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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 14TH DAY OF JUNE, 2022
PRESENT
THE HON’BLE MR.JUSTICE P.S.DINESH KUMAR
AND
THE HON’BLE MR.JUSTICE C.M. POONACHA
I.T.A No.186 OF 2022 BETWEEN:
PR. COMMISSIONER OF
INCOME TAX-3
BMTC COMPLEX
KORAMANGALA
BANGALORE.
ASSISTANT COMMISSIONER
OF INCOME TAX
CIRCLE 3(1)(2), BMTC COMPLEX
KORMANGALA 6TH BLOCK
BENGALURU
.…APPELLANTS
(BY SHRI. SANMATHI E.I, ADVOCATE)
AND:
M/s HINDUSTHAN
AERONAUTICS LTD.,
NO.15/1, CUBBON ROAD
BANGALORE - 560 001
PAN: AAACH3641R
MINISTRY OF FINANCE
DEPARTMENT OF LEGAL AFFAIRS
REP. BY ITS SECRETARY
NORTH BLOCK
NEW DELHI-110 001
MINISTRY OF LAW AND JUSTICE
DEPARTMENT OF LEGAL AFFAIRS
III FLOOR, 'C' WING
LOK NAYAK BHAWAN
KHAN MARKET
NEW DELHI - 110003.
…RESPONDENTS
(BY MISS. TANMAYEE RAJKUMAR, ADVOCATE FOR R1; SHRI. A. SHANKAR, SENIOR ADVOCATE AS AMICUS CURIAE)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT, 1961, ARISING OUT OF ORDER DATED: 24/08/2021 PASSED IN ITA NO.1093/BANG/2017 AND C.O.28/B/2019, FOR THE ASSESSMENT YEAR 2013-2014, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS FIT AND ETC.
THIS INCOME TAX APPEAL COMING ON FOR ADMISSION, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING:
JUDGMENT
Heard Shri E.I.Sanmathi, learned Standing Counsel for the appellants, Ms. Tanmayee Rajkumar, learned advocate for first respondent and Shri A.Shankar, learned Senior Advocate as Amicus curiae.
Revenue has presented this appeal for framing the following questions of law; "(a) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of Rule 8D should not have been applied without appreciating that the provisions of section 14A introduced by the
3 Finance Act, 2001 is applicable with retrospective effect from 01.04.1962?
(b) Whether on the facts and circumstances of the case, the Hon'ble Tribunal was correct in holding that the only company from which dividend is received shall be considered for the purpose of Rule 8D?
(c) Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in holding that assessing authority is not right in making addition under section 14A of the Act even when CBDT Circular No.5/2014 dated 11.02.2014 clarifying that section 14A was introduced by the Finance Act, 2001 with retrospective effect from 01.04.1962 highlighting the intent of the legislature is to allow only that expenditure which is relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the FY or not and interpretation of Hon'ble Tribunal that only company from which dividend is received shall be considered for the purpose of Rule 8D is grossly unjustified?"
Shri Sanmathi submitted that the Assessing Officer added certain income to profit under Section 14A of the Income Tax Act, 1961 among other additions. The appeal filed before the CIT
4 (Appeals)1 was partly allowed. Assessee challenged the same before the ITAT2. Revenue also filed its cross objections. Tribunal has held that Assessee has received dividend income from only one company namely M/s. Indo Russian Aviation Ltd., and in the facts of the case, the provisions of Rule 8D of Income Tax Rules should not have been applied mechanically. Shri Sanmathi submitted that ITAT has allowed the appeal by following the decision in Assessee's own case in ITA No.404/2016 c/w ITA.No.468/20163, wherein Assessee's appeal in ITA No.404/2016 has been allowed on the premise that the Assessing Officer had not recorded satisfaction. In contradistinction, at Para 2.5 of its order, the Assessing Officer has recorded his satisfaction. Therefore, facts of this case are different from those in ITA No.404/2016.
Miss Tanmayee Rajkumar for the Assessee argued opposing the appeal.
1 Commissioner of Income Tax (Appeals) 2 Income Tax Appellate Tribunal 3 Hindustan Aeronautics Limited Vs. Assistant Commissioner and Another (D.D. 09.12.2020)
We have carefully considered the rival contentions and perused the records.
