Commissioner Of Income-Tax, Jalandhar v. M/S Max India Ltd

ITA No. 426 of 2010 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 426 of 2010 (O&M) Date of Decision: 8.9.2015 Commissioner of Income-tax, Jalandhar Versus ....Appellant. M/s Max India Ltd. ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment? 2.To be referred to the Reporters or not? Yes3.Whether the judgment should be reported in the Digest?3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE RAMENDRA JAIN. PRESENT: Mr. Vivek Sethi, Advocate for the appellant. Mr. Ajay Vohra, Senior Advocate with Mr. Gaurav Jain, Advocate and Mr. Vishal Gupta, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 1.1.2010 (Annexure A-3) passed by the Income Tax AppellateTribunal, Amritsar Bench, Amritsar (hereinafter referred to as “theTribunal”) in ITA No. 373(ASR)/2002 for the assessment year 1999-2000, claiming the following substantial questions of law:- I.Whether on the facts and circumstances of thecase, the ITAT was right in law in allowing theexpenses for setting off new business and fee paid of Rs.6,70,78,483/- treating it as revenuein nature?in nature? II.Whether on the facts and circumstances of thecase the ITAT was right in law in directing thatdepreciation should be worked out withreference to the WDV computed as a result oforder passed u/s 250(6) of the I.T. Act for theA.Y. 1998-99?case the ITAT was right in law in directing thatdepreciation should be worked out withreference to the WDV computed as a result oforder passed u/s 250(6) of the I.T. Act for theA.Y. 1998-99? 2.A few facts necessary for disposal of the present appeal asmentioned therein are that the assessee filed its return of income on14.12.1999 for the assessment year 1999-2000 declaring the income at` 9,08,42,893/- under Section 115J of the Act. The said return wasprocessed under Section 143(1)(a) of the Act and the case was taken upfor scrutiny. Notices under Section 143(2)/142(1) along withquestionnaire was issued. The Assessing Officer vide order dated28.3.2002 (Annexure A-1) made assessment under Section 143(3) of theAct at the total income of ` 9,05,56,273/- after setting of brought forwardlosses of ` 16,97,76,240/-. The Assessing Officer made disallowance of` 6,70,78,483/- on account of expenses for setting off new business andfee paid and ` 3,09,25,659/- on account of excess depreciationallowance. Feeling aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals), Ludhiana [hereinafter referredto as “the CIT(A)”]. The CIT(A), Ludhiana vide order dated 16.8.2002(Annexure A-2) allowed the appeal and deleted the additions made bythe Assessing Officer. Being dissatisfied, the revenue filed the appealbefore the Tribunal, who vide order dated 1.1.2010 (Annexure A-3) dismissed the said appeal. Hence, the present appeal by the revenue. 3.After hearing learned counsel for the parties, we do not find any merit in the appeal. 4.The following issues emerge for our consideration in this appeal:- (i)Whether the different business/ventures carriedon by the assessee including healthcarebusiness constituted one business or separatebusinesses?on by the assessee including healthcarebusiness constituted one business or separatebusinesses? (ii)Whether the expenditure of ` 6,70,78,483/- wasrevenue or capital in nature?revenue or capital in nature? (iii)Whether the admissible depreciation had to beworked out with reference to the written downvalue computed as a result of order passedunder Section 250(6) of the Act for theassessment year 1998-99?worked out with reference to the written downvalue computed as a result of order passedunder Section 250(6) of the Act for theassessment year 1998-99? 4.The following issues emerge for our consideration in this appeal:- (i)Whether the different business/ventures carriedon by the assessee including healthcarebusiness constituted one business or separatebusinesses?on by the assessee including healthcarebusiness constituted one business or separatebusinesses? (ii)Whether the expenditure of ` 6,70,78,483/- wasrevenue or capital in nature?revenue or capital in nature? (iii)Whether the admissible depreciation had to beworked out with reference to the written downvalue computed as a result of order passedunder Section 250(6) of the Act for theassessment year 1998-99?worked out with reference to the written downvalue computed as a result of order passedunder Section 250(6) of the Act for theassessment year 1998-99? 5.Examining issue (i) above, it would be advantageous tonotice the legal position first. The Apex Court in CIT v. PrithviInsurance Co. Limited (1967) 63 ITR 632, considering whether thebusiness of life insurance and the business of general insurance couldbe regarded as same business, had observed as under:- “A fairly adequate test for determining whether the twoconstitute the same business is furnished by WhatRowlatt, J. said in Scales v. George Thompson & Co.Ltd:constitute the same business is furnished by WhatRowlatt, J. said in Scales v. George Thompson & Co.Ltd: “Was there any inter-connection, any interlacing, any inter-dependency, any unity at all embracing thosetwo business?” “That inter-connection, interlacing, inter-dependenceand unity are furnished in this case by the existenceof common management, common businessOrganization, common administration, common fundand a common place of business.” 