The Commissioner Of Income-Tax, Chennai v. South India Corporation (Agencies) Limited, 36

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 31.08.2006 Coram : THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) Nos.262 to 267 of 2006 and1231 to 1237 of 2006 The Commissioner of Income-tax,Chennai. ..Appellant in all the T.C.As.Vs South India Corporation (Agencies) Limited,36-40, Armenian Street,Chennai-600 001. ..Respondent in all the T.C.As. Appeals under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Madras, 'B' Bench inI.T.A. Nos.2656/Mds/95, 2657/Mds/95, 1553/Mds/94, 1919/Mds/94,2676/Mds/96, 43/Mds/96, 44/Mds/96, 45/Mds/96, 46/Mds/96, 47/Mds/96,1612/Mds/94, 1922/Mds/94 and 2600/Mds/96 for the assessment years1990-91, 1991-92, 1989-90, 1992-93, 1993-94 and 1986-87 to 1989-90.dated 17.01.2005 Assessment order for 1990-91 dated 23.02.1993 onthe file of Assistant Commissioenr of Income Tax, Central Circle –II (5) Madras – 34 against the Assessment order for 1993-93 dated31.03.1993 Assistant Commissioner of Income-Tax, Central Circle II(5) Madras 34 against the Assessment order for 1991-92 dated16.02.1994 on the file of the Deputy Commissioner of Income Tax,Special Range (on III) Madras – 34 against the order of theCommissioner of Income Tax (Appeals) in ITA NO. 1/93-94 dated22.04.1994 on the file of the Commissioner of Income Tax (Appeals) –II, Madras – 34 against the order of the Commissioner of Income Tax(Appeals) in ITA NO. 115/94-95, dated 22.06.1994 on the file of theCommissioner of Income Tax (Appeals – I) Madras – 34 against theAssessment order for 1986-87 dated 28.03.1995 on the file of theAssistant Commissioner of Income Tax Cent Circle II (5) Madras 34Assessment order for 1988-89 dated 31.03.1995 on the file of theAssistant Commissioner of Income Tax Cent. Circle II (5) Madras 34,Assessment order for 1989-90 dated 31.03.1995 Assistant Commissionerof Income Tax Cemt. Circle II (5) Madras – 34 against the order of the Commissioner of Income Tax (Appeals) in ITA NO. 22/95-96 dated16.10.1995 on the file of the Commissioner of Income Tax (Appeals)II Madras – 34 against the order of the Commissioner of Income Tax(Appeals) ITA NO. 24/95-96 dated 16.10.1995 on the file of theCommissioner of Income-Tax (Appeals)- I, Madras – 34 against theorder of the Commissioner of Income Tax (Appeals) in ITA NO. 25/95-96 dated 16.10.95 on the file of the Commissioner of Income -Tax(Appeals) I madras – 34 against the Assessment order for 1993-94dated 29.03.1996 on the file of the Madras – 34 against the order ofthe Commissioner of Income Tax (Appeals) in ITA NO. 68/96-97 dated08.10.1996 on the file of the Commissioner of Income Tax (A) – II,Madras – 34 against the order of the Income Tax Appellate Tribunalin ITA NOS. 2656, 2657,, Mds – 95, 1553, 1919/Mds/94, 2676, 43-47/Mds/96, 1612, 1922/Nds/94 and 2600/Mds/96, dated 17.01.2005 onthe file of the Income Tax Appellate Tribunal, Chennai Bench “B”Chennai. For Appellant : Mr.J.Narayanaswamy JUDGMENT (Judgment of the Court was delivered by P.P.S.Janarthana Raja, J.) The present appeals are filed under Section 260A of the IncomeTax Act, 1961 by the Revenue, in I.T.A. Nos.2656/Mds/95,2657/Mds/95, 1553/Mds/94, 1919/Mds/94, 2676/Mds/96, 43/Mds/96,44/Mds/96, 45/Mds/96, 46/Mds/96, 47/Mds/96, 1612/Mds/94, 1922/Mds/94and 2600/Mds/96 for the assessment years 1990-91, 1991-92, 1989-90,1992-93, 1993-94 and 1986-87 to 1989-90, passed by the Income TaxAppellate Tribunal, Madras, 'B' Bench raising the following commonsubstantial questions of law. ITA Nos.2656 and 2657/Mds/95 for the assessment years1989-90 and 1992-93: 1. Whether in the facts and circumstances of the case, theTribunal was right in holding that the 60% of the expensesincurred on partly convertible debenture had to be allowedas deduction? ITA Nos.1553 and 1919/Mds/94, 2676 and 43 to 47/Mds/96 forthe assessment years 1986-87 to 1988-89, 1992-93, 1993-94: ITA Nos.2656 and 2657/Mds/95 for the assessment years1989-90 and 1992-93: 1. Whether in the facts and circumstances of the case, theTribunal was right in holding that the 60% of the expensesincurred on partly convertible debenture had to be allowedas deduction? ITA Nos.1553 and 1919/Mds/94, 2676 and 43 to 47/Mds/96 forthe assessment years 1986-87 to 1988-89, 1992-93, 1993-94: 2. Whether