Commissioner Of Income Tax, Madurai v. M/S Shri Vishnu Shankar Mills Ltd Post Box

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED:18.08.2014 CORAM THE HON'BLE MR.JUSTICE R. SUDHAKARANDTHE HON'BLE MR.JUSTICE G.M. AKBAR ALI I.C.(A).No.976 of 2004 Commissioner of Income Tax,Madurai.... Appellantvs M/s Shri Vishnu Shankar Mills LtdPost Box No.109,PAC Ramaswamy Raja RoadRajapalayam .... Respondent Prayer Appeal under Section 260A of the Income Tax Act 1961against the Order of the Income Tax Appellate Tribunal Bench 'A'Chennai dated 30.3.2004 ITA No.1024/Mds/97 for the assessment year1994-95 against the order of the Commissioner of Income Tax (Appeal-I) Madurai dated 26.3.1997 IT Appeal No.424/96-97 PA.No.49-000-CQ-5213 against the order of the Deputy Commissioner of Income Tax,Special Range II, Madurai dated 29.11.1996 in PA.No.49-000-OQ-5213/DC.SR.II/Mdu. For Appellant :Mr.M. Swaminathan Senior Standing Counsel For respondent : Mr.J. Balachander Mrs.IndumathiJUDGMENT(Delivered by R. SUDHAKAR,J.,) The present Appeal is filed against the Order dated 30.03.2004of the Income Tax Appellate Tribunal, Chennai,in ITA No.1024/Mds/97. 2.At the time of admission, the following substantialquestions of law were formulated: https://hcservices.ecourts.gov.in/hcservices/ "1. Whether in the facts andcircumstances of the case, the Tribunal wasright in allowing a deduction of theamounts spent on replacement of machineryas current repairs? 2. Whether in the facts andcircumstances of the case, the Tribunal wasright in allowing a deduction of theamounts spent on replacement of machineryas revenue expenditure? 3.Whether in the facts andcircumstances of the case, replacement ofindependent complete machinery can betreated as revenue expenditure? 4. Whether in the facts andcircumstances of the case, the Tribunal wasright in allowing the deduction of theamounts paid to the Rajapalayam Mills Ltd.,Employees Welfare Association for theconstruction of Kalyanamandapam as revenueexpenditure? 3. On the matter being taken up for final hearing, thelearned counsel on either side would comment upon the relevancy ofsubstantial questions of law Nos.1 to 3 by pointing out that suchfact or law touching upon those substantial questions of law wasnot the issue before the Tribunal itself and therefore, there is noneed to determine questions of law Nos.1 to 3. 4.In view of the above joint submission, the questions oflaw Nos.1 to 3 are not necessary to be answered. It follows that theonly question needs to be answered is the fourth question i.e., 4. Whether on the facts and in thecircumstances of the case, the Tribunal wasright in allowiing the deductioin of theamounts paid to the Rajapalayam Mills Ltd.,Employees Welfare Assocation for theconstruction of Kalyanamandapam as revenueexpenditure? 5.The Assessment Year relates to 1994-1995. Therespondent/assessee in this case paid an amount of Rs.6,00,000/-(Rupees six lakhs) to the workers on the occasion of Founder's dayCentenary Celebration and that was treated as revenue expenditure.The Assessing Officer was of the view that the amount paid by theassessee for the construction of Kalyanamandapam along with other https://hcservices.ecourts.gov.in/hcservices/ Group Companies for the benefit of workers is to be treated asDonation and it should not be treated as Revenue. Aggrieved againstthe said order, the assessee preferred an appeal before theCommissioner of Income Tax (Appeals), who confirmed the order passed by the Assessing Officer. Against which,the assessee preferred an appeal before the Tribunal. 6.The Tribunal, by the impugned order dated 30.3.2004, tooka different view and held in favour of the Assessee, against which,the present appeal has been preferred by the Revenue. https://hcservices.ecourts.gov.in/hcservices/ Group Companies for the benefit of workers is to be treated asDonation and it should not be treated as Revenue. Aggrieved againstthe said order, the assessee preferred an appeal before theCommissioner of Income Tax (Appeals), who confirmed the order passed by the Assessing Officer. Against which,the assessee preferred an appeal before the Tribunal. 6.The Tribunal, by the impugned order dated 30.3.2004, tooka different view and held in favour of the Assessee, against which,the present appeal has been preferred by the Revenue. 