Tata Industries Entitled To Set-Off Business Loss Against Dividend Received From Its Foreign Subsidiary: ITAT

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has ruled that investments made by an assessee company to exercise control over other investee companies constitutes a business activity. The bench of Rahul Chaudhary (Judicial Member) and M. Balaganesh (Accountant Member) held that though the dividend income is taxable under the head 'income from other sources' in view of the specific provision contained in Section 56(2)(i) of the Income Tax Act, 1961, however, since the assessee Tata Industries is an investment company, income in the form of dividend received by it is in the nature of business receipts. Thus, it concluded that Tata Industries was entitled to set-off business loss against the dividend income received from its foreign subsidiary, for the purpose of computation of tax on the said dividend under Section 115BBD of the Income Tax Act. The assessee- M/s. Tata Industries Limited, is engaged in the business of providing business investment and finance, and in promotion of new companies. The assessee received dividend from its foreign subsidiary- M/s Apex Investments (Mauritius) Holding Private Ltd. The assessee set off its business loss against the said dividend income. Further, against the said foreign dividend income, the assessee claimed deduction under Section 80G of the Income Tax Act. The Assessing Officer (AO) passed an order taxing the foreign dividend income on gross basis under Section 115BBD of the Income Tax Act, 1961, without allowing any deduction under Section 80G or set off for the business loss. Against this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)). The assessee submitted that Section 115BBD of the Income Tax Act starts with the expression 'total income', thus the taxable income must be computed after considering all other provisions of the Income Tax Act, including the set off of brought forward and current year losses and the deductions under Chapter VIA of the Income Tax Act. The CIT(A), however, upheld the order passed by the AO. The assessee challenged the order of the CIT(A) before the ITAT. The ITAT observed that the plain and unambiguous reading of Section 115BBD of the Income Tax Act makes it clear that only after determination of the total income as per the provisions of the Income Tax Act, the foreign dividend income included in the said total income would be taxed at the rate of 15%. It added that the remaining income, other than the foreign dividend income, would be taxed at the normal rate of tax. It reckoned that if the business loss of the assessee is more than its foreign dividend income, the total income of the assessee after considering the foreign dividend income would be Nil. Therefore, the ITAT ruled that in such a case, the said foreign dividend cannot be taxed on gross basis at the rate of 15% under Section 115BBD of the Income Tax Act, since the total income itself was Nil. The Tribunal ruled that though the dividend income is taxable under the head 'income from other sources' in view of the specific provision contained in Section 56(2)(i) of the Income Tax Act, however, since the assessee is an investment company, the income in the form of dividend would be in the nature of business receipts. It reiterated that the investments made by an assessee company to exercise control over other investee companies constitutes a business activity of the assessee. The Tribunal referred to the decision of the Chennai Bench of the ITAT in M/s Tamilnadu Industrial Development Corporation Ltd (TIDCO) versus ACIT (2020), where the ITAT had observed that the assessee company- Tamilnadu Industrial Development Corporation, was engaged in the promotion and development of new undertakings and for the said purpose, it held shares in a number of joint undertakings from which it received dividend income. Therefore, the ITAT in M/s Tamilnadu Industrial Development Corporation Ltd (TIDCO) (2020) had concluded that the dividend income received by the assessee formed a part of its business and thus, it was taxable under the head 'income from business', although the same was assessable under the head 'income from other sources' in view of Section 56(2)(i) of the Income Tax Act. Accordingly, the ITAT had held that the assessee was entitled to set-off brought forward business loss and unabsorbed depreciation against the dividend income. Holding that the non-obstante clause provided in Section 115BBD(1) covers both current year loss as well as brought forward business loss, the ITAT held that the assessee Tata Industries was eligible for set off of current year business loss against the foreign dividend income received by it. The ITAT added that the assessee was eligible for deduction under Section 80G from the Gross Total Income, for computation of total taxable income under Section 115BBD. " We find that the non-obstante...

Tata Industries Entitled To Set-Off Business Loss Against Dividend Received From Its Foreign Subsidiary: ITAT

Parina Katyal

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