I.t.a. Nos. 60 And 99 Of 2010: 4 v. I.t.a. Nos. 60 And 99 Of 2010: 5

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 60 of 2010 AGAINST THE ORDER IN ITA 22/2005 of I.T.A.TRIBUNAL, COCHINBENCH DATED 18.08.2009 APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS.SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX SRI.K.M.V.PANDALAI, SC, INCOME TAX RESPONDENT: M/S.APPOLLO TYRES LTD. CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD,KOCHI - 31. BY ADV. SRI. JOSEPH MARKOSE, SCSRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON12.02.2019, ALONG WITH ITA.NO. 99/2010, THE COURT ON13.03.2019 DELIVERED THE FOLLOWING: I.T.A. Nos. 60 and 99 of 2010: 2 : IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 99 of 2010 AGAINST THE ORDER IN ITA 24/2005 of I.T.A.TRIBUNAL,COCHINBENCH DATED 18.08.2009 APPELLANTS: THE COMMISSIONER OF INCOME TAX, COCHIN BY ADVS.SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX SRI.K.M.V.PANDALAI, SC,INCOME TAX RESPONDENT: M/S.APPOLLO TYRES LTD., 6TH FLOOR, CHERUPUSHPAMBUILDINGS, SHANMUGHAM ROAD, KOCHI-31. BY ADVS. SRI. JOSEPH MARKOS (SR.)SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH KODIANTHARA (SR.)SRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON12.02.2019, ALONG WITH ITA.60/2010, THE COURT ON 13.03.2019DAY DELIVERED THE FOLLOWING: JUDGMENT Ramachandra Menon , J. These appeals arise from the verdict passed by theIncome Tax Appellate Tribunal, Kochi Bench in I.T.A.Nos. 22 of 2005 and 24 of 2005 in respect of theassessment year 1997 - '98. 2. The Commissioner of Income Tax, Cochin is theappellant. The matter is still to be admitted, thoughit was pending for more than 9 years. 3. Heard Sri. Christopher Abraham, the learnedstanding counsel appearing for the appellant and Sri.Joseph Markos, the learned counsel appearing for therespondent assessee. 4. The respondent assessee is engaged in thebusiness of manufacture and sale of automotive tyres,tubes etc., who filed return in respect of theassessment year 1997 - '98 on 28.11.1998, which wasfollowed by the revised return dated 29.09.1999. Theassessment was finalized by the assessing officer I.T.A. Nos. 60 and 99 of 2010: 4 : under section 143 (3) of the Income Tax Act, as perAnnexure A order dated 30.03.2000, assessing a totalincome of Rs. 14,21,00,850/-. This was sought to bechallenged by the assessee by filing an appeal beforethe Commissioner of Income Tax (Appeals), who grantedsome reliefs. This was the subject matter ofchallenge before the Income Tax Appellate Tribunal.The assessee had claimed liability of sale of IRFCbond of Rs.48,06,898/- as revenue expenditure in therevised return of income, which was considered by theassessing officer as 'capital loss' and this came tobe confirmed by the Commissioner of Appeals as well.But the Tribunal, placing reliance on the verdictpassed by the Apex Court in assessee's own case AppoloTyres Ltd. Vs. Commissioner of Income Tax, Kochi [255ITR 273] held that the business of trading shares andsecurities is an eligible business of the assesseecompany and accordingly, the assessee's claim ofexpenditure came to be allowed. Similarly, theassessment made by the assessing officer disallowing I.T.A. Nos. 60 and 99 of 2010: 5 : I.T.A. Nos. 60 and 99 of 2010: 5 : the claim for deduction of Rs.32,80,742/- to theEmployees' Welfare Trust set by the assessee company,with reference to the application of Section 40A(9),which came to be confirmed by the Commissioner ofIncome Tax [Appeals], was interdicted by the Tribunalallowing the claim of the assessee, holding thatSection 40A(9) was not attracted to the case in hand.This made the Revenue to feel aggrieved, who is beforethis Court by way of these appeals. 5. Two questions have been suggested, as involving substantial questions of law in I.T.A. No.60 of 2009, as extracted below : “1.(a) Whether on the facts an in the circumstances of thecase and also for the reasons stated in the grounds of appeal isnot the loss of Rs.61,30,191/- on sale of IRFC bonds a capitalloss and an impermissible deduction under the I.T. Act ? (b) Is not the decision reported in 255 ITR inapplicable to thefacts of the case for the reasons stated in the grounds ofappeal ? 