Citation Codes

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citation codes

Case Number

ITA 139/CHNY/2020

Disposition

allowed

Advocates

Acts

INCOME TAX ACT
8 the Finance Act, 2022
s.14A r.w.Rule 8D
ACIT, Circle 16(2), Hyderabad for the assessment years 2012- 1 13 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the 'Act')
Rule 8D of the Income Tax Rules, 1962 (hereinafter the Rules).

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Smart Summary

Structured Summary of the Income Tax Appellate Tribunal, 'A' Bench, Chennai — Order dated 22.07.2022

Factual and Procedural Background

This appeal arises from an assessment framed by the ACIT, Circle 16(2), Hyderabad for the assessment year 2012-13 under section 143(3) of the Income Tax Act, 1961 by order dated 18.02.2015. The assessee is M/s. Maxivision Eye Hospital Pvt. Ltd. (formerly Maxivision Chennai Laser Center Pvt. Ltd.). The Commissioner of Income Tax (Appeals)-8, Chennai issued an order in ITA No.252/15-16 dated 28.11.2019 confirming the Assessing Officer's disallowance under section 14A read with Rule 8D. The assessee appealed to the Tribunal (ITA No.139/CHNY/2020).

The disputed monetary disallowance was Rs.35,56,906/-, comprising interest expenses under Rule 8D(2)(ii) of Rs.32,06,464/- and administrative expenses (0.5% of average value of investments) under Rule 8D(2)(iii) of Rs.3,50,442/-, disallowed as being relatable to exempt income under section 14A.

Legal Issues Presented

Whether a disallowance under section 14A of the Income Tax Act read with Rule 8D can be made where the assessee did not earn any exempt income (specifically, no dividend income) in the relevant previous year.
Whether the Explanation inserted into section 14A by the Finance Act, 2022 is retrospective (and thus applicable to earlier assessment years) or prospective only — and if retrospective, whether it affects the present appeal.

Arguments of the Parties

Appellant's Arguments

The assessee did not earn any exempt income (no dividend) in the relevant previous year and therefore a disallowance under section 14A is not called for; financial statements were filed to substantiate this fact and this position was also put before the AO and CIT(A).
The assessee relied upon the decision of M/s. Chettinad Logistics Private Limited v. Commissioner of Income Tax (Madras High Court, T.C.A. No.24 of 2017 dated 13.03.2017) holding that section 14A disallowance does not arise if there is no exempt income; the Special Leave Petition in that case was dismissed by the Supreme Court.
The same issue had been allowed in the assessee's own case by CIT(A)-8 in ITA Nos.51 & 249/2016-17 dated 08.05.2017 for assessment years 2013-14 and 2014-15; the CIT(A) in the present matter ignored that position and confirmed the AO.
In submissions before the Tribunal, counsel relied upon the jurisdictional High Court decision (Chettinad Logistics) and the reasoning in the Division Bench decision in Redington (India) Ltd. (as recorded in the opinion), which held that section 14A/Rule 8D could not be invoked where no exempt income was earned in the relevant year.

