“strategic investment”
The decision most relied on for strategic investment is Maxopp Investment Ltd. v. CIT (402 ITR 640), cited in 1,596 judgments on BharatTax.
Leading authorities on strategic investment
Disallowance under Section 14A is not automatic and requires the Assessing Officer to record satisfaction before applying Rule 8D. Only investments yielding exempt income are considered for disallowance, irrespective of their strategic nature.
Disallowance under Section 14A read with Rule 8D(2)(iii) does not apply to long-term investments, including those in subsidiary/group concerns or strategic investments, and such investments should be excluded from the calculation.
Investments made by a holding company in its subsidiary can be considered a business activity, allowing related business expenditures to be deducted and not disallowed.
Proportionate management expenses are deductible when computing exempt dividend income, as investment decisions are strategic and involve top management.
Strategic investments in wholly-owned subsidiaries are to be excluded when calculating the disallowance under Section 14A, which pertains to expenses incurred in relation to exempt income. This exclusion applies even when these investments are made for holding a controlling stake rather than for earning dividends.
The Delhi High Court confirms that when shares are issued at a premium to investors, the valuation of such shares must be assessed based on established methods like the NAV or DCF method, and the revenue cannot arbitrarily determine the fair market value.
Investments on which no exempt income was received during the year, and investments in subsidiaries considered strategic, are excluded from average investment calculations for determining disallowance of interest expenses.
Investments made by an assessee are presumed to be out of interest-free funds, and no disallowance under Section 14A is warranted if no dividend income is received from such strategic investments.