In Para 17.2 of its order, ITAT has placed reliance on ITA No.404/2016 while allowing assessee's appeal. The solitary contention urged by Shri Sanmathi that the facts of the instant case are different and it is based on the findings recorded in Para 2.5 of the Assessing Officer's order. We have carefully considered the same. The Assessing Officer has recorded that accounts had revealed that there were certain heads of expenditure which could have been incurred towards the management. Thus, the Assessing Officer has made his own assessment and not recorded the satisfaction based on the record. In that view of the matter, the solitary ground urged by Shri Sanmathi is untenable. The Tribunal has rightly followed the decision of this Court in ITA No.404/2016. Hence, this question of law raised by the Revenue is answered in
6 favour of the Assessee. Resultantly, this appeal does not merit any consideration.
Before parting with the case, we had requested the learned advocates on both sides and also Shri A.Shankar, learned Senior Advocate as amicus curie to assist this Court with regard to the cases pending between the Union of India and the companies fully owned by the Government of India. In the instant case, the Assessee is Hindustan Aeronautics Ltd. The appellant is the Government of India represented by the Ministry of Finance. Shri Shankar pointed out that the Supreme Court had considered this aspect in the four cases, Oil and Natural Gas Commission and Another Vs. Collector of Central Excise4, Oil and Natural Gas Commission and Another Vs. Collector of Central Excise5, Oil and Natural Gas Commission and Another Vs. Collector of Central Excise6 and Oil and Natural Gas Commission and Another Vs. Collector of Central
4 1992 Supp (2) SCC 432 5 1995 Supp (4) SCC 541 6 (2004) 6 SCC 437
7 Excise7. Subsequently, in the case of Electronics Corporation of India Ltd. Vs. Union of India and Others8, Supreme Court has recalled the orders passed in the aforesaid ONGC cases. The resultant position is, companies owned by State or Central Government have to take their call in individual cases. He has also placed, for our consideration, Circular No.F.32(2)/2009-Judl. dated 07.08.2009 by Ministry of Law and Justice, whereby the Assistant Solicitors General in High Courts were requested to appraise the court of the existing practice and composition of committees. He has also placed for our consideration a list of Public Sector Undertakings fully owned by the Central or State Government. He submitted that there could be some difficulty in framing policies in some of the public sector companies like HMT9 as there are other private companies who also manufacture similar machines. He contended that the companies/institutions like HAL10, ISRO11 and the like are fully owned by the Government
7 (2007) 7 SCC 39 8 (2011) 3 SCC 404 9 Hindustan Machine Tools Ltd. 10 Hindustan Aeronautics Ltd. 11 Indian Space Research Organisation
8 of India and regulated by respective Ministries and HAL in this case is fully regulated the Ministry of Defence. Therefore, litigation with Ministry of Finance is not desirable.
He also adverted to Section 48 of Reserve Bank of India Act, 1934 and submitted that RBI is exempted from income tax and Super tax. We see force in his contention and we are of the considered view that litigation between the Public Sector Undertakings, which are fully owned by the Government of India and regulated by the Ministries like, HAL, ISRO, etc., is not desirable. It would be in the interest of all the concerned to ensure that there is no litigation at all or as minimum litigation as most essential. We take this opportunity to convey our concern and to ensure that these directions reach the appropriate forum, we direct the learned advocate for the appellant to implead Ministry of Law and Justice and Ministry of Finance as respondents No.2 and 3. Impleadment shall be carried out forthwith. Shri Shanthibhushan, learned ASG is directed to take notice. We direct
9 respondents No.2 and 3 to examine in detail and issue appropriate directions to the concerned Public Sector/Undertakings to avoid or to minimise the inter-departmental litigation. A copy of this order shall be sent to the Secretary, Ministry of Finance and also Ministry of Law and Justice for their consideration. So far as question of law is concerned, this appeal stands dismissed with the observations recorded hereinabove.
We place on record our appreciation for the assistance rendered by Shri. Shankar, learned Senior Advocate. No costs.
Sd/- JUDGE
Sd/- JUDGE