Respondent's (Revenue) Arguments

The Department relied on the assessment and the CIT(A)'s approach which considered Supreme Court precedents including Maxopp Investments Ltd. v. CIT and other apex court decisions (Walfort, Godrej & Boyce) to sustain the disallowance under section 14A even where no exempt income was earned in that year.
The Senior Departmental Representative relied on a recent Tribunal decision (Guwahati Bench in ACIT vs. Williamson Financial Services Ltd., ITA Nos.154–156/Gau/2019, order dated 06.07.2022) which held that the amendment/explanation inserted by the Finance Act, 2022 to section 14A is retrospective; the Revenue contended that the Explanation clarifies that disallowance is attracted even if no exempt income accrued/was received in the previous year.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
M/s. Chettinad Logistics Pvt. Ltd. v. Commissioner of Income Tax (Madras High Court, T.C.A. No.24 of 2017 dated 13.03.2017)	Held that disallowance under section 14A does not arise if there is no dividend/exempt income in the relevant year.	The assessee relied on this decision; the Tribunal accepted its reasoning and treated it as supporting the proposition that s.14A/Rule 8D cannot be invoked where no exempt income is earned.
Maxopp Investments Ltd. v. Commissioner of Income Tax (Supreme Court) (2018) 402 ITR 640 (SC) / Taxsutra reference	Supreme Court decision on application of section 14A and related principles (as cited by CIT(A)).	CIT(A) relied on this decision (and other SC decisions) to sustain the disallowance; the Tribunal noted CIT(A)'s reliance but distinguished in light of the jurisdictional High Court and other reasoning on retrospectivity.
Walfort Share & Stock Brokers (P) Ltd. v. Commissioner of Income Tax (2010) 326 ITR 1 (SC)	Supreme Court decision interpreting section 14A and its mandate to apportion expenses relating to exempt income.	CIT(A) cited this decision to support disallowance; the Tribunal considered it as part of the matrix of authorities but proceeded to analyse jurisdictional High Court precedents and the effect of the Finance Act, 2022 Explanation.
Godrej & Boyce Manufacturing Co. Ltd. (cited as authority before the Court)	Supreme Court authority relevant to section 14A principles (as cited by CIT(A)).	CIT(A) relied on it; the Tribunal recorded the reliance as part of CIT(A)'s basis for sustaining the disallowance.
M/s. Redington (India) Ltd. v. Addl. CIT (Co-ordinate Bench, Madras) (2017) 77 taxmann.com 257 (TCA No.520 of 2016)	Division Bench reasoning that where no exempt income is earned in the relevant year, Section 14A read with Rule 8D could not be invoked; computation of total income is on real income and not notional/anticipated income.	The Tribunal reproduced and relied upon this Division Bench reasoning (as cited in the jurisdictional High Court decisions) in concluding that s.14A/Rule 8D should not be applied where no exempt income is earned in the year.
Commissioner of Income Tax v. Maharashtra Sugar Mills Ltd. (1971) (82 ITR 452)	Earlier Supreme Court authority referenced in the background to the insertion of section 14A (context for why section 14A was enacted).	The Tribunal noted the historical context that s.14A was inserted in response to such decisions; used to explain the purpose of s.14A as relating to actual exempt income.
Rajasthan State Warehousing Corporation v. Commissioner of Income Tax ((2002) 242 ITR 450)	Another earlier authority mentioned as part of the background to insertion of section 14A.	Cited in the opinion to explain legislative intent behind section 14A (to prevent claiming expenses attributable to exempt income against taxable income).
PCIT v. Era Infrastructure (India) Ltd. (Delhi High Court) ITA 204/2022 & CM Appl.31445/2022, order dated 20.07.2022	Held that the Explanation inserted by the Finance Act, 2022 to section 14A is prospective (takes effect from 1 April 2022) as per the Finance Bill Memorandum.	The Tribunal treated this Delhi High Court decision as persuasive on the question of retrospectivity and relied on it in holding that the 2022 Explanation is prospective and does not apply to the present assessment year.
ACIT v. Williamson Financial Services Ltd. (Guwahati Bench, ITA Nos.154–156/Gau/2019, order dated 06.07.2022)	Tribunal decision holding that the Finance Act, 2022 amendment/explanation to section 14A is retrospective.	The Revenue relied on this decision as support for retrospective application; the Tribunal recorded the reliance but preferred the reasoning of the Delhi High Court and related Supreme Court authorities on retrospectivity.
Sedco Forex International Drill. Inc. v. CIT (2005) 12 SCC 717	Principle that a retrospective provision in a tax enactment which is stated to be "for removal of doubts" cannot be presumed to be retrospective if it alters or changes the law as it earlier stood.	The Tribunal relied on this principle to hold that the Explanation in the Finance Act, 2022 (even if framed as "clarificatory") cannot be treated as retrospective where it alters the law; this supported the conclusion that the Explanation is prospective.
M.M. Aqua Technologies Ltd. v. Commissioner of Income Tax (2021 SCC OnLine SC 575)	Supreme Court authority reiterating the proposition about the limited scope of "for removal of doubts" and non-presumption of retrospectivity when law is altered.	The Tribunal invoked this authority alongside Sedco to support the conclusion that the 2022 Explanation is not to be treated as retrospective if it changes the legal position.
Kunhayammed & Others v. State of Kerala (2000) 6 SCC 359	Supreme Court authority cited in the opinion (context: judicial precedent and precedent-following principles).	The opinion referenced this authority as part of the jurisprudential backdrop when discussing coverage by a predecessor Division Bench decision; the Tribunal noted that the present order would abide by eventual Supreme Court pronouncements.
Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association (1992) 3 SCC 1	Supreme Court authority referenced in the opinion (context: precedent and following earlier Division Bench decisions).	Used in the opinion's discussion of precedential effect and the Tribunal's adherence to earlier Division Bench treatment, subject to higher court rulings.
PCIT v. IL & FS Energy Development Company Ltd. (referenced in the opinion)	Predecessor Division Bench decision addressing related issues on section 14A/retrospectivity (as cited in the opinion).	The Tribunal noted that certain earlier Division Bench rulings were being followed and that the present order would abide by the final decision of the Supreme Court in the SLP filed in that case.
Cheminvest Limited v. Commissioner of Income Tax-VI (2015) 378 ITR 33	Decision referenced in the opinion as related precedent in the context of section 14A jurisprudence.	Mentioned as part of the matrix of earlier decisions relied upon in the predecessor Division Bench reasoning; the Tribunal observed its relevance to the coverage of the present appeal.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in several steps, each drawn from material in the order:

