Investment made by an assessee company to excercise control on other investee companies is an business activity

M/S. TATA INDUSTRIES LIMITED Vs. DY. COMMISSIONER OF INCOME TAX DATED: 29.11.2022 (ITAT MUMBAI)

ITAT BOMBAY RULED That investments made by an assessee company to exercise control over other investee companies constitutes a business activity.

BRIEF FACTS

1. The assessee company is engaged in the business of providing business investment and finance and promotion of new companies in various fields to their customers.

2. The ld. AO noted that the assessee company had received an amount of Rs 132,40,04,883/- as dividend from M/s Apex Investments (Mauritius) Holding Private Ltd ( a 100% foreign subsidiary of assessee company herein).

3. The ld. AO further noted that in the computation of income, the assessee had set off current year business loss amounting to Rs 51,74,40,547/- against the aforesaid foreign dividend income .

4. The assessee company claimed deduction under Chapter VIA of the Act amounting to Rs 1,27,24,300/- against the foreign dividend income.

5. The ld. AO issued a show cause notice as to why the foreign dividend income should not be taxed on gross basis in view of provisions of section 115BBD of the Act, without allowing any deduction or set off of any loss.

6. The assessee filed its written submissions in response to the said show cause notice stating that the section 115BBD of the Act starts with the expression 'total income' which has to be determined after considering all other provisions of the Act including set off of brought forward and current year losses and deductions under Chapter VIA of the Act.
7. The ld. AO however found the explanation of the assessee to be not tenable due to following reasons;-

"a) Section 115 BBD was inserted with a view to provide tax incentive to the tax payers. Earlier the dividend received from foreign companies was taxed at normal corporate tax rate. By inserting special section an incentive has been given to the tax payers so that more and more foreign dividend will come to India.

b) The section is introduced in Chapter XII, which deals with "Determination of Taxes in Certain Special Cases". The heading of thechapter clearly reveals that it is for tax in special cases and one of such special case in of taxability is dividend received from foreign company.

c) To clarify the exclusion in the case of dividend received from foreign companies the subsection (2) of section 115BBD starts with "Notwithstanding anything contained in this Act..." It means irrespective of any other provision of this Act, the tax on dividend received from foreign companies are taxed at the rate of 15%. Therefore the contention of the assessee that set off of losses from business income can be set off from dividend received from foreign companies is ruled out by the "Nonobstante" clause of section 115BBD.

d) The argument of taking help from section 115BBDA, which provides taxability of dividend received from domestic companies is irrelevant, because every section is independent of each other in Chapter XII which deals with "Determination of Taxes in Certain Special Cases".

e). The assessee stated that "GeneraliaSpecialibus Non Derogant and general! Bus specialiaderogant" i.e. if a special provision is made on a certain subject matter, that matter is excluded from the general provision.

f). Using the same maxim, it can be inferred that a special provision has been inserted by way of section 115BBD due to which resort cannot be made to provisions of set off of losses as per I. T. Act, 1961 because set off of losses are general provisions.

g). With regard to claim of deduction Chapter VI-A, i.e. u/sec 80G, the section itself expressly provides in sub section (2) of section 115BBD that "Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends referred to in sub-section (1)".

Therefore No deduction is available under this section by way of any expenditure or allowance."

APPEAL BEFORE CIT(A)

8. By making the aforesaid observations, the ld. AO concluded that the foreign dividend income is to be taxed at the rate of 15% on gross basis u/s 115BBD of the Act without allowing any set off of losses and deduction u/s 80G of the Act. Accordingly, the set off of current year business loss amounting to Rs 51,70,40,547/- and deduction u/s 80G of the Act amounting to Rs 1,27,24,300/- against the foreign dividend income was denied by the ld. AO.

9. The assessee reiterated its submissions before the ld. CIT(A) and also stated that the claim of the assessee was accepted by the revenuefor A.Ys. 2014-15 and 2015-16 which was also in line with the CBDT Circular No. 11 of 2019 dated 19/06/2019. The assessee pleaded that the provisions of section 115BBD of the Act uses the expression 'total income'. Hence the total income has to be computed after making adjustment for the following:-

a) making deductions under the appropriate computation provisions;
b) adjusting the intra-head and inter- head losses and
c) setting off brought forward unabsorbed losses and unabsorbed depreciation .

The remaining total income comprising of foreign dividend income shall be brought to tax at the rate of 15% in terms of section 115BBD of the Act.

10. The ld. CIT(A) however disregarded the entire contentions of the assessee and upheld the observations of the ld. AO as reproduced supra. Aggrieved, the assessee is in appeal before us.

APPEAL BEFORE ITAT

ISSUES

a) The first issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in not granting set off of current year business loss against foreign dividend income and upholding the levy of tax u/s 115BBD of the Act on gross foreign dividend income.

b) The interconnected second issue to be decided in this appeal is as to whether the assessee would be entitled for deduction u/s 80G of the Act from the foreign dividend income forming part of Gross Total Income.

c) The assessee has also raised additional ground vide its letter dated 24/06/2021 wherein it had challenged the action of the revenue in not allowing the brought forward business losses of earlier years against the foreign dividend income referred to in section 115BBD of the Act, earned from investments which are made with a view to exercise control and accordingly constituting business activity of the assessee.

DECISION

11. We find that the non-obstante clause is provided in section 115BBD(1) of the Act itself. Hence it would be cover both current year loss as well as brought forward business loss. In view of the aforesaid observations and respectfully following the aforesaid judicial precedents, we hold that the assessee would be entitled for set off of brought forward business losses against foreign dividend income. Hence the assessee would also be eligible for set off of current year loss against foreign dividend income.

12. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that –

a) assessee would be entitled for set off of current year loss with the foreign dividend income;

b) assessee would be entitled for set off of brought forward business losses and unabsorbed depreciation of earlier years with the foreign dividend income ; and

c) assessee would be eligible for deduction u/s 80G of the Act from the Gross Total Income subject to the restrictions provided in that relevant section.

13. Accordingly, the grounds raised by the assessee and the additional ground raised by the assessee are allowed.

14. At the outset, we find that the investments made in subsidiary companies for the purpose of holding dominant control over the same or for the purpose of strategic investments would also have to be considered for the purpose of working out the disallowance u/s 14A of the Act in the light of decision of Hon'ble Supreme Court in the case of Maxopp Investments reported in 402 ITR 640(SC).

15. Hence the directions of the ld. CIT(A) are modified accordingly.