INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD,MUMBAI vs. ADDL /JT/ACIT/NFAC DELHI, DELHI

Infrastructure Leasing and Financial Services Ltd. Limited and on account of payment of commission expenses to non-executive Directors. Assessee is one of the leading infrastructure development and finance companies and is also involved in infrastructure projects. Assessee has reported various specific domestic transactions, however, with respect to transaction of advisory fees paid to IIDC, the ld. TPO noted that during the year under consideration payment towards advisory services has been made to IIDC in connection with CII smart city initiative i.e. development of smart cities. As per the mandate letter submitted by the assessee, IL & FS is paying the monthly retainership fee on the basis of employee cost and overheads plus a margin of 10% and consideration paid by IL & FS to IIDC was Rs.2,76,73,916/-. The ld. TPO on the examination of the mandate letter dated 05/08/2015 by IIDC to the assessee wherein it was stated that the Chairman IL&FS is heading the CII National Mission on Smart Cities and the Vice Chairman IL&FS is also a member of the mission. It further stated that IIDC is assisting the Chairman and the Vice Chairman in their efforts to lead this initiative and is acting as their Secretariat. In this regard, a Show cause Notice dated 16/10/2019 was issued requesting the assessee to show cause as to why the transaction of advisory services paid by IL&FS to IIDC should not be benchmarked by using other method and treated as NIL?

Infrastructure Leasing and Financial Services Ltd.  That partnering with the Central Government will enhance the brand value of the IL&FS Group  That IIDC offers end to end solutions to its clients from project conceptualization to its completion and it includes program management consultancy, project development, bid process management and policy evaluation. For this IIDC has raised man hour invoices for leasing for CII Smart city programme.  That payment of Rs. 2.76 crores is merely a token for enhancing the value of ILFS brand in the market

Infrastructure Leasing and Financial Services Ltd. derived by the assessee from such payments, as even otherwise the Directors are being regularly remunerated. In response, the assessee made submissions vide letter dated 23/10/2019 stating that these Non-executive and independent directors are in various internal committees of the Company and thereafter submitted copies of the Board Resolution appointing them to such committees.

8. Even the ld. DRP has rejected the assessee’s contention by following the decision of ITAT Mumbai Bench in the case of Firemenich Aromatics (India) vs. ACIT in wherein the Tribunal has considered the judgment of Hon’ble Karnataka High Court in the case of in the case of PCIT vs. Texport Overseas (P) Ltd. (2020) 114 taxmann.com 568.

9. We have heard both the parties and also perused relevant observation and the finding of the ld. DRP as well as ld. TPO with regard to applicability of SDT for making any kind of TP adjustment. Undisputedly, the provision getting into SDT in clause 92BA(i) has been omitted from the statute by the Finance Act, 2017 w.e.f. 01/04/2017. The assessee’s contention before us is that, once the provision itself has been omitted from the statute, the entire reference in transfer pricing adjustment itself is invalid. Ld. Counsel has referred to various decisions of Tribunal as well as the judgment of the Hon’ble Karnataka High Court in the case of PCIT vs. Texport Overseas (P) Ltd. (2020) 114 taxmann.com 568.

10. On the other hand, ld. DR submitted that this provision has been omitted w.e.f. 01/04/2017, therefore, the same is applicable from A.Y.2017-18 onwards and it would be still relevant for A.Y.2016-17. We find that in the case of M/s. Hind Aluminium Industries Pvt. Ltd in this Tribunal has dealt with exactly similar issue which is reproduced hereunder:-

