Godrej & Boyce Manufacturing Co.Ltd vs Dy.Commr.Of I.T.Mumbai & Anr

3. For the Assessment Year 2002-2003, the appellant – Company filed its return declaring a total loss of Rs.45,90,39,210/-. In the said return, it had shown income by way of dividend from companies and income from units of mutual funds to the extent of Rs.34,34,78,686. Dividend income to the extent of 98% of the said amount was contributed by the Godrej group companies whereas only 0.05% thereof amounting to Rs.1,71,000/- came from non-Godrej group companies. A sum of Rs.66,79,000/-, constituting 1.95% of the aforesaid dividend income, came from mutual funds. Admittedly, a substantial part of the appellant's investment in the group companies was in the form of bonus shares which did not involve any fresh capital investment or outlay.

4. The other relevant facts which may be taken notice of is that on the first day of the previous year relevant to the Assessment Year 2002- 2003 i.e. 1st April, 2001, the investment in shares and mutual funds of the appellant company stood at Rs.127.19 crore whereas at the end of the previous year i.e. as on 31st March, 2002 the investment was Rs.125.54 crore. The above figures would go to show that there were no fresh investments made during the previous year relevant to the Assessment Year 2002-2003. In fact, the investments had come down to the extent noticed above.

5. Furthermore, as against the investment of Rs.125.54 crore as on 31st March, 2002, on the said date the appellant had a total of Rs.280.64 crore by way of interest free funds in the form of share capital (Rs.6.55 crore) as well as Reserves and Surplus (Rs.274.09 crore). On the other hand, as against the investment of Rs.127.19 crore on the first day of the previous year i.e. 1st April, 2001, the appellant had a total of Rs.270.51 crore by way of interest free funds in the form of share capital (Rs.6.55 crore) and Reserves and Surplus (Rs.263.96 crore). The above facts would show that the appellant had sufficient interest free funds available for the purpose of making investments.

6. At this stage we may go back a little in time and start with the Assessment Year 1998-1999 wherein the appellant's dividend income was Rs.11,41,34,093/-. The Assessing Officer notionally allocated Rs.1,47,40,000/- out of the total interest expenditure of Rs.34,64,89,000/- as referable to the earning of the said dividend income and had disallowed such interest expenditure and consequently reduced the exemption available under Section 10(33) of the Act to the net dividend. In appeal, the Commissioner of Income Tax (Appeals) allowed exemption of the entire dividend income on the ground that the Assessing Officer had failed to show any nexus between the investments in shares and units of mutual funds on the one hand and the borrowed funds on the other. The learned Income Tax Appellate Tribunal (hereinafter referred to as “Tribunal”) which was moved by the Revenue confirmed the appellate order. The said order had attained finality.

(3) The principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits to the credit of the Central Government within fourteen days from the date of—

“Consideration for transfer in cases of under-statement.

(2) without prejudice to the provisions of Sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital assets by an amount of not less than fifteen per cent of the value declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer.

Provided that.....”

35. We may now deal with the second question arising in the case.

40. Consequently, the appeal is allowed and the order of the High Court is set aside subject to our conclusions, as above, on the applicability of Section 14A with regard to dividend income on which tax is paid under Section 115-O of the Act.

(ASHOK BHUSHAN) NEW DELHI MAY 8, 2017