HIGGINBOTHAMS PVT LTD.,CHENNAI vs. ACIT SALARY CIRCLE 2, CHENNAI

Ld. Counsel for the assessee submitted that assessee had claimed dividend of �34,252/- as exempt u/s.10(34) of the Act and mutual fund income of �13,60,511/- as exempt u/s.10(35) of the Act.

2 -: motu disallowance of �84,378/- u/s.14A of the Act in its computation of income. However, as per the ld. Authorised Representative, ld. Assessing Officer applied clause (iii) of Rule 8D(2) and computed a disallowance of �3,81,219/-. According to the ld. Authorised Representative, ld. Assessing Officer applied 0.5% on the average value of investments, for arriving at the such amount. This, as per the ld. Authorised Representative, resulted in an addition of �2,96,841/-. Contention of the ld. Authorised Representative was that assessee’s appeal before ld. Commissioner of Income Tax (Appeals) did not yield any success. According to him, it was pointed out to the ld. Commissioner of Income Tax (Appeals) that investments which did not yield any dividend income came to �3,32,54,095/- and such investments had to be excluded while working out the disallowance under Rule 8D(2). As per the ld. Authorised Representative, despite pointing out the decision of Co-ordinate of this Tribunal in the case of Computer Age Management Services (P)Ltd vs. ACIT (ITA No.1259 to 1261/Mds/2014, dated 28.11.2014), which had directed exclusion of non-income yielding investments, ld.CIT(Commissioner of Income Tax (Appeals) had confirmed such disallowance.

I have considered the rival contentions and perused the orders of the authorities below. Argument of the ld. Authorised Representative was that while applying clause (iii) of Rule 8D(2), investments which did not yield any dividend income had to be excluded. I am afraid, I cannot accept this line of the argument, considering the judgment of Hon’ble Apex Court in the case of Maxopp Investment Ltd.(supra). One of the contentions raised in the said case before the Hon’ble Apex Court was that investments held in group companies for retaining controlling interest had to be excluded while working out the disallowance u/s.14A of the Act. Their lordships held that dominant purpose test was irrelevant for application of Section 14A of the Act. Their Lordships also observed that purpose of investment, whether it was to gain control over the investee company or not was an irrelevant factor, in computing the disallowance. What I can discern from the judgment of Hon’ble Apex Court is that question like part of the investments which earned dividend income, and part which did not earn any dividend income, are all irrelevant factors for applying Section 14A of the Act and Rule 8D. Only case where there could be an exemption to this, is where the shares were held as stock-in-trade. There is no case for the assessee here that the shares