MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 7th December, 2010
G.S.R. 956 (E). – In exercise of the powers conferred by sub-section (4) of Section 3 of the Public Provident Fund Act, 1968 (23 of 1968), the Central Government hereby makes the following Scheme further to amend the Public Provident Fund Scheme, 1968, namely :-
1. (1) This scheme may be called the Public Provident Fund (Amendment) Scheme, 2010.
(2) It shall come into force on the date of its publication in the Official Gazette.
2. In the Public Provident Fund Scheme, 1968 in paragraph 9, in sub-paragraph (3), after the proviso, the following proviso shall be inserted, namely :-
“Provided further that an account opened on behalf of a Hindu Undivided Family prior to the 13th day of May, 2005, shall be closed after expiry of fifteen years from the end of the year in which the initial subscription was made and the entire amount standing at the credit of the subscriber shall be refunded, after making adjustments, if any, in respect of any interest due from the subscriber on loans taken by him. In the case of accounts opened on behalf of Hindu Undivided Family, where fifteen years from end of the year in which initial subscription was made, has already been completed, they shall also be closed at the end of the current year, i.e. the 31st day of March, 2011 and the entire amount standing at the credit of the subscriber shall be refunded, after making adjustments, if any, in respect of any interest due from the subscriber on loans taken by him.”
[F.No. F.7/4/2008-NS.II]
M. A. KHAN, Under Secy.
Note: The scheme was notified vide G.S.R. 1136(E), dated 15-6-1968 and amended vide G.S.R. 368(E), dated 1-8-72, G.S.R. 217(E), dated 9-3-79, G.S.R. 271(E), dated 16-3-83, G.S.R. 54(E), dated 7-2-84, G.S.R. 895(E), dated 23-6-86, G.S.R. 1013(E), dated 6-7-99, G.S.R. 908(E), dated 6-12-2000, G.S.R. 679(E), dated 4-10-2002, G.S.R. 768(E), dated 15-11-2002, G.S.R. 585(E), dated 25-7-2003, G.S.R. 690(E), dated 27-8-2003, G.S.R. 755(E), dated 19-11-2004, and G.S.R. 291(E), dated 13-5-2005.
Thursday, December 30, 2010
Wednesday, December 29, 2010
Digital Signature Class 2 and/or, Class 3 for E Tendering, DGFT, MCA, Income Tax, Brokers etc
Contact for Class II, Class II B, Class III B,Class III, DGFT at very reasonable price on same day. Tcs or E Mudhra for Class 2 and Class 3, and for DGFT safe Scrypt.
Contact
D sign Softech Private Limited
24-A, MIG DDA Flats, Rani Jhnasi Complex, Motia Khan,
Near Jhandewalan Gole Chakker, New Delhi- 110055.
Phone- 011 23522714/15, 011 43503600E Mail: dsignsoftech@gmail.com
URL: www.dsignsoftech.com
Mobile 9810135587
Contact
D sign Softech Private Limited
24-A, MIG DDA Flats, Rani Jhnasi Complex, Motia Khan,
Near Jhandewalan Gole Chakker, New Delhi- 110055.
Phone- 011 23522714/15, 011 43503600E Mail: dsignsoftech@gmail.com
URL: www.dsignsoftech.com
Mobile 9810135587
Saturday, December 25, 2010
Amendment in 40a(ia) by finanace Act , 2010 is clarrifactory
2010-TIOL-765-ITAT-AHM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'B' AHMEDABAD
ITA No.3983/Ahd/2008
Assessment Year:-2005-2006
SHRI KANUBHAI RAMJIBHAI MAKWANA
RANGOLI COMPLEX, BHALEJ ROAD, ANAND
PAN NO: ACYPM8211D
Vs
INCOME TAX OFFICER
WARD-1, ANAND
Mahavir Singh, JM and D C Agrawal, AM
Dated: December 3, 2010
Appellant Rep by: Shri M G Patel, AR
Respondents Rep by: Shri K Madhusudan, SR-DR
Income tax – Section 40(a)(ia) - Whether the amendment brought out in Section 40(a)(ia) are clarificatory in nature and retrospective w.e.f 1st April 2005.