in the facts and circumstances of the case, theTribunal was right in holding that the mamool paid atharbour customs airport is to be allowed as a deduction? ITA Nos.1553, 1919, 1612, 1922/Mds/94, 2657/Mds/95, 2656and 2657/Mds/95, 43 to 47/Mds/96 for the assessment years1990-91, 1991-92, 1992-93, 1989-90, 1992-93, 1986-87 to1988-89, 1992-93: 3. Whether in the facts and circumstances of the case, theTribunal was right in holding that the payment ofincentives to Dock Labour Board workers had to be allowedas a deduction. ITA Nos.43 and 45/Mds/96 for the assessment years 1986-87and 1988-89: 4. Whether in the facts and circumstances of the case, theTribunal was right in holding that the claim of the lossfrom the Films Division had to be allowed? ITA Nos.1612 and 1922/Mds/94, 2657/Mds/95, 2600/Mds/96 forthe assessment years 1990-91, 1991-92, 1992-93, and 1993-94: 5. Whether in the facts and circumstances of the case, theTribunal was right in holding that the interest paid onthe borrowings from the subsidiary company is an allowablededuction when the assessee had enough funds? ITA Nos.1919/Mds/94, 2676 and 43 to 47/Mds/96 for theassessment years 1991-92, 1986-87 to 1988-89, 1992-93 and1993-94: 6. Whether in the facts and circumstances of the case, theTribunal was right in holding that inclusion of interestfrom Sundaram Industries for the amounts advanced by theassessee had to be deleted? ITA No.2676/Mds/96 for the assessment year 1993-94: 7. Whether in the facts and circumstances of the case, theTribunal was right in holding that interest paid towardsthe loan taken for acquiring spic zero bonds, had to beallowed as a deduction while computing the income fromother sources. 2.The assessee company is carrying on business in agency,trading, engineering, stevedoring, clearing and forwarding, shippingetc. The assessment years involved are 1986-87, 1987-88, 1988-89,1989-90, 1990-91, 1991-92, 1992-93 and 1993-94. https://hcservices.ecourts.gov.in/hcservices/ 3.1. The common questions of law stated above for theseassessment years are taken up as follows: Question No.1: "Whether in the facts and circumstances of the case,the Tribunal was right in holding that the 60% of theexpenses incurred on partly convertible debenture had tobe allowed as deduction?" 3.2. This question pertains to the assessment years 1989-90 and1992-93. For the relevant assessment years, the assessee claimedcertain expenditure as debenture issue expenses. The AssessingOfficer treated 60% of the claim of expenditure as capitalexpenditure and the balance 40% as revenue expenditure. Aggrievedby the same, the assessee filed an appeal to the Commissioner ofIncome-tax (Appeals). The C.I.T.(A) confirmed the order of theAssessing Officer and dismissed the appeal filed by the assessee.Aggrieved by the order, the assessee filed an appeal to the Income-tax Appellate Tribunal (hereinafter referred to as the "Tribunal").The Tribunal held as follows:"The last of the issue is with regard toexpenses incurred on Debenture Issue beingtreated as capital expenditure. The authoritieshave treated part of the expenditure as capitalexpenditure on the reasoning that at the time ofredemption of the Debenture, the holders of theDebentures were entitled to certain shares. Theissue of shares is a future event which may ormay not happen. At present, the expenditureincurred was on the issue of Debentures only andhence the expenses incurred on obtaining a loanis a revenue expenditure. We accordingly upholdthe claim of the assessee." 3.3. The Assessing Officer had bifurcated the expenditure andallowed only 40% as revenue expenditure, without any basis. TheTribunal correctly held that the disallowance of 60% is without anybasis and the Assessing Officer was wrong in treating part of theexpenditure as capital expenditure on the reasoning that at the timeof redemption of debentures, the holders of the debentures would beentitled to certain shares. The issue of shares is a future eventwhich may or may not happen. 