Kerala H.C : Whether question of agency being a question of fact could not be resolved by merely applying reasoning adopted by Tribunal in some other case but had to be answered with reference to facts and circumstances of each case and with reference to material available before Tribunal – Held, yes – Whether thus, matter was to be remitted back to Tribunal for fresh adjudication

High Court Of Kerala

CIT, Kottayam vs. Koottummal Groups

Section 40A(3)

Assessment Year 2007-08

Antony Dominic And Anil K. Narendran, JJ.

IT Appeal No. 26 Of 2012

April 4, 2014

JUDGMENT

Antony Dominic, J. – This appeal is filed by the Commissioner of Income Tax aggrieved by the order passed by the Income Tax Appellate Tribunal in an appeal filed by the respondent.

2. In relation to the assessment year 2007-08, respondent had effected total purchase of Rs. 2,31,689,032/- from M/s. Reliance Communication against cash payment. In Annexure A assessment order, applying the provisions of Section 40A(3) of the Income-tax Act, 1961, the expenditure claimed was disallowed. In an appeal filed by the assessee before the Commissioner of Income Tax, the assessment order was confirmed. Assessee went in appeal before the Tribunal, which, by Annexure C order, allowed the appeal and held that the relationship between the assessee and M/s. Reliance Communication was that of agent and principal and therefore, Section 40A(3) of the Income-tax Act was inapplicable. It is this order which is under challenge before us at the instance of the Revenue.

3. We heard the learned standing counsel for the Revenue and the learned counsel appearing for the assessee.

4. According to the learned counsel for the Revenue, it was without any material before the Tribunal that the Tribunal concluded that the relationship was of principal and agent and that Section 40A(3) was inapplicable. Therefore, it was contended that the order passed by the Tribunal was illegal. On the other hand, learned counsel for the respondent assessee referred us to the assessment order which showed that the assessee had produced original TDS certificate from M/s. Reliance Communication. Referring to Section 194H of the Act and its explanation, learned counsel contended that the question of TDS can arise only in a case of agency. In support of his contention, counsel invited our attention to the judgment of the Gujarat High Court in Ahmedabad Stamp Vendors Association v. Union of India [2002] 257 ITR 202/124 Taxman 628 (Guj.), which was confirmed by the Apex Court in its judgment in CIT v. Ahmedabad Stamp Vendors Association [2012] 348 ITR 378/210 Taxman 269/25 taxmann.com 201.

5. Counsel also contended that the existence of an agency between the assessee and M/s. Reliance Communication was found by the First Appellate Authority and that the said finding was not disputed by the Revenue either before the Tribunal or until now. Therefore, according to him, this contention cannot be raised for the first time in an appeal filed under Section 260A of the Income-tax Act. In support of this contention, learned counsel relied on the judgment of the Punjab and Haryana High Court in CIT v. Bank of Punjab Ltd. [2006] 286 ITR 630/[2007] 161 Taxman 374 and that of the Delhi High Court in CIT v. Jayshree Gems & Jewellery [2014] 362 ITR 272.

6. We have considered the submissions made by both sides.

7. The main issue that arises for consideration is whether the Tribunal was justified in accepting the contention that there existed an agency between the assessee and M/s. Reliance Communication to justify its conclusion that Section 40A(3) was inapplicable. A reading of Annexure C, the Tribunal’s order, shows that in para 3.6 of its order, the Tribunal held that the facts and circumstances of the assessee’s business are identical to that in the case of S. Rahumathulla v. Asstt. CIT [2010] 127 ITD 440 (Cochin), in which the Tribunal held that the relationship between M/s. Vodafone Essar Cellular Limited and the assessee therein was one of principal and agent. This finding of the Tribunal therefore shows that it was entirely on its conclusion in the case of S. Rahumathulla (supra) that the Tribunal held that there existed an agency between the assessee and M/s.Reliance Communication and that this conclusion of the Tribunal was not based on any material that was available before it.

8. The question of agency is a question on fact and that factual question cannot be resolved merely applying the reasoning adopted by the Tribunal in some other case. Instead, such an issue has to be answered with reference to the facts and circumstances of each case and with reference to the material available before the Tribunal. Therefore, this conclusion of the Tribunal that there existed an agency between the assessee and Reliance Communications, arrived at entirely relying on the Tribunal’s reasoning in its order in S. Rahumathulla’s case (supra), cannot be sustained. In this context, it is also to be mentioned that in ITA 315/10, by judgment dated 6/3/12, this Court has set aside the order of the Tribunal in S. Rahumathulla’s case (supra) also.

9. However, if as a matter of fact, there existed an agency between the assessee and M/s Reliance Communication Limited, there is no reason why the assessee should be denied an opportunity to produce materials disclosing the agency and also Form 16A before the Tribunal so that the Tribunal can reconsider the claim of the assessee that they were an agent of M/s.Reliance Communication. In fact, such a course was adopted by this Court in Rahumathulla’s case also vide judgment in ITA 315/10.

10. During the course of the submissions, learned counsel for the respondent contended that the question of agency is raised for the first time and that the same is impermissible in an appeal filed under Section 260A of the Income-tax Act. In our view, if the Tribunal had relied on the appellate authority’s order or the assessment order and had decided the question of agency, the appellant could not have raised such a contention. As we have already stated, the Tribunal arrived at its conclusions not on the basis of the assessment order or the appellate order, but on the basis of its own previous order, which may have been referred to during the course of hearing. In such a case, the appellant could not have disputed the issue of agency before the Tribunal. Therefore, we do not find any substance in the contention now urged that the appellant did not dispute the issue of agency before the Tribunal and therefore should be precluded from raising that issue before this Court.

11. Therefore, we set aside Annexure C order passed by the Tribunal in ITA No.153/11 and remit the matter to the Income Tax Appellate Tribunal, Cochin Bench. The Tribunal is directed to reconsider the matter with notice to the parties and giving the respondent an opportunity to produce additional materials before it to prove its case of agency and on that basis, the Tribunal shall pass fresh orders, as expeditiously as possible, at any rate within 3 months of receipt of a copy of this judgment. We also direct that in the meanwhile, the balance amount, if any, due from the respondent under the assessment order in question, shall not be recovered.

I.T.A. is disposed of as above.

[Citation : 366 ITR 546]