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Facts
The assessee, a holding company, incurred business expenses of Rs. 1,30,69,038, which were disallowed by the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)]. The lower authorities held that the assessee did not carry out any business activity as defined in Section 2(13), and thus, these expenses claimed under Section 37(1) were not admissible, nor could the associated business losses be set off against other income under Section 71.
Held
The Tribunal, relying on precedents from Tata Sons Ltd. and NDTV Networks Ltd., held that the assessee's activity of holding strategic investments in subsidiary companies, as per its main object, constitutes a business activity. Consequently, the expenses incurred for day-to-day operations and administration were allowable business expenditures, fully deductible under Section 36(1)(iii). The Tribunal also directed the AO to allow the set-off of such business losses against income declared under other heads of income, and Section 14A provisions were deemed inapplicable.
Key Issues
Whether the activity of a holding company making strategic investments in subsidiaries constitutes 'business' under the Income Tax Act, thereby allowing the deduction of related administrative and operational expenses and the set-off of business losses against other heads of income.
Sections Cited
143(3), 2(13), 37(1), 71, 14A, 36(1)(iii), 80M, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
O R D E R [ PER BENCH: All the captioned appeals filed by the assessee against the separate orders passed by Learned Commissioner of Income Tax (Appeals)-6, Delhi [ld. CIT(A)] for AY 2014-15 to 1016017 and having common issues, therefore, they are dispose- off by a common order. First, we taken assessee appeal for Ay 2014-15 in ITA No. 64/Del/2019.
for Assessment Year 2014-15 2. This appeal is filed by the assessee against the order passed by Learned Commissioner of Income Tax (Appeals)-6, Delhi in appeal No. CIT(A), Delhi- 6/10347/2017-18, dated 17.10.2018 arising out of the order passed u/s 143(3) dated 13.08.2016 for Assessment Year 2014-15.
Briefly stated that the facts of the case are that assessee is a holding company of various group of companies and filed his return of income on 20.09.2014 declaring total income at Rs.11,13,99,400/-. The case of the assessee was selected for scrutiny under CASS and after considering the submission made from time to time in response to the quarries raised, the assessment order was passed dated 31.08.2016 wherein the business expenses claimed at Rs. 1,30,69,038/- were disallowed by holding that the assessee has not carried out at any business activity, therefore, expenses could not be allowed and further denied the set off of the same against the income declared under other heads of income.
Against the said order, assessee preferred an appeal before Ld. CIT(A) who vide impugned order dated 17.10.2018 confirmed the findings given by AO and dismissed the appeal of the assessee.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking the following grounds of appeal:
1. That on facts and in circumstances of the case and law, the assessment order dated 31.08.2016 passed by the Ld. Assessing Officer ("Ld. AO") under section 143(3) of the Income Tax Act, 1961 ("the Act") is bad in law.
2. That on the facts and circumstances of the case and in law, the Ld. AO erred in disallowing the business expenses amounting to Rs. 1,30,69,038/-incurred by the & Lifestyle and Media Holdings Limited vs. DCI appellant during the year under consideration. The Hon'ble Commissioner of Income Tax Appeals too has erred in this regard by affirming the disallowance made by Ld. AO. 2.1 That on the facts and circumstances of the case Nil for and in law, the Ld. AO has erred in contending that activities of holding investments do not qualify f business as defined in section 2(13) of the Act. Further the Hon'ble CIT(A) too has erred in affirming the view of the Ld. AO 2.2 That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in ignoring the contention of the appellant that the appellant company being artificial person requires some administrative and clerical staff to run itself, resulting into some operational expenses and will have to incur expenses for statutory compliance & obligation, irrespective of any income in nature of business, as defined u/s 2(13) of the Act and in law, the Ld. AO erred in not allowing the set-off of business losses of Rs 1,30,69,038 against the interest income u/s 71 of the Act. The Hon'ble Commissioner of Income Tax Appeals too has erred in this regard in affirming the denial of aforesaid set-off of business loss to the appellant.
4. All the above grounds are independent and without prejudice to each other.
5. The Appellant craves to add to, alter, modify, Nil substantiate, delete and/or to rescind all or any of the grounds of appeal on or before the final hearing, if necessity so arises.
Before us, the Ld. AR of the assessee submits that the assessee is incorporated on 10.06.2010 with the main object which are as under: THE MAIN OBJECTS OF THE COMPANY TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE: "1. To be the holding company for the other companies operating a non-news and non- current affairs channel dedicated to creation, content production and aggregation of content in the Lifestyle Segment (in English, Hindi and other regional languages), which Includes travel, food, fashion, shopping, 'do-it- yourself projects, hopes and gardening. luxury, design and wellness and health and to engage in non-material diversification into complementary lines related to the Lifestyle Segment, directly or through joint ventures or subsidiaries. 2. To engage in sales, marketing and syndication of its content, directly or through joint ventures or subsidiaries.”
