Societe Generale v. Dy. DIT (IT) (2013) 21 ITR 606(Mum.) (Trib.)

S.14A: Disallowance of expenditure-Exempt income- Bank-Interest on tax-free securities Interest-free funds

available with assessee as capital and reserves in excess of amount invested in bonds hence no disallowance of

interest, however administrative and other expenses to be disallowable on reasonable basis. [S 10(15) (iv) (h)]

The assessee earned interest on tax-free securities which it claimed as exempt under section 10(15) (iv) (h) of the Act on gross basis. The Assessing Officer held that the gross interest from tax-free securities was not eligible for exemption under section 10. He computed the amount of net interest applying rate of 20.61 per cent after taking into account the income after reducing interest cost but before indirect expenses. This led to restriction of the exemption under section 10(15). On appeal the Commissioner (Appeals) held that the investments in the tax-free bonds being much less than the available capital and reserve, the Assessing Officer failed to establish nexus between investments in deposits and deployment of interest bearing funds. He, therefore, set aside the action of the Assessing Officer restricting the amount of exemption under section 10(15) (iv) (h). On appeal by the revenue the Tribunal held that the Commissioner (Appeals) had recorded a categorical finding that the interest-free funds available with the assessee in the shape of capital and reserves were far in excess of the amount invested in bonds. In that view of the matter there could be no disallowance of any interest under section 14A. However, the administrative and other expenses were required to be disallowed under section 14A on some reasonable basis. Appeal of revenue was partly allowed(A.Y.1998-99) (A. Y. 1998-1999 to 2003-2004)