6.The principle of law enunciated in Prithvi Insurance Co. Limited's case (supra) was reiterated by the Supreme Court inProduce Exchange Corporation Limited v. CIT (1970) 77 ITR 739 byholding that while determining two or more lines of businesses of theassessee to be same “business” or “different businesses”, regard has tobe made to that there is common management of the main business andother lines of businesses, unity of trading organization, commonemployees, common administration, a common fund and a commonplace of business. It was further held that for evaluating the “samebusiness”, the test of unity of control and not the nature of business is tobe applied. Another judgment of the Supreme Court in the case ofVeecumsees v. CIT (1996) 220 ITR 185 had expressed similar view. 7.Applying the test in the present case, the CIT(A) afterappreciating the evidence produced on record had observed that variousbusinesses carried on by the assessee including healthcare doconstitute the same business of the assessee. The relevantobservations read thus:- “I have considered the rival submissions in the matter.On merits, I find that the appellant has been able to ordain well that the various businesses carried on by it(including Healthcare) do constitute the samebusiness of the appellant. I accordingly hold that thevarious businesses carried on by the appellantincluding Healthcare business, constitute onebusiness only, and not separate businesses.” 8.The Tribunal on appeal had affirmed the said findings.Learned counsel for the revenue was unable to demonstrate withreference to any material that the conclusion of the CIT(A) and theTribunal was erroneous, perverse or based on misreading of evidenceon record which may warrant interference by this Court. Thus, it isconcluded that the businesses carried on by the assessee includinghealthcare business would fall within the ambit of being the samebusiness of the assessee. 9.Next we proceed to consider whether the expenditure of` 6,70,78,483/- was revenue or capital in nature. In order to effectivelyresolve the said controversy, it would be essential to have the bifurcationof ` 6,70,78,483/- which is as under:- 8.The Tribunal on appeal had affirmed the said findings.Learned counsel for the revenue was unable to demonstrate withreference to any material that the conclusion of the CIT(A) and theTribunal was erroneous, perverse or based on misreading of evidenceon record which may warrant interference by this Court. Thus, it isconcluded that the businesses carried on by the assessee includinghealthcare business would fall within the ambit of being the samebusiness of the assessee. 9.Next we proceed to consider whether the expenditure of` 6,70,78,483/- was revenue or capital in nature. In order to effectivelyresolve the said controversy, it would be essential to have the bifurcationof ` 6,70,78,483/- which is as under:- 10.There was no serious dispute with regard to expensesincurred by the assessee like salaries and wages, rent, travelling andconveyance, communication, business promotion advertisement andmiscellaneous/other expenses, that these were revenue in nature.However, the amount of ` 6,70,78,483/- claimed as businessexpenditure by the assessee included professional fees of `4,46,,44,800/- paid to Mckinsey & Co. Learned counsel for the revenueurged that this payment was capital in nature and was not admissible asrevenue expenditure. The CIT(A) had held that in so far as genuinenessof this payment is concerned, there was no controversy that it wasactually paid to Mckinsey & Co. After appreciating the material, it wasfurther recorded that this expenditure was revenue in nature. TheTribunal had affirmed the said findings with the following observations:- “12.Keeping in view the aforesaid discussion by thelearned first appellate authority in the impugned order,we are of the considered opinion that the expenditurein dispute incurred by the assessee as revenue innature and allowable as deduction because theassessee has incurred the aforesaid expenses ondifferent businesses owned by the assessee includinghealth care business which constituted one businessonly. As regards the payment made to McKinsey &Companytheexpenditureincurredwascommensurate with the services rendered specially asit happened to be a world renowned firm. The learnedfirst appellate authority has rightly held that the observations of the A.O. that agreement had beenentered by the MTVL with McKinsey & Company andnot the assessee was incorrect as MTVL is asubsidiary company and was not carrying on anybusiness activities. The bill was raised by McKinsey &Co. in the name of the assessee. The payment wasmade by the assessee only. After going through theaforesaid judgment cited by the learned counsel forthe assessee as well as the learned CIT(A), we are ofthe considered opinion that no interference is calledfor in the well reasoned order passed by the learnedfirst appellate authority on this issue involving groundNo.1. Therefore, this ground raised by the Revenueis dismissed.” 11.Nothing could be demonstrated by learned counsel for therevenue that the aforesaid conclusion was unsustainable in law whichwould persuade this Court to interfere with the said findings. Therefore,the same are hereby affirmed. 12.In all fairness, the judgments relied upon by the learnedcounsel for the revenue in Commissioner of Income Tax v. OCL IndiaLimited, ITA No. 1037 of 2009, decided on 29.11.2010 by the DelhiHigh Court, Commissioner of Income Tax v. Flour and Food Ltd.((1988) 170 ITR 469 (MP), The Commissioner of Income Tax v.Zenith Steel Pipes and Industries Ltd. (2009) 315 ITR 95 (Bom) andLarsen & Toubro Ltd. v. Commissioner of Income Tax ITR No. 67 of1989 decided on 15.6.2012 also by the Bombay High Court may be 11.Nothing could be demonstrated by learned counsel for therevenue that the aforesaid conclusion was unsustainable in law whichwould persuade this Court to interfere with the said findings. Therefore,the same are hereby affirmed. 12.In all fairness, the judgments relied upon by the learnedcounsel for the revenue in Commissioner of Income Tax v. OCL IndiaLimited, ITA No. 1037 of 2009, decided on 29.11.2010 by the DelhiHigh Court, Commissioner of Income Tax v. Flour and Food Ltd.((1988) 170 ITR 469 (MP), The Commissioner of Income Tax v.Zenith Steel Pipes and Industries Ltd. (2009) 315 ITR 95 (Bom) andLarsen & Toubro Ltd. v. Commissioner of Income Tax ITR No. 67 of1989 decided on 15.6.2012 also by the Bombay High Court may be examined. Suffice it to notice that on perusal of these judgments, we findthat they were either based on finding of fact recorded therein that thebusiness undertaken by the assessee was initiation of a new businessand not expansion of business which was already carried on by theassessee or were based on individual fact situation involved therein.Thus, no benefit can be derived by the revenue from the aforesaidenunciations. 13.Looking from another perspective, we find that the presentcase relates to the assessment year 1999-2000 where the allowability ofthe expenditure is not in dispute but the issue is whether it has to beallowed in one year as revenue expenditure or by spreading over by wayof depreciation or amortisation over the years after capitalising it. Atpresent, the number of years that have gone by from the initial year hasbeen more than about fifteen years. Learned counsel for the revenuehas not been able to demonstrate that there had been any change in therate of taxation during these years. Thus, even if the substantial portionof the expenditure had been capitalised and depreciation or amortisationallowed under the Act, at the prevalent rate admissible under the Act andthe Income Tax Rules, 1962, the entire amount would have been allowedas deduction on account of depreciation or amortisation by now and thecase would be revenue neutral. Therefore, in such circumstances aswell, we do not find any justification in interfering with the order of theTribunal. Accordingly question No. I is answered against the revenue. 14.Now adverting to question No. II, the CIT(A) while passingthe order under Section 250(6) of the Act for the assessment year1998-99 in the case of the assessee had deleted certain disallowance made by the assessing officer on account of depreciation resulting inhigher Written Down Value (WDV) as on 1.4.98. The CIT(A) on thatbasis had directed the assessing officer to allow depreciation for thecurrent assessment year, i.e., 1999-2000 by taking the effect of therevised WDV. The revenue had assailed the order of the CIT(A) in thecase of the assessee for the assessment year 1998-99 which wasaffirmed by the tribunal in 'Deputy Commissioner of Income Tax Vs.Max India Ltd., (2007) 112 TTJ (ASR) 726'. Since the order of CIT(A)in the case of the assessee for the assessment year 1998-99 hadresulted in higher WDV of the asset, and the said order was affirmed bythe tribunal in appeal, the depreciation for the assessment year 1999-2000 had thus been rightly directed to be worked out with reference tothe WDV computed as a result of order passed under Section 250(6) ofthe Act for the assessment year 1998-99. No error could be pointed outin the approach adopted by the CIT(A) as well as the Tribunal for takingthe higher WDV of the asset of the assessee for the assessment year1999-2000. Accordingly, question No.II is also answered against therevenue. 15. In view of the above, finding no merit in the instant appeal,the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE September 8, 2015gbs (RAMENDRA JAIN) JUDGE