The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the amount of investment made for acquiring a controlling interest in Dabur India Ltd by its promoters is rightly disallowed by the income tax department by invoking section 14A of the Income Tax Act, 1961.
The assessee company is engaged in the business of sale and purchase of the shares in mutual funds. During the relevant year, the Assessing Officer noted that the assessee disclosed income of ₹ 28.3 crores and made disallowance of ₹ 10,82,334/-, under section 14A of the Act.
The Assessing Officer, while doing so, rejected the action of the assessee of reducing ₹53,16,568/-claiming to be expensed on account of the income on which no activity was done in the previous year. The assessee explained that no expenses were incurred toward the earning of dividend income shares of Dabur India Ltd, which was a strategic investment. However, the Assessing Officer rejected the said contention and made the addition of ₹ 53,16,568/-.
Before the Tribunal, the assessee contended that the dividend income of ₹ 26,53,52,190/-was earned from shares of ‘Dabur India Ltd’ and balance dividend was earned from investment in shares and mutual funds. They further contended that the investment in the shares of ‘Dabur India Ltd’ has been made as a promoter of the company and no expenditure was incurred for earning dividend income from the said investment.
The Tribunal, relying on the Apex Court decision in the case of Maxopp Investment Ltd Vs CIT rejected the contention of the assessee that no expenses were been disallowed corresponding to the strategic investment made in the shares of the Dabur India Ltd as a promoter.
In the above case, the Supreme Court had opined that prior to the introduction of Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both taxable and non-taxable income, the entire expenditure in respect of said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. According to the Court, the said reasoning would be applicable in cases where shares are held as an investment in the investee company, maybe for the purpose of having a controlling interest therein.
“In view of the above, that the contention of the assessee investment made for acquiring a controlling interest in Dabur India Ltd should not be subject to disallowance under section 14A is rejected,” the Tribunal observed.
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