Fact-finding: The Tribunal recorded that the assessee maintained that it had not received any dividend or other exempt income in the relevant previous year and had filed financial statements and notes (Note No.2.18 "Other Income") to substantiate the absence of dividend income. CIT(A) had likewise recorded the assessee's claim that no exempt income was earned.
Examination of CIT(A) reliance: The Tribunal noted that CIT(A) sustained the disallowance chiefly by reference to Supreme Court decisions (including Maxopp, Walfort, Godrej & Boyce) and found that those decisions did not afford relief to the assessee in the particular facts as treated by CIT(A).
Review of jurisdictional and persuasive High Court/Division Bench authority: The Tribunal reviewed the jurisdictional Madras High Court / Division Bench reasoning (Chettinad Logistics and Redington (India) Ltd.). The Division Bench reasoning emphasized that computation of total income is of real income (section 5) and not notional income and held that s.14A/Rule 8D could not be applied where no exempt income was earned in the relevant year. The Tribunal discussed the Division Bench's rationale that applying s.14A to notional/anticipated income would impose an artificial method of computation and was inappropriate.
On the Circular and Revenue's position: The Tribunal noted the Revenue's reliance on Circular No.5 of 2014 which suggested that s.14A might apply even where exempt income could be earned in future. The Tribunal disagreed with the Revenue's stance that s.14A should apply to notional or inchoate exempt income, accepting the Division Bench reasoning that s.14A was intended to relate to actual income earned in the relevant previous year.
Consideration of the Finance Act, 2022 Explanation and its timing: The Tribunal recorded the Revenue's citation of a Tribunal decision (Guwahati Bench) which held the 2022 Explanation retrospective. The Tribunal then examined the Memorandum to the Finance Bill, 2022 (which stated that the amendment takes effect from 1 April 2022) and Supreme Court authorities (Sedco Forex and M.M. Aqua) which caution that a provision styled "for removal of doubts" cannot be treated as retrospective where it alters the pre-existing law.
Conclusion on retrospectivity: Relying on the Delhi High Court decision in PCIT v. Era Infrastructure (which held the 2022 Explanation to be prospective in light of the Finance Bill memorandum) and on the Supreme Court principles cited above, the Tribunal concluded that the Explanation inserted by the Finance Act, 2022 is prospective and not retrospective.
Final application to the facts: Because the Tribunal held the 2022 Explanation to be prospective and the assessee had not earned any exempt income in the relevant year, the Tribunal concluded that section 14A read with Rule 8D(2) could not be invoked to disallow expenses for that year. Accordingly, the Tribunal allowed the assessee's appeal.
Operational caveat: The Tribunal recorded that a related Supreme Court matter (an SLP in PCIT v. IL & FS Energy Development Company Ltd.) was pending and stated that the present order shall abide by the final decision of the Supreme Court in that SLP.

