M/s Brilliant Study Centre, Kottayam V. Assistant Commissioner of Income Tax, Kottayam

ITA 174/COCH/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4542 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 07-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 02-04-2009
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: K I JOHNFCAAR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 40A(3); 143(3); 37(1); 143(1)

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NO.174 & 190/COCH/2009 ASSESSMENT YEAR: 2006-07 BRILLIANT STUDY CENTRE, PULIYANNOOR, P.O.,MUTHOLY, PALA. [PAN:AAEFB 8385K] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTTAYAM. (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ( AND VICE-VERSA) ASSESSEE BY SHRI K.I.JOHN,FCA-AR REVENUE BY SHRI T.J.VINCENT, SR.DR O R D E R PER SANJAY ARORA, AM: THESE ARE CROSS APPEALS, I.E., BY THE ASSESSEE AND THE REVENUE, CONTESTING THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-I V, KOCHI (CIT(A) FOR SHORT) DATED 10.12.2008 AND THE ASSESSMENT YEAR (A.Y) UND ER REFERENCE IS 2006-07. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN RU NNING COACHING CLASSES FOR ENTRANCE EXAMINATIONS TO VARIOUS PROFESSIONAL COURS ES. IT FILED ITS RETURN OF INCOME FOR THE YEAR ON 31.10.2006, DECLARING AN INCOME OF ` 40,37,940/-, WHICH WAS, AFTER PROCESSING U/S. 143(1) OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER), SELECTED FOR SCRUTINY BY ISSUE OF NOTICE U/S. 143(2) ON 23.10.2007. ADDITION S ON ACCOUNT OF DISALLOWANCE OF UNVERIFIABLE EXPENSES; TREATMENT OF `BOOKS AS PLA NT ENTITLED TO DEPRECIATION UNDER SECTION 32(1) OF THE ACT, I.E., IN CONTRADISTINCTIO N TO BEING A REVENUE EXPENDITURE; AND DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT, WERE MADE, ASSESSING THE INCOME AT ` 53.46 LAKHS. PARTIAL RELIEF BEING ALLOWED BY THE FIRST A PPELLATE AUTHORITY, BOTH THE PARTIES ARE IN APPEAL BEFORE US. ITA NOS.174 & 190 /COCH/2009 2 3.1 WE SHALL TAKE UP THE ASSESSEES APPEAL, BEING S ENIOR, FIRST. THE FIRST AND THE PRINCIPAL ISSUE RAISED PER GROUND NOS. 2 TO 5 OF IT S APPEAL BY THE ASSESSEE; GROUND NO. 1 BEING GENERAL IN NATURE, WARRANTING NO ADJUDICATION , IS IN RELATION TO THE TREATMENT OF `BOOKS (PURCHASED DURING THE YEAR FOR ITS PURPOSES , I.E., TEACHING STUDENTS) BY THE REVENUE AS `PLANT, I.E., A CAPITAL EXPENDITURE, EN TITLED TO DEPRECIATION, AND WHICH STANDS ALLOWED AT THE RATE OF 60% UNDER ENTRY III (9)(I)(B ) OF APPENDIX-I TO INCOME TAX RULES, 1962 (THE RULES HEREINAFTER), WHICH READS AS UNDE R, AS AGAINST ITS CLAIM OF IT AS A REVENUE EXPENDITURE BY THE ASSESSEE: (SEE RULE 5) PART A : TANGIBLE ASSETS III. MACHINERY AND PLANT % (9) (I) BOOKS OWNED BY THE ASSESSEE CARRYING ON A PROFESSION - (A) BOOKS, BEING ANNUAL PUBLICATIONS 100 (B) BOOKS, OTHER THAN THOSE COVERED BY ENTRY (A) ABOVE 60 (II) BOOKS OWNED BY THE ASSESSEE CARRYING ON BUS INESS IN RUNNING LENDING LIBRARIES 100 THE ASSESSEE CONTENDS THE BOOKS TO HAVE NO ENDURING VALUE, BEING REQUIRED TO BE PURCHASED YEAR AFTER YEAR, COMPRISING LARGELY OF GU IDE BOOKS FOR STUDENTS TAKING PROFESSIONAL ENGINEERING AND MEDICAL ENTRANCE EXAMI NATIONS. ALSO, THE STUDENTS PREFERRED TO HAVE FRESH BOOKS, AND ALSO DO NOT RETURN THEM. T HE ASSESSING OFFICER (AO) DID NOT FIND THE ASSESSEES CLAIM ACCEPTABLE FOR THE REASON THAT THESE WERE NOT ANNUAL PUBLICATIONS, FOR WHICH AN EXCEPTION STANDS LAID DOWN BY THE ACT ITSE LF BY PROVIDING DEPRECIATION AT THE RATE OF 100% THEREON. THE CONTENTS OF THE BOOKS WO ULD REMAIN MORE OR LESS THE SAME; AFTER ALL, COLLEGE LEVEL SCIENCE AND MATHEMATICS DO NOT CHANGE ANNUALLY. THE ASSESSEES CONTENTION OF IT CARRYING ON BUSINESS AND NOT A PRO FESSIONAL ACTIVITY, FOR WHICH ALONE (OTHER THAN WHERE USED IN THE BUSINESS OF RUNNING L ENDING LIBRARIES) THE DEPRECIATION RATES OF 100% AND 60% STAND PROVIDED UNDER THE ACT, WAS M ET BY HIM WITH REFERENCE TO THE DECISION BY THE APEX COURT IN THE CASE OF P. KRISHMNA MENON V. CIT (1959) 35 ITR 48 (SC), HOLDING VOCATION OF TEACHING TO BE A PROFESS ION, BESIDES DECISIONS IN THE CASE OF CIT VS. BHAGWAN BROKER AGENCY (1995) 212 ITR 133 (RAJ.) AND CIT VS. INTERNATIONAL CLEARING AND SHIPPING AGENCY (2000) 241 ITR 172 (MAD.), DELINEATING THE DISTINGU ISHING FEATURE OF SERVICES WHICH CONSTITUTE A `PROFESSION , I.E., AS DISTINCT FROM `BUSINESS; THE ITA NOS.174 & 190 /COCH/2009 3 ASSESSEE ITSELF ADMITTING THERETO VIDE ITS LETTER D ATED 4/8/2008. THE RELIANCE BY THE ASSESSEE ON THE DECISION IN THE CASE OF AMWAY INDIA ENTERPRISES VS. CIT (DY.) , 111 ITD 112 (DEL.), HOLDING COMPUTER SOFTWARE, HAVING A SHO RT TIME SPAN, TO REPRESENT A REVENUE EXPENDITURE, AS ALSO ON THE DECISION IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT (1989)177 ITR 377 (SC), WAS FOUND BY HIM AS DISTIN GUISHABLE, AS, EVEN AS HELD BY THE APEX COURT IN THAT CASE, NO SINGLE TEST COULD C ONCEIVABLY BE LAID DOWN, AND EVEN THE `ENDURING BENEFIT AND THE `ONCE FOR ALL PAYMENT T EST MAY NOT ALWAYS WORK, SO THAT THE QUESTION, THOUGH ONE OF LAW, IS ONE WHICH IS TO BE CONSIDERED WITH REFERENCE TO THE FACTS OF THE CASE. THE FACTS IN THE CASE OF AMWAY INDIA ENTERPRISES VS. CIT (DY.) (SUPRA) WERE FUNDAMENTALLY DIFFERENT, AND IN ANY CASE, THE TRIBU NAL DECIDED THE QUESTION BY ISSUING A FINDING OF FACT THAT THE SAME DID NOT SATISFY THE F UNCTIONAL TEST OF ENDURANCE. BOOKS HAVE BEEN SPECIFICALLY CONSIDERED AS PLANT, AND DEPRECIA TION RATES PROVIDED FOR THEIR USE IN PROFESSION, AS IN THE INSTANT CASE, VIDE ENTRY III( 9)(I)(B) OF THE RULES. TEXT BOOKS/GUIDE BOOKS DO NOT BECOME OBSOLETE IN A YEAR OR TWO, SO T HAT THERE IS NO QUESTION OF TREATING THE SAME AS REVENUE EXPENDITURE. 