TaxTMI 
TaxTMI 
2014 (2) TMI 237
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....nue has filed this T. C. (A.) No. 1980 of 2008. At the time of admitting the above tax case appeal, the following substantial questions of law were framed : "1. Whether, in the facts and in the circumstances of the case, the Tribunal was right in deleting the addition of Rs. 35 lakhs made on account of car parking spaces allotted to the assessee-company? 2. Whether, in the facts and in the circumstances of the case, the Tribunal was right in deleting the addition of Rs. 50 lakhs made on account of accrued rights due to the contractual obligation of the developer to provide air conditioning equipment ? 3. Whether, in the facts and in the circumstances of the case, the Tribunal was right in directing the Assessing Officer to consider the compensation paid to the tenants for obtaining vacant possession as 'cost of improvement' and allow the relief as claimed by the assesseecompany ? 4. Whether, in the facts and in the circumstances of the case, the Tribunal was right in confirming the Commissioner of Income-tax (Appeals) order with respect to the loss suffered by the assessee in share transactions is a genuine loss and thereby directing the Assessing Officer to assess the ....
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....contained in the said agreement, we are satisfied that the transaction between the parties was for granting developing rights in the land for a specified consideration. The agreement provided for allotment of a specified car parking spaces to the respondent-assessee and provision of air-conditioning equipment at free of cost by the developer to the built-up area of 29,000 sq. ft. for which benefits, the assessing authority assigned some notional value and added it to the income of the assessee. The appellate authority as well as the Tribunal deleted the said additions on certain finding of facts. As against the notional value added for 35 car park spaces, the appellate authority and the Tribunal found that in the certificate dated September 15, 2006, the developer admitted that the car park spaces were not included in the sanctioned built-up area and, therefore, not included in the saleable area. The authority also found that the certificate also confirmed that there was no sale or transfer of car park areas to the assessee and that the assessee was allowed to park the cars in the open space against the refundable security deposits. The appellate authority found that the evidence o....
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.... since no such condition to park the cars in open spaces against the refundable deposits is involved therein. Therefore, it cannot have any bearing to the facts of the present case. Therefore, we find no reason to interfere with the well-reasoned order of the appellate authority in deleting the said notional additions of income and that the Tribunal committed no error in confirming the order of the appellate authority. In our considered view, since the order passed by the appellate authority was based on findings of facts based on the materials available on record, which was confirmed by the Tribunal, we see no reason to interfere with the same in this appeal filed under section 260A of the Income-tax Act. We, accordingly, confirm the order of the Tribunal and answer the substantial questions of law in the affirmative and against the Revenue. We will now advert to the decisions cited by learned standing counsel for the Revenue on the issue of car parking space and air-conditioning. Learned counsel relied on the following decisions : (a) CIT v. Central India Industries Ltd. [1971] 82 ITR 555 (SC), wherein the honourable Supreme Court held as follows (page 561) : &n....
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....setting the said view of the Tribunal." We have carefully analysed the decisions cited on behalf of the Revenue. In our view none of the above decisions are relatable to the peculiar facts of the present case where no right to transfer the car park rights has accrued in favour of the assessee and merely open space was being utilized beyond the permissible FSI for parking of vehicles. Furthermore, as discussed above, the notional additions on account of provision for air-conditioning does not arise in the facts of the present case as no such provision was actually provided by the developer. Therefore, we are of the view that the decisions relied on by the Revenue are of no assistance to them. Furthermore, the Tribunal and the appellate authority concurrently held on facts against the Revenue, with which we see no reason interfere and depart. For the above reasons, we answer the substantial questions of law Nos. 1 and 2 in the affirmative and against the Revenue. Substantial question of law No. 3 This ground pertains to the Revenue's challenge to the order of the appellate authority and the Tribunal reversing the order of the assessing authority disallowing the assessee's....
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....ure incurred wholly and exclusively in connection with the sale of the properties. The obligation was connected with the partition arrangements, and not with anything else. Our answer to the third question in the two groups of references is accordingly against the assessees and in favour of the Department." On the other hand, learned senior counsel for the respondent-assessee by putting forth the submissions made before the appellate authority and the Tribunal submitted that the compensation paid to the tenants could not be held to be expenditure incurred in relation to transfer of the property. It was further submitted that such payment of compensation became necessary to get the vacant possession of the property without getting involved in litigation and this was in the interest of business expediency. By payment of such compensation, the assessee could easily obtain vacant possession of the property which resulted in improvement in the assessee's right and interest, over the said property. Learned counsel submitted that such expenditure, therefore, would constitute "cost of improvement" and that the assessee was entitled for the indexation benefit. Learned senior counsel woul....
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....d that the agreement nowhere imposed an obligation on the part of the assessee to settle the claim of the tenants for getting vacant possession of the property and in the absence of such contractual obligation, we are of the considered view that the payment of compensation to the tenants for getting vacant possession of the property could not be related to transfer of development rights. On the other hand, the compensation paid to the tenants for delivering the vacant possession, improved the right and interest of the assessee over the property and, therefore, it would amount to improvement cost. It was also brought to our notice that a similar claim of the assessee for the earlier assessment years were allowed by the assessing authorities. We, therefore, find no erroneous approach or infirmity in the findings of the appellate authority and the Tribunal that the compensation paid to tenants for getting vacant possession would amount to cost of improvement and that the assessee was entitled for indexation benefit on that account. Furthermore, in the light of the decision of this court in T. C. (A.) No. 977 of 2005 which we have extracted supra, we find no reason by which the Revenue....
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....and also gain from another source of non-speculation business, then such speculation loss cannot be set off against the profit of a non-speculation business. Sub-section (2) of section 73 restricts the scope of section 72 which provides for carrying forward and setting off of business losses. If any loss computed in respect of a speculation business has not been wholly set off, such loss may be carried forward and set off against profits and gains of any speculation business in the following assessment years." (b) McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC), wherein the Supreme Court observed as follows (page 160) : "In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgment of Desai J. in Wood Polymer Ltd., In ....
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....o made by the account payee cheque when the shares were purchased. The identity of the share brokers and the person through whom the shares were purchased and shares were sold is not disputed. Merely because the assessee could not produce a broker through whom the shares were sold or the person to whom the shares were sold, it does not affect the genuineness of shares in case when the assessee came with a fact and disclosed the identity of the persons from whom the shares were purchased and sold. If the assessee failed to produce those persons, that alone does not affect the genuineness of transactions. Summons can be issued under section 131 of the Act to compel them to appear before the Income-tax Officer or the Assessing Officer. But that has not been done. One more factor has been highlighted by the Assessing Officer that the delivery of shares is on November 9, 1982, when the sale was on October 22, 1982. Merely because of the fact that all shares were delivered after 10/15 days from the date of sale also does not affect the claim of the assessee regarding the genuineness of sale of shares by the assessee and when there is no evidence on record that the shares are not purch....
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....o the conclusion to which the Tribunal has come. It is equally settled that the decision of the Tribunal has not to be scrutinised sentence by sentence merely to find out whether all facts have been set out in detail by the Tribunal or whether some incidental fact which appears on the record has not been noticed by the Tribunal in its judgment. If the court on a fair reading of the judgment off the Tribunal, finds that it has taken into account all relevant material and has not taken into account any irrelevant material in basing its conclusions, the decision of the Tribunal is not liable to be interfered with, unless, of course, the conclusions arrived at by the Tribunal are perverse. Keeping these principles in mind in the present case, we find that the Tribunal has taken note of all the relevant circumstances which appear on the record and which were referred to by the Departmental representatives before the Tribunal. It has not taken into account any material which could be said to be irrelevant in arriving at its conclusions. In considering whether the shares of Bharat Starch and Chemicals Ltd. and Greaves Cotton and Co. Ltd. were held by the assessee as stock-in-trade or as c....
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....issue in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal) and answered the question in favour of the assessee. The admitted facts in this case are that the details of purchase and sale of shares are furnished. The payment and receipt are by account payee cheque. The identity of seller and purchaser is not in dispute. The disallowance is basically made on the ground that the assessee failed to produce the brokers for verification of the transaction. Following our view in the earlier case referred to non-production of the share broker by the assessee does not disentitle the assessee for claim of loss in a genuine transaction of shares. Considering the aforesaid facts and our view expressed in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal), we answer question No. 1 whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer it in the negative, i.e., in favour of the assessee and against the Revenue." (d) CIT v. Dalmia Jain and Co. [1972] 83 ITR 438 (SC), wherein the honourable Supreme Court held as under (page 439) :  ....
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....he required primary evidence such as copies of bills, contract notes, receipts for sale consideration, share particulars, etc., relating to the sale of shares. The appellate authority also found that the assessing authority did not prove these documents or evidence to be false or bogus. On appreciation of the factual aspects of the matter, the appellate authority held that the assessing authority was not justified in holding the sale of shares as bogus and the claim was made with a motive to avoid payment of tax. The appellate authority was found to be satisfied with the materials available on record that the loss suffered by the assessee in sale of shares was a genuine loss and, therefore, entitled to claim the loss under "Capital gains". The finding of the appellate authority was based on the materials available on record and, therefore, is a finding of fact. The Tribunal, concurring with the said finding, held that there was no convincing material put forth by the Revenue to establish that the assessee was claiming loss on ostensible sale of shares belonging to the group companies with the motive of tax avoidance. The Tribunal also confirmed the finding of the appellate authorit....
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.... purposes. It was argued that the borrowed capital was mainly invested in shares of group companies and as such, interest claimed to have paid on such borrowed capital was used for the purposes of the assessee's business. In support of his argument, the learned standing counsel relied on the following decisions : (a) In K. Somasundaram and Brothers v. CIT [1999] 238 ITR 939 (Mad), wherein it was held as follows (page 943) : "The amount borrowed for the business remains a liability for the business till its discharge. The fact that the amount borrowed may have been invested in the purchase of machinery or utilised as working capital or used in any other way does not in any way affect the liability for repayment of the amount borrowed. So long as the money borrowed is used in the business, interest paid on such borrowing is a proper charge on the business and is allowable as an expenditure. Under section 36(1)(iii) of the Act, amounts diverted not being used for the purposes of the business, interest relating to the operation diverted cannot be treated as an item of permissible deduction in the computation of incom....
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....ncern without carrying any interest for non-business purposes would be that the assessee has some loans or other interest bearing debts to be repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that it is diverted towards sister concern free of interest.' " On the other hand, learned senior counsel for the respondent assessee, reiterating the submissions made before the appellate authority and the Tribunal submitted that all the requirements under section 36(1)(iii) of the Income-tax Act for an allowance on interest paid on borrowed capital were fulfilled by the assessee. It was proved in the present case that the assessee had borrowed capital, the borrowed capital was used for business purposes and that interest was paid an borrowed capital. No material had been produced by the Revenue to show that the borrowed capital was utilised by the assessee for non-business purposes. Learned senior counsel submitted that the order passed by the Trib....
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....se of earning profits'. Its range is wide : it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery ; it may include measure for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business. However, wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory ; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business. In the present case, the company, as a statutory agent of the deceased....
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....the assessing authority. The appellate authority, however, deleted the disallowance. The deletion was confirmed by the Tribunal. Learned standing counsel for the Revenue assailed the order of the Tribunal submitting that the payment of licence fee was not wholly and exclusively for the business purpose of the assessee and that the expenditure incurred was a mere reimbursement of the expenditure incurred by M/s. RPG Enterprises Ltd. for its own activities and not for the assessee's business purposes. It was argued that the appellate authority and the Tribunal erred in holding that the licence fee paid was for the business purposes of the assessee. Learned senior counsel submitted that the payment of licence fee to a common group resource company is a practice among many business enterprises. Having heard the learned standing counsel for the Revenue and the learned counsel for the respondent-assessee, we have carefully gone through the material available on record and the order passed by the authorities below and that of the Tribunal. The assessing authority held that the respondent-assessee and M/s. RPG Enterprises Ltd. are two different legal entities under the Income-t....
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....n T. C. (A.) Nos. 310 to 312 of 2007 and 1388 to 1390 of 2007-since reported in CIT v. RPG Transmissions Ltd. [2013] 359 ITR 673 (Mad) (infra) and also T. C. (A.) No. 1783 of 2008 filed by the Revenue against M/s. RPG Transmission Ltd. and M/s. Spencer and Co. Ltd. respectively, which appeals were heard and disposed of together with these appeals today, we have dealt with the very same issue of licence fee payment at length. The fact situation relating to the claim of licence fee payment to M/s. RPG Enterprises Ltd. is similar to the case on hand except for different assessment year. We hereunder quote the relevant part of our finding on the licence fee payment to RPG Enterprises Ltd. in our judgment in T. C. (A.) No. 1783 of 2008 since reported in CIT v. Spencers and Co. Ltd. (No. 2) [2013] 359 ITR 630 (Mad) (page 639) : "Before us, reiterating the findings of the Tribunal in the order impugned in this appeal, learned counsel for the respondent-assessee drew our attention of the decision of the Calcutta High Court in Philips Carbon's case, where the Calcutta High Court had dismissed the appeal filed by the Revenue on ....
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....payment of licence fee to M/s. RPG Enterprises Ltd. by the respondent-assessee was towards their share of actual expenses incurred by M/s. RPG Enterprises Ltd. The Commissioner of Income-tax (Appeals) and the Tribunal in their orders clearly pointed out that the expenditure incurred by the respondent assessee towards licence fee payment to M/s. RPG Enterprises Ltd. were relatable to the business expediency and profits of the respondent-assessee and that the benefits availed of by the respondent-assessee from the service of the group resource company was tangible and justified. We do not see any reason to interfere with the concurrent finding of fact recorded by the Commissioner of Income-tax (Appeals) and the Tribunal. The orders passed by the Commissioner of Income-tax (Appeals) and the Tribunal contained cogent reasons for arriving at such findings. The issue regarding licence fee paid is squarely covered by two decisions of the High Courts of Bombay and Calcutta (referred to above) in which the question of law raised by the Revenue was rejected in the assessee's group company case. It is settled law in so far as the scope, power and ambit of the High Court in exercise of juri....