Holding and Implications

APPEAL ALLOWED

Holding (core ruling): The Tribunal held that, for the assessment year in question, since the assessee did not earn any exempt income (no dividend), disallowance under section 14A of the Income Tax Act read with Rule 8D(2) could not be made. Further, the Tribunal held that the Explanation to section 14A inserted by the Finance Act, 2022 is prospective and not retrospective; therefore it does not apply to the assessment year before the Tribunal.

Immediate consequences for the parties: The deficiency/disallowance of Rs.35,56,906/- that had been sustained by the AO and confirmed by the CIT(A) is set aside for the assessment year 2012-13; the assessee's appeal is allowed and the disallowance is removed for that year.

Broader implications and limits: The Tribunal's decision rests on its interpretation that the 2022 Explanation is prospective and on the view that section 14A/Rule 8D should not be invoked where no exempt income has been earned in the relevant year. The Tribunal expressly noted that its order will abide by the final decision of the Supreme Court in the SLP filed in PCIT v. IL & FS Energy Development Company Ltd., and therefore the outcome is subject to any future authoritative pronouncement of the Supreme Court on related issues. The Tribunal did not purport to announce a binding new principle beyond the confines of the present facts and its reliance on existing High Court and Supreme Court authorities.

Note: This summary is based exclusively on the material and text contained in the provided opinion of the Income Tax Appellate Tribunal, 'A' Bench, Chennai dated 22 July 2022. No information beyond that opinion has been added or inferred.

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M/S. MAXIVISION EYE HOSPITAL PVT. LTD.,, CHENNAI v. DCIT, CORPORATE CIRCLE-4(1),, CHENNAI

आयकर अपीलीय अिधकरण, 'ए' यायपीठ, चे ई

IN THE INCOME TAX APPELLATE TRIBUNAL

'A' BENCH, CHENNAI

ी महावीर सहं, उपा य एवं ी मनोज कुमार अ वाल, लेखा सद य के सम

BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND

SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER

आयकर अपील सं./ITA No.: 139/CHNY/2020 िनधारण वष /Assessment Year: 2012-13 M/s.Maxivision Eye Hospital The DCIT, Pvt. Ltd., vs. Corporate Circle 4(1), (formerly known as Maxivision Chennai. Laser Center Pvt. Ltd.,)

No.25, Trivitron Sapthagiri

Bhavan, 4^thStreet,

Abhiramapuram,

Chennai - 600 035.

PAN: AACCM 1693G

(अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओर से/Appellant by : Shri S. Sridhar, Advocate यथ क ओर से/Respondent by : Shri AR. V. Sreenivasan, Addl.CIT सनुवाई क तार ख/Date of Hearing : 22.07.2022 घोषणा क तार ख/Date of Pronouncement : 22.07.2022

आदेश /O R D E R

PER MAHAVIR SINGH, VICE PRESIDENT:

This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-8, Chennai in ITA No.252/15-16 dated 28.11.2019. The assessment was framed by the ACIT, Circle 16(2), Hyderabad for the assessment years 2012-

13 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the 'Act') vide order dated 18.02.2015.

2. The only issue raised by assessee in this appeal is as regards to the order of CIT(A) confirming the action of AO in disallowing expenses i.e., interest expenses under Rule 8D(2)(ii) amounting to Rs.32,06,464/- and administrative expenses being 0.5% of average value of investment under Rule 8D(2)(iii) at Rs.3,50,442/- thereby total disallowance of Rs.35,56,906/- relatable to exempt income by invoking the provisions of section 14A of the Act. For this, assessee has raised the following grounds:-

1) Disallowance under Section 14A -Rs.35,56,906/-:

The Appellant has not earned any dividend income during the relevant Previous Year

In this regard, the appellant relies upon the decision of M/s. Chettinad Logistics Private Limited Vs Commissioner of Income Tax, Madras High Court vide T.C.A.No.24 of 2017 dated 13.03.2017 wherein it has been held that the disallowance under section 14A does not arise if there is no exempt income. The Special Leave petition filed in the case of M/s. Chettinad Logistics Private Limited Vs Commissioner of Income Tax has been dismissed by the Hon'ble Supreme Court.

