Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur v. M/S. Modern Insulators Ltd., A

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 191 / 2017 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/s. Modern Insulators Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 184 / 2017 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/s. Modern Insulators Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur ----Respondent D.B. Income Tax Appeal No. 185 / 2017 Pr. Commissioner of Income Tax, Jaipur-II, Jaipur ----Appellant Versus M/s. Modern Insulators Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur ----Respondent _____________________________________________________For Appellant(s) : Mr. Parteek Kedawat for Mr. R.B. Mathur. For Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 25/07/2017 1.In all these appeals, common questions of law and facts areinvolved, hence they are decided by this common judgment. 2.By way of these appeals, the appellant has challenged thejudgment and order of the Tribunal whereby the tribunal hasdismissed the appeals of the department. 4.The counsel for the appellant has framed the followingsubstantial questions of law in each appeal:- Income Tax Appeal No.191/2017 “(i) Whether in the facts and in circumstances of thecase, the ITAT was justified in law and has not actedperversely in allowing set off current year and broughtforward losses and unabsorbed depreciation of M/s.Terry Towel Ltd. against the income of the assesseecompany despite of the fact that the issue of mergerhas not attained finality. (ii) Whether in the facts and in circumstances of thecase, the ITAT was justified in law in allowing set offof current year and brought forward losses andunabsorbed depreciation of M/s. Modern Terry TowelsLtd. against the income of the assessee company indirecting to pass protective assessment order in caseof assessee company presuming that noamalgamation has taken place following the schemedevised by the Hon’ble Supreme Court in the case ofMarshall Sons and Co. (I) Ltd. V/s. ITO (223 ITR 809)ignoring the fact that facts of case are different fromthe present case and the issue of merger has not yetreached the finality.” Income Tax Appeal No. 184/2017 “(i) Whether in the facts and in circumstances of thecase, the ITAT was justified in law and has not actedperversely in allowing set off current year and broughtforward losses and unabsorbed depreciation of M/s.Terry Towel Ltd. against the income of the assesseecompany despite of the fact that the issue of mergerhas not attained finality. (ii) Whether in the facts and in circumstances of thecase, the ITAT was justified in law in allowing set offof current year and brought forward losses andunabsorbed depreciation of M/s. Modern Terry TowelsLtd. against the income of the assessee company indirecting to pass protective assessment order in caseof assessee company presuming that noamalgamation has taken place following the schemedevised by the Hon’ble Supreme Court in the case ofMarshall Sons and Co. (I) Ltd. V/s. ITO (223 ITR 809) ignoring the fact that facts of case are different fromthe present case and the issue of merger has not yetreached the finality.” Income Tax Appeal No.185/2017 “(i) Whether in the facts and in circumstances of thecase, the ITAT was justified in law and has not actedperversely in allowing set off current year and broughtforward losses and unabsorbed depreciation of M/s.Terry Towel Ltd. against the income of the assesseecompany despite of the fact that the issue of mergerhas not attained finality. ignoring the fact that facts of case are different fromthe present case and the issue of merger has not yetreached the finality.” Income Tax Appeal No.185/2017 “(i) Whether in the facts and in circumstances of thecase, the ITAT was justified in law and has not actedperversely in allowing set off current year and broughtforward losses and unabsorbed depreciation of M/s.Terry Towel Ltd. against the income of the assesseecompany despite of the fact that the issue of mergerhas not attained finality. (ii) Whether in the facts and in circumstances of thecase, the ITAT was justified in law in allowing set offof current year and brought forward losses andunabsorbed depreciation of M/s. Modern Terry TowelsLtd. against the income of the assessee company indirecting to pass protective assessment order in caseof assessee company presuming that noamalgamation has taken place following the schemedevised by the Hon’ble Supreme Court in the case ofMarshall Sons and Co. (I) Ltd. V/s. ITO (223 ITR 809)ignoring the fact that facts of case are different fromthe present case and the issue of merger has not yetreached the finality.” 5.Taking into consideration the observations made by theTribunal which reads as under:- “3.4. We have heard the rival contentions andperused the materials available on record. Taking intoconsideration all the facts and circumstances of thecase, we have observed that such an issue has beendecided by this Coordinate Bench in case of ACIT Vs.Modern Insulators Ltd. in ITA No.281/Jp/2010 dated13.04.2011 for the assessment year 2007-08 byobserving as under:- “2.19. We also agree with the view taken by theld. CiT(A) that TDS was not required to be deductedat source on account of Circular No.786 dated07.02.2000. The Circular No.7 of 22.10.2009 cdannotbe considered retrospectively to make it applicable forpayments before that date. This has been consideredby Lucknow Bench in the case of DCIT vs. SanjivGupta 50 DTR (Lucknow) Tribunal 225. 