The assessee is a contractor and required to get work done through sub-contractors. During the course of assessment proceedings, AO required the assessee to produce the details of TDS deducted on sub-labour contract payments paid. The assessee intimated as regards to inadmissibility with regard to non-deduction of TDS. AO made addition for non deduction of tax. In appeal, CIT (A) partly allowed the appeal of the assessee within the amended provisions of section 40(a)(ia) which state that if tax had been deducted in the month of March and deposited with the Government before submission.
After hearing both the parties, the ITAT held: -
++ that the amendments brought out in Section 40(a)(ia) of the Act from time-to-time was clarificatory and when an amendment is declaratory and clarificatory in nature, the presumption against its retrospectivity is not applicable and amendments of this kind only declare. It is no doubt true that, ordinarily, a statute, and particularly when the same has been made applicable with effect from a particular date should be construed prospectively and not retrospectively. But this principle will not be applicable in a case where the provision construed is merely explanatory, clarificatory or declaratory it cannot be disputed that the object of the Explanation is to explain the meaning and intendment of the Act itself;
++ that the provisions of Section 40(a)(ia) as amended by the Finance Act, 2010 w.e.f 1-4-2010, which has newly been inserted by the Finance (No.2) Act, 2004, with effect from 1st April, 2005 to section 40 of the Act is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the taxpayers and which made the provision unworkable or unjust in a specific situation, and is of clarificatory nature and, therefore, has to be treated as retrospective with effect from 1st April, 2005, the date on which section 40(a)(ia) has been inserted by the Finance (No.2) Act, 2004.
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'B' AHMEDABAD
ITA No.3983/Ahd/2008
Assessment Year:-2005-2006
SHRI KANUBHAI RAMJIBHAI MAKWANA
RANGOLI COMPLEX, BHALEJ ROAD, ANAND
PAN NO: ACYPM8211D
Vs
INCOME TAX OFFICER
WARD-1, ANAND
Mahavir Singh, JM and D C Agrawal, AM
Dated: December 3, 2010
Appellant Rep by: Shri M G Patel, AR
Respondents Rep by: Shri K Madhusudan, SR-DR
Income tax – Section 40(a)(ia) - Whether the amendment brought out in Section 40(a)(ia) are clarificatory in nature and retrospective w.e.f 1st April 2005.
The assessee is a contractor and required to get work done through sub-contractors. During the course of assessment proceedings, AO required the assessee to produce the details of TDS deducted on sub-labour contract payments paid. The assessee intimated as regards to inadmissibility with regard to non-deduction of TDS. AO made addition for non deduction of tax. In appeal, CIT (A) partly allowed the appeal of the assessee within the amended provisions of section 40(a)(ia) which state that if tax had been deducted in the month of March and deposited with the Government before submission.
After hearing both the parties, the ITAT held: -
++ that the amendments brought out in Section 40(a)(ia) of the Act from time-to-time was clarificatory and when an amendment is declaratory and clarificatory in nature, the presumption against its retrospectivity is not applicable and amendments of this kind only declare. It is no doubt true that, ordinarily, a statute, and particularly when the same has been made applicable with effect from a particular date should be construed prospectively and not retrospectively. But this principle will not be applicable in a case where the provision construed is merely explanatory, clarificatory or declaratory it cannot be disputed that the object of the Explanation is to explain the meaning and intendment of the Act itself;
++ that the provisions of Section 40(a)(ia) as amended by the Finance Act, 2010 w.e.f 1-4-2010, which has newly been inserted by the Finance (No.2) Act, 2004, with effect from 1st April, 2005 to section 40 of the Act is remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the taxpayers and which made the provision unworkable or unjust in a specific situation, and is of clarificatory nature and, therefore, has to be treated as retrospective with effect from 1st April, 2005, the date on which section 40(a)(ia) has been inserted by the Finance (No.2) Act, 2004.
Friday, December 24, 2010
S. 50C applies to transfer of development rights in property
The following important judgement is available for download at itatonline.org.