The same issue has already been allowed in the Appellanť's own case by the Hon'ble CIT Appeals - 8 vide ITA Nos.51 &249/2016-17 dated 08.05.2017 for Assessment year 2013-14 &2014-15. The CIT Appeal has ignored the same and confirmed the order of the Assessing Officer.

3. At the outset, the ld.counsel for the assessee stated that the assessee has not earned any exempt income and has not claimed any income in its computation of income. The ld.counsel for the assessee filed financial statements and also made claim before AO that the assessee has not earned any exempt income. Even before CIT(A), the assessee claimed that the assessee has not earned any exempt income and the CIT(A) recorded this fact in para 5 and the relevant portion of para 5 reads as under:-

"In response to the disallowance, the assessee has now claimed that it has not received any dividend during the year and hence the disallowance u/s 14A is not called for. The assessee has made the following submissions. The Assessee has not received any dividend income during the year Therefore, the disallowance under section 1 4A will not arise. To substantiate the same, we hereby attach Financials. Refer Note No.2.18 "Other Income" wherein it is clear that dividend income has not been received by the Assessee.

Therefore, disallowance under section 14A does not warranted. We rely upon the decision of M/s.Chettinad Logistics Private Limited vs. Commissioner of Income Tax in the High Court of judicature at Madras vide T.C.A. No.24 of 2017 dated 13.03.2017 wherein it held if there is no dividend income the disallowance under section 14A will, not arise.

The CIT(A) confirmed the disallowance by considering the judgment of Hon'ble Supreme Court in the case of Maxopp Investments Ltd., vs. CIT, (2018) 402 ITR 640 (SC) and by stating as under:-

"The decisions of the Hon'ble Supreme Court in the cases mentioned in paragraph 06 above also do not give any relief to the assessee with respect to the absence of tax exempt income in our particular year. It is also absurd to disallow the expenditure for one year for the presence of tax exempt

income and to allow expenditure for the absence of tax exempt income in another year from the same investments. In view of the same, it is held that the decision of the Hon'ble Madras High Court in M/s. Redington India Ltd is held as overruled by the decisions of the Apex Court on section 14 in M/s Walfort Share and Stock Brokers P Ltd. (326 ITR 1) (SC), M/s. Godrej & Boyce Manufacturing Co. Ltd. (394 TR 449 (SC) as well as M/s. Maxopp Investments Ltd (Taxsutra 115 SC. 2018), which have had similar facts of tax exempt assets not yielding any income in the respective AYrs. Considering the same, the action of the Assessing Officer in disallowing an amount of Rs.35,56,906/- u/s 14A is sustained. The grounds are rejected. Aggrieved, assessee is in appeal before the Tribunal.

4. Before us, ld.counsel for the assessee stated that the issue is covered by the decision of Jurisdictional High Court in the case of Commissioner Of Income Tax v. Chettinad Logistics Pvt. Ltd., (2017) 80 taxmann.com 221, wherein the Hon'ble High Court considering the decision of Co- ordinate Bench of Hon'ble Madras High Court in the case of Redington (India) Ltd., vs. Addl.CIT, (2017) 77 taxmann.com 257 held as under:-

11.Furthermore, we may note that a similar argument was sought to be advanced by the Revenue in the matter concerning, M/s.Redington (India) Limited Vs. The Additional Commissioner of Income Tax, which was, subject matter of T.C.A.No.520 of 2016.

11.1.A Co-ordinate Bench of this Court, vide judgment dated 23.12.2016, rejected the plea of the Revenue advanced in that behalf. 11.2.As a matter of fact, a perusal of the judgment would show that the Revenue had sought to argue that because exempt income could be earned in future years, therefore, recourse could be taken to the provisions of Section 14A of the Act, to disallow expenditure. In other words the stand taken by the Revenue was irrespective of the fact whether or not income

was earned in the concerned assessment year expenditure under Section 14A could be disallowed against anticipated income. 11.3.Pertinently, the Division Bench in M/s.Redington (India) Limited case has repelled this precise argument.

12.The Division Bench, in our view, quiet correctly held that, the computation of total income, in terms of Section 5 of the Act, is made qua real income and not, vis-a-vis, notional income.