2.20 The Hob’ble Apex Court in the case of G.E. IndiaTechnologies Centre (P) Ltd. Vs. CIT 327 ITR 456 hasheld that in case whole remittance is not chargeablein India then there is no question of tax at sourcebeing deducted. Since the tax at source is nor required to be deducted then Section 40(a) will not beapplicable. It is further noticed that Section 40((a)(ia) refers to commission payable to a resident.Hence, this provision is not at all applicable. Section40(a) is applicable in respect of payments to non-resident and the payment should be in the nature ofinterest, royality, fee for technical services or othersum chargeable under this Act. It is undisputed factthat the sum is commission and the word commissionis not specifically mentioned in Section 40(a). Thesum paid is not chargeable in India under Income TaxAct, 1961. Hence, Section 40(a) is not applicable. Theld. CIT(A) was therefore, justified in deleting thedisallowance of Rs. 6,04,58,699/-. Thus the solitaryground of the Revenue is dismissed. Respectfully following the decision of the Coordinate Benchdated 13-04- 2011 for the assessment year 2007-08(supra), we find no reason to interfere with the order ofthe ld. CIT(A). Thus Ground No. 2 of the Revenue isdismissed. 4.1 Secondly, we take up the ground of appeal of theRevenue in ITA No. 586/JP/2012 for the assessment year2009-10 for adjudication 4.2 Apropos solitary ground ofthe Revenue, the facts as emerges from the order of theld. CIT(A) is as under:- Respectfully following the decision of the Coordinate Benchdated 13-04- 2011 for the assessment year 2007-08(supra), we find no reason to interfere with the order ofthe ld. CIT(A). Thus Ground No. 2 of the Revenue isdismissed. 4.1 Secondly, we take up the ground of appeal of theRevenue in ITA No. 586/JP/2012 for the assessment year2009-10 for adjudication 4.2 Apropos solitary ground ofthe Revenue, the facts as emerges from the order of theld. CIT(A) is as under:- ‘’3.1 I have duly considered the submissions of theappellant. The issue in question is covered by theappellate order of undersigned for A.Y. 2008-09 (AppealNo. 464/10-11 dated 27-06- 2011) wherein I have upheldthe addition made by the AO on protective basis. Thefinding in para 4.1 are relevant wherein it was held thatprior to date of sanction by BIFR and higher Courts, therewas provision in the scheme that business done by ModernTerry Towels Ltd. shall be on behalf of the appellantcompany. I had accordingly, directed the AO to allow setoff of current year losses and brought forwardlosses/unabsorbed depreciation to M/s. Modern TerryTowels Ltd. as per Section 72A against the income of theappellant. At the same time, the AO was directed to pass aprotective assessment order in the case of the appellantcompany for A.Y. 2008-09 presuming that noamalgamation had taken placed. It was also held that incase if the amalgamation scheme was not sanctioned thenthe protective assessment order shall prevail over thesubstantive order. However, it appears that the AO hasdeemed that the order of BIFR dated 13-04-2011 was finaland conclusive. The counsel of appellant has brought tomy notice the order passed by AAIFR dated 21-11-2011wherein it has been categorically stated that the directionof BIFR at para 3(i) regarding submissions of DRS withcutoff date on 31-03-2010 and direction at para 3(ii) shallremain stayed till the disposal of appeal. Even after thedisposal of appeal by AAIFR, there will be an option to theassessee company total income file appeal before Hon'ble Jurisdictional High Court and Supreme Court. Consideringthese difficulties, I had directed the AO to pass both thesubstantive assessment and protective assessment in thecase of the appellant. In case if the amalgamation schemewas not sanctioned by the AAIFR and higher Courts witheffect from 01-01-2008 then the protective assessmentcompleted by the AO shall prevail over the substantiveassessment. I therefore, direct the AO to allow set off ofcurrentyearlossesandbroughtforwardlosses/unabsorbed depreciation of M/s. Modern TerryTowels Ltd. as per Section 72A against the income of theappellant. At the same time, the AO shall pass a protectiveassessment order in the case of the appellant for A.Y.2009-10 presuming that no amalgamation has take place.This ground of appeal is allowed. 4.3 We have heard the rival contentions and perused thematerials available on record. It is not imperative to repeatfacts of the case of issue in question as the similar issuehas been decided in favour of the assessee by dismissingthe ground of appeal No. 1 of the Revenue in ITA No.784/JP/2011 and the decision therein shall apply mutatismutandis on this ground no. 1 of the Revenue also. Thussolitary ground raised by the Revenue is dismissed andappeal of the Revenue in ITA No. 686/JP/2012 isdismissed, 5.1 Thirdly, we take up the grounds of appeal of theRevenue in ITA No. 672/JP/2014 for the assessment year2010-11 for adjudication. 