Provision of sec 90(2) shall apply to the extent beneficial to the assessee

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH “C”,

MUMBAI

BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI N.K. BILLAIYA(A.M)

ITA NO. 7617/MUM/2005(A.Y.2002-03)

Ultramarine & Pigments Limited,

Thirumalai House, Plot No.101/102,

Road No.29, Sion (E),

Mumbai 400 022.

PAN:AAACU0718Q

(Appellant)

Vs.

The ACIT, Cir. 7(3),

Aaykar Bhavan, MK Road,

Mumbai – 20.

(Respondent)

Appellant by: Shri Hiro Rai

Respondent by: Shri Atiq Ahmed

Date of hearing: 29/03/2012

Date of pronouncement: 04/04/2012

ORDER

PER N.V.VASUDEVAN, J.M,

This is an appeal by the assessee against the order dated 5/9/2005 of CIT(A) 23, Mumbai relating to assessment year 2002-03. Originally this appeal was heard by the Tribunal on 12/3/2009 and an order dated 16/4/2009 was passed by the Tribunal. Ground No. 1 raised by the assessee reads as follows:

“The learned CIT(Appeals) was not justified in:

1.confirming the disallowance of interest of Rs. 32,30,685/-. The basis for the same, the reasons and also the working of the disallowance are in correct and improper.”

2. By order dated 16.4.2009 the aforesaid ground of appeal was dismissed by the Tribunal. Similar ground was raised by the assessee in A.Y 2001-02 in ITA No.2775/M/2005. By the very same order dated 16/4/2009 the Tribunal dismissed the said ground also. The assessee preferred appeal being ITA No.467 of 2010 and 412 of 2010 before the Hon’ble Bombay High Court against the aforesaid order of the Tribunal in A.Y 2001-02 and 2002-03 respectively. By order dated 8/2/2011 for A.Y 2001-02 the Hon’ble High Court remanded the issue to the Tribunal for fresh consideration with the following observations.

“3. As regards first question is concerned, the Counsel that the decision of this Court in the case of CIT v/s. Amritaben R. Shah reported in 238 I1R 777, which has been relied by the Tribunal is distinguishable on facts. Counsel for appellant submits that in that case, there was no dispute that investments in shares were made for the purpose of acquiring controlling interest therein, whereas, in the present case, the investments have been made for earning dividend. This aspect of the matter has not been considered by the Tribunal.”

3. Similar directions were given for A.Y 2002-03 by the Hon’ble High Court.

4. Pursuant to the direction of the Hon’ble High Court, the issue with regard to disallowance of interest expenses as raised by the Assessee in ITA No.2775/M/05 for A.Y 2001-02 was again heard considered the Tribunal and Tribunal held as follows:

“9. Grounds no.1 and 2 of assessee’s appeal and ground no.1 of Revenue’s appeal are on the issue of allowability of interest under section 57(111) on amounts borrowed from Exim Bank, for the purchase of shares in TCLTM, which is a Malaysian company. The assessee had taken a long term loan of 9,00,00,000. Before the High Court, when the matter came up, both the parties agreed that the judgment of Hon’ble Jurisdictional High Court in Amritaben. Shah (supra), has no application to the facts of the case. In view of this specific concession given by the Revenue, we now consider the other case laws relied on during the course of hearing and adjudicate the matter.

10. In the case of Moodi Pvt Ltd (supra), the Hon’ble Jurisdictional High Court held as follows:

“In respect of the interest paid on monies borrowed for purchase, of shares of A Co, the Tribunal held that the claim of the assessee should be allowed under section 57(111) of the Income-tax Act 1961, since the moneys were borrowed for ,purchase of shares from which the assessee expected’ to receive dividends, and hence the expenditure was clearly laid out or expended wholly and exclusively for the purpose of making or earning income On a reference Held, affirming the decision of the Tribunal, that the expenditure on interest paid on borrowings for purchase of shares of the managed, company W Co., was allowable deduction under section 1O(2)(xv) of the Indian Income tax Act 1922, or under section 37(1) of the Incometax Act, 1961, and the interest paid for acquisition of shares of A Co. was allowable as deduction under section57(iii) of the Income Tax Act, 1961.”

