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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri Joginder Singh & Shri Rajendra
आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee as well as the Revenue is in cross appeal against the impugned order both dated 28/03/2011 for Assessment year 2007-08, of the ld. First Appellate Authority, Mumbai. First, we shall take up appeal of the assessee (ITA No.5204/Mum/2011).
The first ground raised by the assessee is with respect to applicability of the provisions of section 14A of the Income Tax Act, 1961 (hereinafter the Act) to the facts of the present appeal and confirmation of disallowance to the extent of 5% of the exempted income. The crux of argument advanced by ld. Counsel for the assessee, Shri D.J. Shukla, is that the exempt income was to the extent of Rs.50 lakhs and only one business investment was made by the assessee, wherein, no disallowance is called for. On the other hand, the ld. DR, Shri Rajesh Damor, defended the conclusion, arrived at in the impugned order.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a public sector corporation wholly owned by Government of India and is a national carrier, engaged in national/international air transportation of passengers and cargo. The assessee in its revised return declared loss of Rs.660,50,85,118/-. The assessee showed dividend income, during Financial Year 2006-07, amounting to Rs.3,06,00,000/- and out of which dividend income of Rs.2,56,00,000/- was offered as taxable as income from other sources as the same was received from foreign investment. The balance amount of Rs.50 lakhs was received from Cochin International Airport Ltd. (in short CIAL) and was claimed as exempt u/s 10(34) of the Act on the ground that CIAL is an Indian company in which Air India holds equity shares. The ld. Assessing Officer asked the assessee as to why the expenses should not be disallowed by applying rule-8D of the Income Tax Rules. The assessee vide communication dated 30/12/2009 read as under:-
“The investment made in the shares of CIAL is out of the funds owned by the company and not from the borrowed funds. Therefore, no expenditure has been incurred in making the investment in the shares of CIAL. Thus, no expenditure should be disallowed.” 2.2. The ld. Assessing Officer disallowed the claim of the assessee on the plea that the assessee did not produce any evidence that the investment was made out of own funds. He made a disallowance of Rs.31,39,880/- u/s 14A of the Act. On appeal before the Commissioner of Income Tax (Appeal), in the stand taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal.
2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the necessary details was very much made available before the Assessing Officer/ Commissioner of Income Tax (Appeal). The investment was made out of own funds for the purposes of earning dividend. The availability of funds, details of capital share and reserve and surplus is even available at page-6 of the impugned order. So far as, applicability of rule-8D is concerned, so far as, assessment year involved is 2007-08, therefore, rule 8D is applicable but at the same time it cannot be applied mechanically. The assessee invested Rs.5 crore in equity share capital of CIAL and further invested Rs.5 crore in the equity share capital, therefore, in the absence of any contrary material and since the own funds were invested and no expenses were claimed, the disallowance is not justified, consequently, this ground of the assessee is allowed.
The next ground raised pertains to confirmation of disallowance of prior period expenses of Rs.337.10 (millions). The crux of argument on behalf of the assessee that in earlier assessment years, no such disallowance was made and in the present assessment year, the facts are identical. The crystallization was claimed to be made during the year itself. The ld. Counsel filed a chart of prior period adjustment of financial year ending on 31/03/2007, which is summarized as under:-
Sl. Description F.Y. Amount in No. Million 1 Passenger Revenue 2006-07 18.9 2 Cargo Revenue 2006-07 13.5 3 Mail 2006-07 0.1 4 Handling Charges 2006-07 129.9 5 Passenger Amenities 2006-07 33.4 6 Haj Operation 2006-07 16.2 7 Publicity 2006-07 19.5 8 Salaries/Staff Welfare Expense 48.5 2006-07 9 Communication Charges-other 2006-07 0.1 10 Interest on Investment 2006-07 1.5 11 Exchange Variation 2006-07 55.5 Total 337.1 3.4. The aforesaid figures even has been mentioned in para 5.3 of the impugned order. The relief was denied to the assessee on the plea (para 5.5 of the impugned order) that the assessee could not produce the evidence with respect to these liabilities whether crystallize during the year. However, the assessee drew our attention to page 24 of the paper book with respect to rejections/refunds and we found the explanation of the assessee to be correct.
