Monorama Co.ltd v. Commissioner Of Income-Tax. The Assesseethen Raised An Alternate Contention That, It Is Entitled To Deduction

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY, THE 30TH DAY OF MAY 2018 / 9TH JYAISHTA, 1940 ITA.No. 96 of 2010 -------------------- AGAINST THE ORDER/JUDGMENT IN ITA 51/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 11-08-2009 APPELLANT/APPELLANT/APPELLANT: -------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADV.SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT.: ----------------------- M/S.MALAYALA MANORAMA CO.LTD., KOTTAYAM. R BY ADV. SRI.P.BENNY THOMAS R BY ADV. SRI.P.GOPINATH R BY ADV. SRI.K.JOHN MATHAI R BY ADV. SRI.E.K.NANDAKUMAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 30-05-2018,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T. APPEAL NO. 96/2010 APPENDIX---------- APPELLANT'S ANNEXURES: --------------------- ANNEXURE A: ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT 1961 DT 19.12.2006ANEXURE B: CIT(A) ORDER IN ITA NO.66/KTM/CIT (A)IV/06-07 DT 29.10.2017ANNEXURE C: ITAT'S ORDER IN ITA NO. 511/COCH/08 DT 11.08.2009 ARISING OUT OF CIT(A)'S ORDER RESPONDENTS ANNEXURES: NIL --------------------- TRUE COPY P.A TO JUDGE jma K. VINOD CHANDRAN & ASHOK MENON, JJ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T Appeal No.96 of 2010 - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 30[th] day of May, 2018 J U D G M E N T Vinod Chandran, J We are faced with an interesting situation wherein the assessee claims a deduction as allowable, under a differentprovision from that claimed in the return; denied however, forreason of the proper procedure of revision of return having notbeen resorted to. The question of law framed by the revenue whois in appeal is re-framed as follows: When at the time of assessment, the claim for deduction made in the return is disallowed, whetherthe assessee is entitled to make an alternate plea by ITA No.96 / 2010 way of mere submission before the Assessing Officer, especially when the statute interdicts even a revision,as per Sub-section(5) of Section 139, after one yearfrom the relevant assessment year or completion ofassessment, whichever is earlier ? We are also inclined to frame an alternate question of law asarising from the order of the Tribunal: Has not the Tribunal erred insofar as allowing theclaim under Section 80 G of the Income Tax Act sinceeven if the assessee carried out the air-conditioning ofthe town hall through a charitable institution certifiedunder the provision, the same would not be adonation as provided under Section 80G eligible fordeduction as one made to a charitable institution? 2. Limited facts required to be stated are as follows. ITA No.96 / 2010 The assessment for the assessment year 2004-05 was completed by Annexure A. The Assessee had through the MammenMappilai Charitable Trust expended an amount of Rs.1 crore forthe purpose of air conditioning of Mammen Mappilai Hall whichis owned by the Kottayam Municipality. The hall is in the nameof the founder of the assessee and the assessee had taken up onitself the task of maintaining re-furnishing and modernising thesaid hall in memory and in honour of the founder. The assesseeclaimed in its return, deduction under Section 37 of the IncomeTax Act, 1961 as an expense incurred wholly and exclusively forbusiness purposes. 3. The Assessing Officer rejected the claim in view of the binding precedent in [2006] 284 ITR 69 (Ker) Malayala Monorama Co.Ltd. v. Commissioner of Income-Tax. The assesseethen raised an alternate contention that, it is entitled to deduction ITA No.96 / 2010 under Section 80G as a donation granted to a charitable trust. The said 3. The Assessing Officer rejected the claim in view of the binding precedent in [2006] 284 ITR 69 (Ker) Malayala Monorama Co.Ltd. v. Commissioner of Income-Tax. The assesseethen raised an alternate contention that, it is entitled to deduction ITA No.96 / 2010 under Section 80G as a donation granted to a charitable trust. The said claim was rejected on merits as also for reason that the returns did notindicate it having been given as a donation to the charitable trust. Theappellate authority allowed the claim and remanded the matter for thelimited purpose of verification of the receipt of donation and the certificateunder Section 80 G issued to the trust. The Tribunal affirmed the same. 4. The learned Counsel for the revenue placed before us anorder of the Hon'ble Supreme Court reported in [2006] 284 ITR 323 (SC) Goetze (India) Ltd., v. Commissioner of Income-Tax wherein a claimmade other than by way of a revised return was held to be notpermissible. The assessee in opposition relied on a Division Benchdecision of the High Court of Bombay in which a decision of the Hon'ble NTPC Limited v. Commissioner ofSupreme Court, reported in Income-Tax [1998] 229 ITR 383 was relied on to allow an identical claim. The decision of High Court of Bombay is reported in 2012 (349) ITR 336 (Commissioner of Income-Tax v. Pruthvi Brokers and ITA No.96 / 2010 Shareholders Pvt.Ltd. wherein Goetze (India) Ltd. was noticed butdistinguished.The learned Counsel appearing for the assesseealso contended that when the claim is allowable under Section80G and not includable in the taxable income as per the Income-Tax Act, there can be no deduction merely for the reason of theclaim having not been made before the Assessing Officer. Thatwould lead