Judgment in TCA No.1037/2010 dated 21.01.2020 (Commissioner of Income Tax Vs. M/s.Spencer & Co. Ltd) 1/8 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 21.01.2020 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE R.SURESH KUMAR Tax Case Appeal No.1038 of 2010 Commissioner of Income Tax Chennai. Appellant Vs. M/s.Spencer & Co. Ltd. Spencer Plaza 4th Floor, 769 Anna Salai, Chennai - 02. Respondent Appeal filed under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal Madras 'B' Bench, dated 18.12.2009 in ITA.No.1527/Mds/2009. For Appellant : Mr.J.Narayana Samy Senior Standing Counsel For Respondent : Mr.Venkat Narayanan For Subbaraya Aiyar Padmanaban JUDGMENT (Judgment of Court was delivered by DR.VINEET KOTHARI,J.) This Tax Case Appeal has been filed by Revenue for Assessment Year 2002-03 raising following substantial question of http://www.judis.nic.in Judgment in TCA No.1037/2010 dated 21.01.2020 (Commissioner of Income Tax Vs. M/s.Spencer & Co. Ltd) 2/8 law arising from order of Income Tax Appellate Tribunal dated 18.12.2009. "Whether on facts and circumstances of case, Tribunal was right in upholding CIT(A)'s deletion of 2.56 Cr. by invoking provision of section 14A r/2 Rule 8D?" 2.Both learned counsels fairly submitted that said issue is no longer res integra in view of decisions of Hon'ble Supreme Court in case of Commissioner of Income Tax Vs. Essar Teleholdings Ltd. [(2018) 401 ITR 0445] and Godrej & Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax and another [(2017) 394 ITR 0449], in which Hon'ble Supreme Court has laid down provisions of Rule 8D of Income Tax Rules cannot be applied retrospectively. said Rules were introduced and brought on Statute Book with effect from 24.03.2008 and present assessment year involved in present Appeal is Assessment Year 2002-03. relevant observations from both Judgments are quoted below for ready reference. (i) Commissioner of Income Tax V. Essar Teleholdings Ltd. [(2018) 401 ITR 0445]: http://www.judis.nic.in Judgment in TCA No.1037/2010 dated 21.01.2020 (Commissioner of Income Tax Vs. M/s.Spencer & Co. Ltd) 3/8 "49. It is relevant to note that impugned judgment in this appeal relies on earlier judgment of Bombay High Court in Godrej and Boyce Manufacturing Company Limited versus Deputy Commissioner of Income Tax, Mumbai and Another, (2017) 7 SCC 421, where Division Bench of Bombay High court after elaborately considering principles to determine prospectivity or retrospectivity of amendment has concluded that Rule 8D is prospective in nature. Against aforesaid judgment of Bombay High court dated 12.08.2010 appeal was filed in this court which has been decided by vide its judgment reported in Godrej and Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax, Mumbai & Anr. (2017) 7 SCC 421. This Court, while deciding above appeal repelled challenge raised by assessee regarding vires of Section 14A. In para 36 of judgment, this Court noticed that with regard to retrospectivity of provisions Revenue had filed appeal, hence said question was not gone into aforesaid appeal. In above case, this Court specifically left question of retrospectivity to be decided in other appeals filed by Revenue. We thus have proceeded to decide question of retrospectivity of Rule 8D in these appeals. 50.In view of our opinion as expressed above, dismissal of appeal by Bombay High Court is fully sustainable. As held above, Rule 8D is prospective in http://www.judis.nic.in Judgment in TCA No.1037/2010 dated 21.01.2020 (Commissioner of Income Tax Vs. M/s.Spencer & Co. Ltd) 4/8 operation and could not have been applied to any assessment year prior to Assessment Year 2008-09." (ii) Godrej & Boyce Manufacturing Company Limited V. Deputy Commissioner of Income Tax and another [(2017) 394 ITR 0449] "37. We do not see how in aforesaid fact situation different view could have been taken for Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of Act read with Rule 8D of Rules merely prescribe formula for determination of expenditure incurred in relation to income which does not form part of total income under Act in situation where Assessing Officer is not satisfied with claim of assessee. Whether such determination is to be made on application of formula prescribed under Rule 8D or in best judgment of Assessing Officer, what law postulates is requirement of satisfaction in Assessing Officer that having regard to accounts of assessee, as placed before him, it is not possible to generate requisite satisfaction with regard to correctness of claim of assessee. It is only thereafter that provisions of Section 14A(2) and (3) read with Rule 8D of Rules or best judgment determination, as earlier prevailing, would become applicable. 38. In present case, we do not find any mention of reasons which had prevailed upon Assessing Officer, http://www.judis.nic.in Judgment in TCA No.1037/2010 dated 21.01.2020 (Commissioner of Income Tax Vs. M/s.Spencer & Co. Ltd) 5/8 while dealing with Assessment Year 2002-2003, to hold that claims of Assessee that no expenditure was incurred to earn dividend income cannot be accepted and why orders of Tribunal for earlier Assessment Years were not acceptable to Assessing Officer, particularly, in absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing reasonable nexus between expenditure disallowed and dividend income received. That any part of borrowings of assessee had been diverted to earn tax free income despite availability of surplus or interest free funds available (Rs. 270.51 crores as on 1.4.2001 and Rs. 280.64 crores as on 31.3.2002) remains unproved by any material whatsoever. While it is true that principle of res judicata would not apply to assessment proceedings under Act, need for consistency and certainty and existence of strong and compelling reasons for departure from settled position has to be spelt out which conspicuously is absent in present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang vs. Commissioner of Income-Tax (1992) 193 ITR (SC) 321 [At Page 329]. We are aware of fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being unit, what is decided in one year may not apply in following year but where fundamental aspect permeating through http://www.judis.nic.in Judgment in TCA No.1037/2010 dated 21.01.2020 (Commissioner of Income Tax Vs. M/s.Spencer & Co. Ltd) 6/8 different assessment years has been found as fact one way or other and parties have allowed that position to be sustained by not challenging order, it would not be at all appropriate to allow position to be changed in subsequent year. 39. In above circumstances, we are of view that second question formulated must go in favour of assessee and it must be held that for Assessment Year in question i.e. 2002-2003, assessee is entitled to full benefit of claim of dividend income without any deductions. 40. Consequently, appeal is allowed and order of High Court is set aside subject to our conclusions, as above, on applicability of Section 14A with regard to dividend income on which tax is paid under Section 115-O of Act" 3.In view of aforesaid submission, there is no merit in present appeal filed by Revenue and question of law deserves to be answered against Revenue and in favour of Assessee. In view of aforestated Supreme Court decisions, Appeal is accordingly dismissed. No costs. (V.K.J.) (R.S.K.J.) 21.01.2020 http://www.judis.nic.in Judgment in TCA No.1037/2010 dated 21.01.2020 (Commissioner of Income Tax Vs. M/s.Spencer & Co. Ltd) 7/8 Sgl To Income Tax Appellate Tribunal, Madras 'B' Bench. http://www.judis.nic.in Judgment in TCA No.1037/2010 dated 21.01.2020 (Commissioner of Income Tax Vs. M/s.Spencer & Co. Ltd) 8/8 DR.VINEET KOTHARI, J. And R. SURESH KUMAR, J. Sgl T.C.A.No.1038 of 2010 (2/5) 21.01.2020 http://www.judis.nic.in Commissioner of Income-tax, Chennai v. Spencer & Co. Ltd