3.2 IN APPEAL, THE MATTER WAS AGAIN EXAMINED B Y THE LD. CIT(A). THE DISTINGUISHING FEATURE OF A PROFESSION IS THE HIGH STANDARD OF SPE CIALIZED KNOWLEDGE AND POSSESSION OF INTELLECTUAL ACUMEN AND/OR SKILLS BY THE PRACTITION ERS OF PROFESSION. IMPARTING COACHING FOR ENTRANCE EXAMINATIONS TO PROFESSIONAL COURSES O F MEDICAL AND ENGINEERING, WHICH IS THE PRINCIPAL ACTIVITY UNDERTAKEN BY THE ASSESSEE-F IRM, ANSWERS THE DESCRIPTION OF A PROFESSIONAL ACTIVITY, REQUIRING TECHNICAL SKILLS O F A HIGH ORDER SO AS TO PREPARE THE STUDENTS BY DEVELOPING IN THEM NOT ONLY THE KNOWLED GE OF THE SUBJECT BUT ALSO ANALYTICAL SKILLS, TO BE APPLIED WITH PRECISION WITHIN A GIVEN TIME FRAME, I.E., BY MANAGING TIME. AS SUCH, THE TREATMENT OF `BOOKS AS `PLANT COVERED U NDER ENTRY III(9)(I)(B) OF THE DEPRECIATION SCHEDULE, BY THE AO COULD NOT BE FAULT ED. THE AO HAD CORRECTLY MENTIONED THAT THE SYLLABUS OF SCIENCE AND MATHEMATICS AT THE HIGH SCHOOL LEVEL, THE CONTENT OF WHICH IS LARGELY TIME-TESTED THEORIES AND THEIR APPLICATI ON, IS NOT SUBJECT TO FREQUENT CHANGES, MUCH LESS ON AN ANNUAL BASIS. THE RECIPIENTS OF CO ACHING ARE MAINLY CLASS XII STUDENTS, WHO ARE AT THAT STAGE NOT EXPOSED TO INNOVATIVE AND FAST PACED TECHNOLOGICAL CHANGES TAKING PLACE IN THE FIELD OF SCIENCE AND TECHNOLOGY ON A DAY TO DAY BASIS. AS SUCH, IT WAS ITA NOS.174 & 190 /COCH/2009 4 NOT CORRECT TO SAY THAT THE BOOKS PURCHASED DURING THE YEAR WOULD YIELD NO OR LITTLE BENEFIT FOR THE SUBSEQUENT PERIOD. THE AO HAD VISITED THE A SSESSEES PREMISES, FINDING THE ASSESSEE TO HAVE PROPERLY BOUND THE BOOKS, WHICH GO ES TO SUGGEST OF THEIR HAVING A CONTINUING UTILITY OR AN ENDURING VALUE. AS REGARDS THE BOOKS NOT RETURNED BY THE STUDENTS, THE SAME ARE ESSENTIALLY STUDY MATERIALS PROVIDED B Y THE ASSESSEE, AND ARE MEANT FOR A PARTICULAR EXAMINATION, SO THAT THESE HAVING LITTLE VALUE FOR THE SUBSEQUENT YEAR. HE, THEREFORE, CONFIRMED THE DISALLOWANCE EFFECTED BY T REATING THE BOOKS AS CAPITAL EXPENDITURE, EXIGIBLE TO DEPRECIATION AT 60%. AGGR IEVED, THE ASSESSEE IS IN APPEAL. 4. BEFORE US, THE MATTER WAS AGAIN ARGUED AT L ENGTH BY BOTH THE SIDES. THE ASSESSEE IS A PARTNERSHIP FIRM, IN THE BUSINESS OF PROVIDING TU ITION AND COACHING FOR COLLEGE AND SCHOOL CATEGORY STUDENTS AT PALA. THE PARTNERS ARE NOT QUALIFIED AS TRAINED TEACHERS, WHO ARE SPECIFICALLY ENGAGED FOR THE PURPOSE. UNDER THE CIRCUMSTANCES, THEREFORE, THE ASSESSEE CANNOT BE CONSIDERED AS A PROFESSIONAL FIRM ENGAGED IN TEACHING, BUT ONLY ONE IN THE BUSINESS OF COACHING, ADVERTING TO THE PARTNERSHIP DEED (PB PGS. 1 TO 4). EVEN THE AO HIMSELF HAS TREATED THE FIRM AS A BUSINESS FIRM, AL LOWING SALARY TO THE WORKING PARTNER/S U/S. 37(1) R/W S. 40(B)(V), I.E., AS AVAILABLE TO A NON-PROFESSIONAL FIRM; THE PROVISION PROVIDING A SEPARATE SCALE OF ALLOWABLE REMUNERATIO N FOR FIRMS CARRYING ON PROFESSIONAL ACTIVITY. THE NATIONAL COUNCIL FOR EDUCATIONAL, RE SEARCH AND TRAINING (NCERT), NEW DELHI IS ENGAGED IN PREPARING AND PUBLISHING SCHOOL TEXTBOOKS AND OTHER EDUCATIONAL MATERIAL FOR CHILDREN AND TEACHERS. ADVERTING TO T HE PUBLISHERS NOTE OF JANUARY, 2005, IT WAS SUBMITTED THAT THE PUBLICATIONS ARE REGULARLY R EVISED ON THE BASIS OF FEED BACK FROM STUDENTS, TEACHERS AND EDUCATIONISTS, BESIDES INPUT S FROM THE RESEARCH DONE BY THE NCERT ITSELF FOR EACH SUBJECT, ADVERTING TO OTHER D OCUMENTS IN THIS REGARD (PB PG. 76 TO 81). FURTHER, THE ASSESSEES CLAIM HAD BEEN REGULAR LY ALLOWED IN THE PAST. HOWEVER, ON A SPECIFIC QUERY BY THE BENCH, IF THE SAME WAS PER AS SESSMENT U/S. 143(3) OF THE ACT OR OTHERWISE, IT WAS CONCEDED BY HIM THAT HE WOULD PRO CEED ON THE BASIS THAT THE SAME WAS U/S. 143(1). AS REGARDS THE REVENUES CLAIM OF THE ACTIVITY BEING A PROFESSIONAL ACTIVITY, IT WAS SUBMITTED THAT THE RELIANCE ON THE DECISIONS CITED BY THE AO IS MIS-PLACED, AS IT WAS NOT PERMISSIBLE TO READ THE CONTENTS OF A JUDGMENT OUT OF/DIVORCED FROM THE CONTEXT, AS HELD BY THE APEX COURT IN THE CASE OF CIT V. SUN ENGINEERING WORKS (P.) LTD . (1992) 198 ITA NOS.174 & 190 /COCH/2009 5 ITR 297 (SC). IT IS THE RETIRED COLLEGE TEACHERS A ND PROFESSORS WHO ARE IMPARTING TUITION AND NOT THE ASSESSEE-FIRM, WHICH COULD NOT BE SAID TO BE POSSESSED WITH THE PROFESSIONAL COMPETENCE/SKILLS. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NATWARLAL AMBICALAL DAVE VS. CIT, 138 CTR (GUJ.) 181 HAS HELD THAT MERELY BECAUSE A PERSON HAPPENS TO BE A PROFESSIONALLY QUALIFIED DOCTOR, IT CANNOT BE SAID THAT SUCH A PERSONS ACTIVITY CANNOT BE TREATED AS AN ACTIVITY OF CARRYING ON BUSINESS. A PROFESSIONAL ACTIVITY CAN ALSO BE CATEGORISED AS AN ACTIVITY OF CARRYING ON BUSINESS IF IT IS CARRIED ON LIKE A COMMERCIAL ACTIVITY. THE LD. DR, ON THE OTHER HAND, WOULD SUB MIT THAT THE BOOKS HAVE BEEN CORRECTLY CLASSIFIED BY THE REVENUE AUTHORITIES AS A `PLANT, ALLOWING DEPRECIATION AS PRESCRIBED BY THE ACT. THE STIPULATED RATE OF 60% ALLOWED WRITE OFF OF EXPENDITURE TO THE EXTENT OF 85% (APPROX.) IN THE FIRST TWO YEARS OF ACQUISITION ITS ELF, AND WHICH IS ONLY ON ACCOUNT OF THE CHANGING DEVELOPMENTS; UPDATION OR UPGRADATION IN A NY ACTIVITY BEING NORMAL. IN FACT, IF THE AO REGARDED THE ASSESSEES CLAIM OF ITS ACTIVIT Y AS BEING A BUSINESS ACTIVITY, THE SAME WOULD RATHER WORK AGAINST IT, AS IN THAT CASE, DEPR ECIATION WOULD BE ALLOWABLE AT THE GENERAL RATE OF 25% ONLY. THE ARGUMENT WITH REGARD TO THE PARTNERS BEING NOT QUALIFIED, AND UNDERTAKING THE CORE ACTIVITY THROUGH STAFF CON SISTING OF RETIRED PROFESSORS IS A NEW ARGUMENT, WHICH HAS NOT BEEN FACTUALLY EXAMINED BY THE AUTHORITIES BELOW, SO THAT THE ASSESSEE IS PRECLUDED FROM AGITATING THE SAME BEFOR E THE TRIBUNAL, AND FOR ALL WE KNOW THE PARTNERS MAY WELL BE PROFESSIONALLY QUALIFIED, IF N OT ACTUALLY ENGAGED IN TEACHING THEMSELVES. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, AS ALSO THE CASE LAW CITED. 5.1 THE LAW WE SHALL FIRST EXAMINE THE LAW IN THE MATTER. THE TERM `PLANT STANDS DEFINED IN THE ACT PER SECTION 43 (3), AS: (3) PLANT INCLUDES SHIPS, VEHICLES, BOOKS, SCIENT IFIC APPARATUS AND SURGICAL EQUIPMENT USED FOR THE PURPOSES OF THE BUSINESS OF PROFESSION BUT DOES NOT INCLUDE TEA BUSHES OR LIVESTOCK OR BUILDINGS OR FURNITURE A ND FITTINGS; THE RELEVANT ENTRY IN THE DEPRECIATION SCHEDULE U/R . 5 OF THE RULES PROVIDES THE RATES OF DEPRECIATION FOR DIFFERENT CATEGORIES OF ASSETS, AS WELL AS FOR DIFFERENT SPECIFIED ITEMS ITA NOS.174 & 190 /COCH/2009 6 FALLING UNDER THE DIFFERENT HEADS. THE SAME HAVE BE EN HELD TO BE A MATTER OF SUBSTANTIAL LAW (REFER: JAISWAL (S.P.) ESTATES PVT. LTD. V. CIT , 209 ITR 307 (CAL)). AS SUCH, THE WORD HAS BEEN DEFINED BY THE ACT IN A N INCLUSIVE MANNER, AND THE COURTS HAVE HELD THAT, CONCEPTUALLY SPEAKING, ANYTH ING THAT IS A TOOL OF THE TRADE IS `PLANT. THE WORD `PLANT IS TOO BROAD FOR DELIMITATION OF I TS IMPORT. THOUGH THE CASE LAW IN THE MATTER OF LEGION, WE ADVERT FOR THE PURPOSE TO THE DECISIONS IN THE CASE OF: CIT VS. TAJ MAHAL HOTEL (1971) 82 ITR 44(SC); SCIENTIFIC ENGINEERING HOUSE PVT LTD VS. CIT (1986) 157 IR 86 (SC); JAISWAL (S.P.) ESTATES PVT LTD. VS. CIT (SUPRA); CIT VS. HOTEL LUCIYA , 231 ITR 492 (KER) (FB). EVEN THE PLAIN DICTIONARY MEANI NG OF THE WORD ACCORDS IT ITS WIDEST CONNOTATION IN THE CONTEXT OF THE TRADE OR BUSINESS , SO THAT ANYTHING THAT WOULD SATISFY THE FUNCTIONAL TEST AS LAID DOWN, I.E., OF A TOOL OF TH E TRADE, WOULD ANSWER THE DESCRIPTION OF A `PLANT. IN THAT CONTEXT, `BOOK, WHERE USED OF A TOOL OF A TRADE, WOULD BE A PLANT, E.G., LAW BOOKS IN THE CASE OF A LAWYER. FURTHER, THE WO RD `PLANT ITSELF STANDS DEFINED WITH REFERENCE TO OTHER TERMS, INCLUDING `BOOK. AS SUCH , THE ITEM UNDER CONSIDERATION BEING ADMITTEDLY `BOOKS, WE HARDLY FIND ANY SCOPE FOR CO NTROVERSY - THAT IS - LEGALLY SPEAKING, IN THE PRESENT CASE. IN FACT, THE TERM BOOK HAS ITSELF BEEN A SUBJECT MATTER OF ELUCIDATION BY THE HIGHER COURTS OF LAW, INCLUDING BY THE HONB LE JURISDICTIONAL HIGH COURT, AS IN THE CASE OF CATALYST AND CHEMICAL (WEST ASIA) LTD. VS CIT , 137 ITR 110 (KER); CIT VS. ELECON ENGG. CO. LIMITED , 96 ITR 672 (GUJ). THE LAW IN THE MATTER, THUS, IS WELL-SETTLED, AND TOWARD WHICH, I.E., THE LEGAL ASPECT OF THE MAT TER, WE FIND THE ASSESSEE TO HAVE NOT MADE ANY CASE AT ALL. WE ARE, AS SUCH, PRIMA-FACIE OF THE CLEAR VIEW THAT THE `BOOKS UNDER REFERENCE STAND RIGHTLY CONSIDERED AS `PLANT IN TH E INSTANT CASE. 5.2 THE ASSESSEES PRINCIPAL CASE, AS WE DISCE RN, IS THAT THE `BOOKS, THOUGH NO DOUBT A TOOL OF ITS TRADE (OF TEACHING/COACHING), DO NOT, H OWEVER, HAVE ANY ENDURING VALUE IN THE PECULIAR FACTS AND CIRCUMSTANCES OF ITS CASE, AS BO RNE OUT BY THE NEED FOR AND, CONSEQUENTLY, THE PURCHASE OF A LARGE NUMBER OF BOO KS EVERY YEAR. THE SAME, THUS, IN THE FACTS AND CIRCUMSTANCES OF ITS CASE REPRESENTS A RE VENUE EXPENDITURE, NOTWITHSTANDING THAT THE SAME STAND DEFINED AS A `PLANT BY THE ACT. THE REVENUE FINDS THE SAME UNACCEPTABLE, FINDING THE SAME TO CONFER A BENEFIT THAT EXTENDS B EYOND THE PARTICULAR YEAR, AND THAT NOT ITA NOS.174 & 190 /COCH/2009 7 CONSIDERING SO WOULD BE A TRAVESTY OF FACTS; THE AS SSESSEE HAVING MAINTAINED A LIBRARY, BINDING ALL THE BOOKS PURCHASED DURING THE PRECEDIN G YEARS. 5.3 WE WOULD, THEREFORE, BE REQUIRED TO EXAMIN E THE MATTER FACTUALLY, I.E., AS A MATTER OF FACT; THE ONUS TO ESTABLISH WHICH THOUGH, GIVEN THE LAW IN THE MATTER, IS WITHOUT DOUBT ON THE ASSESSEE. THIS IS AS IF THE BENEFIT DOES NOT INURE BEYOND THE PARTICULAR YEAR OF PURCHASE, THAT IS, IS TOO SHORT LIVED TO BE CONSIDE RED AS CAPITAL EXPENDITURE, WHICH CRITERION (OF ENDURANCE) OF CAPITAL EXPENDITURE A ` PLANT MUST INDEED SATISFY, IT WOULD DEFINITELY BE A REVENUE EXPENDITURE; THE APEX COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT (SUPRA) CLARIFYING THAT THE QUESTION MUST BE ANSWE RED IN LIGHT OF ALL THE RELEVANT CIRCUMSTANCES WHICH IT IS REASONABLE T O TAKE INTO ACCOUNT, WITH THE WEIGHT TO BE GIVEN TO A PARTICULAR CIRCUMSTANCE DEPENDING MOR E ON COMMON SENSE THAN ON ANY STRICT APPLICATION OF LEGAL PRINCIPLES. 5.4 IN THIS REGARD, IT WOULD BE PERTINENT TO REPROD UCE THE FINAL FINDINGS BY THE ASSESSING AUTHORITY WHICH ARE BEING IMPUGNED, AND HAVE IN EFF ECT BEEN CONFIRMED BY THE FIRST APPELLATE AUTHORITY: 3.9 IT IS TO BE NOTED THAT SECTION 43(3) PROVIDES AN IN CLUSIVE DEFINITION FOR PLANT AND INCLUDES IN THIS DEFINITION AMONG OTHER THINGS, BO OKS. APART FROM THIS, ENTRY III (9) (I) B SPECIFICALLY COVERS THE CASE OF BOOKS OWNED BY AN A SSESSEE ENGAGED IN A PROFESSION. IT MAY ALSO BE NOTED THAT TEXT BOOKS/GUIDEBOOKS DO NOT BECOME OBSOLETE IN A YEAR OR TWO. FOR THESE REASONS, EXPENDITURE INCURRED BY THE ASSE SSEE ON BOOKS NEED TO BE CAPITALIZED. THE EXPENDITURE CLAIMED AS REVENUE EXPENDITURE IS D ISALLOWED AS SHOWN BELOW : WE WOULD PROCEED IN THE MATTER BY DELINEATING THE ISSUE AT LARGE, I.E., THAT ARISES FOR ADJUDICATION IN THE INSTANT