12.1.The Division Bench went on to hold that Section 4 of the Act brings to tax, that income, which is relatable to the assessment year in issue. The Division Bench, thus, held that where no exempt income is earned in the previous year, relevant to the assessment year in issue, provisions of Section 14 A of the Act, read with Rule 8 D could not be invoked. 12.2.While coming to this conclusion, the Division Bench also took note of the aforementioned Circular, issued by the Board.

12.3.The reasoning of the Division Bench is contained in the following part of the judgment:

4.The admitted position is that no exempt income has been earned by the assessee in the financial year relevant to the assessment year in issue. The order of assessment records a finding of fact to that effect. The issue to be decided thus lies within the short compass of whether a disallowance in terms of s.14A of the Act read with Rule 8D of the Rules can be contemplated even in a situation where no exempt income has admittedly been earned by the assessee in the relevant financial year.

7.Per contra, Sri.T.Ravikumar appearing on behalf of the revenue drew our attention to the marginal notes of s.14 A pointing out that the provision would apply not only where exempted income is 'included' in the total income, but also where exempt income is 'includable' in total income.

8.He relied upon a Circular issued by the Central Board of Direct taxes in Circular No.5 of 2014 dated 11.2.2014 to the effect that s.14A was intended to cover even those situations whether there is

a possibility of exempt income being earned in future. The Circular, at paragraph 4, states that it is not necessary for exempt income to have been included in the income of a particular year for the disallowance to be triggered. According to the Learned Standing Counsel, the provisions of s.14A are made applicable, in terms of sub section (1) thereof to income 'under the act' and not 'of the year' and a disallowance under s.14A r.w.Rule 8D can thus be effected even in a situation where a tax payer has not earned any taxable income in a particular year.

9.We are unable to subscribe to the aforesaid view. The provisions of section 14A were inserted as a response to the judgments of the Supreme Court in Commissioner of Income Tax Vs. Maharashtra Sugar Mills Limited (1971) (82 ITR 452) and Rajasthan State Ware Housing Corporation Vs. Commissioner of Income Tax ((2002)

242 ITR 450) in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was thus that s.14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. As observed by the Supreme Court in the judgment in the case of Commissioner of Income Tax vs. Walfort Share and Stock Brokers (P) Ltd (2010) 326 ITR 1

'.... The mandate of s.14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income.'

10.The provision this is clearly relatable to the earning of actual income and not notional or anticipated income. The submission of the Department to the effect that s.14A would be attracted even to exempt income 'includable' in total income would entail the assessment of notional income, assumed to be exempt in the future, in the present assessment year. The computation of total income in terms of s.5 of the Act is on real income and there is no sanction in

law for the assessment of admittedly notional income, particularly in the context of effecting a disallowance in connection therewith. 11.The computation of disallowance in terms of Rule 8D is by way of a determination involving direct as well as indirect attribution. Thus, accepting the submission of the Revenue would result in the imposition of an artificial method of computation on notional and assumed income. We believe this would be carrying the artifice too far. (emphasis is ours)

4.1 The ld.counsel also stated that this has been affirmed by the Hon'ble Supreme Court in the case of CIT vs. Chettinad Logistics (P) Ltd., (2018) 95 taxmann.com 250 (SC), wherein SLP was dismissed on the ground of delay as well as on merits.

5. On the other hand, the ld.Senior DR Shri AR.V. Sreenivasan, Addl.CIT relied on the Tribunal decision of Guwahati Bench, virtual hearing at Kolkata in the case of ACIT vs. Williamson Financial Services Ltd., in ITA Nos.154 to 156/Gau/2019, order dated 06.07.2022, wherein in the Finance Act, 2022 amendment is brought in section 14A of the Act w.e.f. 01.04.2022 is held to be retrospective. The ld.Senior DR argued that the Guwahati Bench has considered the provisions of section 14A of the Act was introduced in the year 2001 with retrospective effect from the year 1962 to state that no deduction shall be granted towards an expenditure incurred in relation to income which does not form part of the total income. The method of identifying the expenditure