7.It was pointed out by the learned counsel for therespondent/assessee that, in a similar case viz., M/s RajapalayamMills's case decided in Tax Case (Appeal) No.1008 of 2004 videorder dated 13.7.2011, on an identical question of law, the case ofthe Revenue was accepted. According to him, in that case, one of thesister companies donated Rs.12,00,000/- for the very same purposewhich was held by this court as "not revenue expenditre and meredonation". The relevant portion reads as under: "12. As is evident from the contention takenbefore the Assessing Officer, the amount ofRs.12,00,000/- was paid by the assessee to theworkers on the Founder's Centenary Celebration.Thus, it is evident that there was no businessexpediency or compulsion therein for theassessee to make payment to the Employees'Association. However, generous or good intentionwith which the assessee made such a donation onthe eye of the Founder's Centenary Celebration,unless and until the said claim falls within theparameters of commercial expediency or businesscompulsion as held by the Supreme Court in thecase of Commissioner of Income Tax, Madras I vsT.V. Sundaram Iyengar and Sons (P) Ltd reportedin (1974) 94 ITR 428, the assessee's claimcannot be allowed for deduction therein underany provisions of the Act. In the decisionreported in (1990) 186 ITR 276 in the case ofCommissioner of Incomoe Tax, Madras vs T.V.Sundaram Iyengar and Sons (P) Ltd., this Courtpointed out that the expenditure was incurredmore as a matter of commercial expediency inpursuance of the tripartite agreement betweenthe employer and the employee. This Courtfurther pointed out that the agreement of theemployer to contribute towards construction ofthe houses was the result of the businessexpediency qualifying for deduction as a revenue expenditure incurred wholly and exclusively forthe purpose of the assessee's business. 15. As far as the present case is concerned,the facts are distinguishable from the decisionsreferred to above. The law declared by the ApexCourt in both the cases was that unless anduntil there is business expediency in making outthe expenditure, the claim could not be treatedas revenue expenditure. Considering the factthat the said amount was paid to the Worker'sAssociation on the occasion of Founder'sCentenary Celebration and there being no othermaterial to sustain the plea that it was onlypaid for having more efficient and contentedlabour force, we have no hesitation in holdingthat the amounts paid to the Rajapalayam MillsLtd., Employees Welfare Asociation for theconstruction of Kalyana Mandapam is purely inthe nature of donation and does not come underrevenue expenditure. 8.It is also stated by the learned counsel for the assesseethat Special Leave Petition filed by the assessee against thejudgment is dismissed by the Apex Court to the following effect:" Petition (s) for Special Leave to Appeal (Civil) ............./2012 (CC 21064/2011) 9.In view of the above position of law, the order of theIncome Tax Appellate Tribunal is set aside and the appeal is allowedand the substantial question of law is answered in favour of theRevenue. No costs. sr https://hcservices.ecourts.gov.in/hcservices/ To 1. The Deputy Commissioner Income Tax DepartmentSpecial Range IIMadurai 2. The Commissioner of Income Tax, (Appeals-I)Madurai 8.It is also stated by the learned counsel for the assesseethat Special Leave Petition filed by the assessee against thejudgment is dismissed by the Apex Court to the following effect:" Petition (s) for Special Leave to Appeal (Civil) ............./2012 (CC 21064/2011) 9.In view of the above position of law, the order of theIncome Tax Appellate Tribunal is set aside and the appeal is allowedand the substantial question of law is answered in favour of theRevenue. No costs. sr https://hcservices.ecourts.gov.in/hcservices/ To 1. The Deputy Commissioner Income Tax DepartmentSpecial Range IIMadurai 2. The Commissioner of Income Tax, (Appeals-I)Madurai 3. The Assistant RegistrarThe Income Tax Appellate TribunalBench A, Chennai 4. The Commissioner of Income Tax Madurai 5. The SecretaryCentral Board of Direct TaxesNew Delhi 1 cc to Mr.Swaminathan, Advocate, Sr. 37686T.C.(A) No.976 of 2004CNR (CO)kk 27/8