5.2 Apropos solitary ground of the Revenue, the facts asemerges from the order of the ld. CIT(A) is as under:- 4.3 We have heard the rival contentions and perused thematerials available on record. It is not imperative to repeatfacts of the case of issue in question as the similar issuehas been decided in favour of the assessee by dismissingthe ground of appeal No. 1 of the Revenue in ITA No.784/JP/2011 and the decision therein shall apply mutatismutandis on this ground no. 1 of the Revenue also. Thussolitary ground raised by the Revenue is dismissed andappeal of the Revenue in ITA No. 686/JP/2012 isdismissed, 5.1 Thirdly, we take up the grounds of appeal of theRevenue in ITA No. 672/JP/2014 for the assessment year2010-11 for adjudication. 5.2 Apropos solitary ground of the Revenue, the facts asemerges from the order of the ld. CIT(A) is as under:- ‘’3.1 M/s. Modern Terry Towels Ltd. was amalgamated withthe appellant company with effect from 01-01-2008subject to approval of BIFR. In this assessment year, theappellant company had claimed the set off of business lossof M/s. Modern Terry Towels Ltd. for A.Y. 2010-11amounting to Rs. 62,18,541/- and has also claimed the setoff of brought forward business loss and unabsorbeddepreciation of M/s. Modern Terry Towels Ltd. amountingto Rs. 94,24,43,685/-. In the order u/s 143(3) dated 6-03- 12013, the Assessing Officer has not allowed the setoff of losses due to amalgamation because as per theorder of BIFR dated 13-04-2011, the amalgamation waseffective only after 31-03-2010. 3.2 This issue also arose in A.Y. 2008-09 and 2009-10.The submissions made by the appellant duringappellate proceedings were the same as the precedingyears except for two new facts as under:- (1) The appellate authority for Industrial and FinancialReconstruction (AAIFR) has passed an order in favour ofthe assessee (Appeal No. 130/11 dated 3-06-2013) byholding that the record date for merger of the appellantcompany with M/s. Modern Terry Towels Ltd. will continueto be treated as 01-01-2008. (2) On the basis of the above, the Assessing Officer has also accepted the claim of the assessee in A.Y. 2011-12 inthe order u/s 143(3) dated 27-03-2014. The appellant has stated that its case is covered by theorders of the CIT (A)-II Jaipur for A.Y. 2008-09 and forA.Y. 2009-10. 3.3 I have perused the facts of the case the assessmentorder, submissions of the appellant and the above referredorder of AAIFR holding the date of merger to be01.01.2008. The issue in question is covered by theappellate order of CIT(A)-II, Jaipur for A.Y. 2008-09(Appeal No. 464/10-11, dated 27-06.2011) and for A.Y2009-10 (Appeal No. 502/11-12, dated 20.03.2012)wherein the additions made by the Assessing Officer onthe above issue have been upheld by the CIT(A) onprotective basis, in view of the decision of the SupremeCourt in the case of Marshall Sons and Co. (India) Ltd. vs.ITO (1997) 223 ITR 809. The relevant extract of the orderof the CIT (A)-II, Jaipur for A.Y. 2009-10 is reproducedbelow:- ’’The findings in para 4.1 (of the order of A.Y. 2008- 09)are relevant wherein it was held that prior to the date ofsanction by BIFR and higher Courts, there was provision inthe scheme that business done by Modern Terry TowelsLtd. shall be on behalf of the appellant company…..Considering these difficulties, I had directed the AO topass both the substantive assessment and protectiveassessment in the case of the appellant. In case if theamalgamation scheme was not sanctioned by AAIFR andhigher Courts with effect from 01-01-2008 then theprotective assessment completed by the AO shall prevailover the substantive assessment. I therefore, direct theAO to allow set off of current year losses and broughtforward loses / unabsorbed depreciation of Modern TerryTowels Ltd. as per Section 72A against the income of theappellant. At the same time, the AO shall pass protectiveassessment order in the case of appellant for A.Y. 2009-10presuming that no amalgamation has taken place. Thisground of appeal is allowed.’’ 3.4 In view of the above discussion, respectfully followingthe above orders of the ld. CIT(A) –II Jaipur for A.Y. 2008-09 and 2009-10, the Assessing Officer is directed to allowset off of current year looses and brought forwardlosses/unabsorbed depreciation of M/s. Modern TerryTowels Ltd. as per Section 72A against the income of theappellant. At the same time, the AO shall pass a protectiveassessment order in the case of appellant for A.Y. 2010-11presuming that no amalgamation has taken place. In case,the amalgamation scheme were not to be sanctioned byBIFR or the higher Courts with effect from 01-01-2008,then the protective assessment completed by the AO shallprevail over the substantive assessment. This ground ofappeal is allowed. 5.3 We have heard the rival contentions and perused thematerials available on record. It is not imperative to repeatfacts of the case of issue in question as the similar issue has been decided in favour of the assessee by dismissingthe ground of appeal No. 1 of the Revenue in ITA No.784/JP/2011 (supra) and the decision taken therein shallapply mutatis mutandis on this solitary ground of theRevenue also . Thus solitary ground raised by the Revenueis dismissed and appeal of the Revenue in ITA No.672/JP/2014 is dismissed, 6.0 In the result, all the appeals of the Revenue aredismissed.” 6.We are in complete agreement with the view taken by the tribunal. Even otherwise, the BIFR order is final which has not been quashed and set aside. 7.No substantial question of law arises in the appeal. 8.The appeals stand dismissed. A Copy of this judgment be placed in each file. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Mohit Grover Sr. No.39-41