incurred is prescribed under Rule 8D of the Income Tax Rules, 1962 (hereinafter the Rules). He argued that from its inception the applicability of this provision has always been a subject matter of litigation and one such point that has been often debated is regarding the disallowance of expenditure in the absence of exempt income. Finally, the Finance Act, 2022 has inserted an explanation to section 14A to clarify that bereft exempt income being earned in any year, the disallowance u/s.14A of the Act will still be attracted. The Act further proposes to apply the amendment retroactively thereby changing the positions laid down by the courts taken in favour of taxpayers to date. The ld.Senior DR stated that the Guwahati Bench of this Tribunal has held Explanation inserted by the Finance Act, 2022 as retrospective and according to Guwahati Bench, the Explanation seeks to clarify the position that the disallowance of expenditure relatable to exempt income is not dependent upon actual earning of exempt income.

6. Today, during the course of hearing it was brought to the notice of the ld. Senior DR that this issue has been adjudicated by the Hon'ble High Court of Delhi in the case of PCIT vs. Era Infrastructure (India) Ltd., in ITA 204/2022 & CM Appl.31445/2022, order dated 20.07.2022, considering the amendment brought in by

the Finance Act, 2022 and Explanation inserted to section 14A of the Act held as prospective by observing as under:-

5. However a perusal of the Memorandum of the Finance Bill, 2022 reveals that it explicitly stipulates that the amendment made to Section 14A will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. The relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of Finance Bill, 2022 are reproduced herein below:

"4. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert an Explanation to section 14A of the Act to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income.

5. This amendment will take effect from 1st April, 2022.

6. It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act.

7. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years."

(emphasis supplied)

6. Furthermore, the Supreme Court in Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC 717 has held that a retrospective provision in a tax act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. The relevant extract of the said judgment is reproduced herein below:

……………….

…………………

………………..

7. The aforesaid proposition of law has been reiterated by the Supreme Court in M.M Aqua Technologies Ltd. V. Commissioner of Income Tax,

Delhi-III, 2021 SCC OnLine SC 575. The relevant portion of the said judgment is reproduced herein below:-

……………….

………………

8. Consequently, this Court is of the view that the amendment of Section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the

law as it earlier stood.

9. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another, (2000) 6 SCC 359 and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras (1992) 3 SCC 1, the present appeal is dismissed being covered by the judgment passed by the learned predecessor Division Bench in PCIT vs. IL & FS Energy Development Company Ltd (supra) and Cheminvest Limited vs.Commissioner of Income Tax-VI, (2015) 378 ITR 33.

10. Accordingly, the appeal and application are dismissed. However, it is clarified that the order passed in the present appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of PCIT vs. IL & FS Energy Development Company Ltd (supra).

7. After hearing rival contentions and going through the decision of Hon'ble Delhi High Court in the case of Era Infrastructure (India) Ltd., supra, we are of the view that the explanation inserted in the provisions of section 14A of the Act by the Finance Act, 2022 is prospective and not retrospective. Accordingly, since the assessee has not earned any exempt income, no disallowance can be resorted

by invoking the provisions of section 14A of the Act read with Rule 8D(2) of the Rules. The appeal of the assessee is allowed.

8. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 22^ndJuly, 2022 at Chennai.

Sd/- Sd/-

(मनोज कुमार अ वाल) (महावीर सह )

(MANOJ KUMAR AGGARWAL) (MAHAVIR SINGH)

लेखा सद य /ACCOUNTANT MEMBER उपा य /VICE PRESIDENT चे ई/Chennai,

दनांक/Dated, the 22^ndJuly, 2022

RSR

आदशे क ितिलिप अ ेिषत/Copy to:

1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आयु (अपील)/CIT(A)

4. आयकर आयु /CIT 5. िवभागीय ितिनिध/DR 6. गाड फाईल/GF.

M/S. MAXIVISION EYE HOSPITAL PVT. LTD.,, CHENNAI v. DCIT, CORPORATE CIRCLE-4(1),, CHENNAI

Structured Summary of the Income Tax Appellate Tribunal, 'A' Bench, Chennai — Order dated 22.07.2022

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's (Revenue) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

M/S. MAXIVISION EYE HOSPITAL PVT. LTD.,, CHENNAI v. DCIT, CORPORATE CIRCLE-4(1),, CHENNAI

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