Lifestyle and Media Holdings Limited vs. DCI 7. The Ld. AR submits that the assessee carried its business of the main object being the holding company for other group companies which are operating non-news and non- current affairs channel dedicated to creation, content production and aggregation of content in the Lifestyle Segment etc. and is holding 92.66% share in NDTV Lifestyle Limited which is engaged in same business. The Ld. AR submits that assessee incurred various expenses which are debited to Profit and Loss Accounts necessary for day to day operations and administration of the company such as Salary, Auditor remuneration, legal expenses and other expenses. He submits that business of the assessee is established and ready to commence thus, it can be said that business is set up. Ld. AR submits that under identical circumstances, the expenses were disallowed in the case of NDTV Networks Ltd. vs. DCIT in [2025] 173 taxmann.com 269 wherein the Co-ordinate Bench of the Tribunal allowed the expenses by holding that if holding company having made investment, such activity should be treated as business itself. Accordingly, the Ld. AR prayed for deletion of the addition made.
On the other hand, the Ld. Sr. DR vehemently supported the orders of the lower authorities and submits that assessee has not carried any business activity and therefore, no expenses claimed under the head income from business or profession should be allowed.
Heard both the parties and perused the materials available on record. In the instant case, the Ld. CIT(A) has upheld the action of the AO by making the following observations in para 4 to 4.2 of the order which reads as under: “4. Determination 4.1 Grounds of appeal
Nos. 1and 2 challenge the disallowance of business expenditure and consequently set-off of business loss of Rs. 1,30,69,038/- against Lifestyle and Media Holdings Limited vs. DCI interest income under section 71. Since these grounds of appeal are interlinked, these are being adjudicated together. 4.1.1 The AO noted that the assessee was holding investments in the group companies for strategic purpose instead of earning dividend income. It was also noted that no business has been carried out by the assessee within the meaning of section 2(13) and there was no income which was chargeable under the head 'Profits and gains of business of profession'. The AO further noted that holding investment income would yield income under the head 'Capital gains' in case there was a profit or loss on sale of shares or it would yield dividend income which would fall under the head 'Income from other sources'. In the case of the assessee it was noted that merely terming the activity of holding of investment as "business to act as a holding company" does not entitled the assessee to claim it as a business. Hence, expenditure claimed by the assessee under section 37(1) was held to be not admissible since there was no income under the head 'Profits and gains of business or profession'. The appellant has submitted that the company, which is a subsidiary of NDTV, was incorporated to further the business in non-news channel space by NDTV and the investment by the appellant company in the various companies was an essential business activity and was in furtherance of the main business. 4.1.2 I have considered the assessment order and the submissions of the appellant. It is to be noted that as per the memorandum of Association, the main object of the assessee company has been stated to be to be the holding company for other companies operating a non-news and non-current affairs channel. Another of the main objects is to engage in sales, marketing and syndication of its content, directly or through joint ventures or subsidiaries. As noted by the AO it is seen that no income from these activities is apparent from the financial statements of the assessee even though the said company was incorporated on 10/06/2010. From the balance sheet it is also noted that the assessee has no fixed assets, both tangible as well as intangible. Hence it cannot be said that the assessee was pursuing its main objects as per the Memorandum of Association. The view of the AO that the assessee has no income which is chargeable under the head 'Profits and gains of business or profession' is upheld. Further, as has also been pointed out by the AO, once there is no income which is chargeable under the head 'Profits and gains of business or profession', deductions which are specific to the said head of income are not admissible. Hence, the disallowance made is upheld. Since expenditure claimed under the head 'Profits and gains of business or profession' has been disallowed, there is no question of set-off of the loss against interest income. Grounds of appeal Nos. 1 and 2 are dismissed. 4.2 Ground of appeal No. 3 challenges the initiation of penalty proceedings under section 271(1)(c). The said ground also states that the appellant craves leave to alter, amend or withdraw all or any of the grounds of appeal or add any further
10. From the perusal of the observations of ld. CIT(A), it could be seen that main allegations of the lower authorities is that assessee was not carrying out its activities in terms of the objects. From the perusal of the main object as reproduced hereinabove, it can be seen that first main object of the assessee is of making investment in holding companies operating as non-news and non-current affairs channel, etc. and accordingly assessee has made investment in such companies. Thus, indeed it is the business activity of the assessee, therefore, the expenses claimed under the head business or profession which are incidental to carry out such activities.
