M.CT.M.GLOBAL INVESTMENTS (P) LTD.,CHENNAI vs. DCIT, CHENNAI

आयकर अपील�य अ�धकरण, “बी” �यायपीठ, चे�नई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी ए. मोहन अलंकामणी, लेखा सद�य एवं �ी धु�वु� आर.एल रे�डी, �या�यक सद�य के सम� Before Shri A. Mohan Alankamony, Accountant Member & Shri Duvvuru RL Reddy, Judicial Member 1165 and 1166/Chny/2017 Assessment Years: 2010-11, 2011-12 & 2012-13 M. Ct. M. Global Investments (P) Ltd., The Deputy Commissioner 761, Anna Salai, Vs. of Income Tax, Chennai 600 002. Company Circle 4(1), Chennai. [PAN: AABCM9738K] (अपीलाथ� /Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से / Appellant by : Shri G. Baskar, Advocate ��यथ� क� ओर से/Respondent by : Ms. S. Vijayaprabha, JCIT सुनवाई क� तार�ख/ Date of hearing : 09.05.2018 घोषणा क� तार�ख /Date of Pronouncement : 21.05.2018 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER:

These three appeals filed by the same assessee are directed against the common order of the ld. Commissioner of Income Tax (Appeals) 8, Chennai dated 10.03.2017 relevant to the assessment years 2010-11, 2011- 12 and 2012-13. Since the grounds raised in these appeals are common in nature, these appeals are clubbed, heard together, and are being disposed of by this common order for the sake of convenience.

2.1 Brief facts of the case are that the assessee company came into being after demerger of M. Ct. M. Corporation Private limited, and consequently, the assessee came into possession of certain investments in Malaysia. The fund managers abroad were entrusted with the management of the funds received on demerger of the said company in Malaysia. The decision to entrust the funds with successive fund managers were taken by the Directors situated in India and the decision was taken in India. The assessee does not have any other activity in Malaysia apart from the investment in financial instruments through the fund managers. In view of these reasons, the Assessing Officer did not accept the argument of the assessee that they have a permanent establishment in Malaysia. Secondly, the Assessing Officer also observes that the investments of the assessee were made in various countries like U.S, Australia, Europe, Hong Kong and many other places across the globe, and that, even if it is to be accepted hypothetically, that the provisions of DTAA are applicable, then the DTAAs of the respective countries in which the income is accruing to the assessee shall only he taken into consideration but definitely not the DTAA of Malaysia. Further, with regard to the income derived by the assessee from the business of investments carried on by it in the form of interest from the investments and dividend on the investments and the foreign exchange differences, the Assessing Officer held that the above incomes are not assessable under the head “income from business” but assessable only under the head “Income from other sources” for all the assessment years.

3. The assessee carried the matter in appeal before the ld. CIT(A) for all the assessment years. After considering the submissions of the assessee and by following the decision of the Tribunal in assessee’s own case for the assessment 2000-01, the ld. CIT(A) sustained the assessment order on both counts.

4. On being aggrieved, the assessee is in appeal before the Tribunal.

5. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the assessee-company had a branch in Malaysia. The assessee invested its funds through Malaysian branch in Malaysia. The decision to make investment was taken at Chennai. In fact, all the directors of the assessee-company were residing in Chennai. Therefore, according to the Ld. D.R., the assessee-company functions from Chennai and making investment in Malaysia. Therefore, according to the Ld. D.R., the assessee has no permanent establishment in Malaysia. In fact, this Tribunal in the assessee's own case for assessment year 2000-01 examined this issue elaborately and found that the income earned by the Malaysian branch of the assessee- company is liable for taxation in India.

8. We have considered the rival submissions on either side and perused the relevant material available on record. As rightly submitted by the Ld. D.R., this Tribunal examined the issue for assessment year 2000-01 and found that there was no permanent establishment in Malaysia. The Malaysian branch of the assessee-company invested in M/s Goldman Sachs on the basis of the decision taken at Chennai. This Tribunal found that M/s Goldman Sachs invested in various bonds and shares. The Malaysian branch of the assessee-company was, in fact, operated from Chennai. This Tribunal, for the assessment year 2000- 01, examined entire nature of investments made by the assessee- company in Malaysia and found that the interest / income earned by the assessee from investments in Malaysia has to be construed as “income from other sources”. The loss suffered by the assessee on sale of shares and investments cannot be allowed to set off against the capital gain. This Tribunal further found that the income earned by the Malaysian branch of the assessee-company is taxable in India and not taxable in Malaysia. In view of the decision of this Tribunal in the assessee's own case for the assessment year 2000-01, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.” 5.1 Respectfully, following the above decisions of the Tribunal dated 19.12.2007 as well as 21.10.2016 in assessee’s own case, we find no infirmity in the order passed by the ld. CIT(A) and accordingly, both the grounds raised by the assessee are dismissed for all the assessment years.