3.4. The Tribunal considered and followed the principlesenunciated in the Apex Court judgment reported in in India CementsLtd. Vs. Commissioner of Income-tax [60 ITR 52], which, in fact,followed by the Delhi High Court in Commissioner of Income-tax Vs.Thirani Chemicals Limited[(2006) 204 CTR 146] holding thatexpenditure incurred on the issue of debentures is a permissible deduction under Section 37 of the Act. 3.5. The learned counsel appearing for the Revenue has notproduced any material or evidence to take a different view. Thereasoning of the Tribunal was based on relevant materials andevidence and there is no error or infirmity in the order of theTribunal to warrant interference. In view of the same, nosubstantial question of law arises for consideration by this Courtand hence, the appeal in respect of question No.1 is dismissed. Question No.2: Whether in the facts and circumstances of the case, theTribunal was right in holding that the mamool paid atharbour customs airport is to be allowed as a deduction? 4.1. This question pertains to the assessment years 1986-87,1987-88, 1988-89, 1992-93 and 1993-94. For the relevant assessmentyears, the assessee claimed certain expenses incurred at Harbour,Customs, Airport etc. as revenue expenditure. The AssessingOfficer disallowed the expenditure. Aggrieved by the order, theassessee filed an appeal to the C.I.T. (A). The C.I.T.(A) held thatthe assessee is entitled to deduction and allowed the appeal filedby the assessee. Aggrieved by the order, the Revenue filed anappeal to the Tribunal. The Tribunal confirmed the order of theC.I.T.(A) and dismissed the appeal. 4.2. Both the C.I.T.(A) as well as Tribunal had given aconcurrent finding that these expenses were incurred by the assesseein connection with release of various goods and found that thesewere eligible expenses and also given a finding that the expenditurewas inevitable. 4.3. In view of the factual finding given by the Tribunal andthe conclusion based on the material and evidence available onrecord, there is no error or infirmity in the order of the Tribunalto warrant interference. 4.4. In our considered opinion, the question No.2 has not beenhappily worded. Even though learned counsel for the appellantsubmits that the question only deals with the expenses paid atharbour customs, but the same has colloquially been described in thequestion as "mamool", we are unable to appreciate the saidexplanation as all the authorities have only meant and used theword, expenses incurred by the assessee and not the word, "mamool"which is unusual in business transaction. Hence, while reframingthe question No.2 as, "Whether in the facts and circumstances of the case, theTribunal was right in holding that the expenses incurred paid at harbour customs airport is to be allowed as adeduction?" we still hold that no substantial question of law arises as theexpenses incurred by the assessee in this regard is nothing but aninevitable expenditure as factually found by the Tribunal. Hence,finding no substantial question of law that arises forconsideration, the appeal as regards question No.2 is alsodismissed. Question No.3: "Whether in the facts and circumstances of the case,the Tribunal was right in holding that the payment ofincentives to Dock Labour Board workers had to be allowedas a deduction?" "Whether in the facts and circumstances of the case, theTribunal was right in holding that the expenses incurred paid at harbour customs airport is to be allowed as adeduction?" we still hold that no substantial question of law arises as theexpenses incurred by the assessee in this regard is nothing but aninevitable expenditure as factually found by the Tribunal. Hence,finding no substantial question of law that arises forconsideration, the appeal as regards question No.2 is alsodismissed. Question No.3: "Whether in the facts and circumstances of the case,the Tribunal was right in holding that the payment ofincentives to Dock Labour Board workers had to be allowedas a deduction?" 5.1. This question pertains to the assessment years 1986-87 to1988-89, 1989-90, 1990-91, 1991-92 and 1992-93. The assessee paidincentives to Dock Labour Board workers, share handling workers,tally clerks and lorry drivers. The said amount was paid to theworkers as incentives to speed up the stevedoring work carried on bythe assessee. The Stevedoring is one of the business activities ofthe assessee company which is a registered employer of the MadrasDock Labour Board. The said amount was paid in cash to the workersof the Madras Dock Labour Board as incentives to speed up thestevedoring work. The Assessing Officer allowed only 50% of theamount by following the earlier order. Aggrieved by the order, theassessee filed an appeal to the C.I.T.