11. The coordinate bench of ITAT Mumbai in the case of TAT Sons Ltd. in vide order dt. 05.05.2021 has held as under: 10.5 Proceeding further, going by the factual matrix as enumerated in the preceding paragraphs, it is undisputed fact that the assessee was principal holding company for its various group entities. The object of investment in group concerns was to secure controlling interest. Under an agreement, the assessee received subscriptions from the group entities in lieu of Brand promotion / enhancement of goodwill of the group as a whole. Such subscriptions monies termed as ‘brand promotion subscriptions’ aggregated to Rs.62.64 Crores which were offered as well as accepted as ‘Business Income’. The Ld. AO, in our considered opinion, failed to appreciate the fact that making of investments could, by itself, constitute business activity. In fact, Ld. AO after appreciating the object clause as well as report of Board of directors came to a conclusion that the main object of the assessee was to make investment so as to gain controlling interest. The assessee was in the business of making investments. For the said purposes, it obtained loans and paid interest thereon. Nevertheless, the purpose of loan was in furtherance of assessee’s business activities and to fulfill its main objects. The dominant object of investment was to exercise business control by way of acquiring shareholding and not to earn the dividend. The assessee’s activity of holding such investment, in our opinion, constitute business activity and therefore, the interest would be fully deductible u/s 36(1)(iii) notwithstanding the fact that the assessee earned Lifestyle and Media Holdings Limited vs. DCI various streams of income out of these investments, one of which was assessable under the head ‘Income from other sources’. Similar is the view of coordinate bench in assessee’s own case for AY 2009-10 as extracted by us in preceding para 10.1. Further, it is trite law that the earning of the income was not a pre-requisite to grant deduction of expenditure. Therefore, we do not concur with the approach of Ld. CIT(A) in invoking the provisions of Sec.14A of the Act. Consequently, the interest expenditure of Rs.246.88 Crores would be fully deductible u/s 36(1)(iii) of the Act. The various case laws as enumerated in para 10.3 & relied upon by Ld. AR supports our conclusion. Accordingly, Ld. AO is directed to rework allowable deduction u/s 80M. Ground No.4 of assessee’s appeal stand allowed to that extent.
12. Further the coordinate bench of ITAT Delhi in the case of NDTV Networks Ltd. Vs. DCIT reported in (2025) 173 Taxmann.com 269 (Delhi Trib.) has allowed the business expenditure by making following observations: 6. We have given our thoughtful consideration to the assessee’s and Revenue’s vehement rival submissions. We find no reason to sustain the impugned disallowance. Learned counsel first of all takes us to the Assessing Officer’s section 143(3) assessment for AY 2012-13 accepting this very expenditure claim. He next quotes various judicial precedents i.e Mazagaon Dock Ltd. Vs. CIT (1958) 34 ITR 368 (SC); CIT Vs. Upasana Hospital, (1997) 225 ITR 845 (Ker); CIT Vs. Distributors (Baroda) (P.) Ltd. (1972) 83 ITR 377 (SC); CIT Vs. Amalgamations (P.) Ltd. (1977) 108 ITR 895 (Madras) and ESSAR Investments Ltd. Vs. DCIT (2006) 7 SOT 378 (Mum) that a business expenditure could not be disallowed even in an instant of a holding company having made investments in subsidiary as such an activity could indeed be treated as business itself. We find merit in the assessee’s instant first and foremost substantive ground to delete the impugned disallowance, in very terms.
Under these facts and circumstances by following the judgment of the Co- ordinate Bench of the Tribunal in the case of Tata Sons (supra) and NDTV Networks Ltd. (supra) we are of the view that assessee has made the investment in subsidiary companies as per its main object and thus the expenses claimed deserves to be allowed as business expenditure. Further since, the assessee has claimed set-off of such expenses out of the income declaring under the head ‘Income of other sources’ which is in accordance with provisions of law, and, therefore, we direct the AO to & Lifestyle and Media Holdings Limited vs. DCI allow the set-off of current year business loss against the income declared under other heads of income.
In the instant case admittedly, the facts are identical as existed in Assessment Year 2014-15 in where the business expenditure claimed were disallowed and the said order was upheld by the Ld. CIT(A) by following the observations made in Asst. Year 2014-15. for AY 2014-15 herein above, we have already held the business expenditure claimed by the assessee are allowable as the assessee is carrying out business in accordance to its first main object, therefore, observations made therein while allowing the appeal of the assessee are mutatis mutandis applied to the facts of the present case. Accordingly, all grounds of appeal are allowed and the AO is directed to allow the business expenditure as claimed and further directed to allow the set off loss declared under the head ‘Income form business or profession’ against the income declared under other heads of income. Accordingly all the grounds of appeal raised by the assessee are allowed.
17. In the result, the appeal of the assessee is allowed. for Assessment Year 2015-16.
19. The facts of this case are identical as admitted by both the parties before us. Thus, by respectfully following the observations made by us in Lifestyle and Media Holdings Limited vs. DCI hereinabove, which are mutatis mutandis applied to the fact of the present case. All the grounds of appeal of the assessee are allowed.
In the result appeal of the assessee is allowed.