Arif Akhatar Hussain vs. ITO (ITAT Mumbai)
S. 50C applies to transfer of development rights in property
The assessee was co-owner of inherited property. He entered into an agreement with the developer for development of the property for a consideration of Rs. 63 lakhs and offered his share of the consideration to capital gains. The Stamp Valuing Authority valued the property at Rs.4.73 crores though the DVO valued it at Rs. 1.81 crores. The AO invoked s. 50C and adopted the DVO’s valuation as the consideration. This was confirmed by the CIT (A). Before the Tribunal, the assessee argued that there was a distinction between “rights in land & building” and the “land and building” and that s. 50C did not apply to “rights” in land & building such as development rights. It was pointed out that the fact that only development rights were transferred was borne out by the fact that the assessee was shown as owner of the property in the municipal records. It was also pointed out that the stamp duty law made a distinction between transfer of development rights and transfer of the property by imposing different rates of duty. HELD dismissing the appeal:
Arif Akhatar Hussain vs. ITO (ITAT Mumbai)
S. 50C applies to transfer of development rights in property
The assessee was co-owner of inherited property. He entered into an agreement with the developer for development of the property for a consideration of Rs. 63 lakhs and offered his share of the consideration to capital gains. The Stamp Valuing Authority valued the property at Rs.4.73 crores though the DVO valued it at Rs. 1.81 crores. The AO invoked s. 50C and adopted the DVO’s valuation as the consideration. This was confirmed by the CIT (A). Before the Tribunal, the assessee argued that there was a distinction between “rights in land & building” and the “land and building” and that s. 50C did not apply to “rights” in land & building such as development rights. It was pointed out that the fact that only development rights were transferred was borne out by the fact that the assessee was shown as owner of the property in the municipal records. It was also pointed out that the stamp duty law made a distinction between transfer of development rights and transfer of the property by imposing different rates of duty. HELD dismissing the appeal:
Wednesday, December 22, 2010
The economics of education: Govt Mints money taxing educational services
The economics of education: Govt Mints money taxing educational services
22 December, 2010 Ahmedabad :
Education is a matter between the person and the world of knowledge and experience, and has little to do with school or college. However, schools and colleges are the breeding ground for our future generations. Education should be absolutely free from taxes. The government collects huge revenues in the guise of education cess. These funds are meant to be used for the welfare of students and for providing free education to the children of this country. Ironically, the same government has imposed service tax on the coaching and training institutes and the ultimate burden of this tax is passed on to the students.
A fundamental issue emerges that whether, the service provided by a not-for-profit organisation is liable for service tax. Various courts held contrary views and pronounced contrasting decisions. Before any final conclusion can be reached the Finance Act, 2010, has added an explanation in the definition of the taxable service to clarify that the term 'commercial' appearing in the relevant definition, only means that such training or coaching is being provided for a consideration, whether or not such training or coaching is conducted with a profit motive. This change is retrospective in nature with effect from 01.07.2003.
Constitutional validity of levy of service tax treating parallel college as "commercial training or coaching centre" within the meaning of Section 65(27) was raised in Malappuram Distt. Parallel College Assn. (STO 2005 Ker 122). A parallel college is always privately-owned and in most cases, it is a small scale institution with facilities similar to colleges. Whereas colleges are affiliated to universities, parallel colleges have no such official recognition.
The Kerala high court has struck down the demand of service tax from parallel colleges under commercial coaching and training service" as arbitrary and violative of article 14 of the constitution of India. The high court observed that there is no distinction between the two classes of students namely; the students studying in the colleges affiliated to universities and private students who take coaching in parallel colleges to write the same examinations. The high court further observed that the main reason why many students can't join regular colleges affiliated to universities is economical reasons. Further, on account of limited number of seats available in the affiliated colleges, the less brilliant will have to look for coaching elsewhere and they end up in parallel colleges. In any case, there can be no distinction between students undergoing private study in the parallel colleges and those undergoing course-study in the regular colleges, so long as the curriculum, the examinations written and the degrees obtained by them are one and the same.
Based on the above findings, high court held that "Therefore, levy of service tax for services rendered by parallel colleges which indirectly falls on the students, but by simultaneously providing exemption to regular affiliated colleges allowing the students therein study free of tax is patently discriminatory and violative of Article 14 of the Constitution of India."
Even in Circular No. 59/8/2003-S.T., dated 20.06.2003, the clarification was provided that some institutes like colleges, apart from imparting education for obtaining recognised degrees/ diploma/ certificates, also impart training for competitive examinations, various entrance tests etc. It is clarified that by definition, such institutes or establishments, which issue a certificate, diploma or degree recognised by law, are outside the purview of "commercial training or coaching institute". Thus, even if such institutes or establishments provide training for competitive examinations etc., such services rendered would be outside the scope of service tax.