11. The Hon’ble Supreme Court in Rajendra Prasad Moodi (supra), held as follows: -

‘Where the assessee borrowed monies for the purpose of making investment in certain shares and paid interest thereon during the accounting period relevant ‘to the assessment year but did not receive any dividend ‘on the shares purchased with those monies: ‘Held, accordingly, that the interest on monies borrowed for investment in shares, which had not yielded any dividend was admissible as a deduct/on under section 57(iii) of the Act, in computing its income from dividend under the head “Income from other sources”

12. The Hon’ble Jurisdictional High Court in Ormerods (India) P. Ltd (supra) held as follows:-

“Held, (i) that the word “purpose” in the expression “expenditure incurred solely for the purpose of making or earning such income, pro fits or gains” in section 12(2) of the Income-tax Act, did not mean motive for the transaction; much less could it mean the ulterior motive or the ultimate abject of the purchase of the shares by the assessee; d therefore, the finding of the Tribunal that the purchase was made serve the convenience of two others was no more than a finding as he ulterior motive in purchasing the shares, whereas the purpose e purchase was a entirely different matter;

(ii) that the only conclusion, on the facts, was that these investments were made ,for the purpose of earning income or dividends or for profits or gains;

(iii) that, therefore, the interest paid ‘by the assessee on moneys borrowed for the purchase of shares could be set off against its other Income under section 24(1) of the Act-.”. ‘

13 The Hon’ble Jurisdictional High Court in Phil Corpn Ltd (supra), held as follows:-

“The reasoning of the Tribunal that the overdraft was not operated only for investing in the shares of subsidiary company and the fact that it was also used for investment in the shares of the sister/subsidiary company to have control Over that company and, therefore, the element of Interest paid on ,the Overdraft was not susceptible of bifurcation and,, therefore, the assessee was entitled to ‘the deduction under section 36(1)(iii).”

14. The learned Departmental Representative has not brought before us any contrary decision His argument that the amounts were invested in for controlling interest and that there is no dividend income which was earned, is devoid of merit in view of the proposition laid down in case laws quoted and reproduced above.

15. Coming to the issue as to whether the AADT with Malasia would disentitle the deduction we agree with the submissions of the assessee that the whole world income is taxable in the hands of the assessee under the provisions of the Act and when it is done so, section 90(2) mandates that the provisions of this Act shall apply to the extent they are more beneficial to the assessee. The assessee does have an option of being assessed under the normal provisions of the Act as claimed by the, learned Counsel. The Act directs and the section makes it compulsory for the Assessing Officer to apply the provisions of the Act to the extent they are more beneficial to the assessee. When so applied in this case, the net income would be a negative figure and the provisions of the Act would be more beneficial to the assessee.

5. The Tribunal thus allowed the claim of the Assessee in AY 01-02. The facts and circumstances under which the disallowance of interest was made in A.Y 2002-03 and the reasons for making the disallowance are identical. This appeal was taken up for hearing pursuant to the order of the Hon’ble High Court remanding the issue for fresh consideration by the Tribunal. In view of the similarity of facts and circumstances the decision rendered by the Tribunal for A.Y 2001-02 will be squarely applicable. Respectfully following the aforesaid decision we hold that the disallowance of interest sustained by the CIT(A) deserves to be deleted. Accordingly the ground of appeal is allowed.

6. In the result, the appeal in so far as ground No.1 concerned is allowed.

Order pronounced in the open court on the 4th day of April 2012

                                                     Sd/-                                   Sd/-

                                        (N.K.BILLAIYA )           (N.V.VASUDEVAN)

                                 ACCOUNTANT MEMBER   JUDICIAL MEMBER

Mumbai, Dated 4th April 2012

Copy to:

1. The Appellant

2. The Respondent

3. The CIT City –concerned

4. The CIT (A)- concerned

5. The D.R”A” Bench.

(True copy)

By Order

Asst. Registrar, ITAT, Mumbai Benches

MUMBAI.

Vm.