to the assessee being pinned down to the claim ofdeduction made under the return; applying the principles ofestoppel; which has been deprecated by the Hon'ble SupremeCourt in (1965) 56 ITR 67 (Commissioner of Income-Tax v.V.MR P. Firm Muar. AIR 1986 (SC) 2111 Commissioner ofIncome-Tax v. Mahalekshmi Sugur Mills Ltd., was also placedbefore us to urge that a claim of benefit of set off has to beapplied in appropriate cases in computation of total income; evenif it is not claimed by the assessee. ITA No.96 / 2010 5. We have to first notice that the issue of Section 80G was examined by the Assessing Officer and disallowed on meritsas also on the ground that there was no claim made in the return,as to the amounts being allowable as a donation nor any evidenceproduced to prove such donation. The first appellate authoritylooked at the photocopy of the receipts issued by the Trust and itsorder of approval under Section 80G and directed verification ofthe originals on satisfaction of which the claim was directed to beallowed. The Tribunal affirmed the limited remand made in firstappeal. The Revenue is in appeal on the compelling ground thatwithout a revision of return as permitted by the statute there canbe no such consideration. We notice that Goetze (India) Ltdand Pruthvi Brokers are distinguishable on facts and on law.Goetze was a case in which the return was filed and later aspecific claim of deduction, not raised in the return, was sought ITA No.96 / 2010 to be urged before the Assessing Officer by way of a letter. Theclaim was disallowed on the ground that there was no provisionunder the Income-Tax Act, to amend the return other than byrevision of return. In Pruthvi Brokers the claim of deductionwas made in the return but the figures were relatable to anotheryear; which was sought to be altered to the amounts relevant forthe subject year. ITA No.96 / 2010 to be urged before the Assessing Officer by way of a letter. Theclaim was disallowed on the ground that there was no provisionunder the Income-Tax Act, to amend the return other than byrevision of return. In Pruthvi Brokers the claim of deductionwas made in the return but the figures were relatable to anotheryear; which was sought to be altered to the amounts relevant forthe subject year. 6. The High Court of Bombay was concerned with acase where the assessee had made a claim of deduction not onlybefore the Assessing Officer but also independently before theappellate authorities. The assessee therein, claimed deduction ofan amount as fees paid to SEBI, which at the time of assessmentwas found to be paid in the year relevant to the next assessmentyear. Before the Assessing Officer, the assessee submitted thatthe amount shown in the return was by inadvertence and proffered a still larger amount paid as SEBI fees in the relevantassessment year. The Assessing Officer rejected the claim on theground that there is no authority to allow the relief notspecifically claimed in the return. The distinguishing factor isthat in Goetze (India) Ltd the deduction claimed by a letter wasnot claimed in the return. In Pruthvi Brokers the deduction wasclaimed, but by an inadvertent omission the amount shown couldhave been claimed only in the next assessment year. Howeverthere was considerable amounts entitled to be deducted in therelevant assessment year, under the same provision for deduction,which were paid in the year relevant to the subject assessmentyear. The Division Bench also found that even if the AssessingOfficer was not entitled to grant a deduction on the basis of amere submission made or letter communicated, the appellateauthorities would be entitled to consider the claim and adjudicate ITA No.96 / 2010 it. An extract from para7 is relevant: “We find well founded, Mr. Mistri's submission that even assuming that the Assessing Officer isnot entitled to grant a deduction on the basis ofa letter requesting an amendment to the returnfiled, the appellate authorities are entitled toconsider the claim and to adjudicate the same”7. In Pruthvi Brokers the deduction was one claimed inthe return but the quantum claimed was a mistake and it wasrelevant to another year. The claim raised on assessment was onlyto correct the quantum claimed. Likewise herein too, the claim ofdeduction was raised but however the provision under which theclaim was allowable, as claimed in the return was not proper.Therefore a claim for deduction under a different provisionunder the Income-tax Act itself. The assessee also had raised the claim independently before the first appellate authority whichwas allowed and remand ordered to verify the genuineness of thedocuments produced in support of the claim. 8.Additional Commissioner of Income-Tax v.Gurjargravures [1978] 111 ITR 1 also was relied to find that “The above observations do not rule out a case forraising an additional ground before the AppellateAssistant Commissioner if the ground so raisedcould not have been raised at that particular stagewhen the return was filed or when the assessmentorder was made, or that the ground becameavailable on account of change of circumstances orlaw. There may be several factors justifying raisingof such new plea in appeal, and each case has to beconsidered on its own facts. If the Appellate Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course,while permitting the assessee to raise an additional ground, the Appellate Assistant Commissionershould exercise his discretion in accordance with law and reason. He must be satisfied that theground raised was bona fide and that the samecould not have been raised earlier for good reasons. Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course,while permitting the assessee to raise an additional ground, the Appellate Assistant Commissionershould exercise his discretion in accordance with law and reason. He must be satisfied that theground raised was bona fide and that the samecould not have been raised earlier for good reasons. The satisfaction of the Appellate AssistantCommissioner depends upon the facts andcircumstances of each case and no rigid principlesor any hard and fast rule can be laid down for thispurpose.” 9. NTPC was a case in which the assessee had deposited certain funds in short term deposits on which there wasan interest income amounting to Rs.22,84,994/-. This was offeredfor assessment and there obviously was no ground raised againstthe assessment of that amounts in first appeal. When the secondappeal was filed before the Tribunal also, there was no challengeto the inclusion in income. Subsequently when the second appealwas pending, an additional ground was raised that on account ofthe erroneous admission with regard to the sum of Rs.22,84,994/-,there could be no inclusion in the taxable income, especiallywhen it had to be excluded. The Hon'ble Supreme Courtanswered the question of law framed in affirmative that theTribunal has jurisdiction to examine the question of law whicharise from the facts as found by the authorities below and havinga baring on the tax liability of the assessee. 10. The learned Standing Counsel appearing for the revenue would contend that only a question of law could be so raised as an additional ground and a deduction not claimed by the assesseecannot be raised before any of the authorities unless a claim is madein the return of income or a revised return filed. The learned Counselappearing for the assessee specifically refers to sub-section (5) ofSection 139, which mandates a revised return to be filed within theexpiry of one year or before the completion of the assessment whichever is earlier as the provision stood at the time of assessment. Hencethere could have been no revised return filed at the time ofassessment since it was after a period of one year from the date ofexpiry of the end of relevant assessment year. The learned Standing Counsel appearing for the Revenue per contra would alertly point out that in theassessee's own case, by [2006] 284 ITR 69 (Ker) this Court hadheld that an identical claim raised under Section 37 was not ITA No.96 / 2010 ::14:: permissible. The judgment was delivered on 13.12.2005. Therelevant assessment year in the instant case is 2004-05. The timewithin which a revised return had to be filed was 31.03.2006.There was no appeal filed from the decision in [2006] 284 ITR 69(Ker).The assessee having accepted the decision delivered on13.12.2005; necessarily a revised return could have been filedbefore 31.03.2006. We agree with the learned Standing Counselthat the assessee had ample time to file a revised returnespecially when the claim as raised in the return for an earlierassessment year was found to be not allowable by thejurisdictional High Court. However, we are not convinced that thesaid fact alone would dis-entitle the assessee from making theclaim at the appellate stage. 11. We are fortified in taking such a view by the decision of the Hon'ble Supreme Court in (1965) 56 ITR 67. 11. We are fortified in taking such a view by the decision of the Hon'ble Supreme Court in (1965) 56 ITR 67. Therein the question was with respect to the assessee havingacted in accordance with the instructions of the Central Board ofRevenue which took into account the devaluation of currency inMalaya due to occupation of Japan. A scheme was framed for thebenefit of Indian Nationals doing business in Malaya; who werehit by the reintroduction of Malayan Currency after the Britishre-occupied Malaya, resulting in drastic devaluation of theJapanese currency, which together with the Malayan currencywas in vogue at the time of Japanese occupation. The lossessuffered by such assessees during the assessment year 1942-43and 1946-47 were allowed to be set off against the profit of theassessment years 1942-43 and 1941-42. The debts discharged inJapanese currency were excluded in the asset side in the BalanceSheet, but the authority reserved for itself the right to treat anyrecoveries subsequently made as income. The subsequent recoveries were only on account of the Malaya Governmentreviving the loans due; which were already paid off inundervalued Japanese currency, on the Malayan currency beingre-introduced after occupation of Japan. Certain assessees, whosuffered losses applied under the scheme and got their losses setoff under the scheme. Since the debts due to them were revivedthey made some recoveries in the subsequent years; which theyclaimed to be not includable in income, since it was realization ofthe original amounts lent. Certain others had to pay more ontheir debts getting revived; which they claimed as businessexpenditure for deduction. The ITO rejected both claims, theCommissioner-Appeals allowed the former but declined the latterclaim. The Tribunal interfered with the order in appeal in so faras the claim of recovery being realization of money lent. TheTribunal found that the assessee