(A). The C.I.T.(A) allowedthe appeal. Aggrieved by the order of the C.I.T.(A), the Revenuefiled an appeal to the Tribunal. The Tribunal dismissed the appealfiled by the Revenue and confirmed the order of the C.I.T.(A). 5.2. There is a factual finding by both the authorities thatthe payments were made in accordance with the list that was providedin the Dock Labour Board. The incentives paid do not exceed 3% ofthe gross receipts and also is a customary payment incurred over anumber of years and accepted as genuine in earlier years by theDepartment. The payment was necessitated to utilise the fullcapacity of manpower from the workers, to avoid demurrage chargesand to keep the contract commitments made to the stevedors todischarge the tonnage as stipulated in the agreements between thestevedors and the principals. Both the authorities found that thereis no breach of law in making payments which were essentiallyincidental to the carrying of the appellant's business with a viewto earning profits. The finding given by both the authorities isbased on valid materials and evidence and there is no error or legalinfirmity in the order of the Tribunal and hence, does not requireinterference. In view of the above, no substantial question of lawarises for consideration of this Court and hence, the appeal withrespect to question No.3 is dismissed. Question No.4: "Whether in the facts and circumstances of the case, theTribunal was right in holding that the claim of the lossfrom the Films Division had to be allowed?" 6.1. This question pertains to the assessment years 1986-87 and1988-89. During the relevant assessment years, the assesseepurchased distribution rights for the Tamil Film and forExploitation Rights in the District of North Arcot, South Arcot andChengalpattu for a consideration of Rs.80,00,000/- and therebyincurred a loss. The assessee claimed the set off loss from filmdistribution and the Assessing Officer disallowed the claim on theground that the assessee venture into the film distribution businessis only to avoid payment of taxes due to Government, legitimately.Aggrieved by the order, the assessee filed an appeal to the C.I.T.(A). The C.I.T.(A) allowed the appeal. Aggrieved by the order,Revenue filed an appeal to the Tribunal. The Tribunal dismissed theappeal by following its earlier order of the assessee's own caserelating to the earlier assessment years. 6.2. The Tribunal has consistently allowed the claim for lossfrom Films Division. The Revenue has accepted the earlier order andthe counsel for the Revenue has not produced any material orevidence before us to take a different view. When a consistent viewhas been taken by the Tribunal, there is no error or infirmity inthe order of the Tribunal and it does not require interference andhence, no substantial question of law arises for consideration ofthis Court and hence, the appeal in respect of question No.4 isdismissed. Question No.5: "Whether in the facts and circumstances of the case,the Tribunal was right in holding that the interest paidon the borrowings from the subsidiary company is anallowable deduction when the assessee had enough funds?" 7.1. This question pertains to the assessment years 1990-91,1991-92, 1992-93 and 1993-94. The assessee had advanced an amount toM/s.Sundaram Industries. In the said advance, the assessee had notcharged any interest. The said advances were made to provide workingcapital to the subsidiaries. The Assessing Officer calculated theinterest at 12% on the minimum balance outstanding during each yearand disallowed out of interest claim of the assessee. Against thedisallowance, the assessee filed an appeal to the C.I.T.(A). TheC.I.T.(A) confirmed the order of the Assessing Officer. Aggrievedby the order, the assessee filed an appeal to the Tribunal. The Tribunal allowed the assessee's claim. The Tribunal had given afinding that the assessee has a lot of business action with thesubsidiaries and carrying on various activities through thesubsidiaries. 