Infrastructure Leasing and Financial Services Ltd. wherein as the case of the department is that the omission was brought by the amendment by the Finance Act 2017 w.e.f. 01/04/2017. Therefore, the reference at that point of time was valid. This issue has been discussed by the Hon‟ble Karnataka High Court in the case of PCIT vs. Texport Overseas (P) Ltd. wherein the Hon‟ble High Court relying upon the judgment of Hon‟ble Apex Court in the case of Kolhapur Canesugar Works Ltd vs. Union of India supra have held that once the statute has omitted clause (i) of Section 92BA by the Finance Act, 2017, the resultant fact is that it had never been enacted and to be considered as a law and it never existed. However, the ld. DR referred to various judgments of the Apex Court including the judgment of Hon‟ble Supreme Court in the case of Shri Bhagwati Steel Rolling vs. Commissioner of Central Excise. This exact issue has been dealt in detail in the case of Yorkn Tech Pvt. Ltd., wherein Tribunal has observed and held as under:- 7. We have heard the rival submissions and also perused the relevant facts arising out from the records on the legal issue raised by the ld. counsel. It is an undisputed fact that the SDT for purchase of office space as inventory was by way of Slump Sale of a going concern w.e.f. 28th March, 2016. The assessee‟s case was selected for scrutiny on 21.07.2017 and reference to the TPO was made for determination of Arm‟s Length Price of SDT after seeking approval of PCIT on29.11.2018. The core argument of the ld. counsel is that, once the reference which has been made under clause (i) of Section 92BA, itself has been omitted from the statute, therefore, it is deemed that the said clause was never part of the Act and any proceedings commenced under the omitted provision cannot be enforced or action can be taken thereafter. In support, the judgment of Hon‟ble Karnataka High Court has been relied upon in the case of PCIT vs. Textport Overseas Pvt. Ltd., reported in (2020) 114 taxmann.com 568 (Karnataka) and catena of ITAT Judgments cited supra, the relevant text of which have already been incorporated above. The Finance Act 2017 has omitted SDT whereby any expenditure in respect of which payment has been made or has to be made to a person referred to in clause (b) of sub-Section (ii) of Section 40. It has been omitted w.e.f. 01.04.2017. This precise issue had come up for consideration before the Hon‟ble Karnataka High Court wherein the Hon‟ble High Court have Infrastructure Leasing and Financial Services Ltd. held that when clause (i) of Section 92BA have been omitted by the Finance Act, 2017 w.e.f. 01.04.2017 from the statute, the resultant effect is that, it had never been passed and to be considered as a law never been existed and therefore order of TPO u/s.92BA could be invalid and bad in law, While coming to this conclusion the Hon‟ble High Court has referred and relied upon the judgment of Hon‟ble Supreme Court in the case of Kolhapur Canesugar Works Ltd. & Anr. v. Union of India & Ors., (2000) 2 SCC 536.

9. Ergo, for the purpose of present issue involved, clause (a) of Section 6 of the General Clauses Act is applicable which provides that the effect of the repeal shall not revive anything not in force or existing at the time of repeal takes effect. Section 6A provides that where any Act or Regulation repeals any enactment by which the text of any Act or Regulation is amended by express omission and unless a different intention appears, the repeal shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal. There is absolutely no saving clause while omitting (i) of Section 92BA by the Finance Act, 2017. The Constitutional Bench of Hon’ble Supreme Court in the case of Kolhapur Canesugar Works Ltd. & Anr. v. Union of India & Ors., (2000) 2 SCC 536 has observed and held as under: “37. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute-book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of Section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in section 6 or in special Acts may modify the position. Thus the operation or repeal or deletion or to the future and the past largely depends on the savings applicable. In a case where a particular provision in a statute is omitted and in its place another provision dealing with the same Infrastructure Leasing and Financial Services Ltd. contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonable inferred that the intention of the legislature is that the pending proceedings shall not continue but fresh proceedings for the same purpose may be initiated under the new provision.”

10. Thus, if a provision or statute is unconditionally omitted without any saving clause in favour of the pending proceedings, all actions must stop where such an omission is found, especially when action has been taken after the provision has been omitted. During the course of argument a reference was made to the judgment of Hon‟ble Supreme Court in the case of Fiber Boards (P) Ltd., Bangalore v. Commissiioner of Income Tax, Bangalore, (2015) 10 SCC 333 and Shree Bhagwati Steel Rolling v. Commissioner of Central Excise (2016) 3 SCC 643 to convass the point that the earlier judgments of Constitutional Bench in the case of Rayala Corporation Pvt. Ltd., 1970 SCR 1 (69) and Kohlapur Cane Sugar [supra] have been not followed or have been overruled. First of all, nowhere the Hon‟ble Apex Court in both the judgments have overruled earlier two judgment of the Constitutional bench of the Hon‟ble Apex Court rather they have explained it in detail and went on to held that the word repealed in both section of 6A and Section 24 of General Clauses Act would include repeals by expression „omission‟ and the expression „delete and omission‟ are used interchangeably.

