High Court Of Madras
CIT vs. South India Corporation (Agencies) Ltd.
Sections 5, 28(i), 36(1)(iii), 37(1), 57(iii)
Asst. Years 1986-87, 1987-88, 1988-89, 1989-90, 1990-91, 1991-92, 1992-93, 1993-94
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) Nos. 262 to 267 & 1231 to 1237 of 2006
31st August, 2006
Counsel Appeared
J. Narayanaswamy, for the Appellant
JUDGMENT
P.P.S. Janarthana Raja, J. :
The present appeals are filed under s. 260A of the IT Act, 1961 by the Revenue, in ITA Nos. 2656/Mad/1995, 2657/Mad/1995, 1553/Mad/1994, 1919/Mad/1994, 2676/Mad/1996, 43/Mad/1996, 44/Mad/1996, 45/ Mad/1996, 46/Mad/1996, 47/Mad/1996, 1612/Mad/1994, 1922/Mad/1994 and 2600/Mad/1996 for the asst. yrs. 1990-91, 1991-92, 1989-90, 1992-93, 1993-94 and 1986-87 to 1989-90, passed by the Tribunal, Madras, ‘B’ Bench raising the following common substantial questions of law : ITA Nos. 2656 and 2657/Mad/1995 for the asst. yrs. 1989-90 and 1992-93 :
“1. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the 60 per cent of the expenses incurred on partly convertible debenture had to be allowed as deduction ?”
ITA Nos. 1553 and 1919/Mad/1994, 2676 and 43 to 47/Mad/1996 for the asst. yrs. 1986-87 to 1988-89, 1992-93, 1993-94 :
“2. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the mamool paid at harbour customs airport is to be allowed as a deduction ?”
ITA Nos. 1553, 1919, 1612, 1922/Mad/1994, 2657/Mad/1995, 2656 and 2657/Mad/1995, 43 to 47/Mad/1996 for the asst. yrs. 1990-91, 1991-92, 1992-93, 1989-90, 1992-93, 1986-87 to 198889, 1992-93 :
“3. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the payment of incentives to Dock Labour Board workers had to be allowed as a deduction.” ITA Nos. 43 and 45/Mad/1996 for the asst. yrs. 1986-87 and 1988-89 :
“4. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the claim of the loss from the films division had to be allowed ?”
ITA Nos. 1612 and 1922/Mad/1994, 2657/Mad/1995, 2600/Mad/1996 for the asst. yrs. 1990-91, 1991-92, 1992-93, and 1993-94 :
“5. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the interest paid on the borrowings from the subsidiary company is an allowable deduction when the assessee had enough funds ?”
ITA Nos. 1919/Mad/1994, 2676 and 43 to 47/Mad/1996 for the asst. yrs. 1991-92, 1986-87 to 1988-89, 1992-93 and 1993-94 :
“6. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that inclusion of interest from Sundaram Industries for the amounts advanced by the assessee had to be deleted ?”
ITA No. 2676/Mad/1996 for the asst. yr. 1993-94 :
“7. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that interest paid towards the loan taken for acquiring spic zero bonds, had to be allowed as a deduction while computing the income from other sources.”
2. The assessee company is carrying on business in agency, trading, engineering, stevedoring, clearing and forwarding, shipping, etc. The assessment years involved are 1986-87, 1987-88, 1988-89, 1989-90, 1990-91, 1991-92, 1992-93 and 1993-94.
3.1 The common questions of law stated above for these assessment 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 per cent of the expenses incurred on partly convertible debenture had to be allowed as deduction ?”
3.2 This question pertains to the asst. yrs. 1989-90 and 1992-93. For the relevant assessment years, the assessee claimed certain expenditure as debenture issue expenses. The AO treated 60 per cent of the claim of expenditure as capital expenditure and the balance 40 per cent as revenue expenditure. Aggrieved by the same, the assessee filed an appeal to the CIT(A). The CIT(A) confirmed the order of the AO 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 to expenses incurred on debenture issue being treated as capital expenditure. The authorities have treated part of the expenditure as capital expenditure on the reasoning that at the time of redemption of the debenture, the holders of the debentures were entitled to certain shares. The issue of shares is a future event which may or may not happen. At present, the expenditure incurred was on the issue of debentures only and hence the expenses incurred on obtaining a loan is a revenue expenditure. We accordingly uphold the claim of the assessee.”
3.3 The AO had bifurcated the expenditure and allowed only 40 per cent as revenue expenditure, without any basis. The Tribunal correctly held that the disallowance of 60 per cent is without any basis and the AO was wrong in treating part of the expenditure as capital expenditure on the reasoning that at the time of redemption of debentures, the holders of the debentures would be entitled to certain shares. The issue of shares is a future event which may or may not happen.