having had the benefit of the ITA No.96 / 2010 scheme, for setting off losses, the debts are deemed to be written off and the further recovery is assessable as income. The HighCourt held in the case of recoveries; whatever received asprincipal will be allowable and the interest component alone willbe treated as income. As to the subsequent payments on revivalof debts it was held that the interest component alone will betreated as business expenditure and the principal cannot beallowed as deduction. Agreeing with the High Court, the Hon'bleSupreme Court held so: “The contention is that the assessees having optedto accept the scheme, derived benefit there under,and agreed to have their discharged debts excludedfrom the asset side in the balance sheet subject tothe condition that subsequent recoveries by themwould be taxable income, they are now precluded,on the principle of “approbate and reprobate” from pleading that the income they derivedsubsequently by realization of the revived debts isnot taxable income. The doctrine of “approbateand reprobate” is only a species of estoppel; itapplies only to the conduct of parties. As in thecase of estoppel, it cannot operate against theprovisions of a statute. If a particular income is nottaxable under the Income Tax Act, it cannot betaxed on the basis of estoppel or any otherequitable doctrine. Equity is out of place in taxlaw; a particular income is either exigible to taxunder the taxing statute or it is not. If it is not, theIncome Tax Officer has no power to impose tax onthe said income.” 12. Hence for the mere reason that the assessee had not claimed the provision under which the deduction wasallowable in the return cannot preclude the assessee fromclaiming it either before the first appellate authority or the 12. Hence for the mere reason that the assessee had not claimed the provision under which the deduction wasallowable in the return cannot preclude the assessee fromclaiming it either before the first appellate authority or the Tribunal. Merely for the reason that the assessee had made a wrongclaim in the return under Section 37 and as an alternate plea, relied onanother provision, for deduction, it would not disable an alternate claimunder Section 80 G. In any event the assessee would not have beendisabled from making such a claim before the appellate authority as heldby a three Judge Bench of the Hon'ble Supreme Court in NTPC. WeNTPC.agree with the decision of the Bombay High Court, which followed 13. Mahalekshmi Sugar Mills, according to us, on thequite distinct facts as also the law applied, has no application andhas been quoted out of context. Therein an Indian companywhich had shares in a Pakistani company, suffered losses in Indiabut however obtained dividend income from the Pakistanicompany. The assessee Indian company claimed that under theAgreement for the Avoidance of Double Taxation entered intobetween the two countries, the dividend income having suffered tax in Pakistan was not liable to be set-off against the lossessuffered in India. The assessee claimed that the losses suffered inIndia has to be carried over for being adjusted in the profits ofthe Indian company, if any, for the subsequent years. The assessewon before the High Court, however the Supreme Court heldotherwise. It was found that the dividend income obtained by thecompany whether accruing or arising abroad would have beentaxable under the Indian Income-tax Act. It was only by virtue ofthe Agreement for Avoidance of Double Taxation that thedividend income accruing in a company existing in Pakistan wasentirely taxable in Pakistan. The assessments, however, even asper the Agreement, was to be made in the ordinary course inaccordance with the laws existing in each of the countries. Hence,set-off as provided in the income-tax laws of India has to beapplied even if the assessee fails to claim the same. It is to be noticed that the set-off applied went against the assessee and notin its favour insofar as the losses of the Indian Company to thesaid extent was set of by the dividend income which was receivedfrom the Pakistani company. The aforesaid decision hasabsolutely no application on facts or law to the present case. 14. On the questions of law, we are of the opinion thatthe Assessing Officer cannot allow a claim for deduction, afreshraised; unless there is a revised return made in accordance withthe act as has been held in Goetze(India) Limited. Merely forreason that the Assessing Officer had disallowed the claim for thetechnical reason of the assessee having not filed a revised return,the assessee cannot be disabled from raising the very same claim NTPC.before the appellate authorities as has been held inFollowing NTPC it has also to be found that the necessary factsfor claiming a deduction if available in the return filed; an erroneous claim on figures or even a wrong claim under aprovision could be entertained even by the Assessing Officer, asin the present case. Here the assessee claimed businessexpenditure under Section 37; which, as held by this Court in asimilar matter, was not allowable. The assesee then claimedbefore the A.O that there was yet another provision under theAct, under which the deduction could be allowed. This wassubmitted before the Assessing Authority, who declined it onmerits for reason of no evidence produced. Before the FirstAppellate Authority also the claim was made, which stoodallowed; which decision was affirmed by the Tribunal. 