6. In the grounds of appeal, the assessee has raised the following grounds in the assessment years 2010-11, 2011-12 and 2012-13 for adjudication: “(4) The ld. CIT(A) erred in upholding the disallowance of management fees; (6) The ld. CIT(A) erred in upholding that loss on sale of current investments is capital loss and no business loss.” Further, in the assessment years 2010-11 and 2011-12, the assessee also raised another ground with regard to relief under section 80IA of the Act.

6.1 On perusal of the appellate order, we find that the ld. CIT(A) has not adjudicated the above grounds, which were specifically raised during the course of appellate proceedings. Accordingly, we remit the above issues to the file of the ld. CIT(A) for adjudication and decide the issue in accordance with law after allowing an opportunity of being heard to the assessee. Thus, the above grounds raised by the assessee are allowed for statistical purposes.

7. The next common ground raised in the appeals of the assessee is that the ld. CIT(A) erred in upholding the disallowance made under Rule 8D. This issue has been raised in the assessment years 2010-11 and 2011-12 before the ld. CIT(A), whereas, in the assessment year 2012-13, the assessee has not raised this issue before the ld. CIT(A). It was the submission of the ld. Counsel that by assuming jurisdiction, the Tribunal can adjudicate any issue even though it was not raised before the lower authorities and being a common ground basically aroused out of the assessment order, it was prayed for adjudication of the above issue for all the assessment years under consideration.

7.1 With regard to the issue under consideration, it was the submissions of the ld. Counsel that the interest expenditure incurred by the assessee was for the purpose of the term loans taken for setting up of windmills and for purchase of cars. It was further submission that the business of investments was being carried out with own funds and for such business, no loan had been borrowed and consequently, no interest has been incurred. Therefore, the ld. Counsel submitted that disallowance of interest expenditure made under Rule 8D(ii) is not at all warranted and prayed for deleting the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A). On the other hand, besides not objecting for adjudication of similar issue raised for the assessment year 2012-13, the ld. DR strongly supported the orders of authorities below.

7.2 We have considered rival contentions and perused the orders of authorities below. In this case, earning of exempt dividend income is not in dispute. Further, the assessee has not disputed the disallowance made under Rule 8D(iii). With regard to the disallowance made under Rule 8D(ii) for the assessment years 2010-11 and 2011-12, we have considered the plea of the assessee that the interest expenditure incurred towards term loans taken for setting up of windmills and for purchase of cars and moreover, the assessee has utilised own funds for investment purposes. The main contention of the assessee is that no disallowance on account of interest is called for where the assessee is having its own sufficient funds to make investments. In such a case it becomes necessary for an assessee to prove on facts that investments have been made out of his own funds. In case an assessee is able to prove on the basis of his facts and bank statements that investments have undoubtedly been made out of own funds and no borrowed funds have been utilized, then, there would not be any case of disallowance or otherwise, the assessee is required to prove that borrowed funds have been utilized only for the purpose of setting up of wind mill and purchase of cars. However, no details of financials of the assessee were made available in the form of paper book. Moreover, the appellate order is very cryptic while confirming the disallowance. The ld. CIT(A) has not discussed in his order as to whether the interest expenditure incurred by the assessee was for the purpose investments against which the disallowance under Rule 8D(ii) was made by the Assessing Officer. The setting up of windmills and purchase of cars by the assessee has not been disputed by the authorities below. Under the above facts and circumstances, we direct the ld. CIT(A) to verify as to whether the assessee made investment by borrowing loans so that the interest expenditure could be brought under tax net. If the assessee proves that the borrowed loans were utilized for the purpose of setting up of wind mill and purchase of cars, then the interest expenditure incurred cannot be disallowed under Rule 8D(ii). With regard to the disallowance under section 14A of the Act for the assessment year 2012-13, the Assessing Officer has not given any findings as to under which clause of Rule 8D, the disallowance was made. Thus, after verification of details, the ld. CIT(A) is directed to decide the issue afresh in accordance with law after allowing sufficient opportunities of being heard. Accordingly, the ground raised by the assessee for all assessment years are allowed for statistical purposes.

Order pronounced on the 21st May, 2018 at Chennai.