Recently similar issue arose before tribunal - Bangalore, in case of 'Tandem Integrated Services' (STO 2010 CESTAT 414). In this case, it was held that the colleges apart from imparting education for obtaining recognised degrees/ diploma /certificates, also impart training for competitive examinations, such institutes or establishments are outside the purview of "commercial training or coaching institute". The benefits, as accorded to the regular colleges which are affiliated to university can't be denied to the appellants. Regular colleges affiliated to university are exempted from paying service tax for imparting training for the competitive examinations and various entrance tests etc., there is no reason for not extending the benefit to of being outside the purview of the service tax under the category of "commercial training or coaching".
Finally, it is held that these educational institutes are not liable to pay service tax, thereby giving a sigh of relief to thousands of students who were ultimately bearing these taxes.
22 December, 2010 Ahmedabad :
Education is a matter between the person and the world of knowledge and experience, and has little to do with school or college. However, schools and colleges are the breeding ground for our future generations. Education should be absolutely free from taxes. The government collects huge revenues in the guise of education cess. These funds are meant to be used for the welfare of students and for providing free education to the children of this country. Ironically, the same government has imposed service tax on the coaching and training institutes and the ultimate burden of this tax is passed on to the students.
A fundamental issue emerges that whether, the service provided by a not-for-profit organisation is liable for service tax. Various courts held contrary views and pronounced contrasting decisions. Before any final conclusion can be reached the Finance Act, 2010, has added an explanation in the definition of the taxable service to clarify that the term 'commercial' appearing in the relevant definition, only means that such training or coaching is being provided for a consideration, whether or not such training or coaching is conducted with a profit motive. This change is retrospective in nature with effect from 01.07.2003.
Constitutional validity of levy of service tax treating parallel college as "commercial training or coaching centre" within the meaning of Section 65(27) was raised in Malappuram Distt. Parallel College Assn. (STO 2005 Ker 122). A parallel college is always privately-owned and in most cases, it is a small scale institution with facilities similar to colleges. Whereas colleges are affiliated to universities, parallel colleges have no such official recognition.
The Kerala high court has struck down the demand of service tax from parallel colleges under commercial coaching and training service" as arbitrary and violative of article 14 of the constitution of India. The high court observed that there is no distinction between the two classes of students namely; the students studying in the colleges affiliated to universities and private students who take coaching in parallel colleges to write the same examinations. The high court further observed that the main reason why many students can't join regular colleges affiliated to universities is economical reasons. Further, on account of limited number of seats available in the affiliated colleges, the less brilliant will have to look for coaching elsewhere and they end up in parallel colleges. In any case, there can be no distinction between students undergoing private study in the parallel colleges and those undergoing course-study in the regular colleges, so long as the curriculum, the examinations written and the degrees obtained by them are one and the same.
Based on the above findings, high court held that "Therefore, levy of service tax for services rendered by parallel colleges which indirectly falls on the students, but by simultaneously providing exemption to regular affiliated colleges allowing the students therein study free of tax is patently discriminatory and violative of Article 14 of the Constitution of India."
Even in Circular No. 59/8/2003-S.T., dated 20.06.2003, the clarification was provided that some institutes like colleges, apart from imparting education for obtaining recognised degrees/ diploma/ certificates, also impart training for competitive examinations, various entrance tests etc. It is clarified that by definition, such institutes or establishments, which issue a certificate, diploma or degree recognised by law, are outside the purview of "commercial training or coaching institute". Thus, even if such institutes or establishments provide training for competitive examinations etc., such services rendered would be outside the scope of service tax.
Recently similar issue arose before tribunal - Bangalore, in case of 'Tandem Integrated Services' (STO 2010 CESTAT 414). In this case, it was held that the colleges apart from imparting education for obtaining recognised degrees/ diploma /certificates, also impart training for competitive examinations, such institutes or establishments are outside the purview of "commercial training or coaching institute". The benefits, as accorded to the regular colleges which are affiliated to university can't be denied to the appellants. Regular colleges affiliated to university are exempted from paying service tax for imparting training for the competitive examinations and various entrance tests etc., there is no reason for not extending the benefit to of being outside the purview of the service tax under the category of "commercial training or coaching".
Finally, it is held that these educational institutes are not liable to pay service tax, thereby giving a sigh of relief to thousands of students who were ultimately bearing these taxes.
