2018 (1) TMI 1046 - HC - Income Tax

High Court upholds Tribunal decisions on deductions, 'deemed dividend' assessment.

The Commissioner of Income Tax, Kottayam Versus M/s. Malayala Manorama Co. Ltd.

The High Court dismissed all appeals, upholding the Tribunal's decisions. The Assessee's deductions under Sections 80Q and 80-IA were accepted, with the ... Sustainability of deduction u/s 80Q - Held that:- Since there was no appeal against the earlier years, the Revenue cannot deny the claim of the Assessee. In this view of the matter, we find force in the contention of the learned representative of the Assessee that for all the earlier years prior to assessment year 1995-96, similar method was followed by the Assessee and which had been accepted by the Assessing Officer himself or on direction by the first appellate authority and hence Revenue could not have changed its method of allowing deduction under Section 80Q of the Act for the assessment year 1995-96, in view of the decisions cited supra. Hence, finding force in the contention of the learned representative of the Assessee in the facts and circumstances of the case, we are rejecting this ground of appeal of the Revenue, i.e.regarding deduction under Section 80Q Deemed dividend u/s 2(22)(e) - when a transaction amounts to a 'loan' so as to come within the purview of “dividend” eligible for deduction under Section 2(22)(e) - Held that:- The amounts under the disputed heads were being received by the Assessee from its Subsidiary Company only as part of regular business transactions, which was being accounted properly. The change in circumstance, as to the distribution of dailies/publications in the Gulf, causing the same to be transported through the Agent directly from Trivandrum to the Gulf, [instead of forwarding the same to Bombay, where the registered office of the Subsidiary Company is situated and then to have it transported from Mumbai to the Gulf, for distribution in the Gulf ] was resulted because of the starting of direct flights from Trivandrum to Gulf, as pointed out by the Assessee. Advance deposits were also effected by the Subsidiary Company and payments were being effected directly by the Assessee to the clearing and forwarding agent of the Subsidiary Company at Trivandrum, as per their instructions, which were being properly accounted - payments effected by the Subsidiary Company and received by the Assessee, were as part of the regular business transactions and applying the law laid down in the judicial precedents cited above, it could not have been treated as 'loan' or 'advances', so as to make the disputed amounts as “deemed dividend”, as defined under Section 2(22)(e). There is absolutely no basis for the challenge raised by the Revenue, with reference to the deduction under Section 80Q of the Act and the assessment, taking it as a “deemed dividend” under Section 2(22)(e) of the Act. The common question involved in the above cases is answered accordingly. Calculating deduction u/s 80IA - whether 'interest' received from the Bank could be treated as business income? - Commissioner of Income Tax (Appeals) directed AO to re-compute the deduction under Section 80IA by computing the deduction from the profits of the eligible units of the Assessee Company - Held that:- Since the issue with reference to Section 80IA has been remanded by the Commissioner , which view has been upheld by the Tribunal and since we find that no tenable ground has been raised to interfere with the same, we do not find any merit in this appeal as well. Issues Involved:1. Deduction under Section 80Q of the Income Tax Act.2. Assessment of 'deemed dividend' under Section 2(22)(e) of the Income Tax Act.3. Eligibility for deduction under Section 80-IA of the Income Tax Act (specific to the third appeal).Detailed Analysis:1. Deduction under Section 80Q of the Income Tax Act:The respondent Assessee, engaged in printing and publishing, claimed deductions under Section 80Q for the assessment years 1995-96, 1996-97, and 1997-98. The Assessing Officer (AO) disputed the accounting methods used by the Assessee, arguing that the profits from the Year Book were abnormally high compared to the Daily publication, suggesting an evasion of tax. The AO re-computed the profits, leading to a reduced deduction under Section 80Q.The Commissioner of Income Tax (Appeals) found no justification for the AO's re-computation, noting that the Assessee maintained proper books and accounted for all relevant expenses, including overheads and depreciation. The Appellate Authority directed the AO to accept the Assessee's computation, referencing past ITAT decisions that supported the Assessee's method.The Tribunal upheld the Appellate Authority's decision, emphasizing the consistency in the Assessee's method, which had been accepted in previous years without challenge from the Revenue. The Tribunal cited the principle that a long-standing accepted method should not be disturbed without compelling reasons, referencing the Supreme Court's decision in Birla Cement Works vs. CBDT.2. Assessment of 'deemed dividend' under Section 2(22)(e) of the Income Tax Act:The AO treated certain amounts as 'deemed dividend' under Section 2(22)(e), including trade discounts and deposits from the Subsidiary Company (CBL). The Assessee contended these were part of regular business transactions and not loans or advances.The Commissioner of Income Tax (Appeals) agreed with the Assessee, distinguishing between loans and deposits. The deposits were part of a commercial agreement for distributing publications in the Gulf, facilitated by direct flights from Kerala. The Appellate Authority held that these transactions did not constitute loans or advances and thus did not fall under Section 2(22)(e).The Tribunal supported this view, noting the commercial nature of the transactions and the regular accounting practices. The Tribunal referenced the Delhi High Court's decision in Commissioner of Income - Tax vs. Raj Kumar, which clarified that trade advances in commercial transactions do not qualify as loans under Section 2(22)(e).3. Eligibility for deduction under Section 80-IA of the Income Tax Act (specific to the third appeal):For the third appeal, the issue was the eligibility for deduction under Section 80-IA. The Commissioner of Income Tax (Appeals) had remanded this issue to the AO for re-computation, following the Kerala High Court's decision in Malayala Manorama Co. Ltd. vs. Commissioner of Income Tax. The Tribunal upheld this decision.The High Court found no substantial questions of law raised by the Revenue to challenge the Tribunal's decision. The High Court emphasized that the Revenue had not demonstrated any compelling reason to deviate from the established method accepted in previous years.Conclusion:The High Court dismissed all appeals, concluding that the Revenue failed to substantiate any substantial questions of law. The Court upheld the Tribunal's decisions regarding deductions under Sections 80Q and 80-IA and the assessment of 'deemed dividend' under Section 2(22)(e), affirming the consistent accounting methods and commercial nature of transactions as presented by the Assessee.