Back
IN THE HIGH COURT OF DELHI AT NEW DELHI
Rajiv Shakdher, Talwant Singh, JJ.
Coforge Limited (Formerly Known As NIIT Technologies Ltd.) - Appellant
Versus
ACIT - Respondent
ITA 213, 214, 215 of 2020
Decided On : 05-07-2021
Income Tax Act, 1961- Sections 10B, 35DD, 143(3) and 254 - Income Tax Rules, 1962 - Rule 8D - Taxable income - Deduction of – Whether Tribunal erred in law in upholding disallowance claimed under section 35DD of Act, being l/5th of expenses incurred in assessment year 2004-05 on demerger of certain units of NIIT and vesting of same in Appellant, on incorrect premise that such deduction is allowable only in hands of demerged company (NIIT) and not resulting company (Appellant) - Whether Tribunal erred in law in sustaining and not deleting the disallowance under Section 14A of Act, to extent of 0.5% of average value of investments which yielded exempt income during year - Whether on Tribunal erred in law in not deleting in-toto disallowance of one-time commuted/discounted lease rent amounting to Rs. 77,98,042/- (equivalent to 11 times annual rent) made by assessing officer - Whether Tribunal erred in law in travelling beyond scope of appeal and case set-up by assessing officer/CIT(A) and argued by Revenue, contrary to mandate of Section 254 of Act, and that too, without confronting said reasoning/basis to Appellant (through its counsel) at time of hearing
Finding of the court : Tribunal while finding no difficulty with stand of appellant/assessee that, although, paying commuted and discounted one-time lease rent gave appellant/assessee an enduring benefit, it allowed appellant/assessee to run its business effectively - While Tribunal has agreed with appellant/assessee, one-time lease rent was incurred by it to run its business both, effectively and efficiently, Tribunal has gone on to hold that amount involved should be spread over tenure e of lease, albeit, in equal proportion - Disallowance under Section 14A of Act has been considerably scaled down by Tribunal by restricting it to administrative expense covered under Rule 8D(2)(iii) of Rules and, that too, to 0.5% of value of assets, which yielded income exempt from tax during the period under consideration. This issue concerns both, AY 2007-2008 and AY 2008-2009 - Provisions of Section 35DD of Act was allowed in earlier AYs i.e. AY 2004-2005 to 2006-2007, same should not have been disallowed in AYs in issue i.e. 2007-2008 and 2008-2009 based on reasoning which does not comport with a plain reading of provisions of Section 35DD of Act, and the understanding of how a demerger scheme operates - Court opinion needlessly went on to direct that amount incurred should be spread equally over tenure of lease. As correctly argued on behalf of appellant/assessee, this was not stand of revenue before Tribunal - Stand of revenue was that one-time lease rent amount paid to GNIDA was capital expenditure and not that it needed to be deferred over tenure of lease.
Result : Appeals allowed
JUDGMENT :
RAJIV SHAKDHER, J.
Table of Contents
Background facts: -.......................................................................................................... 2
ITA 213/2020 ..................................................................................................................... 3
ITA 214/2020 .................................................................................................................... 5
ITA 215/2020 .................................................................................................................... 7
Submissions on behalf of the appellant/assessee: -............................................................. 8
Submissions advanced on behalf of the revenue: -........................................................... 10
Analysis and reasons: - .................................................................................................... 10
Deduction claimed under Section 35DD: - ..................................................................... 11
Disallowance under Section 14A of the Act: - ................................................................ 16
Commuted/discounted one-time lease rent: - .................................................................. 25
Conclusion: - ................................................................................................................... 33
Preface: -
1. The above-captioned appeals are directed against a common order dated 28.01.2020, passed by the Income Tax Appellate Tribunal [in short “Tribunal”] Pertinently, ITA 213/2020 and ITA 215/2020 concern assessment year [AY] 2007-2008 while ITA 214/2020 concerns AY 2008-2009.
1.1. On 13.01.2021, all three appeals were admitted and the following questions of law were framed.
“(i) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the disallowance of Rs.44,00,739/- claimed under section 35DD of the Act, being l/5th of expenses incurred in [the] assessment year 2004-05 on [the] demerger of certain units of NIIT and vesting of the same in the Appellant, on the incorrect premise that such deduction is allowable only in the hands of the demerged company (NIIT) and not the resulting company (Appellant)?
(ii) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in sustaining and not deleting the disallowance under Section 14A of the Act, to the extent of 0.5% of [the] average value of investments which yielded exempt income during the year?”
Questions of law framed in ITA 215/2020
“(i) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in not deleting in-toto the disallowance of one-time commuted/discounted lease rent amounting to Rs. 77,98,042/- (equivalent to 11 times annual rent) made by the assessing officer?
(ii) Whether the Tribunal erred in law in travelling beyond the scope of the appeal and the case set-up by the assessing officer/CIT(A) and argued by the Revenue, contrary to the mandate of Section 254 of the Act, and that too, without confronting the said reasoning/basis to the Appellant (through its counsel) at the time of hearing?”
Background facts: -
2. Before we proceed further to adjudicate upon the questions of law framed in the captioned appeals, the following broad facts are required to be noticed in each of the appeals.
ITA 213/2020
3. The appellant/assessee had filed its return for AY 2007-2008, on 30.10.2007, declaring its taxable income as Rs.1,03,47,200/-. Via this return, deduction of Rs. 1,06,43,88,624/- was claimed under Section 10B of the Income Tax Act, 1961 [in short “Act”].
3.1. The assessment concerning the appellant/assessee was framed under Section 143(3) of the Act. An order to that effect was passed on 30.12.2010, wherein the appellant/assessee’s taxable income was assessed at
Point of Law : Taxation – Disallowance of one-time commuted/discounted lease rent amount - Tribunal was wrong in applying matching principle and directing that one-time lease rent should be spread eq....
Assessing Officer must record objective satisfaction by examining assessee's accounts before invoking Rule 8D under Section 14A; general observations insufficient for disallowance of exempt income ex....
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