2. Whether on the facts and in the circumstances of the caseand also in view of the fact that the Welfare Trust created bythe assessee is in respect of transportation of the employees, the assessee is entitled to claim deduction of the contributionof Rs.22,66,580/- made to the trust.” 6. At the very outset, it is to be noted that thefirst question itself is not factually correct, as theloss in respect of sale of IRFC bonds claim was onlyRs.48,06,898/- and not Rs.61,30,191/-. The facts andfigures were meticulously analysed by the Tribunal andit was accordingly, that a finding was rendered thatthe stand taken by the assessing officer and theCommissioner, that IRFC bonds represented investmentby the assessee and hence was capital loss was notcorrect, as it was part of the business of trading inshares and securities; thus representing part of theeligible business of the assessee company. The ratioof the decision rendered by the Apex Court in 255 ITR273 [cited supra] [assessee's own case] was relied onby the Tribunal in support of the finding. 6. With regard to other issue, the assessee hadclaimed a sum of Rs.32,80,742/- as expenses fortransportation of the employees, paid to the Employees' Welfare Trust. This was disallowed by theassessing officer and also by the Commissioner holdingthat it was diversion of income. After examining thefacts and figures, the Tribunal held that there wasforce in the version of the assessee that it was onlytowards the transportation cost of the employees asarranged by the Welfare Trust. If it was notundertaken by them, the transportation would have tobe arranged by the assessee company and this being theposition, it was part of the actual expenses incurredby the assessee being transportation cost of theemployees. It was accordingly, that the claim wasallowed, which is now sought to be interdicted. 8. I.A. No. 1898 of 2010 has been filed raising anadditional ground and a question in the followingterms : “Ground G : The Tribunal should have confirmed the order ofCIT (A) on the above issue without remanding the same to theAssessing Officer. Question No. 3 : Whether, on the facts and in the circumstancesof the case and in the light of the cogent reasons given by the I.T.A. Nos. 60 and 99 of 2010: 8 : CIT (A) the Tribunal is right in law in restricting the disallowanceof interest and other expenses under section 14 of the IT Act to0.5% of the total interest and expenditure ?” 8. I.A. No. 1898 of 2010 has been filed raising anadditional ground and a question in the followingterms : “Ground G : The Tribunal should have confirmed the order ofCIT (A) on the above issue without remanding the same to theAssessing Officer. Question No. 3 : Whether, on the facts and in the circumstancesof the case and in the light of the cogent reasons given by the I.T.A. Nos. 60 and 99 of 2010: 8 : CIT (A) the Tribunal is right in law in restricting the disallowanceof interest and other expenses under section 14 of the IT Act to0.5% of the total interest and expenditure ?” 9. The additional ground and question raised bythe Department relate to dis-allowance of the interestworked out by the Commissioner of Income Tax [Appeals]on the basis of the loan taken and for the period inwhich it was held. It was after referring to thefacts and figures, that a definite finding wasrendered by the Tribunal, interdicting disallowance ofinterest on other expenses to an extent of 0.5% of thetotal interest and the expenditure. The said aspectis more a question of fact, than any question of lawand as such, even if the additional ground and thequestion of law mooted by the Department are permittedto be raised by allowing the I.A., it will not tilt the balance in any manner projecting any substantialquestion of law. 10. The version of the Department, with referenceto the loss sustained on IRFC bonds is that it is a I.T.A. Nos. 60 and 99 of 2010: 9 : 'capital loss' and not a business loss. It iscontended that the verdict of the Apex Court in 255ITR 273 [cited supra] = (2002) 9 SCC 1 [assessee'sown case] is not applicable to