Case Law Details
Brief of the Case
Calcutta High Court held In the case of CIT vs. Williamson Magor & Co. Ltd. that ITAT decision with regard to questions (a), (b), (c) & (f) is based on earlier high court decisions, so no fresh consideration is required. The question nos.(d) and (e) are questions on facts. The only point in these questions was that the payment was in connection with services rendered and billed for on 28th February, 1997 and therefore, the expenditure could not be allowed in a subsequent year but ITAT held that an appeal relating to the year to which the expenditure pertained was also pending and therefore there was, in substance, no reason why the expenditure should not have been allowed. Therefore, the question nos.(d) and (e) are of no substance altogether. The question no. (g) does not really arise for consideration because the money spent by the assessee in meeting the liability of voluntary retirement was recovered from the subsidiaries. The money so recovered has been offered for taxation and has been taxed as income arising from other sources whereas the expenditure incurred on account of voluntary retirement was disallowed. The obvious incongruity was removed by the learned Tribunal.
The question no.(h) which related to deletion of disallowance of interest on account of borrowed capital is delivered by ITAT based on own previous year judgment but no finding was arrived indicating that the borrowed capital was not utilized for the purpose of earning exempt income. So matter remanded back to the AO. The question no. (i) is an outcome of non-application of mind because the order for payment of mesne profits attained finality on 30th July, 1999. Therefore, the same can only be assessable in the year 2000-2001. The learned Tribunal did the correct thing. The question no. (j) is equally an outcome of non-application of mind. The immovable property has partly been let out and there were other properties rented by the assessee for the purpose of its business. The view taken by the ITAT is evidently a possible view.
Facts of the Case
The following questions of law raised by the revenue:
a) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the disallowance of Rs.71,53,542 for the Assessment year 1998-1999 and Rs.2,92,99,950.00 for the Assessment year 1999-2000 on account of interest made by the Assessing officer proportionately on prorate basis and confirmed by the Commissioner of Income Tax (Appeals) under Section 36(1)(III) of the Income Tax Act, 1961 being the interest under charged by the respondent/assessee to the extent of 5% on borrowed capital given on loan to its associate concerns following the Judgment of the Learned Tribunal in the case of the Respondent/assessee itself for the Assessment years 1996-97 and 1997-98 ?
b) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in holding that the borrowed capital given on loan by the respondent/assessee to its associate concerns undercharging interest was properly used by the respondent/assessee for its business so as to eligible for the deduction under Section 36(1)(III) of the said Act?
c) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the disallowance of Rs.3,75,000.00 during the Assessment year 1998-1999 being them expenditures incurred, by the respondent/assessee as the flagship company purported to promote the corporate image of the group companies, in sponsoring the races held by Royal Calcutta Turf club and not for any business carried on by the respondent/assessee ?
d) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the disallowance of Rs.32,870.00 out of Rs.82,870 during the assessment year 1998- 1999 on account of the legal fee paid by the respondent/assessee to Khaitan & Co. against the bill dated 28th February, 1997 in spite of the Respondent/assessee having maintained its account on mercantile basis ?
e) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the disallowance of Rs.50,000.00 out of Rs.82,870.00 during the assessment year 1998- 1999 on account of the legal charges incurred by the respondent/assessee for the amalgamation of its two subsidiary companies namely Desai Investment Limited and Fairlie Place Investment Limited by holding the same as a revenue expenditure of the respondent/assessee?
f) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the disallowance of Rs.1,51,795.00 paid by the respondent/assessee on account of the entrance fees of the club out of total of Rs.5,95,795.00 and in upholding disallowance for the balance of Rs.4,44,201.00 paid towards subscription to the club during the year 1999-2000 following the judgment of the Hon’ble Gujrat High Court in the case of Gujrat State Export Corporation reported in 209 Income Tax Reports at page 649.
g) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the disallowance of Rs.4,03,44,000.00 paid by the respondent/assessee to its employees during the assessment year 1999-2000 under Voluntary Retirement Scheme ignoring the Board Circular dated 23rd January 2001 referred to by the Assessing Officer and the provisions made under Section 35DDA of the Income Tax Act, 1961 and without considering the enduring nature of benefit there from derived by the respondent/assessee?
h) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the estimated disallowance of proportionate interest of Rs.2,00,98,622 with reference to Section 36(1)(III) of the said Act during the year 1998-99 on borrowed capital for the purpose of determining the tax free dividend income earned by the respondent/assessee in spite of there being no material before the Learned Tribunal to come to a conclusion that borrowed capital was not used by the respondent/assessee for investment in shares?
i) Whether in the facts and in the circumstances of the case, the Learned Income Tax Tribunal erred in law in deleting the addition of Mesne Profit, due to the respondent/assessee from Food Corporation of India, from income for the respondent/assessee during the assessment years 1998-1999 and 1999-2000 duly confirmed by the Commissioner of the Income tax (Appeals) and in directing the inclusion thereof in the Assessment Year 2000-2001?
j) Whether in the facts and in the circumstances of the case, the finding of the Learned Tribunal for the purpose of deleting the disallowance of Rs.77,37,000.00 and in upholding the disallowance of Rs.39,43,031 on account of expenditures of the respondent/assessee during the assessment year 1999-2000 under the head “Building Repairs & Maintenance is perverse?”
Held by High Court
The question nos. (a) and (b) which related to the interest under charged by the assessee to the extent of 5% on borrowed capital given on loan to its associates concerns do not really arise for consideration because the view taken by the Tribunal is based on a judgment of the Delhi High Court in the case of CIT v. Sahani Silk Mills P. Ltd. reported in (2002) 253 ITR 294. Also the question no. (c) which related to expenditure incurred by the assessee as the flagship company to promote the corporate image of the group companies pertains to the view taken by the Tribunal on the basis of a judgement of Delhi High Court in the case of Addl. Commissioner of Income-Tax v. Delhi Cloth and General Mills Co. Ltd. (1983) 144 ITR 280 wherein it was held that the expenditure incurred by the assessee in organizing tournaments was an allowable deduction.
The question nos.(d) and (e) are questions on facts. The learned Tribunal has allowed an expenditure of a sum of Rs.32,870 /- on account of fees for legal assistance paid to the Solicitors while a sum of Rs.50,000/- was disallowed. It is not in dispute that the expenditure was, in fact, incurred. The only point was that the payment was in connection with services rendered and billed for on 28th February, 1997 and therefore, the expenditure could not be allowed in a subsequent year but that question has not been given much importance by the learned Tribunal for the simple reason that an appeal relating to the year to which the expenditure pertained was also pending and therefore there was, in substance, no reason why the expenditure should not have been allowed. Therefore, the question nos.(d) and (e) are of no substance altogether.
So far as the question no.(f) is concerned, the learned Tribunal in allowing entrance fees paid to the clubs relied on the judgement of Gujrat High Court in the case of Gujrat State Export Corporation Ltd. v. CIT reported in (1994) 209 ITR 649. The question no. (g) does not really arise for consideration because the money spent by the assessee in meeting the liability of voluntary retirement was recovered from the subsidiaries. The money so recovered has been offered for taxation and has been taxed as income arising from other sources whereas the expenditure incurred on account of voluntary retirement was disallowed. The obvious incongruity was removed by the learned Tribunal. Therefore, this question is really based on non-application of mind.
The question no.(h) which related to deletion of disallowance of interest on account of borrowed capital was utilized for the purpose of earning exempt income, appears to have some substance in it. The learned Tribunal has deleted the disallowance following its judgement for the earlier years but no finding was arrived at by the learned Tribunal indicating that the borrowed capital was not utilized for the purpose of earning exempt income. In the absence of such a finding the disallowance could not have been deleted. Matter remanded back to AO.
The question no. (i) is again an outcome of non-application of mind because the order for payment of mesne profits attained finality on 30th July, 1999. Therefore, the same can only be assessable in the year 2000-2001. The learned Tribunal did the correct thing. The question no. (j) is equally an outcome of non-application of mind. The immovable property has partly been let out and there were other properties rented by the assessee for the purpose of its business. The view taken by the learned Tribunal is evidently a possible view and no reason is forthcoming why the same is perverse.
Accordingly, appeal of the revenue partly allowed.