CASE. THE SAME, AS APPARENT, IS WHETHER THE EXPENDITURE ON BOOKS INCURRED BY THE ASSESSEE, A TUTORIAL INSTITUT ION, PREPARING THE STUDENTS FOR PROFESSIONAL ENTRANCE EXAMINATIONS, IS A CAPITAL EX PENDITURE, ENTITLED TO DEPRECIATION U/S. 32(1) OF THE ACT, OR A REVENUE EXPENDITURE, ENTITLE D FOR DEDUCTION U/S. 37(1); THE BOOKS HAVING BEEN ADMITTEDLY USED ONLY FOR THE PURPOSE OF TEACHING AND/OR COACHING THE STUDENTS. THE ASSESSEE CLAIMS THE SAME TO BE A REVE NUE EXPENDITURE ON THE BASIS THAT THE BOOKS DO NOT YIELD ANY ENDURING ADVANTAGE, DUE TO T HE CHANGES IN THEIR CONTENT, AND HAVE TO BE PURCHASED ON A YEARLY BASIS. THE STUDENTS AL SO PREFER FRESH BOOKS, PARTICULARLY AS BEING UP TO DATE IS ESSENTIAL TO RETAIN THE COMPETI TIVE ADVANTAGE. THE REVENUE, ON THE ITA NOS.174 & 190 /COCH/2009 8 OTHER HAND, IS OF THE VIEW THAT THE SAME, NONETHELE SS, WOULD NOT RENDER THEM TO BE TERMED AS ANNUAL PUBLICATIONS; WHICH ALONE QUALIFY FOR A DEPRECIATION RATE OF 100%, IN WHICH CASE THE ISSUE WOULD STAND RESOLVED, I.E., IN EFFEC T. THE ASSESSEE HAD, IN FACT, AFTER A YEARS USE, GOT THE BOOKS BOUND, WHICH, AS ALSO EMP HASISED BY THE LD. DR DURING HEARING, WOULD ITSELF SHOW OF THEIR CONTINUING TO BE OF VALU E AND RELEVANCE. IMPARTING COACHING, TRAINING FOR COMPETITIVE EXAMINATIONS REQUIRES HIGH LEVELS OF EDUCATION, SKILL AND APTITUDE, SO THAT THE FIRM IS ONLY IN A PROFESSION AND, ACCORDINGLY, THE PRESCRIBED RATE OF 60% IS APPOSITE. 5.5 WE SHALL FIRST DWELL ON THE NATURE OF THE BOOKS UNDER REFERENCE. BOOKS, INCLUDING ANNUAL PUBLICATIONS, ARE PER SE CAPITAL EXPENDITURE AND, THUS, PLANT. THEY, PART ICULARLY IN THE FIELD OF SCIENCE, CONTAIN KNOWLEDGE, THE BASIC PRINCIPLES COVERING THE VARIOUS PHENOMENA. THE STUDENTS ARE (UNDER VARIOUS COURSES OF STUDY) INTRODUCED TO UNDERLYING CONCEPTS AND THE LAWS GOVERNING `MATTER, ILLUSTRAT ED BY EXPERIMENTS AND REAL LIFE EXAMPLES, AND PROBLEMS, WHERE THESE FIND APPLICATIO N. THEIR UNDERSTANDING OF THE SAME IS EXAMINED BY QUESTIONING THEM ON BOTH, I.E., THE BASIC CONCEPTS, AND BY POSING PROBLEMS REQUIRING THEIR APPLICATION, FOR RESOLUTIO N AND/OR EXPLANATION. HOW WOULD THE PRINCIPLE OF GRAVITATION BE INTRODUCED OR EXPLAINED BEST, EXCEPT BY WAY OF A FREE FALL OF AN OBJECT ON BEING RELEASED FROM A HEIGHT ? TWO PLUS TWO, AS ALSO OBSERVED BY THE BENCH DURING THE HEARING, WOULD, AFTER ALL, ALWAYS BE FOU R, THOUGH THE SYMBOLS REPRESENTING THE SAME, I.E., THE NUMERALS `2 AND `4 AND THE MATHEM ATICAL OPERATOR `+, MAY VARY FROM PLACE TO PLACE OR TIME TO TIME. THE ANATOMY AND PH YSIOLOGY OF A LIVING SYSTEM WOULD NOT CHANGE. SIMILARLY, THE PROPERTIES AND THE CHARACTE RISTICS OF LIGHT, SOUND, HEAT, ELECTRICITY OR OTHER FORMS OF ENERGY, WOULD NOT. THIS IS WHAT I S TERMED AS PURE SCIENCE, AND IS NOT SUBJECT TO CHANGE. WHAT WOULD CHANGE, THOUGH, IS T HE MANNER IN WHICH IT IS TAUGHT. THE BINARY SYSTEM IN MATHS COULD BE TAUGHT BY DIFFERENT METHODS, WHICH KEEPS EVOLVING WITH TIME. HOWEVER, AGAIN, THIS IS NOT, RATHER, COULD N OT POSSIBLY BE, ON A REGULAR OR ANNUAL BASIS AND, ON THE CONTRARY, VERY INFREQUENT. 5.6 NEXT, WE MAY CONSIDER THE NATURE OF THE CH ANGES IN THE BOOKS, WHICH NECESSITATE THE PURCHASE OF NEW BOOKS FROM YEAR TO YEAR. QUA THIS, ONE ASPECT WHICH WOULD LEAD TO ITA NOS.174 & 190 /COCH/2009 9 CHANGES IN SYLLABUS, IS THE AGE AT WHICH THE SAME I S TO BE INTRODUCED. THE TWO, IN FACT, ARE QUITE INTER-RELATED, AS ITS ONLY THE `EASIER OR A `BETTER METHOD OF TEACHING THAT ENABLES COMPREHENSION OF THE SUBJECT AT AN EARLIER AGE. TH IS HAS BEEN, AND SHALL REMAIN, A CONTINUING CHALLENGE FOR THE TEACHING PROFESSION. THE CHANGES ARE GRADUAL AND RARELY RADICAL, WHICH IS NEITHER FEASIBLE NOR DESIRABLE, A S IT WOULD DISLOCATE THE SYSTEM FROM ITS STATE OF EQUILIBRIUM. LIKE ANY OTHER FIELD OF HUMAN ENDEAVOUR, THE SYSTEM CAN BE SAID TO BE IN EQUILIBRIUM, ALBEIT SUBJECT TO CONSTANT EVOLU TION. WE BUY A CAR TODAY, AND FEW MONTHS DOWN THE LINE WE FIND A BETTER CAR OR AN IMP ROVED VERSION OF THE EARLIER ONE. WOULD THAT, BY ANY MEANS, MAKE THE EXPENDITURE INCU RRED ON THE CAR, AND WHICH EXAMPLE COULD BE EXTENDED TO ANY MACHINE FOR THAT MATTER, A NY LESS A CAPITAL EXPENDITURE ON THAT COUNT ?. DEFINITELY NOT. THIS IS FOR THE SIMPLE REASON TH AT THE SAME DOES NOT DIMINISH THE UTILITY OF THE CAR IN ANY MANNER. THIS WOULD BE SO EVEN IF THE CAR STANDS PURCHASED AND USED IN THE BUSINESS OF A CAR OPERATOR. ALL THAT WO ULD HAPPEN IS THAT HE WOULD, WHILE BUYING THE NEXT CAR, PERFORM A COST-BENEFIT ANALYSI S, AND PURCHASE THE ONE WHICH GIVES HIM OPTIMUM VALUE, CONSIDERING HIS BUSINESS PARAMET ERS. EVEN IF THE IMPROVED VERSION IS RADICALLY BETTER, WHICH IS RARELY THE CASE, THERE W OULD BE A SHARP DECLINE IN THE RESALE VALUE OF THE CARS OF THE EXISTING MAKES, AND CONSEQ UENTLY OF OLD CAR OF THOSE MAKES. IT MAY THUS MAKE MORE BUSINESS SENSE TO DISPENSE WITH THE OLD STOCK, AGAIN NOT IMPACTING THE TREATMENT OF THE EXPENDITURE ON THE PURCHASED C ARS, WHICH WOULD CONTINUE TO A CAPITAL EXPENDITURE, AND WOULD IN ANY CASE NOT BE GOVERNED IN ANY MANNER BY FUTURE DEVELOPMENTS, WHICH ARE AT BEST UNCERTAIN. COMING BACK TO THE FACTS OF OUR CASE, THIS IS PREC ISELY WHAT IS MEANT BY THE AO WHEN HE STATES THAT CHANGES IN SCHOOL LEVEL MATHS A ND SCIENCE WOULD NOT TAKE PLACE ANNUALLY. BUT THAT DOES NOT EITHER IMPLY PERMANENC E (I.E., NO CHANGE) THEREIN OR A RAPID CHANGE OR ON ANNUAL BASIS, WHICH (CHANGE) WOULD OBV IOUSLY BE IN A PARTICULAR YEAR, IMPLYING A CHANGE FROM THE IMMEDIATELY PRECEDING YE AR. PERMANENCE IS NOT AN ATTRIBUTE OF A CAPITAL EXPENDITURE (CAPITAL ASSET), BUT ONLY OF IT BEING `ENDURING. THAT IS, THE CHANGE IS NEITHER A REGULAR FEATURE AND, SECONDLY, EXTENDS TO A SMALL PART OF THE TOTAL SYLLABUS. THIS IS NOT A SURMISE, BUT A COMMON OBSERVATION, NO R A TECHNICAL MATTER, SO THAT IT WAS IMPERMISSIBLE FOR THE REVENUE AUTHORITIES TO COMMEN T THEREON DE HORS ANY MATERIAL ON RECORD, AS CONTENDED BY THE ASSESSEE WITH REFERENCE TO THE DECISION IN THE CASE OF ITA NOS.174 & 190 /COCH/2009 10 SARASWATHI INDUSTRIAL SYNDICATE LTD. VS. CIT (1999) 237 ITR 1 (SC). WE SHALL CONSCIOUSLY NOT VISIT OR DISCUSS THE CASE QUA APPLIED SCIENCES, VIZ. MEDICINE, ENGINEERING, INDUSTRIAL CHEMISTRY, ETC., WHERE, ON ACCOUNT OF TE CHNOLOGICAL CHANGES, THE EVOLUTION RATE IS HIGHER. THIS IS AS SUCH SUBJECTS ARE NOT INTROD UCED AT THE HIGH SCHOOL LEVEL. BESIDES, EVEN HERE, THE CHANGES AT THE INTRODUCTION, UNDERGR ADUATE (LEVEL), ARE FEW AND FAR IN BETWEEN, AS THE BASIC APPLICATIONS, WHICH CONSTITUT E THE BUILDING BLOCKS OF THE SUBJECT, REMAIN THE SAME. AT THE SAME TIME, IT CANNOT BE LOST SIGHT THAT THE FOCUS OF THE TUTORIAL WOULD BE MORE ON EXCELLENCE IN THE EXAMINATION. ANY EXAMINA TION IS COMPETITIVE, BUT PROFESSIONAL EXAMINATIONS ARE MORE SO, DUE TO THE HEAVY DEMAND F OR THE PROFESSIONAL COURSES OF STUDY. THE EXAMINER WOULD ADOPT NEWER/DIFFERENT METHODS OF TESTING THE UNDERSTANDING AND SKILLS OF THE EXAMINEES, SO AS TO SELECT THOSE WITH A SOUNDER UNDERSTANDING AND BETTER COMPREHENSION OF THE SUBJECT. IT IS THIS THAT LEAD S TO THE FRESH PURCHASE OF BOOKS FROM YEAR TO YEAR. THAT IS, IT IS NOT THE KNOWLEDGE PAR T OR THE CONTENT OF THE OLD BOOKS THAT BECOMES OBSOLETE, AS KNOWLEDGE (IMPLYING TRUE KNOWL EDGE) CANNOT EVER BECOME OBSOLETE OR REDUNDANT, BUT THERE IS A DECLINE IN THE UTILITY FOR THE PURPOSE AT HAND, I.E., SUCCESS IN EXAMINATION, AND FOR WHICH, THEREFORE, NOTWITHSTAND ING THE OLD STOCK OF BOOKS, NEW ONES NEED TO BE ADDED. PUT DIFFERENTLY, CHANGES, NOT NE CESSARILY IN SYLLABUS, WHICH IS A LONG DRAWN PROCESS, BUT IN TEACHING METHODS, COUPLED WIT H THAT IN THE EVALUATION PROCESS AND PROCEDURES, MAY LEAD TO PREFERENCE FOR AND THE FOLL OWING OF NEW BOOKS. THIS IS CORROBORATED BY THE FINDING BY THE AO THAT THE ASSE SSEES LIBRARY CONSTITUTES SUBSTANTIALLY OF GUIDE BOOKS FOR PROFESSIONAL ENTRANCE EXAMINATIO NS IN CONTRADISTINCTION TO TEXT BOOKS TO BE USED AS REFERENCE MATERIAL. THIS WOULD, HOWE VER, NOT MEAN THAT THE OLD BOOKS BECOME REDUNDANT, WHICH IS BORNE OUT BY THE FACT TH AT THESE ARE RETAINED OVER THE YEARS. IN THIS REGARD, WE WOULD ALSO LIKE TO STATE THAT AN A NNUAL PUBLICATION IS ALSO A BOOK AND, THUS, A PLANT, THOUGH ELIGIBLE FOR A STILL HIGHER DEPRECIATION RATE OF 100%. BOTH THE PARTIES HAVE FREELY AND EXTENSIVELY RELIED UPON CAS E LAW CITED IN THE JOURNAL `INCOME TAX REPORTS (ITR) (BESIDES OTHERS), AN ANNUAL PUBLICAT ION, OF THE EARLIER YEARS, AND WHICH WOULD, EXHIBIT, IF AT ALL ONE WAS REQUIRED, OF THE ENDURING BENEFIT THAT INURES EVEN FROM ANNUAL PUBLICATIONS. WHAT CHANGES HAVE BEEN MADE; W HICH TOPICS ARE BETTER DISCUSSED/EXPLAINED IN THE BOOKS IN STOCK, ETC. ARE ALL TECHNICAL MATTERS, ON WHICH OF ITA NOS.174 & 190 /COCH/2009 11 COURSE THE REVENUE HAS OFFERED NO COMMENT. SUFFICE TO ADD THAT THE DIFFERENT BOOKS REPRESENT THE DIFFERENT EDITIONS OF THE SAME BOOK. UNDER THE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE BOOKS FORM PART OF THE PROFIT MAKING APPARATUS OF THE ASSESSEES ENTERPRISE, AND HAVE BEEN CORRECTLY ALLOWED DEPRECI ATION THEREON BY THE REVENUE AT THE PRESCRIBED RATE OF 60%. THIS WOULD IMPLY A WRITE O FF OF ALMOST 94% OF THE COST BY THE THIRD YEAR. THE STUDY MATERIALS SUPPLIED BY THE AS SESSEE-FIRM TO THE STUDENTS FOR THEIR USE AND RETENTION, BEING EXAMINATION SPECIFIC, HAS ALRE ADY BEEN DIRECTED TO BE ALLOWED BY THE LD. CIT(A) AS REVENUE EXPENDITURE. THOUGH THE REVEN UE HAS CONTESTED THIS FINDING (PER ITS GROUND # 2), ON THE GROUND THAT THE SAID STUDY MATERIAL IS NOT SOLD TO THE STUDENTS BY THE ASSESSEE, WE CONSIDER THAT THE COST THEREOF WOU LD STAND TO BE COVERED BY THE CONSOLIDATED FEES CHARGED BY IT TO THE STUDENTS. AS SUCH, THE REVENUES GROUND WOULD BE TO NO EFFECT. THE AO SHALL, HOWEVER, WHILE GIVING A PPEAL EFFECT, WORK OUT THE WDV OF THE RELEVANT BLOCK OF ASSETS. WITH REGARD TO THE AS SESSEES CLAIM, UNSUBSTANTIATED THOUGH, OF THE BOOKS BEING NOT RETURNED BY THE STUDENTS, TH E SAME WOULD ONLY STAND ISSUED FROM THE ASSESSEES LIBRARY, SO THAT THERE WOULD BE PROP ER RECORD QUA THE BOOKS NOT RETURNED BY THE CONCERNED STUDENTS, SO THAT THE ASSESSEE COULD CONSIDER APPROPRIATE ADJUSTMENT IN ITS CLAIM, BUT WOULD NOT OPERATE TO MAKE A CAPITAL EXPE NDITURE A REVENUE ONE. 5.7 IN OUR CONSIDERED VIEW, TEACHING AND/OR COACHI NG IS A SPECIALISED VOCATION, REQUIRING A HIGH DEGREE OF KNOWLEDGE, APTITUDE AND SKILL, EVEN AS URGED BY THE ASSESSEE AS WELL, WHEN IT STATES OF HAVING EMPLOYED VERY KNO WLEDGEABLE AND DEDICATED TEACHERS IN THE FORM OF RETIRED PROFESSORS, WELL-VERSED IN THEI R CHOSEN FIELD OF STUDY, WHILE RAISING THE ARGUMENT OF HAVING HIRED PROFESSIONALS OF HIGH CALI BRE FOR THE PURPOSE, AND THE PARTNERS BEING NOT INVOLVED IN TEACHING, SO THAT THE BOOKS U NDER REFERENCE CAN ONLY BE CONSIDERED AS BEING USED FOR PROFESSION. THE LANGUAGE OF THE PROVISION, WHICH IN THE INSTANT CASE IS IN THE FORM OF AN ENTRY IN THE DEPRECIATION SCHEDUL E, A PART OF THE SUBSTANTIVE LAW, HAS TO BE READ REASONABLY AND FAIRLY, AND IN DOING SO, THE UNMISTAKABLE AND IRRESISTIBLE