TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 23
X X X X Extracts X X X X
X X X X Extracts X X X X
....scrap without appreciating that the said payments were covered under the exceptions mentioned in clause (b) of Rule 6DD of the Income tax rules and therefore, there was no reason to make any disallowance u/s. 40A(3) in respect of the same. 2] The learned CIT (A) erred in holding that 'Maharashtra State Road Transport ' could not be considered as 'Government' for the purposes of Rule 6DD(b) and hence, the disallowance u/s. 40A(3) was attracted in respect of cash payments made to the above party. 3] The learned CIT (A) failed to appreciate that the Maharashtra State Road Transport Corporation was under the control of the Govt. and hence, any payment made to the said entity was covered within the exceptions provided in clause (b) of Rule 6DD and hence, no disallowance u/s. 40A(3) was warranted. 4] The learned CIT (A) erred in not appreciating that the various case law relied upon by him were distinguishable on facts and hence, the same were not applicable to the case of the assessee. 5] The learned CIT (A) ought to have appreciated that the payments made in case by the assessee to various Govt. Organisations were for the purpose of his business and there was a reas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....val sides and have perused the orders of the authorities below. The only issue before us for adjudication in these appeals is; Whether the payments made in cash by the assessees to MSRTC for purchase of scrap in auction would attract the provisions of section 40A(3) of the Act ? 9. In the first round of litigation, same question was raised before the Tribunal in ITA No.845 & 1471/PN/2010, ITA No.836/PN/2010 & ITA No.1241/PN/2011, ITA No.834/PN/2010 & ITA No.1242/PN/2011, ITA No.1472/PN/2010. The Tribunal vide consolidated order dated 20- 05-2013 had remitted the issue back to the file of CIT(A) for deciding it afresh in the light of the observations made. The relevant extract of the observations made by the Tribunal are as under : "10. We are unable to accept the argument canvassed by the Ld. DR. The Article 12 of the Constitution reads as under: "the state includes the Government and Parliament of India and Government and the Legislature of the states and all local or other authorities within the territory of India or under the control of the Government of India." 11. The definition of the State under Article 12 has come for the consideration on number of occasions before t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ile of the Ld. CIT(A) to decide the same de novo in the light of our above observations and discussion. Accordingly, the relevant Grounds taken by the assessees in all these appeals are allowed for statistical purposes. Needless to say the CIT(A) is directed to give opportunity of being heard to the assessees as per the principles of natural justice." 10. A bare perusal of Article 12 shows that the definition of "the State" given in Article is inclusive and not exhaustive. "The State" includes : (a) the Government and Parliament of India; (b) the Government and the Legislature of each of the States; (c) all local and other authorities within the territory of India; and (d) all local and other authorities under the control of the Government of India. 11. The expression "other authorities" used in Article 12 is neither defined in the Constitution of India nor in any other statute. Therefore, the Hon'ble Supreme Court of India and the Hon'ble High Court have interpreted this expression in various judgements. The Hon'ble Supreme Court of India while interpreting the expression "other authorities" in the case of Som Prakash Rekhi Vs. Union of India reported as AIR 1981 SC 212 have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of compensation to one of the employee of MSRTC has observed as under : "The Petitioner employer is a body Corporate and is State within the meaning of Article 12 of the Constitution of India and therefore it has to act as a Model Employer." 14. Thus, in view of the facts of the case and in the light of observations of the Hon'ble Bombay High Court, we are of the considered opinion that the CIT(A) has erred in holding that MSRTC is not a "State" and cash payments made to MSRTC are hit by the provisions of section 40A(3) of the Act. 15. In so far as genuineness of the payments to MSRTC by the assessees, they are not disputed by the department. Once it has been held that MSRTC is a "State" within the meaning of Article 12 of the Constitution of India, the payments cannot be disallowed u/s.40A(3). The provisions of Rule 6DD would protect the assessee from such disallowance. The assessees have explained that cash payments have been made to MSRTC on successful bid of scrap auction. The payments are made in cash immediately to guard against the pilferage of scrap. Thus, cash payments are also made out of business expediency. Therefore, in our considered view, no disallowance can ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the provisions of section 40A(3) are not attracted on the cash payments made by the assessees to MSRTC. The provisions of Rule 6DD (b) provide exception to Section 40A(3) where cash payments are made to Government. The aforesaid exception will operate in the case of the assessee. Thus, the CIT(A) has erred in holding that disallowance u/s.40A(3) is to be made in respect of cash payments made by assessees to MSRTC. The impugned orders are set aside and the AO is directed to delete the disallowing made u/s.40A(3) in the impugned assessment years. Accordingly, ground Nos. 1 to 5 raised in the appeals are allowed." 9. Since the CIT(A) has upheld the disallowance made by the AO u/s.40A(3) by following his orders for earlier years in assessee's own case and since the Tribunal has already deleted such disallowance, therefore, in absence of any contrary material brought to our notice against the order of the Tribunal in assessee's own case, we hold that the provisions of section 40A(3) in respect of cash payments made to MSRTC and other Government Organisations towards purchase of scrap materials are not attracted. Accordingly, the disallowance u/s.40A(3) made by the AO and upheld by th....