The Commissioner Of Income Tax City Vi v. M/S., Glaxosmith Kline Pharmaceuticals Ltd

ASN IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1033 OF 2009 The Commissioner of Income tax City VI...Appellant.Vs. M/s., Glaxosmith Kline Pharmaceuticals Ltd. ..Respondent. Mr. Suresh Kumar for the Appellant. Mr. P.J.Pardiwala, Sr. Advocate with Mr. Ashish Rao and Mr. Tejas Shah i/by M & M Legal for the Respondent. CORAM : DR. D.Y. CHANDRACHUD & M.S. SANKLECHA, JJ. O5 MARCH 2012 PC: This appeal arises from a decision of the Income Tax Appellate Tribunal dated 31 January 2007 and relates to Assessment Year 1991-92. In this appeal by the Revenue the following questions of law have been raised. a)Whether on the facts and in the circumstances of the case, and in law, the Hon’ble Tribunal was justified in law in holding that share issue expenses are attributable to acquisition of assets in the form of Plant & Machinery and hence eligible for depreciation and investment allowance, without considering the fact that the said expenses were actually incurred for the purpose of diluting the share of the parent company in order to comply with FERA provisions, when there is no nexus between the share issue expenses and the investment in Plant and Machinery; b)Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was right in confirming the order of the CIT(A) deleting the addition made by the A.O. u/s. 40A(9) in respect of reimbursement/payment made by the assessee company to Glaxo Sports Club; c)Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was justified in law in directing the A.O. to allow shortfall of DPEA liability pertaining to the period 1980-81 to 1987-88 if any, out of Rs.71.79 crores for the assessment year 1991-92, under the Drug Price Control Order,1979 notwithstanding the fact that provision of Section 43B was not complied with; d) Whether on the facts and in the circumstances of the case and in law, the Hon’ble Tribunal was justified in law in holding that payment of Rs.42.40 lacs corporate guarantee furnished in favour of financial institution in respect of loans made to the associate company is an allowable deduction u/s. 37(1) of the Income Tax Act? 2 As regards question a, the learned counsel appearing on behalf of the Revenue states that this question will stand covered against the Revenue by the decision rendered today in companion Appeal No.972 of 2009 in relation to Assessment Year 1986-87. Similarly, the learned Counsel for the Revenue states that question b would stand covered against the Revenue by the decision rendered today in Appeal No.1123 of 2009 for Assessment Year 1989-90. 3 As regards question c, the Tribunal observed that during the year the assessee received an additional payment of Rs.66.35 crores on account of a shortfall in the Drugs Price Equalization Account (DPEA) liability in pursuance of the order of the Government of India dated 18 June 1990. This demand was subsequently revised to Rs.71.79 crores by an order dated 16 November 1990 and related to the period 1980-81 to 1986-87. The Assessment Officer noted that the additional demand has been allowed either by the Income Tax Appellate Tribunal/CIT (Appeals) for the respective years and hence, there was no question of allowing any shortfall during the Assessment Year 1991-92. The CIT (Appeals) directed the Assessment Officer to allow the deduction in respect of the shortfall if any out of the total amount of Rs. 71.79 crores for the year 1991-92. The Tribunal has observed that the Assessing Officer shall verify if any part of the sum of Rs. 71.79 crores remains to be allowed and if the entire additional liability has been allowed during the assessment year there is no occasion to grant any further deduction. This verification to be carried out by the Assessing officer cannot be possibly give rise to a substantial question of law, The applicability of the provisions of Section 43B was not raised in the grounds of appeal urged by the Revenue before the Tribunal and that issue in any event does not arise from the decision of the Tribunal. 4 As regards question d, the issue related to an amount of Rs.42.40 lacs paid by the assessee in discharge of a corporate guarantee executed in favour of a financial institution. The Assessing Officer in Para 27 of his order observed that furnishing a guarantee was not part of the business of the assessee and therefore held that the expenditure could not be allowed as a normal business deduction. The Tribunal has adverted in a considerable amount of detail to the order passed by the Commissioner (Appeals). The Commissioner (Appeals) noted that the assessee was inter alia engaged in the business of pharmaceuticals and in the food business. There were serious licensing constraints, as a result of which the assessee sought to meet the growing demand for its products by procuring additional capacity. Under the then government policy fresh licences for milk drying were not issued. The Assessee therefore, identified a unit in the private sector which was available for acquisition through a financial institution for rehabilitation. In terms of a rehabilitation package, the assessee invested in the equity capital of the ASN unit. The assessee had to execute a corporate guarantee of Rs.1.00 crore in June 1988 to cover a default by the unit in payment of its outstanding dues. Upon a default by unit the corporate guarantee was invoked by the financial institution and the assessee had paid an amount of Rs.42.40 lacs .The Commissioner (Appeals) held that the procurement of a larger capacity in order to earn profits was incidental to the business of the assessee. This finding has been confirmed by the Tribunal. From the facts which have been found by the Commissioner(Appeals) and as confirmed by the Tribunal, it becomes clear that the corporate guarantee was furnished as incidental to the business of the assessee since it was integrally connected to the assessee enhancing its own capacity through a tie up with another unit. This finding of fact will not raise any substantial question of law. For these reasons no substantial question of law would arise. 5 The appeal is accordingly dismissed. No order as to costs. ( DR.D.Y. CHANDRACHUD, J ) ( M.S. SANKLECHA, J. )