While hearing the case of M/S. Essar Telehoidings Ltd, the Supreme Court recently held that operation of Rule 8D of the Income Tax Rules, 1962 for allocating expenditure in relation to exempt income is prospective in nature.
The assessee in the instant case, M/s Essar Teleholdings Ltd has filed his return of income for the relevant assessment year and declared a loss of Rs.69,92,67,527.
During the course of assessment proceedings the Assessing Officer (AO) has issued a notice to the assessee under Section 143(2) of the act by holding that during the year under consideration, the assessee company was in receipt of both taxable and nontaxable dividend income and accordingly the dividend on investment exempt under Section 10(23G) was considered by him for the purpose of disallowance under section 14A of the act, hence proportionate interest relating to investment on which exemption under section 10(23G) is available as per the working amounting to Rs.26 crores was disallowed under section 14A r.w.s. 10(23G) of the Income Tax Act.
On appeal, all the lower authorities granted relief to the assessee. Aggrieved by the order of the authorities Revenue approached the apex Court on further appeal.
Before the Court counsel for the assessee Advocate, Ajay Vohra submitted that Rule 8D has been amended by Income Tax by which a new methodology of computing the expenditure in relation to income which does not form part of the total income has been brought in place. And he further submitted that the amendment made reinforces that the methodology of computing the expenditure in relation to income which does not form part of the total income is perspective.
The Revenue, on the other hand, argued that section 14A is clarificatory in nature and Rule 8D is a procedural provision which only provided a machinery for the implementation of sub-sections (2) and (3).
Subscribe Taxscan Premium to view the Judgment