support the assessee.The Department contends that the issue considered bythe Apex Court there [in relation to buying andselling of the units of the Unit Trust of India by theassessee] was whether it was 'speculative' in natureor not; whereas in the present case the issue iswhether it is 'capital loss' or 'business loss'. Wefind it difficult to agree. The issue whether it wasspeculative in nature or not was the point consideredby the Apex Court in paragraph 12of the decision in Appolo Tyres Ltd. Vs. Commissioner of Income Tax,Kochi [(2002) 9 SCC 1]. Whether it is an eligiblebusiness of the assessee or not was separatelyconsidered in 'paragraph 11', which is reproducedbelow : “11. The dispute in the present case is in regard tothe question whether the assessees investment in the UTI is business, and if so, is it a business which qualifies to be aneligible business under S.32AB? In regard to the firstaspect, we must note that the tribunal as a question of factbased on material on record has come to the conclusion thatthe investment in the UTI by the assessee company is in thecourse of its business and its business of manufacture andsale of tyres and sale and purchase of units of the UTI arecommon in nature and both the businesses are intertwinedand interlaced. This finding is accepted by the High Courtalso. We also find that this business of the assesseecompany of buying and selling of units is a business ascontemplated under S.32 AB of the Act. The question theis: is it an eligible business under the said section? The termeligible business is defined under sub-s. (2) of S.32AB. Asper that definition, all business of an assessee company willbe an eligible business unless it falls under the type ofbusiness enumerated in sub clauses (a) and (b) of S.32AB(2).It is nobodys case that this business of the assesseeCompany is one of those businesses which fall underbusinesses enumerated in clauses (a) and (b) of sub-s. (2) ofS.32AB. Therefore, there is no doubt that the business ofthe assessee company is an eligible business. The fact thatis shown under a different head of income would not deprivethe company of its benefit under S.32AB so long as it isheld that the investment in the units of the UTI by the assessee company is in the course of its eligible business.Therefore, in our opinion, the dividend incomes earned bythe assessee company from its investment in the UTI shouldbe included in computing the profits of eligible businessunder S.32AB of the Act." From the above, it is quite clear that the verdictpassed by the Tribunal, in favour of the assesseeunder this head is perfectly within the four walls oflaw and does not warrant any interference, as nosubstantial question of law is involved. 11. With regard to the contribution to theEmployees' Welfare Trust, the contention raised by theDepartment is that the assessing officer was right indisallowing the claim under Section 40A(9). It ispointed out that Section 40A(9) permits deduction onlyin respect of contributions like provident fund,approved superannuation fund and approved gratuityfund [as envisaged under the relevant clauses ofSection 36]. The 'Employees Welfare Trust' iscontended as not an approved one and it does not come I.T.A. Nos. 60 and 99 of 2010: 12 : within the purview of the statutory prescriptions.In fact, in respect of the transportation of theemployees, the Tribunal verified the facts and figuresand held that the contribution effected was to an'approved fund' and further that, the Transportationof the employees would otherwise have had to beundertaken by the assessee company, in terms of theservice conditions. This finding also is a questionof fact and no substantial question of law isinvolved. 12. Coming to ITA No. 99 of 2010, the challengeis against Annexure C order passed by the Tribunal on18.08.2009, interdicting Anexure B order passed by theCommissioner of Income Tax [Appeals], granting reliefto some extent to the assessee. The said appeal isalso pending before this Court for nine years, justordering 'notice on admission' on 27.09.2010. Thequestions suggested by the Revenue, as involving thesubstantial questions of law, are as given below : 1. (a) Whether, on the facts and in the I.T.A. Nos. 60 and 99 of 2010 circumstances of the case and also for the reasonsstated in the grounds of appeal is not the loss ofRs.61,30,191/- on sale of IRFC bonds a capital loss andan impermissible deduction under the I.T. Act ? (b) Is not the decision reported in 255 ITRinapplicable to the facts of the case for the reasonsstated in the grounds of appeal ? 2 (a) Whether on the facts and in the circumstances ofthe case and also in view of the fact that the WelfareTrust created by the assessee is in respect oftransportation of the employees, the assessee isentitled to claim deduction of the contribution ofRs.22,65,580/- made to the trust ? (b) Whether, on the facts and in the circumstances ofthe case and in the light of Section 40A (9) read withSection 36 (1) (iv) (v) read with ground (F) the assesseeis entitled to claim the deduction of Rs.11,31,385/- dueto foreign exchange fluctuation ? 3. Whether, on the facts and in the circumstances ofthe case and when Section 43A of the I.T. Act providesfor adjustment of actual cost of capital asset only onsettlement of the liability, that is, on actual payment,the assessee is entitled to claim the deduction of I.T.A. Nos. 60 and 99 of 2010 Rs.11,31,385/- due to foreign exchange fluctuation ? 4. Whether, on the facts and in the circumstances of the case and also in view of the omission of first provisoto clause (ii) of Sub section (1) to Section 32 witheffect from 1/4/1996 by finance Act which providedfor 100 % depreciation - (i) the ITAT is right in remitting of the issueto the Assessing Officer ? (ii) The assessee is entitled to claim thededuction at all ? 3. Whether, on the facts and in the circumstances ofthe case and when Section 43A of the I.T. Act providesfor adjustment of actual cost of capital asset only onsettlement of the liability, that is, on actual payment,the assessee is entitled to claim the deduction of I.T.A. Nos. 60 and 99 of 2010 Rs.11,31,385/- due to foreign exchange fluctuation ? 4. Whether, on the facts and in the circumstances of the case and also in view of the omission of first provisoto clause (ii) of Sub section (1) to Section 32 witheffect from 1/4/1996 by finance Act which providedfor 100 % depreciation - (i) the ITAT is right in remitting of the issueto the Assessing Officer ? (ii) The assessee is entitled to claim thededuction at all ? On going through the first and second questions, it isquite evident that they are almost the same as raisedby the Department in ITA No. 60 of 2010. This byitself shows that there is overlapping/repetition/mistakes in raising the questions of law in twoappeals, apart from the mistake as to the actualextent of loss [shown as Rs.6130191/-], whereas lossin respect of IRFC bonds is stated as onlyRs.4806898/-. I.T.A. Nos. 60 and 99 of 2010: 15 : 14. With regard to the 3[rd] question of law raisedin ITA No. 99 of 2010, it has already been held thatthe said question is in relation to Section 43A of theI.T. Act. The Court has rendered a finding placingreliance on the verdict passed by the Apex Court onthe point as per judgment dated 12.03.2019 in ITANo.534 of 2009 and connected cases, which standsanswered against the Department and in favour of theassessee. 15. The last question is only in respect of theremand ordered by the Tribunal, directing theassessing officer to consider the points as mentionedtherein. According to the Department, the firstproviso to Clause (ii) of sub section (1) of Section32 [which provided for 100% depreciation] was omittedw.e.f. 01.04.1996 and as such, the remand is bad.This Court is of the view that this is a matter whichcan be considered by the assessing officer even onremand and there is no estoppal against law. As suchit is not a matter for interference of this Court. 16. In the above facts and circumstances, thisCourt is of the firm view that no substantial questionof law under Section 260A of the I.T. Act is pointedout to call for interference. Appeals fail and theyare dismissed accordingly. sd/- P. R. RAMACHANDRA MENON, JUDGE sd/- N. ANIL KUMAR, JUDGE kmd