Commissioner Of Income Tax, Chennai v. M/S.matrix Intel Pvt Ltd, Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 13.11.2006 Coram : THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) Nos.216 & 217 of 2003 Commissioner of Income Tax,Chennai. ..Appellant VsM/s.Matrix Intel Pvt Ltd,Chennai. ..Respondent Appeals under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Madras, 'B' Bench dated18.03.2003 in I.T.A. Nos.1276 & 1277/Mds/1999 for the assessment years1995-96 and 1996-97 against the order of the Commissioner of Income tax(Appeal)-IV, Chennai in ITA.Nos.22/98-99/Com.IV (3) 448/98-99 respectivelydated 23.06.99 against the order in PAN/GIR.No.M-975 dated 29.01.98 &30.11.98 respectively on the file of the Assistant Commissioner of IncomeTax Company Circle IV (3) Chennai & Deputy Commissioner of Income TaxCompany Circle IV (3) Chennai respectively. For Appellant : Mrs.Pushya Sitaraman, Sr.Standing Counsel for Income-tax DepartmentFor Respondent : Mr.V.D.Gopal These appeals are filed by the Revenue under Section 260A of theIncome Tax Act, 1961 in I.T.A. Nos.1276 & 1277/Mds/1999, against the orderof the Income Tax Appellate Tribunal, Madras, 'B' Bench, dated 18.03.2003.On 09.02.2004, this Court admitted these appeals and formulated thefollowing substantial questions of law: https://hcservices.ecourts.gov.in/hcservices/ For the assessment year 1995-96: "1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that theappeal which was filed prior to issue of the circularenhancing the minimum tax effect for filing an appealto the Tribunal should be governed by the circular anddismissed?" For the assessment year 1996-97: "2. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that onlygross income should be taken into account for thepurpose of deduction u/s 80-O? 3. Whether in the facts and circumstances of the case,the Tribunal was right in rejecting the departmentalappeal on the ground that the expenses related toearning the foreign income had been estimated?" https://hcservices.ecourts.gov.in/hcservices/ For the assessment year 1995-96: "1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that theappeal which was filed prior to issue of the circularenhancing the minimum tax effect for filing an appealto the Tribunal should be governed by the circular anddismissed?" For the assessment year 1996-97: "2. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that onlygross income should be taken into account for thepurpose of deduction u/s 80-O? 3. Whether in the facts and circumstances of the case,the Tribunal was right in rejecting the departmentalappeal on the ground that the expenses related toearning the foreign income had been estimated?" 2.The brief facts leading to the above questions of law are asunder: The assessee is a domestic company incorporated under the CompaniesAct. Its main business is Consultancy Services. The relevant assessmentyears are 1995-96 and 1996-97 and the corresponding accounting years endedon 31.03.1995 and 31.03.1996, respectively. For both the assessment yearsthe assessee also derived commission from foreign counterparts for theconsultancy services rendered by them. For the assessment year 1995-96,the assessee filed Return of income on 16.05.1997 admitting Nil income.Later notice was issued under Section 143(2) of the Income-tax Act(hereinafter referred to as the "Act") and the assessment was completeddetermining total income at Rs.1,08,509/-. For the assessment year 1996-97, the assessee filed Return of income on 16.05.1997 admitting a taxableincome of Rs.75,540/-. The Return was processed under Section 143(1)(a) ofthe Act and an intimation dated 17.10.1997 was issued on the said Return.Later, notice was issued under Section 143(2) of the Act and assessmentwas completed, determining a total income of Rs.3,27,275/-. The assesseeclaimed relief under Section 80-O of the Act. The Assessing Officerrestricted the deduction, after estimating the expenses in relation to theearning of the consultancy income from abroad and allocating the samebetween commission earned locally and commission earned from abroad.Aggrieved by the orders, the assessee filed appeals to the Commissioner ofIncome-tax (Appeals). The C.I.T.(A) allowed the appeals and directed theAssessing Officer to allow the deduction under Section 80-O of the Act inrespect of receipts specified in the said section without deducting anyexpenses. Aggrieved, the Revenue filed appeals to the Income-tax AppellateTribunal (hereinafter referred to as the "Tribunal"). The Tribunalconfirmed the orders of the C.I.T.(A) by relying on a decision of the Income-tax Appellate Tribunal, Bangalore Bench, in the case of M.N.Dasturand Co. Ltd., Vs. DCIT and dismissed the appeals. 