7.2. There is a factual finding that the assessee had its ownfree reserves and funds used mainly for running expenses. Also,there was no material produced by the Revenue to establish that themoney borrowed was actually given to its subsidiaries. Hence theconclusion of the Tribunal is based on material and evidence and itdoes not suffer from legal infirmity to warrant interference. Inview of the above, no substantial question of law arises forconsideration of this Court and hence, the appeal qua question No.5is dismissed. Question No.6: "Whether in the facts and circumstances of the case,the Tribunal was right in holding that inclusion ofinterest from Sundaram Industries for the amounts advancedby the assessee had to be deleted?" 8.1. This question pertains to the assessment years 1986-87 to1988-89, 1991-92, 1992-93 and 1993-94. There was a debit balance inthe books of the assessee company in the name of M/s.SundaramIndustries. No interest was charged by the assessee even though theassessee was paying interest on its borrowings. The AssessingOfficer estimated the interest at 18% and added as income.Aggrieved by the order, the assessee filed an appeal to the C.I.T.(A). The C.I.T.(A) allowed the appeal filed by the assessee.Aggrieved, the Tribunal filed an appeal to the Tribunal and theTribunal dismissed the appeal. 8.2. In respect of the earlier assessment order, for theassessment years 1981-82 and 1982-83, the Tribunal had allowed theclaim of the assessee. In the present case, the Tribunal followedthe said earlier order and allowed the claim of the assessee. TheRevenue was also not able to produce evidence or material to take adifferent view and the said earlier order was accepted by theRevenue. In view of the same, no substantial question of law arisesfor consideration of this Court and hence, the appeal aproposquestion No.6 is dismissed. Question No.7: "Whether in the facts and circumstances of the case,the Tribunal was right in holding that interest paidtowards the loan taken for acquiring spic zero bonds, hadto be allowed as a deduction while computing the incomefrom other sources?" Question No.7: "Whether in the facts and circumstances of the case,the Tribunal was right in holding that interest paidtowards the loan taken for acquiring spic zero bonds, hadto be allowed as a deduction while computing the incomefrom other sources?" 9.1. This question pertains to the assessment year 1993-94.During the relevant years, the assessee had acquired Spic Zero Bondsfrom M/s.SPIC Limited. The assessee has claimed interest payment asa deductible expenditure. The reasons for the said claim are: a) Interest claimed as a deduction from other sources beingexpenditure incurred for earning the same. b) As the assessee is not a dealer in shares, the interest paidon loan borrowed is allowable as deduction and is not requiredto be capitalised. The Assessing Officer disallowed the appellant's claim for deductionof interest. Aggrieved by the order, the assessee filed an appealto the C.I.T.(A). The C.I.T.(A) held that the assessee is entitledto deduction of interest and allowed the claim. Aggrieved, theRevenue filed an appeal to the Tribunal. The Tribunal dismissed theRevenue's appeal and confirmed the order of the C.I.T.(A). 9.2. Both the first appellate authority as well as the Tribunalgiven a factual finding finding that the assessee is a flag-shipcompany carrying on the worldwide business and the bonds wereacquired for purposes of business. The conclusion arrived at by theauthorities were based on material and evidence and hence nosubstantial question of law arises for consideration by this Courtand hence, the appeal in regard to question No.7 is dismissed. In the result, the tax case are dismissed. No costs. KmSd/Asst.Registrar /true copy/ ToThe Assistant RegistrarIncome Tax Appellate TribunalIIIrd Floor, Rajaji Bhavan,Besant Nagar, Chennai 600 090 2. The Commissioner of Income Tax, Chennai 3. The Income Tax Appellate Tribunal, Madras B Bench Chennai 4. The Assistant Commissioner of Income TaxCentral Cir II (5) Chennai – 34 5. The Deputy Commissioner of Income Tax Special Range (Central III) Madras – 34 6. The Commissioner of Income Tax (Appeals) IIMadras 34Madras 34 7. The Commissioner of Income Tax (Appeals I)Madras – 600 034Madras – 600 034 + one cc to Mrs. Pushya Sitaraman, Advocate sr no. 40016pv(co)nm(08.03.07) Tax Case (Appeal) Nos.262 to 267 of 2006 and 1231 to 1237 of 2006