15. In the facts and circumstances of this case we henceanswer the first question of law framed in favour of the assesseeand against the Revenue that there could have been a deductionconsidered under Section 80G, by the Assessing Officer without a 15. In the facts and circumstances of this case we henceanswer the first question of law framed in favour of the assesseeand against the Revenue that there could have been a deductionconsidered under Section 80G, by the Assessing Officer without a revised return being filed since the claim for deduction wasmade; but under a wrong provision. The necessary facts for aclaim to be set up was available in the return. 16. We then notice that the first appellate authority hasconsidered the claim under Section 80G prima facie, and found itto be tenable. The appellate authority had directed consideration of the claim by the Assessing Officer which is permissible, as hasbeen laid down by the Hon'ble Supreme Court in NTPC. But theconsideration directed was confined to verification of thecertificate issued to the Trust under Section 80G and the receipts.We cannot accede to that especially since the claim of theassessee itself is that through the Trust it carried out air-conditioning of the Hall which did not belong to the assessee orthe Trust. It would have to be considered whether the meredisbursement of funds through a Trust which is an institution approved under Section 80G could enable the deduction;especially when the money allegedly handed over to the Trust isfor the specific purpose of air-conditioning a Hall and the Trusthas no control or option to apply the funds in its charitableactivities. 17. On the above reasoning we would have normally remanded the matter to the Assessing Officer for freshconsideration of the claim on merits. However we see that theAssessing Officer had considered the claim on merits and inappeal, the first appellate authority reversed the findings andheld the claim allowable on merits subject only to the verificationof the receipt of donation and certificate issued to the Trustunder Section 80G. The Tribunal also upheld the same. Thealternate question framed by us hence assumes relevance. TheAssessing Officer having declined the claim under Section 37 also considered the claim raised as a donation under Section 80G. The Assessing Officer found that it was the initial claim of theassesssee that the amount incurred by the Company was for aspecific purpose; of air-conditioning of Mamman Mappilai hall.The assessee had been regularly debiting and claiming suchexpenses in the preceding years as business expenditure whichstood disallowed by a decision of this Court. There was found tobe no evidence filed to prove the expenses incurred by theCompany for air-conditioning the Mamman Mappilai hall; to bea donation to the charitable trust. It is before the appellateauthority copies of the receipts were produced. 18. Even if there is a payment made to a Trust,certified under Section 80G and the Trust has issued a receipt, inthe totality of the facts pleaded by the assessee, we are of theopinion that it is not a donation to a charitable trust. The nominal heading of Section 80G reads as “Capital deduction inrespect of donations to certain funds, charitable institutionsetc...” . The donation is said to be one under Section 80G(2)(a)(iv):“any other fund or any other institutions to which this sectionapplies”. Hence what was intended is a donation to an institutionor fund as enumerated in the provision which essentially has tobe applied for charitable purposes. Sub-section (5) of Section 80G makes it clear that the donation to an institution or fundreferred to in sub-clause(iv) of Clause (a) of Sub-section(2) ofSection 80G would apply only if established in India for acharitable purpose and fulfill the conditions enumerated therein.What is essentially required is that the donation should be to aninstitution or fund which is eventually applied for charitablepurposes. In the present case, there were never a case set up of adonation made to the trust. The claim was made of business expenditure which was later altered to one of a donation to thetrust. The purpose of the activity for which the fund is applieddoes not change with the change of the provision under whichthe claim for deduction is raised. The fund was applied for theair-conditioning of a town hall which is owned by the LocalAuthority and bears the name of the founder of the assessee. Wedo not see any charitable purpose in the application of the fundsand we also notice that the trust had no control over the fundsand acted merely as an agent of the assessee in carrying out theair-conditioning of the hall, if at all it was so carried out. We findthat there is no donation made by the assessee to the charitableinstitution; which it could have applied to the charitable purposesfor which it was established. Hence we reject the claim andaffirm the order of the Assessing Officer, setting aside those ofthe first appellate authority and the Tribunal to that extent. We ITA No.96 / 2010 ::28:: answer the alternate question raised by us in favour of therevenue and against the assessee. In that context, the IT appeal would stand allowed setting aside the orders of the appellate authorities to the extentit allowed the claim of the assesee under Section 80G. Sd/-K. Vinod Chandran, Judge Sd/-Ashok Menon, Judge jma