Tuesday, December 21, 2010
A non-resident Indian can remit $1 mn from property sales
A non-resident Indian can remit $1 mn from property sales
The prices of ancestral properties left in India by emigrating non-resident Indians (NRIs) have escalated beyond their belief. Little wonder they have developed a new and intense interest in claiming their share, especially with recession biting hard in the West. In the last few years, the ancestral homes in India are valued in crores.
So these amounts become very attractive for NRIs to claim and remit. In the recent past, the Reserve Bank of India (RBI) has revised the maximum amount that can be sent abroad without special permissions. However, these properties should not be agricultural land, a farm house or a plantation.
An NRI/PIO is allowed to send abroad up to $1 million from the sale of property in any one financial year. This amount should be the sale proceeds of property inherited by him out of rupee funds. This transfer is subject to production of documentary evidence in support of acquisition, inheritance or legacy of assets by the NRI, and a tax clearance or a no objection certificate from the Income Tax Authority. The $1 million remittance can also be made from the balances held in Non Resident Ordinary Rupee (NRO) Accounts.
After taking a dip following the financial crisis of 2008, property prices have bounced back and how. Despite the high price rise, more and more NRIs are keen to buy properties in India. Who can buy property in India? An NRI who is a citizen of India but residing outside, or a Person of Indian Origin (PIO). A PIO is defined as an individual (not a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan) who has held an Indian passport at any time or whose father or mother or grandfather or grandmother was a citizen of India.
The laws related to immovable property in India are complex and are not uniform from one state to another, said Rajan D. Gupta, a senior lawyer and a qualified accountant with SRGR Law Offices.
"A major concern is to determine the clear and marketable title of the land under question and to ensure that the land under question is free from any encumbrances such as litigation, prior mortgages, any third party interest or rights and any governmental actions such as compulsory acquisition proceedings," said Gupta.
"Again, in case of properties, especially agricultural properties, which are owned by farming families, there are a number of family law issues which again are myriad as there are a number of religions in India and most of them have their own characteristic legal frameworks."
Gupta said to ward off such issues and be almost certain about the legal status of the property to be acquired, it is advisable that a competent legal professional must be engaged to conduct a title check and due diligence of the property to be acquired.
"It is also important to engage such a professional who practises within the jurisdiction where the property is situated so that he/she is aware of the local legal compliances and issues," he added.
NRIs face many legal tangles about their properties in India. These relate to the purchase, transfer and ownership of property, power of attorney, management and eviction of tenants, remittance of the sale proceeds, illegal grabbing of their properties and other related issues.
Their legal cases have been pending in the courts for years, indeed decades. If an NRI is fighting a case with a resident Indian, he is at a disadvantage because the Indian is in no hurry while the NRI has limited time to attend to his case during his visit to India or make special trips for court appearances.
Source Economic Times
The prices of ancestral properties left in India by emigrating non-resident Indians (NRIs) have escalated beyond their belief. Little wonder they have developed a new and intense interest in claiming their share, especially with recession biting hard in the West. In the last few years, the ancestral homes in India are valued in crores.
So these amounts become very attractive for NRIs to claim and remit. In the recent past, the Reserve Bank of India (RBI) has revised the maximum amount that can be sent abroad without special permissions. However, these properties should not be agricultural land, a farm house or a plantation.
An NRI/PIO is allowed to send abroad up to $1 million from the sale of property in any one financial year. This amount should be the sale proceeds of property inherited by him out of rupee funds. This transfer is subject to production of documentary evidence in support of acquisition, inheritance or legacy of assets by the NRI, and a tax clearance or a no objection certificate from the Income Tax Authority. The $1 million remittance can also be made from the balances held in Non Resident Ordinary Rupee (NRO) Accounts.
After taking a dip following the financial crisis of 2008, property prices have bounced back and how. Despite the high price rise, more and more NRIs are keen to buy properties in India. Who can buy property in India? An NRI who is a citizen of India but residing outside, or a Person of Indian Origin (PIO). A PIO is defined as an individual (not a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan) who has held an Indian passport at any time or whose father or mother or grandfather or grandmother was a citizen of India.
The laws related to immovable property in India are complex and are not uniform from one state to another, said Rajan D. Gupta, a senior lawyer and a qualified accountant with SRGR Law Offices.
"A major concern is to determine the clear and marketable title of the land under question and to ensure that the land under question is free from any encumbrances such as litigation, prior mortgages, any third party interest or rights and any governmental actions such as compulsory acquisition proceedings," said Gupta.