CONCLUSION IS THAT THE BOOKS HAVE BEEN USED BY THE ASSESSEE FOR AND TOWARD A PROFESSIONAL ACTIVITY AND, THUS, ELIGIBLE FOR DEPRECIATION AT TH E RATE OF 60% PRESCRIBED FOR PROFESSIONAL USE. WE DO NOT THINK IT NECESSARY FOR THE PURPOSE TO ANSWER THE QUESTION WHETHER THE ASSESSEE-FIRM IS IN BUSINESS OR CAN BE SAID TO BE A PROFESSIONAL FIRM. SO, HOWEVER, IT MAY ITA NOS.174 & 190 /COCH/2009 12 BE ADDED THAT THE FIRM IS DISTINCT FROM THE PARTNER S, AND IT IS NOT NECESSARY THAT THE CORE ACTIVITY UNDERTAKEN BY THE FIRM IS THROUGH THE AGEN CY OF THE PARTNERS, I.E., FOR IT TO BE REGARDED AS UNDERTAKING A PROFESSIONAL ACTIVITY, AN D THAT UNDERTAKING THE SAME SET OF ACTIVITIES, BEING ESSENTIALLY SERVICES, WOULD RENDE R IT AS A BUSINESS FIRM WHERE THE SAME IS THROUGH SALARIED/HIRED PERSONNEL. THAT IS, WE DO N OT OBSERVE ANY CONTRADICTION IN THE TREATMENT METED OUT BY THE REVENUE IN THIS REGARD. WE DECIDE ACCORDINGLY. 5.8 BEFORE PARTING, HOWEVER, WE MAY ADDRESS THE L AST ASPECT OF THE ARGUMENT TAKEN BY THE PARTIES, I.E., OF THE ASSESSEE PURSUING A PR OFESSION OR BEING A BUSINESS FIRM. MERIT APART, WE FIND THE CONTROVERSY AS MIS-CONCEIVED. H OW COULD, WHERE THE ARTICLE BEING USED IS THE SAME (BOOKS), AND THE PURPOSE FOR WHICH IT IS USED ALSO THE SAME, I.E., FOR IMBIBING KNOWLEDGE AND UNDERSTANDING THE SUBJECT, A S WELL AS TEACHING IT, IT MATTER WHETHER THE COACHING CLASSES AND TUTORIALS IS A `PR OFESSION OR `BUSINESS. A CAPITAL EXPENDITURE WOULD NOT BECOME REVENUE, DEPENDING UPO N WHETHER THE INCOME IS CONSIDERED AS ARISING FROM EXERCISE OF PROFESSION O R UNDERTAKING A BUSINESS; THE PURPOSE OF EXPENDITURE BEING THE SAME, AS ALSO ITS CONTRIBU TION TO THE EARNING OF THE INCOME OR THE INCOME GENERATING PROCESS. WHY, BOOKS, WHERE USED IN A LENDING LIBRARY BUSINESS, ARE EXIGIBLE TO DEPRECIATION AT THE RATE OF 100% PER EN TRY III (9)(II) ITSELF, I.E., THE SAME ENTRY WHICH PROVIDES FOR DEPRECIATION AT 60% ON THE BOOK S USED IN CARRYING ON A PROFESSION, PROVING BEYOND DOUBT, IF ONE WAS REQUIRED, TO WHAT STANDS AFORE-STATED BY US. AS SUCH, WE ARE IN AGREEMENT WITH THE LD. DR THAT THE BOOKS, IF NOT USED IN CARRYING ON A PROFESSION (OR A SPECIFIED BUSINESS), WOULD CARRY T HE GENERAL DEPRECIATION RATE OF 25% , AND NOT OPERATE TO ALTER THE CHARACTER OF THE EXPEN DITURE TO A REVENUE EXPENDITURE. PROCEEDING FURTHER, WE HAVING CONFIRMED THE APPLIC ATION OF THE DEPRECIATION RATE AS ALLOWED, MAY STATE THAT THE ISSUE, THAT IS, ON MERI TS, IS OF NO MOMENT. THIS IS AS EVEN IF WE WERE TO HOLD THE ASSESSEE TO BE ENGAGED IN BUSIN ESS, AS CONTENDED BY IT, THE SAME WOULD ONLY LEAD TO A DECLINE IN THE DEPRECIATION RA TE EXIGIBLE ON BOOKS TO 25%, LEADING TO AN ENHANCEMENT OF INCOME. TRUE, THE PROVINCE OF T HE TRIBUNAL IS THE CORRECT APPLICATION OF LAW TO THE FACTS OF THE CASE, YET IT IS TO BE LI MITED TO THE MATTER IN DISPUTE, AND WHICH IS NOT AS TO THE CORRECT RATE OF DEPRECIATION ON BOOKS , BUT WHETHER THE SAME REPRESENTS A CAPITAL OR A REVENUE EXPENDITURE, AND WHICH WE HAVE DECIDED IN FAVOUR OF THE FORMER. WE ITA NOS.174 & 190 /COCH/2009 13 COULD UNDERSTAND A CONTROVERSY WHERE THE REVENUE HA D, CONSIDERING THE ASSESSEES ENTERPRISE TO BE A BUSINESS ENTERPRISE, ALLOWED DEP RECIATION ON `BOOKS AT THE RATE OF 25%. FURTHER, WE ARE NOT IMPRESSED BY THE ASSESSEES ARG UMENT THAT THE AO HAS, IN ALLOWING SALARY U/S. 37(1) R/W S. 40(B)(V), TACITLY ADMITTED TO IT BEING ENGAGED IN BUSINESS OR AS HAVING ACTED IN A CONTRADICTORY MANNER. THE PROVIS ION PROVIDES SEPARATE SCALES FOR SALARY TO WORKING PARTNERS, I.E., ONE FOR NOTIFIED PROFESS IONS (U/S. 44AA) AND THE OTHER FOR ANY OTHER FIRM. ALL THAT, THEREFORE, THE ALLOWANCE AT RATES APPLICABLE FOR `ANY OF THE FIRM IMPLIES IS THAT THE ASSESSEE-FIRM IS NOT ENGAGED IN A NOTIFIED PROFESSION, I.E., U/S. 44AA, AND NO MORE. THE ASSESSEES STAND OF THE REVENUE ACTING INCONSI STENTLY, WHICH IT IS PRECLUDED FROM [REFER: BERGER PAINTS INDIA LTD. VS. CIT (2004) 266 ITR 99 (SC) AND TAQIDDIN HYDER V. APPROPRIATE AUTHORITY & OTHRS ., 220 ITR 425 (AP)], IS ALSO NOT BORNE OUT BY ANY MATERIAL ON RECORD; THE LD. AR RATHER CONCEDING TO THERE HAVING BEEN NO EXAMINATION OF THE MATTER, AND THE ASSESSEES RETURNS FOR THE P RECEDING YEARS HAVING BEEN SUBJECT TO ONLY PROCESSING U/S. 143(1) OF THE ACT. IN FACT, AS STATED BY THE LD. CIT(A), IT WAS OPEN FOR THE REVENUE TO TAKE APPROPRIATE ACTION UNDER LAW TO WITHDRAW ANY EXCESS RELIEF OR DEDUCTION THAT STANDS ALLOWED TO THE ASSESSEE (REFE R PARA 5.3 OF THE IMPUGNED ORDER). THE ASSESSEES RELIANCE ON THE SAID CASE LAW IS THUS NO T SUPPORTED BY THE FACTS OF THE CASE AND, ACCORDINGLY, OF NO MOMENT. 6. GROUND NO. 6 OF THE ASSESSEES APPEAL AND GROUND NO. 3 OF THE REVENUES APPEAL, IS IN RELATION TO THE DISALLOWANCE, PARTLY CONFIRME D BY THE LD. CIT(A), IN RESPECT OF AN AGGREGATE EXPENDITURE OF ` 5,10,718/- CLAIMED BY THE ASSESSEE TOWARD COST OF ` BOOKS ( ` 3,10,410/-) AND `AWARDS ( ` 2,00,308/-). THE BASIS FOR THE AOS DISALLOWANCE QUA THE ASSESSEES SAID CLAIM U/S. 37(1), IS THAT THE RELEV ANT EXPENDITURE IS NOT SUPPORTED BY ANY VOUCHERS, AND COUPLED WITH THE FACT THAT THESE WERE INCURRED IN CASH, COULD NOT, UNDER THE CIRCUMSTANCES, BE REGARDED AS GENUINE. THE LD. CIT (A), IN APPEAL, HOWEVER, WAS IMPRESSED WITH THE ASSESSEES ARGUMENT THAT THE AW ARDS WERE GENERALLY OF NOMINAL VALUE, SO THAT OBTAINING VOUCHERS FOR ALL A PRACTICAL IMPO SSIBILITY, WHICH BUSINESS REALITY HAD TO BE RECKONED WITH. HE, THEREFORE, FINDING THAT THE PURCHASE OF AWARDS AS