Infrastructure Leasing and Financial Services Ltd. area for the purpose of Chapter XXII- B, gave to a person who shifted from an urban area to another area, a tax credit certificate with reference to the tax payable by the company on income-tax chargeable under capital gains and would be given relief accordingly. The Appellant contended that section 54G was inserted on 1.4.1988 and at the same time section 280ZA was omitted and that therefore Section 24 of the General Clauses Act would be attracted to the notification dated 22.09.1967. That notification would inure to the benefit of the appellant for the purpose of claiming exemption under Section 54G. Section 280Y (d) which was omitted with effect from 1990, had been so omitted because it had been rendered redundant with the omission of section 280ZA. The revenue relied upon Rayala Corporation (P) Ltd. 1970 SCR (1) 639 and M.R. Pratap v. Director of Enforcement, New Delhi, (1969) 2 SCC 412 which was followed in Kolhapur Canesugar Works Ltd. & Anr. v. Union of India & Ors., (2000) 2 SCC 536 and argued that an “omission” would not amount to “repeal” and that since the present case was concerned with the omission of Section 280ZA, section 24 of general clauses act would have no application as it only applied to `repeals‟ and not „omissions‟, and also that it saved rights that were given by subordinate legislation, and as the notification dated 22.9.1967 did not by itself confer any right on the appellant, section 24 of the General Clauses Act would not be attracted. 11.1 The Apex Court in the case of Fibre Boards (supra) was of the view that there is no need for the later enactment to state in express terms that an earlier enactment has been repealed by using any particular set of words or form of drafting but that if the legislative intent to supersede the earlier law is manifested by the enactment of provisions as to effect such supersession, then there is in law a repeal notwithstanding the absence of the word „repeal‟ in the later statute. Repeals may take any form and so long as a statute or part of it is obliterated, such obliteration would be covered by the expression “repeal” in Section 6 of the General Clauses Act. All that is required is that an intention to abrogate the enactment or portion in question should be clearly shown. 11.2 The Apex Court held that the idea of omitting section 280ZA and introducing Section 54G on the same date was to do away with the tax credit certificate scheme together with the Infrastructure Leasing and Financial Services Ltd. prior approval required by the Board and to substitute the repealed provision with the new scheme contained in Section 54G.Once Section 280ZA is omitted from the statute book, section 280Y (d) having no independent existence would for all practical purposes also be “dead”. On this reasoning, the Apex Court decided in favour of the appellant by holding that omission of section 280ZA and its re-enactment with modification in section 54G, section 24 of the General Clauses Act would apply, and the notification dated 22.9.1967 would be continued under and for the purposes of Section 54G. 11.3 The Apex court while rendering its decision in the aforesaid case held that in Rayala Corporation, what fell for decision was whether proceedings could be validly continued on a complaint in respect of a charge made under Rule 132A of the Defence of India Rules, which ceased to be in existence before the accused were convicted in respect of the charge made under the said rule. It stated that once it is held by the constitution bench in Rayala that section 6 itself would not apply, it would be wholly superfluous to further state that on an interpretation of the word “repeal”, an “omission” would not be included and therefore the second so- called ratio of the Constitution Bench in Rayala Corporation cannot be said to be a ratio decidendi at all and is really in the nature of obiter dicta. The Apex Court was of the opinion that the word “repeal” in both section 6 and section 24 would include repeals by express omission. An implied repeal is covered by the expression “repeal” and repeals may take any form and so long as a statute or part of it is obliterated, such obliteration would be covered by the expression “repeal” in section 6 of the General Clauses Act. The Apex Court also stated that there is no reference to Section 6A of the General Clauses Act in either of these Constitution Bench judgments (Rayala Corp (supra) and Kolhapur Canesugar Works Ltd. (supra)) and the absence of any reference to section 6A, therefore, again undoes the binding effect of these two judgments on an application of the „per incuriam‟ principle.