"Again, in case of properties, especially agricultural properties, which are owned by farming families, there are a number of family law issues which again are myriad as there are a number of religions in India and most of them have their own characteristic legal frameworks."
Gupta said to ward off such issues and be almost certain about the legal status of the property to be acquired, it is advisable that a competent legal professional must be engaged to conduct a title check and due diligence of the property to be acquired.
"It is also important to engage such a professional who practises within the jurisdiction where the property is situated so that he/she is aware of the local legal compliances and issues," he added.
NRIs face many legal tangles about their properties in India. These relate to the purchase, transfer and ownership of property, power of attorney, management and eviction of tenants, remittance of the sale proceeds, illegal grabbing of their properties and other related issues.
Their legal cases have been pending in the courts for years, indeed decades. If an NRI is fighting a case with a resident Indian, he is at a disadvantage because the Indian is in no hurry while the NRI has limited time to attend to his case during his visit to India or make special trips for court appearances.
Source Economic Times
Sunday, December 19, 2010
Friday, December 3, 2010
No s. 14A disallowance of interest on borrowed funds on basis that assessee ought to have used own funds to repay loans & not invest in shares
The assessee earned dividend of Rs. 3 crores which was exempt u/s 10(34). As the assessee had borrowings of Rs. 31.98 crores out of total funds of Rs. 96.18 crores and investments in shares of Rs. 30.42 crores, the AO held that the interest on the borrowings had to be disallowed on a pro-rata basis u/s 14A. The AO held that the assessee ought to have used the surplus funds to repay the loans instead of investing in shares and that it was an indirect case of diversion of borrowed funds for investment in shares. This was upheld by the CIT(A). On appeal by the assessee, HELD allowing the appeal:
In view of Godrej Boyce Mfg Co 328 ITR 81 (Bom) Rule 8D is applicable only prospectively i.e. from AY 2008-09 and not for earlier years. The facts showed that the assessee had made the investment in shares out of its own funds and the borrowed funds were entirely utilized for the purpose of its business. The investment in shares in the current year was made from a separate bank account where the surplus funds generated in that year were deposited. The argument that the assessee could have utilized its surplus funds in repaying the borrowings instead of investing in shares and by not doing so, there was diversion of borrowed funds towards investment in shares to earn dividend income is not acceptable in view of CIT vs. Hero Cycles Ltd 323 ITR 518 where it was held, distinguishing Abhishek Industries 286 ITR 1 (P&H), that if investment in shares is made by an assessee out of own funds and not out of borrowed funds, disallowance u/s 14A is not sustainable. Accordingly, the disallowance of interest on borrowed funds was deleted.
See Also: CIT vs. Reliance Utilities 313 ITR 340 (Bom) (where it was held that a presumption could be drawn that investment for non-business purposes had come out of own funds), CIT vs. Leena Ramachandran (where it was held that s. 14A applies where shares are held as investment and the only benefit derived is dividend). See Also S. 14A & Rule 8D: A comprehensive analysis by Shri. K. C. Singhal, VP, ITAT, (Retd).
In view of Godrej Boyce Mfg Co 328 ITR 81 (Bom) Rule 8D is applicable only prospectively i.e. from AY 2008-09 and not for earlier years. The facts showed that the assessee had made the investment in shares out of its own funds and the borrowed funds were entirely utilized for the purpose of its business. The investment in shares in the current year was made from a separate bank account where the surplus funds generated in that year were deposited. The argument that the assessee could have utilized its surplus funds in repaying the borrowings instead of investing in shares and by not doing so, there was diversion of borrowed funds towards investment in shares to earn dividend income is not acceptable in view of CIT vs. Hero Cycles Ltd 323 ITR 518 where it was held, distinguishing Abhishek Industries 286 ITR 1 (P&H), that if investment in shares is made by an assessee out of own funds and not out of borrowed funds, disallowance u/s 14A is not sustainable. Accordingly, the disallowance of interest on borrowed funds was deleted.
See Also: CIT vs. Reliance Utilities 313 ITR 340 (Bom) (where it was held that a presumption could be drawn that investment for non-business purposes had come out of own funds), CIT vs. Leena Ramachandran (where it was held that s. 14A applies where shares are held as investment and the only benefit derived is dividend). See Also S. 14A & Rule 8D: A comprehensive analysis by Shri. K. C. Singhal, VP, ITAT, (Retd).
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