VARYING FROM A FIGURE AS LOW AS ` 4/- APIECE, DELETED THE DISALLOWANCE ON THAT SCORE, WHILE CONFIRMING THAT IN RESPECT OF BOOKS. AGGRIEVED, BOTH THE PARTIES A RE IN APPEAL. ITA NOS.174 & 190 /COCH/2009 14 7. BEFORE US, IT WAS CONTENDED ON BEHALF OF TH E ASSESSEE THAT THE AO HAD, AS MENTIONED PER PARA 3 AND 5 OF HIS ORDER, VISITED THE ASSESSEE S PREMISES AND FOUND IT TO HAVE MAINTAINED A LIBRARY. BOOKS WERE PHYSICALLY VERIFI ED BY THE AO, AND WHICH BEAR THE PRICE THEREOF, AS ALSO WOULD BE APPARENT FROM THE C OPIES OF THE RELEVANT PAGES FROM SOME OF THE BOOKS, ENCLOSED AS A PART OF THE PAPER-BOOK (PB PGS. 85 TO 103). FURTHER, IT HAD NOWHERE AGREED TO THE DISALLOWANCE, WHICH, EVEN IF SO, IS NOT VALID IN THE EYES OF LAW, RELYING FOR THE PURPOSE ON THE DECISIONS IN THE CAS E OF CIT V. V.MR.P. FIRM (1965) 56 ITR 67 (SC); ADDUL QAYUME V. CIT , 184 ITR 404 (ALL); MAYNAK PODDAR V. WTO , 262 ITR 633 (CAL). THE REVENUE, ON THE OTHER HAND, PLA CED RELIANCE ON THE FACTUAL FINDINGS BY THE AUTHORITIES BELOW, AS WELL AS THE DECISION B Y THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HEMAMBIKA CHITTIES AND LOANS PVT. LTD. VS. CIT (DY.), 266 ITR 427 (KER.). 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, AS WELL AS THE CASE LAWS CITED. 8.1 THE LAW IN THE MATTER IS TRITE, AND THE ONUS TO ESTABLISH THE EXPENDITURE WITH SOME EVIDENCE IS SQUARELY ON THE ASSESSEE, EVEN AS, HAVI NG REGARD TO THE PRACTICAL CONSIDERATIONS, THE NATURE OF THE EVIDENCE WHICH CO ULD BE CONSIDERED AS SATISFACTORY WOULD VARY WITH THE FACTS AND CIRCUMSTANCES OF THE CASE (REFER: CIT V. RAM BAHADUR THAKUR LTD ., 261 ITR 388 (KER)). FURTHER, WE ALSO OBSERVE TH AT THOUGH THE EXPENDITURE ON BOOKS WOULD NOT FALL TO BE CONSIDERED U/S. 37(1) ; THE SAME HAVING BEEN CONFIRMED BY US AS CAPITAL EXPENDITURE, FORMING PART OF PLANT, E LIGIBLE FOR DEPRECIATION, NEVERTHELESS, THE COST THEREOF HAS TO BE AS THAT ACTUALLY INCURRED BY THE ASSESSEE TOWARD THE SAME AND, AS SUCH, HAS TO BE, AGAIN, LED BY THE ASSESSEE WITH SO ME EVIDENCE. IN OTHER WORDS, IT WOULD NOT MATERIALLY IMPACT THE ASSESSEES CASE, AND THE AO HAS, WHILE COMPUTING THE ASSESSABLE INCOME FOR THE YEAR, CORRECTLY ADDED BAC K THE ENTIRE EXPENDITURE (ON BOOKS AND AWARDS) DISALLOWED, I.E., ` 5.11 LAKHS, WHILE WORKING OUT THE DEPRECIATION ON T HE REDUCED COST OF BOOKS, I.E., BY ADJUSTING IT DOWNWARDS BY ` 3.10 LAKHS. 8.2 HAVING MADE OUR PRELIMINARY OBSERVATIONS IN THE MATTER, WE COULD DISCUSS BRIEFLY THE FACTS AS WELL AS THE CASES OF THE PARTIES FOR B OTH THE ITEMS, HAVING BEEN TREATED DIFFERENTLY BY THE LD. CIT(A). WITH REGARD TO BOOK S ( ` 3.10 LAKHS), THE ASSESSEE HAS NOT ITA NOS.174 & 190 /COCH/2009 15 REBUTTED THE AOS FINDING THAT ITS CLAIM IS UNSUPPO RTED BY VOUCHERS. BY ITS OWN ADMISSION, THE BOOKS ARE PURCHASED AT THE LISTED PR ICES, WHICH FIND MENTION ON ITS COVER ITSELF. THE BOOKS ARE STANDARD BOOKS, PURCHASED FR OM REGULAR SOURCES. IT HAS ALSO NOT EXPLAINED IN ANY MANNER, BEFORE ANY AUTHORITY, INCL UDING US, AS TO WHY, UNDER THE CIRCUMSTANCES, THESE BOOKS WERE PURCHASED SANS ANY VOUCHERS NOR EVEN FURNISHED THE DETAILS OF THOSE BOOKS, AND THE NAMES AND ADDRESSES OF THE SELLER/S. IT IS, THUS, DIFFICULT TO ACCEPT THE ASSESSEES STAND, NOR CAN THAT OF THE RE VENUE BE FAULTED. ALL THAT THE ASSESSEE SAYS IS THAT THE AO VISITED ITS PREMISES, AND FOUND IT TO HAVE MAINTAINED THE BOOKS. THE REVENUE DOES NOT DENY THAT, BUT IT NOWHERE EMANATES FROM THE READING OF THE ASSESSMENT ORDER, INCLUDING PARA 3.5 THEREOF, ADVERTED TO BY T HE ASSESSEE, THAT THE AO HAD PHYSICALLY VERIFIED THE BOOKS ON HIS VISIT. ALL THAT THE AO S AYS, AND WHICH STANDS NOTED BY THE LD. CIT(A), IS THAT THE VOUCHERS IN RESPECT OF BOOKS AN D AWARDS, CLAIMED IN THE SUM OF ` 21.88 LAKHS AND ` 14.19 LAKHS RESPECTIVELY, WERE VERIFIED IN HIS OFFI CE IN THE PRESENCE OF THE LD. AR ON 10.7.2008, FINDING SHORTFALL THEREIN TO THE STATED EXTENT. WITH REGARD TO THE AOS VISIT, ALL THAT THE AO DID WAS TO CARRY OUT A PHYSICAL INSPECTION WITH A VIEW TO SEE FIRST-HAND THE STATE OF MAINTENANCE OF THE ASSESSEE S BOOKS, IN EXAMINATION OF ITS CLAIM OF THE SAME BEARING NO ENDURING VALUE, AND THUS REPRES ENTING REVENUE EXPENDITURE IN THE FACTS AND CIRCUMSTANCES OF ITS CASE. IN FACT, PHYSI CAL VERIFICATION WOULD EVEN OTHERWISE BE A STUPENDOUS TASK; THE ASSESSEE PURCHASING BOOKS WO RTH LAKHS EVERY YEAR, WHICH ARE MAINTAINED OVER A REASONABLY LONG PERIOD OF TIME, W ITH THE PER UNIT COST BEING IN THE RANGE OF A COUPLE OF HUNDRED RUPEES. ALSO, THE SAME WOULD BE FEASIBLE ONLY WITH REFERENCE TO A STOCK REGISTER, TO THE MAINTENANCE O F WHICH THERE IS NO REFERENCE. IN FACT, THE CLAIM WE OBSERVE IS ALSO CONTRADICTORY TO ITS C ONTENTION OF THE BOOKS BEING NOT RETURNED BY THE STUDENTS. IF THAT BE SO, WHERE IS T HE QUESTION OF THE SAME BEING RECONCILED? AS SUCH, EVEN AS OBSERVED BY THE BENCH DURING THE H EARING, THE ASSESSEES PLEA OF THE AO HAVING PHYSICALLY VERIFIED THE BOOKS IS OF NO MOMEN T; RATHER, MISLEADING, INASMUCH AS THERE WAS NO ATTEMPT TO RECONCILE THE EXPENDITURE O N THE PURCHASE OF THE BOOKS DURING THE YEAR WITH THE PHYSICAL STOCK IN ITS RESPECT. AS SU CH, DISALLOWANCE ON THE BOOKS IS CONFIRMED. ITA NOS.174 & 190 /COCH/2009 16 8.3 AS REGARDS THE DISALLOWANCE IN RESPECT OF EXPEN DITURE ON AWARDS, THE REVENUES CASE IS THE SAME, I.E., NON SUBSTANTIATION OF THE E XPENDITURE, WHILE THE ASSESSEE PLEADS FOR REASONABILITY OF THE EXPENDITURE IN VIEW OF THE FAC T THAT PROCURING VOUCHERS, PARTICULARLY FOR SMALL AMOUNTS, IS