2025:MHC:2812 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 09-12-2025 CORAM THE HON'BLE DR.JUSTICE ANITA SUMANTH AND THE HON'BLE MR.JUSTICE MUMMINENI SUDHEER KUMAR TCA No. 417 of 2009 The Commissioner Of Income Tax Chennai.

..Appellant(s)

Vs M/s.Apollo Infrastructure Projects Finance Co. Ltd.

Jhaveer Plaza, III Floor, 1-A Nungambakkam High Road, Chennai – 600 034.

..Respondent(s)

Prayer : Appeal filed under Section 260A of the Income-Tax Act, 1961 against the order of the Income Tax Appellate Tribunal Madras ‘A’ Bench, Chennai dated 17.11.2008 in ITA No.2075/Mds/2007 for Assessment Year (AY) 2003-04.

For Appellant(s): Mr.T.Ravikumar Senior Standing Counsel For Respondent(s): Ms.R.Muthu Srinidhi for Mr.Rahul Balaji

J U D G M E N T

(Judgment of the Court was delivered by Dr.Anita Sumanth J.)

The substantial questions of law admitted on 23.06.2009 are as follows:

(1) Whether in the facts and circumstances of the case, the Tribunal was right in allowing the interest payable on monies borrowed for investment in shares of PPN Power Generating Company Ltd., even when the income earned by way of dividend the shares does not form part of total income as per Section 10(23G) of the Income Tax Act?

(2) Whether in the facts and circumstances of the case, the Tribunal was right in not considering the ground raised by the department with respect to levy of 234D interest?'

2. This is Departmental appeal for Assessment Year (AY) 2003-04. The identical issue had arisen for AY 2002-03 in T.C.(A) No.567 of 2008, and have been answered against the Revenue by decision dated 23.01.2019 of the Tax Bench of this Court, to which one of us is a party (Dr.Anita Sumanth,J). The relevant portion of the decision reads as follows:

11. Learned counsel for the Revenue, however, relying on a judgment of the Supreme Court in the case of Maxopp Investment Ltd. v. CIT [2018] 402 ITR 640 (SC), rendered on February 12, 2018, has submitted that since the equity shares in question were purchased out of the borrowed funds, the assessing authority was justified in disallowing the debenture interest and finance charges. The observations of the Hon'ble Supreme Court in the factual context of the assessee, viz., Maxopp Investment Ltd. are quoted below to the extent relevant, besides giving a brief of the facts as well:

"3)Though, it is clear from the plain language of the aforesaid provision that no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act, the effect whereof is that if certain income is earned which is not to be included while computing total income, any expenditure incurred to earn that income is also not allowed as a deduction. It is well known that tax is leviable on the net income. Net income is arrived at after deducting the expenditures incurred in earning that income. Therefore, from the gross income, expenditure incurred to earn that income is allowed as a deduction and thereafter tax is levied on the net income. The purpose behind section 14A of the Act, by not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit. Once a particular income itself is not to be included in the total income and is exempted from tax, there is no reasonable basis for giving benefit of deduction of the expenditure incurred in earning such an income. For example, income in the form of dividend earned on shares held in a company is not taxable. If a person takes an interest bearing loan from the bank and invests that loan in shares/stocks, dividend earned therefrom is not taxable. Normally, interest paid on the loan would be expenditure incurred for earning dividend income. Such an interest would not be allowed as deduction as it is an expenditure incurred in relation to dividend income which itself is spared from tax net. There is no quarrel up to this extent.

4)