi Satsang reported in 193 ITR 321 (SC), in allowing such claim to the assessee in earlier as well as in subsequent years, we hold that there is absolutely no case made out by the revenue for disallowing this sum of Rs.12.66 Crores during the year under appeal. Hence, the ground No.5 raised by the assessee is allowed and ground No.3 raised by the revenue is dismissed.”

M/s. Tata Sons Limited ITA No.4323/Mum./2017 and ITA No.4221/Mum./2017 find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground No. 4 raised in Revenue’s appeal is dismissed.

MUMBAI, DATED: 16/08/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai