2019 (6) TMI 1183 - HC - Income Tax

High Court upholds Tribunal decisions on key tax issues, emphasizing factual verification and computation principles

The High Court dismissed the revenue's appeal, upholding the Tribunal's decisions on various issues including verification of interest credited to ... Claim of interest credited to “Interest Suspense Account” taxed in earlier years now written off during the year - HELD THAT:- The record would suggest that the assessee, in view of its success before the Tribunal on the issue of disallowance of interest credited to Interest Suspense Account, had not pressed the ground of appeal in the earlier year, however, clarifying that if at all such decision of the Tribunal is reversed by the High Court the assessee would be at liberty to revise the claim. This offer of the assessee was accepted by the Tribunal. On the same ground in the present year the Tribunal followed the formula of the earlier year and for such limited purpose placed the matter before the Assessing Officer. We do not find any error. No question of law therefore arises. Deduction of expenditure incurred by the assessee towards contribution to retired employees benefit scheme - whether provision of section 40A(9) of the Act which provide for deduction only for payment to approved/recognized funds as referred to section 36(1)(iv) & (v)? - HELD THAT:- In case of Commissioner of Income-tax-LTU Vs. Indian Petrochemicals Corporation Limited [2019 (1) TMI 1364 - BOMBAY HIGH COURT] considered the case where the assessee-employer had contributed to various clubs meant for staff and family members and claimed such expenditure as deduction. Once again the revenue had resisted in the expenditure by citing section 40A(9) of the Act. This Court confirmed the view of the Tribunal and dismissed the revenue’s appeal, in which the Tribunal had allowed the expenditure claimed by the assessee. Once again in case of The Principal Commissioner of Income-Tax-14 Vs. Indian Oil Corporation [2019 (2) TMI 1652 - BOMBAY HIGH COURT] revenue had raised such an issue when the assessee had spent certain amounts in either setting up or providing grant-in-aid made to Kendriya Vidyalaya Schools where the students of the assessee-Indian Oil Corporation would receive education. This Court referred to a judgment of Kerala High Court in case of P. Balakrishnan, Commissioner of Income-Tax Vs. Travancore Cochin Chemicals Ltd. [1999 (10) TMI 33 - KERALA HIGH COURT] and of the decision of this Court in case of Bharat Petroleum Corporation Limited [2001 (3) TMI 20 - BOMBAY HIGH COURT] held that the Tribunal had correctly allowed the assessee’s claim of expenditure. In view of this discussion, this question is not entertained. Loss on revaluation of permanent category investments - HELD THAT:- As decided in assessee's own case [2016 (8) TMI 963 - BOMBAY HIGH COURT] the issue raised herein stands concluded against revenue and in favour of the respondent assessee by the order of this Court in CIT vs. Union Bank of India [2016 (2) TMI 606 - BOMBAY HIGH COURT] Disallowance u/s 80M - claim on the net of the income or gross income - HELD THAT:- This issue is squarely covered in favour of the assessee by virtue of decision of this Court in case of Commissioner of Income-tax-6 Vs. Modern Terry Towers Ltd. [2012 (8) TMI 776 - BOMBAY HIGH COURT] held that the principles applicable for computing deduction under Section 80HHC of the Act cannot be imported into Section 80M of the Act. As observed - 'The provisions of section 80HHC are entirely different from those of sections 80M and 80AA. There is no basis for importing the provisions of section 80HHC with section 80M. The same does not lead to a satisfactory computation of the net dividend under section 80M.” Appeal dismissed. Issues Involved:1. Verification and taxation of interest credited to 'Interest Suspense Account'.2. Deduction of expenditure towards contribution to a retired employees benefit scheme under Section 40A(9).3. Allowance of loss on revaluation of permanent category investments.4. Disallowance of interest expenses related to share purchase.Detailed Analysis:1. Verification and Taxation of Interest Credited to 'Interest Suspense Account':The Tribunal remanded the issue to the Assessing Officer (A.O.) for proper verification of facts concerning the interest credited to the 'Interest Suspense Account' and its subsequent write-off. The Tribunal's decision was based on the precedent set in earlier years where the assessee had not pressed the ground of appeal, subject to the condition that if the Tribunal's decision was reversed by the High Court, the assessee could revise the claim. The High Court found no error in this approach and concluded that no question of law arose from this issue.2. Deduction of Expenditure Towards Contribution to a Retired Employees Benefit Scheme:The revenue objected to the assessee's claim of Rs. 50 lakhs towards a fund for retired employees' healthcare, arguing it was not recognized under Section 36(1)(iv) or (v) and thus hit by Section 40A(9). The Tribunal accepted the assessee's claim, noting that the contribution was for a genuine medical benefit scheme for retired employees and not controlled by the assessee-bank. The Tribunal observed that Section 40A(9) was intended to discourage the creation of bogus funds, not genuine welfare expenditures. The High Court agreed, emphasizing that the provision was not meant to hit genuine employer expenditures for employee welfare.3. Allowance of Loss on Revaluation of Permanent Category Investments:The Tribunal allowed the assessee's claim of a loss of Rs. 16,84,481/- on revaluation of permanent category investments, which the revenue contested as a notional loss. The High Court referred to a previous decision in a similar case involving the same assessee (Income Tax Appeal No.254 of 2014), where the issue was resolved in favor of the assessee, concluding that no substantial question of law arose.4. Disallowance of Interest Expenses Related to Share Purchase:The revenue contended that the disallowance of interest expenses should be based on a scientific method of allocation. The Tribunal deleted the disallowance, and the High Court noted that this issue was covered by the decision in Commissioner of Income-tax-6 Vs. Modern Terry Towers Ltd., where it was held that the principles for computing deductions under Section 80HHC could not be applied to Section 80M. The High Court upheld the Tribunal's decision, dismissing the revenue's appeal.Conclusion:The High Court dismissed the revenue's appeal, finding no substantial question of law in the issues raised. The Tribunal's decisions on all four issues were upheld, emphasizing the proper verification of facts, the genuineness of welfare expenditures, and the inapplicability of certain computation principles across different sections of the Income Tax Act.