3.4 The Tribunal considered and followed the principles enunciated in the apex Court judgment reported in India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC), which, in fact, was followed by the Delhi High Court in CIT vs. Thirani Chemicals Ltd. (2006) 204 CTR (Del) 146 holding that expenditure incurred on the issue of debentures is a permissible deduction under s. 37 of the Act.
3.5 The learned counsel appearing for the Revenue has not produced any material or evidence to take a different view. The reasoning of the Tribunal was based on relevant materials and evidence and there is no error or infirmity in the order of the Tribunal to warrant interference. In view of the same, no substantial question of law arises for consideration by this Court and hence, the appeal in respect of question No. 1 is dismissed.
Question No. 2 : “Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the mamool paid at harbour customs airport is to be allowed as a deduction ?”
4.1 This question pertains to the asst. yrs. 1986-87, 1987-88, 1988-89, 1992-93 and 1993-94. For the relevant assessment years, the assessee claimed certain expenses incurred at harbour, customs, airport, etc. as revenue expenditure. The AO disallowed the expenditure. Aggrieved by the order, the assessee filed an appeal to the CIT(A). The CIT(A) held that the assessee is entitled to deduction and allowed the appeal filed by the assessee. Aggrieved by the order, the Revenue filed an appeal to the Tribunal. The Tribunal confirmed the order of the CIT(A) and dismissed the appeal.
4.2 Both the CIT(A) as well as Tribunal had given a concurrent finding that these expenses were incurred by the assessee in connection with release of various goods and found that these were eligible expenses and also given a finding that the expenditure was inevitable.
4.3 In view of the factual finding given by the Tribunal and the conclusion based on the material and evidence available on record, there is no error or infirmity in the order of the Tribunal to warrant interference.
4.4 In our considered opinion, the question No. 2 has not been happily worded. Even though learned counsel for the appellant submits that the question only deals with the expenses paid at harbour customs, but the same has colloquially been described in the question as “mamool”, we are unable to appreciate the said explanation as all the authorities have only meant and used the word, expenses incurred by the assessee and not the word, “mamool” which is unusual in business transaction. Hence, while reforming the question No. 2 as, “Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the expenses incurred paid at harbour customs airport is to be allowed as a deduction ?” we still hold that no substantial question of law arises as the expenses incurred by the assessee in this regard is nothing but an inevitable expenditure as factually found by the Tribunal. Hence, finding no substantial question of law that arises for consideration, the appeal as regards question No. 2 is also dismissed.
Question No. 3 : “Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the payment of incentives to Dock Labour Board workers had to be allowed as a deduction ?”
5.1 This question pertains to the asst. yrs. 1986-87 to 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93. The assessee paid incentives to Dock Labour Board workers, share handling workers, tally clerks and lorry drivers. The said amount was paid to the workers as incentives to speed up the stevedoring work carried on by the assessee. The stevedoring is one of the business activities of the assessee company which is a registered employer of the Madras Dock Labour Board. The said amount was paid in cash to the workers of the Madras Dock Labour Board as incentives to speed up the stevedoring work. The AO allowed only 50 per cent of the amount by following the earlier order. Aggrieved by the order, the assessee filed an appeal to the CIT(A). The CIT(A) allowed the appeal. Aggrieved by the order of the CIT(A), the Revenue filed an appeal to the Tribunal. The Tribunal dismissed the appeal filed by the Revenue and confirmed the order of the CIT(A).
5.2 There is a factual finding by both the authorities that the payments were made in accordance with the list that was provided in the Dock Labour Board. The incentives paid do not exceed 3 per cent of the gross receipts and also is a customary payment incurred over a number of years and accepted as genuine in earlier years by the Department. The payment was necessitated to utilise the full capacity of manpower from the workers, to avoid demurrage charges and to keep the contract commitments made to the stevedores to discharge the tonnage as stipulated in the agreements between the stevedores and the principals. Both the authorities found that there is no breach of law in making payments which were essentially incidental to the carrying of the appellant’s business with a view to earning profits. The finding given by both the authorities is based on valid materials and evidence and there is no error or legal infirmity in the order of the Tribunal and hence, does not require interference. In view of the above, no substantial question of law arises for consideration of this Court and hence, the appeal with respect to question No. 3 is dismissed.
Question No. 4 : “Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the claim of the loss from the films division had to be allowed ?”
6.1 This question pertains to the asst. yrs. 1986-87 and 1988-89. During the relevant assessment years, the assessee purchased distribution rights for the Tamil film and for exploitation rights in the district of North arcot, South arcot and Chengalpattu for a consideration of Rs. 80,00,000 and thereby incurred a loss. The assessee claimed the set off loss from film distribution and the AO disallowed the claim on the ground that the assessee’s venture into the film distribution business is only to avoid payment of taxes due to Government, legitimately. Aggrieved by the order, the assessee filed an appeal to the CIT(A). The CIT(A) allowed the appeal. Aggrieved by the order, Revenue filed an appeal to the Tribunal. The Tribunal dismissed the appeal by following its earlier order in the assessee’s own case relating to the earlier assessment years.
6.2 The Tribunal has consistently allowed the claim for loss from films division. The Revenue has accepted the earlier orders and the counsel for the Revenue has not produced any material or evidence before us to take a different view. When a consistent view has been taken by the Tribunal, there is no error or infirmity in the order of the Tribunal and it does not require interference and hence, no substantial question of law arises for consideration of this Court and hence, the appeal in respect of question No. 4 is dismissed. Question No. 5 : “Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the interest paid on the borrowings from the subsidiary company is an allowable deduction when the assessee had enough funds ?”
7.1 This question pertains to the asst. yrs. 1990-91, 1991-92, 1992-93 and 1993-94. The assessee had advanced an amount to M/s Sundaram Industries. In the said advance, the assessee had not charged any interest. The said advances were made to provide working capital to the subsidiaries. The AO calculated the interest at 12 per cent on the minimum balance outstanding during each year and disallowed out of interest claim of the assessee. Against the disallowance, the assessee filed an appeal to the CIT(A). The CIT(A) confirmed the order of the AO. Aggrieved by the order, the assessee filed an appeal to the Tribunal. The Tribunal allowed the assessee’s claim.The Tribunal had given a finding that the assessee has a lot of business action with the subsidiaries and carrying on various activities through the subsidiaries.
7.2 There is a factual finding that the assessee had its own free reserves and funds used mainly for running expenses. Also, there was no material produced by the Revenue to establish that the money borrowed was actually given to its subsidiaries. Hence the conclusion of the Tribunal is based on material and evidence and it does not suffer from legal infirmity to warrant interference. In view of the above, no substantial question of law arises for consideration of this Court and hence, the appeal qua question No. 5 is dismissed.
Question No. 6 : “Whether in the facts and circumstances of the case, the Tribunal was right in holding that inclusion of interest from Sundaram Industries for the amounts advanced by the assessee had to be deleted ?”
8.1 This question pertains to the asst. yrs. 1986-87 to 1988-89, 1991-92, 1992-93 and 1993-94. There was a debit balance in the books of the assessee company in the name of M/s Sundaram Industries. No interest was charged by the assessee even though the assessee was paying interest on its borrowings. The AO estimated the interest at 18 per cent and added as income. Aggrieved by the order, the assessee filed an appeal to the CIT(A). The CIT(A) allowed the appeal filed by the assessee. Aggrieved, the Tribunal (sic–Revenue) filed an appeal to the Tribunal and the Tribunal dismissed the appeal.
8.2 In respect of the earlier assessment order, for the asst. yrs. 1981-82 and 1982-83, the Tribunal had allowed the claim of the assessee. In the present case, the Tribunal followed the said earlier order and allowed the claim of the assessee. The Revenue was also not able to produce evidence or material to take a different view and the said earlier order was accepted by the Revenue. In view of the same, no substantial question of law arises for consideration of this Court and hence, the appeal apropos question No. 6 is dismissed.
Question No. 7 : “Whether, in the facts and circumstances of the case, the Tribunal was right in holding that interest paid towards the loan taken for acquiring spic zero bonds, had to be allowed as a deduction while computing the income from other sources ?”
9.1 This question pertains to the asst. yr. 1993-94. During the relevant years, the assessee had acquired spic zero bonds from M/s SPIC Ltd. The assessee has claimed interest payment as a deductible expenditure. The reasons for the said claim are : (a) Interest claimed as a deduction from other sources being expenditure incurred for earning the same. (b) As the assessee is not a dealer in shares, the interest paid on loan borrowed is allowable as deduction and is not required to be capitalised.
The AO disallowed the appellant’s claim for deduction of interest. Aggrieved by the order, the assessee filed an appeal to the CIT(A). The CIT(A) held that the assessee is entitled to deduction of interest and allowed the claim. Aggrieved, the Revenue filed an appeal to the Tribunal. The Tribunal dismissed the Revenue’s appeal and confirmed the order of the CIT(A).
9.2 Both the first appellate authority as well as the Tribunal has given a factual finding that the assessee is a flag- ship company carrying on the worldwide business and the bonds were acquired for purposes of business. The conclusion arrived at by the authorities were based on material and evidence and hence no substantial question of law arises for consideration by this Court and hence, the appeal in regard to question No. 7 is dismissed.
In the result, the tax case is dismissed. No costs.
[Citation : 290 ITR 217]
