AF-TAAB INVESTMENT COMPANY LTD,MUMBAI vs. ITO WD 2(1)(2), MUMBAI

The assessee company is engaged in the business of investing and dealing in shares and securities. The company derives its income from short term and long term investments in shares, mutual fund, equities and investment in real estate. The assessee company is a 100% subsidiary of the Tata Power Company Ltd. The assessee company invested in the subsidiary company and earned exempt income but the contention of the assessee is that the expenditure incurred upon the strategic investment is not liable to be added in the income of the assessee. But the Assessing Officer assessed the same as income of assessee and the learned CIT(A) confirmed the order of Assessing Officer therefore the assessee filed an appeal for the above mentioned assessment year before us.

However, the assessee has raised number of issues but the learned representative of the assessee only raised the issue u/s.14A of the Income Tax Act, 1961( in short “the Act”) wherein the learned CIT(A) confirmed the disallowance the interest expenditure to the tune of Rs.8,42,08,035/- for A.Y.2004-05 and Rs.9,70,012/- for A.Y.2005-06. The learned representative of the assessee has argued that the assessee expended the money for strategic investment with the object to control the stake in group concern and not to earn the income, therefore, in the said circumstances no disallowance of any ITA No.3684/Mum/12 & A.Y.2004-05 & 2005-06 kind is required in connection with the expenditure incurred if any for the said investment in view of the law settled in [2014] 46 taxmann.com 18, Income Tax Appellate Tribunal, Mumbai bench in case of Garware Wall Ropes Ltd. Vs. Additional Commissioner of Income Tax Range 5(1), [2009] 183 taxman 159 (Bom) in case of Commissioner of Income Tax – 8 Vs. Srishti Securities Pvt. Ltd. and [2013] 35 taxmann.com 210 (Delhi) High court of Bombay in case Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd.. However, on the other hand learned departmental representative has refuted the said contention. In the instant case investment made in subsidiary company for strategic investment i.e. for commercial expediency or investment or stock in trade is in question. Assessing Officer disallowed the interest expenditure to the tune of Rs.84,20,803/- for A.Y. of 2004-05 and an amount of Rs.7,70,012/- for the A.Y.2005-06. But in connection with the strategic investment in the subsidiary company the law is not quite clear that if any company made an investment in subsidiary company for commercial expediency or investment or stock in trade for any purpose of controlling interest in other companies then interest paid to such parties would not be taxable u/s.36(1)(iii) of the Act. In view of the above mentioned law appeal of the appellant are hereby allowed and Assessing Officer is hereby directed to re-calculate the expenditure incurred towards the dividend income by excluding the investment made for controlling interest in the other companies while computing

In result the both the appeal of the assessee are hereby allowed for statistical purpose.