Principal Commissioner of Income Tax -7 v. Punjab and Sind Bank

1. By these applications,the applicantseeks condonation ofdelay of107 days in filing both tlie applications, for the reasons stated m these applications,the delayis condoned.

2. Theapplicationsstand disposed ofinthe aforesaidtenns. TTA 904/2019 and ITA 906/2019

3. The present appeals are directed against the order dated 09.01.2019 passed by the Income Tax Appellate Tribunal in ITA No. I44I and 1442/Del/20I[5] in respect to the assessment year 20II-I[2] and 2012-13 m respect of the respondent. The Tribunal has dismissed the said appeals 2019:DHC:7422-DB preferred by the appellant. The Tribunal held,on the issue ofdisallowance of contribution made to the Employees Provident Fund Trust which the respondentassessee claimed as its legitimate business expenditure,infavour ofthe respondent assessee and upheld the order passed by CIT(A). While doing so,the Tribunalfollowed its decision in the case ofDSITv.Ranbaxy LaboratoriesLimited(2009)124ATJ(Delhi)771.Wefind thatthis issue is folly covered by the decision ofthis Court in Principal Commissioner of Income Tax -07 vs.Punjab and Sind Bank,ITA 737/2017.The question of law considered bythis Courtin the said appeal inter alia was question"C". This question wasansweredinparagraph[7],8and9whichread asfollows; "7.The third issue pertains to the correctness ofthe order of the ITAT in deleting the addition of Rs. 38,02,52,097/madebythe AO on accountofthe contribution madebythe Assessee to the Punjab & Sind Bank Employees Pensions Fund Trust.TheITAT,in deciding the issue infavour ofthe Assessee,relied upon the decision dated 6th March 2013 of the Bombay High Court in ITA No. 2232 of 2011 (The Commissioner ofIncome Tax -6, Mumbai v. M/s. Glaxo Smithkline Pharmaceuticals). It is seen that the Bombay High Court has in the above order in turn relied on two orders passed by it dated 1stMarch 2013inITA No.568 of 2012(CIT V. Suashish Diamonds Ltd.) and Commissioner ofIncome Tax v. Western India Paper & Board Mills(P) Limited (1991) 189 ITR 309 (Bom). The Bombay High Court has, in its three orders, consistently held that, although contributions to the pension funds may not be allowable under Section 36(1)(iv) ofthe Act,the same is allowable under Section 37 ofthe Act.

8. Learned counsel for the Revenue has been unable to pointouttothe Courtanyview contrarytothe onetakenby the Bombay High Court.

9. It appears that although no appeal was filed by the Revenue against the order of the Bombay High Court in M/s. Glaxo Smithkline Pharmaceuticals (supra), the Revenue has filed Special Leave Petitions before the Supreme Court against the subsequent orders passed in

2013. However, no stay has been granted thereof. Consequently,the Courtdeclinestoframe a question onthis issue.

4. In our view,since this Court has already taken a view m the matter,no question oflaw arises onthis aspect.

5. Insofar as the disallowance of expenditure under Section 14A is concerned, the ITAT has relied upon the decision of the Supreme Court MaxoppInvestmentLtdvs.CIT(2018),402ITR640(SC).The decisionof the Supreme Courtreads asfollows: "48.In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom.However,we are notconcerned withthose profits which would naturally betreated as"income"underthe head "profits and gains from business and profession". What happens is that,in the process, when the shares are held as "stock-in-trade", certain dividend is also earned, though incidentally,which is also anincome.However,byvirtue of Section 10(34)ofthe Act,this dividend income is notto be included in the total income and is exempt from tax. This triggersthe applicability ofSection 14-A ofthe Actwhich is based onthetheory ofapportionmentofexpenditurebetween taxable and non-taxableincome asheld m WalfortShare and Stock Brokers (P) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned. M

49. WenotefromthefaetsinStateBankofPatialacase that the AO, while passing the assessment order, had already restrictedthe disallowancetothe amountwhich wasclaimed asexemptincomeby applyingtheformulacontained mRule 8-D ofthe Rules and holding that Section 14-A ofthe Act would be applicable. In spite of this ^ apportionmentofexpenditure carried outbythe AO,CIT( ) disallowed the entire deduction ofexpenditure.Thatview ot the CIT(A) was clearly untenable and rightly set aside by ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affinmng t e view ofITAT,though we arenotsubscribingto thetheoryo dominantintention applied bythe High Court.

50 It is to be keptin mind that in those cases where shares areheld as"stock-in-trade",itbecomesabusiness activity ot the assesseeto dealinthose shares as abusiness proposition. Whether dividend is eamed or not becomes immaterial. In fact, it would be a quirk of fate that when company declared dividend, those shares are held by th assessee, though the assessee has to ultimately trade thos shares by selling them to earn profits. The situation here is therefore, different from the case hkQ Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee andVassessee alone. Therefore, even at the trme of investing into those shares,the assessee knows that it may generate dividend income as weii and as and wh™ s" dividend income is generated that would be earned by the assessee.In contrast,where the shares are haW asrtoek-mtrade this may not be necessarily a situation, mai purposeistoliquidatethoseshares whenevertheshare price Sup in order to earn profits. In the result,the appeals liedbytheRevenuechallengingthejudgmentofthePupjab and Haryana High Court inState Bank ofPatialanlso fail, LughlawInthisrespecthasbeenclarifiedhereinabove.

6. The Tribunal has held in favour ofthe respondent assessee that it had earned the revenue on the shares held as stock in trade oniy by a quirk of fate.

7. In the light ofaforesaid concluded position,both onfacts and in law,in our view,no question oflaw arisesfor considerationin the presentappeal. Accordingly,presentappealsstand dismissed.

GHI IP SANJEEV NARULA,J OCTOBER 16,2019 Pallavi