Considering the facts and the explanation of the assessee, this ground is allowed. The appeal of the assessee, is, therefore, allowed.
Now, we shall take up the appeal of the Revenue ( Assessing Officer to treat the interest income of Rs.3018.64 lakhs on short term deposits as business income and not income from other sources. The ld. DR defended the conclusion taken in the assessment order, whereas, the ld. Counsel for the assessee defended the conclusion drawn in the impugned order by submitting that the conclusion of the Commissioner of Income Tax (Appeal) is based upon the decision of the Tribunal.
4.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee received substantial revenue from sales of its foreign office at London, Newyork, etc. The assessee took permission from RBI to keep the sale proceeds abroad in the bank account at different placed and earned interest of Rs.30,18,64,580/-. This was treated as income from other sources. However, the Tribunal vide order dated 31/10/2008 (ITA Nos.6865 & 6866/Mum/2005) adjudicate the dispute in favour of the assessee. The relevant portion of the same is reproduced hereunder:-
"11. We have considered the issue, examined the facts and the case laws. It is true that various judicial principles were established on the basis of the fact available in each case. If the funds are not having any business requirement and funds are deposited for Long Term Investments or funds are received and invested which are not required for business purposes the income thereon can be considered as "Income from Other Sources". The various case laws relied upon by the learned O. R. are given in the context where the surplus funds were not being used for the business. However In the various case laws relied upon by the learned counsel for the assessee the deposits are being used in the course of business and are only deposited for short term periods or in current accounts and the source of funds are business receipts. In the present case, there is no dispute that the funds are sale proceedings in the business activities of the assessee company abroad. ·It is also seen that instead of repatriating the funds to India, the assessee was permitted to utilize the funds for their day-to-day administration purposes as well as for repayment of various loans taken for "business purposes by retaining the funds abroad with the necessary permission from Reserve Bank of India. It is also a fact that these deposits are kept in Current Accounts or in short term deposits for their immediate use for business purposes. On these facts it is to be held that the funds are being used in the business and the incidental business income on the short term deposits abroad are to be considered as business receipts only. This view is also supported by the action of the CBOT in taking up the assessee's case before the inland revenue authorities of UK when the same was being taxed as "Income from Other Sources" not covered by the OTAA between UK and India. These facts are established in the order for the assessment year 1993-94 of the learned CIT(A) and as submitted by the assessee, the matter was not challenged and accepted upto Assessment Year 1996-97. For these reasons, we are of the opinion that the interest earned on short terms deposits is to be considered “income from business”. Consequently, the Assessing Officer is directed to treat the interest income as income from business. The assessee’s grounds are allowed on this issue.”
We find that the Department has neither brought on record any contrary facts/decision, therefore, on the principle of parity also, the ground of the Revenue is having no merit, consequently, the impugned ground is dismissed.
The next ground pertains to restrict the disallowance to 5% made u/s 14A of the Act of the exempted income and further holding that rule -8D is applicable from A.Y. 2008-09. We have already deliberated upon this issue while adjudicating ground number-1 of the appeal of the assessee(supra), therefore, we find no infirmity in the conclusion of the Commissioner of Income Tax (Appeal) . On this issue his stand is affirmed.
The last ground pertains to deleting the disallowance of Rs.455.28 lakhs made on account of frequent flier program (FFP). The ld. DR defended the disallowance made by the Assessing Officer, whereas, the ld. Counsel for the assessee contended that the impugned issue is covered by the decision of the Tribunal in the case of Jet Airways Ltd. (ITA No.3201/Mum/2003 and 6084/Mum/2003) order dated 30/05/2006. This factual matrix was not controverted by the ld. DR. 6.1. We have considered the rival submissions and perused the material available on record. There is uncontroverted finding that the liability in respect of FFP miles accrues simultaneously with a passenger undertaking travel on a fare paying ticket, therefore, it cannot be a contingent liability. Following the aforesaid decision of the Tribunal dated 30/05/2006 and further in the absence of any contrary facts/decision and the case laws relied upon in para 7.5 of the impugned order, we find no infirmity in the conclusion of the Commissioner of Income Tax (Appeal).
Finally, the appeal of the assessee is allowed and that of the Revenue is dismissed.
This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 31/03/2016.