Infrastructure Leasing and Financial Services Ltd. 12.3 The revenue supported the judgment in the Fibre Board‟s case. 12.4 The Apex Court held that when section 6 of the General Clauses Act speaks of the repeal of any enactment, it refers not merely to the enactment as a whole but also to any provision contained in any Act and if a part of a statute is deleted, section 6 would nonetheless apply. The Apex court referred to Fibre Board (supra) wherein it is stated that the expression “omission” is nothing but a particular form of words evincing an intention to abrogate an enactment or portion thereof. I was held that the expression “delete” and “omit” are used interchangeably, so that when the expression “repeal” refers to “delete” it would necessarily take within its kin an omission as well. It was further held that there is no substance in the argument that “repeal” amounts to an obliteration from the very beginning, whereas an “omission” is only in futuro. 12.5 The Apex Court was of the view that when the court referred to section 6A in Fibre Board‟s case and held that section 6A shows that a repeal can be by way of an express omission, obviously what was meant was that an amendment which repealed a provision could do so by way of an express omission. Hence section 6A undisputedly leads to the conclusion that repeal would include repeal by way of an express omission. The Apex Court arrived at the conclusion that an “omission” would amount to a “repeal” for the purpose of Section 24 of the General Clauses Act. Since the same expression, namely, “repeal” is used both in Section 6 and Section 24 of the General Clauses Act, the construction of the said expression in both sections would, therefore, include within it “omissions” made by the legislature. 38 12.6 The Court was also of the view that merely because the Constitution Bench in case of Rayala Corporation referred to a repeal not amounting to an omission this would not undo the effect of decision in Fibre Board‟s case and the statement of the law in Rayala Corporation is no longer the law declared by the Hon‟ble Supreme Court after the decision in the Fibre Board‟s case. Fibre Board (supra) is a recent judgment which clarifies the law in holding that an omission would amount to a „repeal‟.

Infrastructure Leasing and Financial Services Ltd.

11. Thus, we hold that once SDT provisions has been omitted from the statute, then even for A.Y.2016-17, no TP adjustment can be made under SDT. Accordingly, ground Nos.2-15 is treated as allowed.

12. Next issue relates to disallowance u/s.14A of Rs.593,63,45,000/-.

13. The brief facts are that assessee is a core investment company for non-banking financial services and its main business is lending and investing in good companies. The assessee had shown exempt income of Rs.495,05,32,509/-. The assessee had suo-moto disallowed Rs.211,45,48,825/- u/s.14A. The assessee had worked out the disallowance by taking investment which has yielded dividend income and has moved those investments which have not yielded any exempt income. However, the ld. AO proceeded to claim the disallowance u/s.14A r.w.r. 8D of Rs. 593,63,45,000/- and after taking into account the disallowance of Rs.211.45 Crores finally made disallowance of Rs.382,17,96,175/-. After relying upon CBDT Circular 5/2014 dated 11/02/2014. Before us ld. Counsel submitted that in so far as assessee suomoto disallowance under Rule 8D(2)(i), there is no dispute. However, with regard to disallowance of interest under Rule 8D(2)(ii), he submitted that assessee had huge

Infrastructure Leasing and Financial Services Ltd. surplus funds and therefore, in view of the decision of the Hon’ble Supreme Court in the case of CIT vs. South Indian Bank Ltd. reported in 130 taxmann.com 178, no disallowance of interest can be made. However, in so far as disallowance under Rule 8D(2)(iii) is concerned, the only condition of the assessee is that no disallowance should be made with respect to investment which had not yielded any exempt income. Thus, it has been submitted that this issue is covered in favour of the assessee by the decision of the Tribunal in assessee’s own case right from A.Y.2008-09 to 2012-13. Accordingly, the contention of the assessee is upheld that only exempt yielding investment should be worked out for the purpose of disallowance which has been done by the assessee. Accordingly, the disallowance made by the ld. AO over and above suomoto disallowance offered by the assessee is deleted.

14. Next issue pertains to disallowance made by the ld. AO u/s.14A in book profit u/s.115JB. This issue now stands covered by the series of judgments including of Special Bench in the case of Vireet Investments Pvt. Ltd in Income Tax Appeals No. 502 of 2012 and judgment of Hon’ble Delhi High Court in the case of PCIT vs. Bhushan Steel Ltd in of 2015. Accordingly, disallowance u/s.14A in the book profit is deleted.

15. In ground No.18, the issue regarding the addition of income of toll roads has not been pressed, accordingly, the same is dismissed as not pressed.

Order pronounced on 31st Jan, 2024.