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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI K. NARSIMHA CHARY
PER SHRI K.N. CHARY, J.M. Challenging the order dated 09.09.2013 in appeal no.
124/11-12 passed by the Ld. Commissioner of Income Tax (Appeals)-V, New Delhi (hereinafter for short referred to as the “Ld.
CIT(A)”), Revenue is in appeal before us on the following grounds:
1. “On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in directing to allow of business loss because: i. The assessee company is only an investment company and is earning income only out of assets categorized under the head investments in the balance sheet i.e. it is an investment company.
ii. The income earned out of investment in shares and securities from which assessee is earning dividend and capital gains and interest income from bank deposits, loans and advances is not assessable as business income and, therefore, cannot be claimed as business loss. 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal.”
2. Facts relevant for the disposal of this appeal are that the assessee is a company incorporated on 21.11.2005 claiming to be promoting business, like retail, Insurance, Investment and Agri Based. For the AY 2008-09 the assessee filed return of income on 22.09.2008 declaring a total loss of Rs. 7,06,24,880/-. During the scrutiny u/s 143(3) of the Income Tax Act, 1961 (for short referred as the ‘Act’) AO opined that the business loss of Rs. 5,72,77,365/- should not be allowed as there was no business activity and there was only investment activity for which the gains will go under the head “Capital Gains” and interest and dividend income etc. will go under the head “Income from other sources”. Ld. AO was not satisfied with the explanation of the assessee that the assessee company was established with the main objects to promote, undertake, carry on, acquire the business of setting up/providing/operating/running of call centers and/or infrastructural facilities or services such as telecom services, information technology, intranet, internet, e-commerce and related hardware, software, to promote, undertake, carry on, acquire the business of agriculture, horticulture and floriculture produce etc. and the expenses have been incurred for the purpose of running the business of the company, as such, the same cannot be disallowed.
However, in appeal the Ld. CIT (A) observed that the basic contention of the assessee is that while its main objects is to promote, undertake, carry on, acquire the business of setting up/providing/running of call centres/infrastructural facilities or services such as telecom services and that it is towards this larger objects that the assessee company had undertaken investment activity in subsidiary companies, which are carrying on similar business as specified in its main object. He accepted the contention of the assessee that the business of the assessee was set up as soon as investments were made and, therefore, all the Revenue expenses incurred after setting up of the business are allowable as business expenditure. While placing reliance on the decision of the Hon’ble Supreme Court in SA Builders Ltd. vs. CIT (2007) 288 ITR 1 (SC), Ld. Commissioner accepted the contention of the assessee that the investment made by the assessee was for the purpose of business and, therefore, the expenses incurred thereon have to be allowed as deduction. The sum and substance of the findings of the Ld. CIT (A) is that there is no legal or statutory requirement of direct and first hand business operations to be conducted by the assessee himself and indulgence in business activities through subsidiaries who are in same line of business activities as stipulated in Memorandum of Association is sufficient to hold that the business of the assessee has commenced the moment the investments were made. Challenging the said finding the Revenue is in appeal before us in this appeal.
Heard the Counsel on either side and perused the material papers on record. Ld. Counsel places reliance on the decisions reported in Eicher Motors Ltd. – & 525 (Del) 2013, Tulip Star Hotels Ltd. – 338 ITR 482 (Del), SA Builders – 288 ITR 1 (SC), Hero Cycles (P) Ltd. – 379 ITR 347 (SC), Srishti Securities P.
Ltd. – 321 ITR 498 (Bom.) (501), Phil Corporation Ltd. – 244 CTR 226 (Bom.), Jardine Henderson Ltd. – 210 ITR 981 (Cal.), Distributors Baroda – 83 ITR 377 (SC), Rajeeva Lochan Kanoria - 208 ITR 616 (Cal.), Laxmi Agents – 125 ITR 227 (Guj.) and Premier Poly Sacks (P) Ltd. – 321 ITR 450 (Mad.). The decisions relied upon by the assessee are to the affect that the acquisition of controlling interest in a company is in furtherance of the business purpose of the assessee. In the case on hand the investment was done in the companies which are in the business of the same line.
Ld. CIT (A) noted that a perusal of Schedule 3 to the Balance Sheet at PB 44 will show that investment was made in Teletech Services (India) Limited in the previous year ended 31st March, 2007 relevant to AY 2007-08, i.e. in the year prior to the year under appeal in terms of object no. 1 of the Memorandum of Objects at PB 5. Teletech Services (India) Limited were undertaking business of call centre and rendering services through telecom network.
Also in the year ended 31.03.2007 amount was invested in Bharti Resources Limited in terms of object no. 4 of the Memorandum of Objects of the company at PB 6. Also investment was made in the earlier year in First American Securities Pvt. Ltd. in terms of object no. 9 of the Memorandum of Objects at PB 7. During the year under appeal investments have been made in Bharti Retail Holdings Limited and Bharti Wal-mart Limited in terms of object no. 3 of the Memorandum of Objects, investments in Bharti Axa General Insurance Company Limited, Bharti Axa Trustee Services Company and Bharti Axa Investment Managers Pvt. Ltd. in terms of object no. 9 of the Memorandum of Objects and in Fieldfresh Foods Pvt. Ltd. in terms of object no. 2 of the Memorandum of Objects. Further, there is no denial of the fact that the investments were made in Teletech Services India Ltd., which is in the business of call centre and rendering the services through telecom network, in Bharti Resources Ltd. and First American Securities which are in conformity with the objects no. 3, 4 & 9 of the Memorandum of Association.
In view of the decisions relied upon by the assessee, it is, therefore, clear that the business of the company had been set up in the year relevant to AY 2007-08. We are, therefore, convinced that the investments made by the assessee are in furtherance of the objects of the Memorandum of Association, as such, such investment is for the purpose of business of the assessee and squarely covered by the decision relied upon by the assessee. We, therefore, hold that the order of the Ld. CIT (A) does not suffer any illegality or irregularity and does not warrant any interference.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 16.11.2017