Tamilnadu Medical Plant & Herbal Medicine Corporation Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1487/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7772 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-01-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 22-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: G BASKAR
• Keywords: Diversion of income
• Section: 143(3); 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1487/MDS/2015 ( / ASSESSMENT YEAR: 2011-12) M/S. TAMILNADU MEDICAL PLANT & HERBAL MEDICINE CORPORATION LTD., ANNA HOSPITAL CAMPUS, ARUMBAKKAM, CHENNAI-600 106. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, CHENNAI. PAN:AAACT2311G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. G.BASKAR, ADVOCATE /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 11 TH JANUARY, 2016 /DATE OF PRONOUNCEMENT : 18 TH MARCH, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 11, CHENNAI DATED 16.03.2015 IN ITA NO.717/CIT(A)- 11/2013-14 PASSED UNDER SECTION 143(3) OF THE ACT. 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN ITS AP PEAL IS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.66,70,47 5/- MADE BY THE LEARNED ASSESSING OFFICER TOWARDS NOMINATION FEE PAID BY THE ASSESSEE TO GOVERNMENT OF TAMILNADU. 2 ITA NO.1487 /MDS/2015 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A GOVERNMENT OF TAMILNADU UNDERTAKING FILED ITS RETUR N OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 03.02.201 2 ADMITTING INCOME OF RS.1,18,26,587/-. NOTICE UNDER SECTION 143(2) WAS ISSUED BY THE LEARNED ASSESSING OFFICER CALLING UPON THE ASSESSEE TO FURNISH ADDITIONAL DETAILS. ON PERUSAL OF THE DETAILS, THE LEARNED ASSESSING OFFICER FOUND TH AT THE ASSESSEE WAS REQUIRED TO PAY NOMINATION CHARGES AT 10% ON THE TOTAL SUPPLIES MADE BY IT TO THE GOVERNMENT DIS TRICT SIDDHA MEDICAL OFFICES AND ACCORDINGLY, THE ASSESS EE HAS DEBITED RS.66,70,475/- TOWARDS NOMINATION CHARGES. HOWEVER, THE LEARNED ASSESSING OFFICER WAS OF THE V IEW THAT PAYMENT OF NOMINATION CHARGES OF RS.66,70,475/- MA DE BY THE ASSESSEE TO THE STATE GOVT., WOULD BE APPLICATI ON OF INCOME WHICH IS NOT ALLOWABLE AS DEDUCTION UNDER SE CTION 37(1) OF THE ACT, OF /- AND ACCORDINGLY DISALLOWED THE SAME. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BY REJECTING THE PRINCIPLES OF OVERRIDE TIT LE IN THE CASE OF THE ASSESSEE CITING THE DECISIONS OF THE HONBLE APEX 3 ITA NO.1487 /MDS/2015 COURT IN THE CASE OF VIBHUTI GLASS WORKS VS. CIT RE PORTED IN 44 TAXMAN 182, & ASSOCIATED POWER COMPANY LTD. VS. CIT REPORTED IN 84 TAXMAN 355. 5. THE LEARNED AUTHORIZED REPRESENTATIVE VEHEMENTLY ARGUED BEFORE US STATING THAT IT WAS MANDATORY ON T HE PART OF THE ASSESSEE TO PAY THE STIPULATED AMOUNT TO THE GO VERNMENT OF TAMILNADU IN ORDER TO CONTINUE WITH ITS BUSINESS AND THEREFORE THE SAME SHOULD BE TREATED AS ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, ARGUED IN SUPPORT OF THE ORDERS OF THE REVENU E. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE COMPANY WAS INCORPORATED IN THE YEAR 1983 AS A WHOLLY OWNED ENTERPRISE OF THE GOVERNMENT OF TAMILNADU. THE MAIN OBJECT OF THE GOVERNMENT UNDERT AKING IS DEVELOPMENT OF MEDICINAL PLANTS AND MANUFACTURIN G SIDDHA, AURVEDHA AND UNANI MEDICINES AND SUPPLYING THE SAME TO THE INSTITUTIONS UNDER THE CONTROL OF THE D IRECTOR OF 4 ITA NO.1487 /MDS/2015 INDIAN MEDICINES AND HOMEOPATHY. THE MAJOR CLIENTS OF THE ASSESSEE ARE ONLY GOVERNMENT DEPARTMENTS, ORGANIZAT IONS UNDER THE CONTROL OF THE DIRECTOR OF INDIAN MEDICIN ES AND HOMEOPATHY. IN THIS SCENARIO THE GOVERNMENT OF TAM ILNADU HAS NOMINATED THE ASSESSEE AS ITS SOLE PROCUREMENT AGENCY FOR PROCURING VARIOUS INDIAN MEDICINES TO THE GOVT. , INSTITUTIONS UNDER THE CONTROL OF THE DIRECTOR OF I NDIAN MEDICINES & HOMEOPATHY DEPARTMENT. IN SUCH SITUATIO N, THE GOVERNMENT HAD DECIDED TO LEVY NOMINATION CHARGES @ 10% ON THE TOTAL SUPPLIES MADE BY THE ASSESSEE TO THE GOVERNMENT DISTRICT SIDDHA MEDICAL OFFICES / GOVERN MENT MEDICAL INSTITUTIONS. ACCORDINGLY, THE ASSESSEE COM PANY HAS PAID DURING THE RELEVANT ASSESSMENT YEAR RS.66,70,4 75/- AS NOMINATION CHARGES TO THE GOVERNMENT OF TAMILNADU A ND CLAIMED IT AS DEDUCTION WHILE COMPUTING ITS INCOME. THE REVENUE IS OF THE VIEW THAT SUCH EXPENSES CANNOT BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. WE DO NOT SUBSCRIBE TO THIS VIEW OF THE REVENUE. THOUGH THE A SSESSEE GOVERNMENT UNDERTAKING HAS TO FUNCTION WITH AN ELEM ENT OF PROFIT AS ITS MOTIVE, IT CANNOT BE SAID THAT THE AS SESSEES FUNDAMENTAL MOTIVE IS TO MAKE PROFIT. THE ASSESSEE COMPANY 5 ITA NO.1487 /MDS/2015 IS VESTED WITH VARIOUS RESPONSIBILITIES CONFINED BY ITS PROMOTERS BEING GOVERNMENT OF TAMILNADU AND HAS TO NECESSARILY SUPPLEMENT TO THE ACTIVITIES OF THE GOV ERNMENT FOR BENEFITING THE PUBLIC AT LARGE. IN SUCH ENDEAVO R, IT IS ASSIGNED WITH THE RESPONSIBILITY OF DEVELOPING MEDI CINAL PLANTS AND MANUFACTURING SIDDHA, AAYURVEDHA AND UN ANI MEDICINES AND SUPPLYING THE SAME TO THE INSTITUTION S UNDER THE CONTROL OF DIRECTOR OF INDIAN MEDICINES AND HOM EOPATHY. ALL THE CLIENTS OF THE ASSESSEE ARE ONLY GOVT. DEPA RTMENTS, ORGANIZATIONS AND INSTITUTIONS. FURTHER ONLY BY THE GRACE OF THE GOVERNMENT, THE ASSESSEE IS ABLE TO GENERATE IN COME BY SUPPLYING THE MEDICINES TO THE GOVT. ORGANIZATIONS. IN THE PROCESS, THE GOVT., ALSO INCURS EXPENDITURE FOR PRO MOTING THE ASSESSEE GOVERNMENT UNDERTAKINGS INTEREST DUE TO W HICH IT HAS LEVIED 10% AS NOMINATION CHARGES FROM THE TURNO VER OF THE ASSESSEE WHICH IS QUIT NOMINAL. THIS LEVY OF 10 % CANNOT BE CONSIDERED TO BE ABNORMAL TO JUSTIFY THE THEORY OF COLOURABLE DEVICE. IN THESE CIRCUMSTANCES, IT IS A PPARENT THAT UNLESS THE ASSESSEE PAYS 10% NOMINATION CHARGES TO THE GOVERNMENT, IT WILL NOT BE IN A POSITION TO EARN TH E INCOME. MOREOVER, IT IS PERTINENT TO MENTION THAT THE GOVER NMENT HAS 6 ITA NO.1487 /MDS/2015 GOT AMPLE POWERS TO REDUCE THE PROCUREMENT PRICE OF THE MEDICINES SUPPLIED BY THE ASSESSEE TO THE GOVERNMEN T INSTITUTIONS WHICH WILL YET BRING DOWN THE PROFIT O F THE ASSESSEE. CONSIDERING THESE FACTS, IT IS EVIDENT TH AT THE PRINCIPLES OF DIVERSION OF INCOME BY OVERRIDING TIT LE WILL BE APPLICABLE IN THE CASE OF THE ASSESSEE AND ACCORDIN GLY, THE 10% OF NOMINATION FEE HAS TO BE NECESSARILY EXCLUDE D FROM THE REVENUE EARNED BY THE ASSESSEE. FOR THE ABOVE S TATED REASONS, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSES SEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 18 TH MARCH, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 18 TH MARCH, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /