2019 (1) TMI 1364 - HC - Income Tax

High Court upholds Tribunal decision on revenue deduction. Notional sales tax treatment as capital receipt confirmed.

The High Court upheld the Tribunal's decision in favor of the Assessee regarding the revenue deduction for contributions to clubs under Section 40A(9) of ... Addition u/s 40A - deduction towards contribution made by assessee to various clubs meant for the staff and their family members - Held that:- This Court in the case of Gujarat State Export Corporation Ltd. [1993 (9) TMI 52 - GUJARAT HIGH COURT] has held that payment of surtax was not an allowable deduction and that by paying the entrance fee to the sports club the assessee had no intention to acquire any capital asset or take advantage for the enduring benefit of the business and that by common sense standards, it could be stated that it was for running the business or for bettering the conduct of its business and therefore, the amount paid as entrance fee was deductible. In view of the said decision, we find that the question raised is required to be answered in favour of the assessee. Nature of receipt - subsidy in the form of Sales Tax Exemption as 'capital receipt' or 'revenue receipt - Held that:- When one High Court has examined the scheme and in the case of this very assessee held that, the sales tax waiver benefits were in the nature of capital receipts, no further question of law would arise Addition u/s. 145A - difference between the closing balance and the opening balance of CENVAT credit - Held that:- The Tribunal by the impugned judgment while rejecting Revenue's appeal and confirming the view of the Commissioner of Income Tax relied on its earlier decision in case of this very assessee for earlier Assessment Years. In such decision, the Tribunal had referred to and relied upon the decision of this Court in case of CIT v/s. Mahalaxmi Glass Works Pvt. Ltd. [2009 (4) TMI 182 - BOMBAY HIGH COURT] and CIT v/s. Mahavir Alluminium Ltd. [2007 (11) TMI 41 - HIGH COURT OF DELHI] - Revenue appeal dismissed. Issues Involved:1. Allowance of revenue deduction for contribution to clubs under Section 40A(9) of the Income Tax Act.2. Treatment of notional sales tax exemption as a capital receipt.3. Deletion of addition made under Section 145A for the difference in CENVAT credit balance.4. Alternative consideration of deduction under Section 37(1) or 43B.Issue 1:The first issue revolves around the deduction claimed by the assessee for contributions made to clubs for staff and their families, contested by the Revenue under Section 40A(9) of the Income Tax Act. The Tribunal ruled in favor of the Assessee, prompting the Revenue to appeal. The High Court noted the admission of a similar question in a previous case involving the same assessee, where the Gujarat High Court had already decided in favor of the assessee, citing precedents and common sense standards to support the deduction. Consequently, the High Court declined to entertain the Revenue's appeal on this matter.Issue 2:The second issue concerns the classification of sales tax exemption as a capital receipt by the Assessee, opposed by the Revenue as a revenue receipt. The Assessee referenced a judgment by the Gujarat High Court in a related case, where the court had ruled in favor of the assessee based on various legal precedents. The High Court confirmed that the scheme examined by the Gujarat High Court was identical to the one in the present case, leading to the conclusion that the sales tax waiver benefits were indeed capital receipts. The High Court dismissed the appeal on this issue.Issue 3:The third issue involves the addition of a specific sum by the Assessing Officer under Section 145A, contested by the Revenue. The Tribunal, upholding the CIT(A)'s view, relied on its previous decision for the same assessee in earlier assessment years and cited judgments from the High Court and the Delhi High Court. The Assessee highlighted that the Revenue had not raised this issue in the earlier appeal, leading the High Court to dismiss the question on this ground.Issue 4:The fourth issue, presented as an alternative contention by the Revenue, pertains to the deduction under Section 37(1) or 43B, which was not discussed by the Tribunal. Since this issue was not deliberated upon by the Tribunal, it did not warrant consideration by the High Court. Consequently, the Tax Appeal was dismissed.