3.Learned Senior Standing Counsel appearing for the Revenuesubmitted that in respect of Question No.1 for the assessment year 1995-96, the Tribunal was wrong in relying on the circular in dismissing theappeal, on the ground of low tax effect. Learned Standing Counsel furtherrelied on this Court judgment reported in 275 ITR 244 in the case ofCommissioner of Income-tax Vs. Kodananad Tea Estates Co. and submittedthat a direction should be given to the Tribunal to consider the case onmerits. In respect of Question Nos.2 and 3, for the assessment year 1996-97, the learned Standing Counsel submitted that the Assessing Officer wasright in allocating the expenditure on pro-rata basis between thecommission earned locally and the commission earned abroad. Further it isalso contended that no material or evidence was furnished by the assesseeregarding incurring of expenditure for earning the foreign commission andhence, the Assessing Officer had no option but to allocate the same onproportionate basis. 4.Learned counsel for the assessee submitted that when there wasno expenditure incurred for earning the consultancy income, the AssessingOfficer was wrong in allocating the expenses on pro-rata basis, betweenthe commission earned locally and commission earned abroad, and therefore,the Assessing Officer was not justified in deducting from foreigncommission. 5.Heard the counsel. In respect of Question No.1 relating to theassessment year 1995-96, the Tribunal dismissed the Revenue's appeal asthe tax effect was less than Rs.1,00,000/-. Now, the issue is covered bythis Court judgment reported in 275 ITR 244 in the case of Commissioner ofIncome-tax Vs. Kodananad Tea Estates Co. In view of the same, we set asidethe order of the Tribunal with a direction to consider the matter onmerits. In respect of Question Nos.2 and 3, relating to the assessmentyear 1996-97, we find that the Tribunal had not given any reasons andit simply relied on the Bangalore Bench decision of the Tribunal in thecase of M.N.Dastur and Co. Ltd. Vs. DCIT. The order of the Tribunal readsas under: "3. In the assessment year 1996-97, the Revenue isaggrieved by the decision of the C.I.T.(Appeals) inallowing the deduction under sec.80-O without deductingany expenses incurred by the assessee. The C.I.T.(A)while deciding the issue, directed the AssessingOfficer to allow deduction under sec.80-O in respect ofreceipts specified in the said section withoutdeducting any expenses. The C.I.T.(Appeals) hasfollowed the decision of the I.T.A.T., Bangalore Benchin the case of M.N.Dastur and Co. Vs. DCIT. 4. As the grounds suggests, the Department has filedthis appeal only on the reasoning that the decision ofthe I.T.A.T. has not become final and the ReferenceApplicationispending.TheDepartmentalRepresentative was unable by bringing any material toshow that the decision of the I.T.A.T. is reversed. I,therefore, following the decision of the I.T.A.T.,Bangalore Bench in the case of M.N. Dastur and Co., donot find any infirmity in the order of the C.I.T.(Appeals). The appeal is dismissed for the assessmentyear 1996-97." From a reading of the above, it is clear that the Tribunal has merelyrelied on the decision of the Bangalore Bench of the Tribunal, withouteven giving the citation. The Tribunal is the last fact-finding authorityand the Tribunal is required to examine the materials and records beforerendering a decision on any issue raised by the parties. The Tribunalought to have decided the case by recording complete facts and assigningcogent reasons. In this case, mere reference to the decision of theBangalore Bench of the Tribunal, would not be enough and sufficient. Also,the Tribunal should have considered the arguments advanced by the counselon both sides and given reasons before coming to the conclusion. Due tonon-availability of facts, material or evidences on record, it isdifficult for the Court to decide the issue. We find that the issueinvolved in both the assessment years is common. Hence we also set asidethe order of the Tribunal, for the assessment year 1996-97 with adirection to rehear both the appeals afresh after giving reasonableopportunity to both the parties and permit the counsel for the assessee aswell as the Revenue to furnish materials, evidence as well as case law, ifany, to support their contentions and consider the same and pass orders onmerits for both the assessment years, in accordance with law, asexpeditiously as possible. No costs. km https://hcservices.ecourts.gov.in/hcservices/ To 1. The Assistant Registrar,Income-Tax Appellate TribunalRajaji Bhavan, III Floor,Besant Nagar, Chennai - 90. 2. The Commissioner of Income Tax,Chennai. 3. The Assistant Commissioner of Income TaxCompany Circle IV (3), Chennai. 4. The Deputy Commissioner of Income TaxCompany Circle IV (3), Chennai - 6. 5. The Commissioner of Income Tax,Appeals IV, Chennai. km https://hcservices.ecourts.gov.in/hcservices/ To 1. The Assistant Registrar,Income-Tax Appellate TribunalRajaji Bhavan, III Floor,Besant Nagar, Chennai - 90. 2. The Commissioner of Income Tax,Chennai. 3. The Assistant Commissioner of Income TaxCompany Circle IV (3), Chennai. 4. The Deputy Commissioner of Income TaxCompany Circle IV (3), Chennai - 6. 5. The Commissioner of Income Tax,Appeals IV, Chennai. 1 cc To Mr.V.D.Gopal, Advocate, SR.54965.1 cc To M/S.Pushys Sitaraman, Advocate, SR.54777. Tax Case (Appeal) Nos. 216 & 217 of 2003 RA(CO)RVL 18.12.2006