NOT FEASIBLE. WE ARE INCLINE D TO AGREE IN PRINCIPLE, THOUGH, FIRSTLY, IT WOULD REQUIRE A SUBSTANTIATION AS TO THE PRIMARY FA CTS, I.E., WHAT IS THE NATURE OF THE ARTICLES BOUGHT, ITEM WISE, EXPENDITURE ON WHICH IS DISALLOWED, AND ALSO THE EXPENDITURE THEREON. WE FIND THE SAME AS SURPRISINGLY ABSENT. THE PER UNIT ITEM MAY BE AS LOW AS ` 4/-, BUT THE BILL VALUE, IF THE ASSESSEE HAD BOUGHT IT IN LARGE NUMBERS, MAY BE FOR A REASONABLE SUM. ALSO, THE PURCHASE WOULD ONLY BE FR OM REGULAR SOURCES, SO THAT THE NON AVAILABILITY OF BILLS IS NOT UNDERSTANDABLE, I.E., DE HORS ANY SPECIFICATION. AS SUCH, IT IS NOT CLEAR, AND WE DO NOT EVEN KNOW, WHAT IS THE CONFIGU RATION OF THE EXPENDITURE DISALLOWED, AND FOR ALL WE KNOW IT MAY BE FOR ARTICLES WITH A M UCH HIGHER COST. RATHER, THE ASSESSEE, WE OBSERVE, HAS MAINTAINED VOUCHERS FOR ITEMS COSTI NG AS LOW AS ` 4/-, CONTRADICTING ITS CASE. BESIDES, THE ASSESSEE HAS, IN ANY CASE, TO ES TABLISH ITS CASE ON FACTS, I.E., AS TO WHY ANY VOUCHERS IN ITS RESPECT COULD NOT BE OBTAINED, AND WHICH, AGAIN, CANNOT BE UNTIL THOSE ITEMS WERE SPECIFIED, ALONG WITH THE SOURCE/S THERE OF (THE SELLERS). THAT ALONE WOULD MAKE ITS CASE COMPLETE AND COMPREHENSIBLE. UNDER T HE CIRCUMSTANCES, WE, THEREFORE, ONLY DEEM IT FIT TO RESTORE THIS MATTER BACK TO THE FILE OF THE LD. CIT(A) FOR A SPEAKING ORDER IN THE MATTER IN ACCORDANCE WITH LAW, AND AFT ER ALLOWING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DECIDE ACCORDINGLY. 9. THE LAST GROUND NO. 7 OF THE ASSESSEES APPEAL I S IN RELATION TO DISALLOWANCE OF ` 46,052/- EFFECTED U/S. 40A(3) OF THE ACT. THE AO FO UND THE ASSESSEE TO HAVE MADE CASH PAYMENTS IN EXCESS OF ` 20,000/- IN RESPECT OF SEVERAL PURCHASES FOR AWARDS , THE AGGREGATE EXPENDITURE UNDER WHICH HEAD STOOD CLAIMED AT ` 14.19 LAKHS. THE SAME WAS OBSERVED TO BE IN PURSUANCE TO BILLS, IN EACH CASE, OF EVEN DAT E, CONSECUTIVELY NUMBERED, I.E., FROM THE SAME PARTY, WHICH NUMBERED TWO. THOUGH THE AMOUNT, WHICH STOOD IN EACH CASE PAID IN CASH, WAS LESS THAN ` 20,000/-, I.E., BILL WISE, THE TOTAL (PARTY-WISE) O N EACH OCCASION WORKED TO MORE THAN ` 20,000/-. AS SUCH, THESE WERE ESSENTIALLY SINGLE T RANSACTIONS, SEGREGATED INTO MULTIPLE TRANSACTIONS, WITH THE VIE W AND PURPOSE THAT THE AMOUNT PER EACH BILL WORKED TO LESS THAN THE THRESHOLD LIMIT OF ` 20,000/- U/S. 40A(3). UNDER THE ITA NOS.174 & 190 /COCH/2009 17 CIRCUMSTANCES, THE DECISION BY THE HONBLE MADRAS H IGH COURT IN THE CASE OF CIT V. KOTHARI SANITATION & TILES (P.) LTD ., 202 CTR (MAD) 277 [282 ITR 117], HOLDING THAT IT IS THE AMOUNT OF EACH TRANSACTION, IRRESPECTIVE OF THE NUMBER OF TRANSACTIONS, THAT WOULD BE RELEVANT FOR THE PURPOSE OF S. 40A(3), WOULD NOT BE APPLICABLE. THE SAME STOOD CONFIRMED IN APPEAL, WITH THE LD. CIT(A) HOLDING TH AT THESE WERE NOT MULTIPLE TRANSACTIONS BUT SINGLE TRANSACTIONS, THOUGH MADE TO APPEAR AS M ULTIPLE TRANSACTIONS. 10. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEES CASE IS THAT THE RIGOUR OF S. 40A(3) WOULD APPLY QUA EACH TRANSACTION, AND NOT WITH REFERENCE TO THE AGGREGATE TRANSACTIONS MADE WITH A PARTICULAR PARTY ON A PARTICULAR DAY. REFERENCE FOR THE PURPOSE IS ALSO MADE BY IT TO THE LATER AMENDMENT (BY FINANCE ACT, 2008) W.E.F. 1.4.2009, WHEREBY THE LIMIT UNDER S. 4 0A(3) IS STATUTORILY AMENDED TO BE RECKONED WITH REFERENCE TO THE AGGREGATE PAYMENT MA DE TO A PERSON IN A DAY. THE REVENUES CASE, ON THE OTHER HAND, IS THAT THE IMPU GNED PAYMENTS ARE IN RESPECT OF SINGLE TRANSACTIONS, WHICH HAVE BEEN DELIBERATELY MANIPULA TED TO APPEAR AS MULTIPLE TRANSACTIONS, WITH A VIEW TO AVOID THE INVOCATION O F S. 40A(3). AS SUCH, WHILE THE ASSESSEES CASE IS PURELY LEGAL, THAT OF THE REVENU E, FACTUAL. THE LAW IN THE MATTER IS UNEXCEPTIONAL, AND IT IS ONLY THE PAYMENT FOR EACH TRANSACTION THAT IS RELEVANT AND NOT THE TOTAL PAYMENT MADE DURING THE COURSE OF A DAY. THI S IS ALL THE MORE SO AS S. 40A(3) IS A DEEMING SECTION, AND IT IS TRITE THAT A DEEMING PRO VISION HAS TO BE STRICTLY CONSTRUED, I.E., BESIDES BEING SUPPORTED BY THE CITED DECISION BY TH E HONBLE MADRAS HIGH COURT. SO, HOWEVER, AS AFORE-NOTED, THE REVENUE CASE IS FACTU AL, AND WHICH HAS NOT BEEN, WE OBSERVE, MET BY THE ASSESSEE IN ANY MANNER. THE AO HAS REASONABLY CONSIDERED THE LEGAL CONTENTIONS RAISED BY THE ASSESSEE, BUT FOUND THAT THE IMPUGNED PAYMENTS ARE IN EACH CASE PURSUANT TO A SINGLE TRANSACTION, AND IT IS TH IS FINDING THAT HAS FOUND THE CONCURRENCE OF THE LD. CIT(A), AND WHICH WE ARE REQUIRED TO EXA MINE FOR ITS VALIDITY OR OTHERWISE. IT IS WELL SETTLED THAT IT IS THE SUBSTANCE OF THE TRA NSACTION/S THAT IS RELEVANT AND MATERIAL, AND NOT ITS FORM. A BARE BROWSE OF THE IMPUGNED TRANSA CTIONS WOULD SHOW THAT THE SAME ITEMS, PURCHASED FROM THE SAME PARTY, AT THE SAME T IME, HAVE BEEN INVOICED PER TWO OR MORE BILLS, CLEARLY SPLITTING THE TRANSACTION TO AP PEAR AS MORE THAN ONE. AS SUCH, THE INFERENCE THAT THESE REPRESENTED, IN EFFECT, A SING LE TRANSACTION, PAID FOR SIMULTANEOUSLY, ITA NOS.174 & 190 /COCH/2009 18 I.E., AT ONE GO, IS UNEXCEPTIONAL. THE TRIBUNAL (C OCHIN BENCH) HAS ALSO UNDER SIMILAR CIRCUMSTANCES, UPHELD THE APPLICATION OF S. 40A(3) IN THE CASE OF SREE SAKTHIPAPER MILLS LTD. V. CIT (IN ITA NO. 388/COCH/2008 DATED 03/6/2010 FOR AY 2 004-05); ITS RELEVANT FINDINGS BEING AS UNDER: 4.5 .. THE STANDARD OF PROOF REQUIRED TO EXHI BIT OR PROVE A MATTER OF INFERENTIAL FACT UNDER THE ACT IS AS REQUIRED UNDER CIVIL LAW P ROCEEDINGS, I.E., PREPONDERANCE OF PROBABILITY [REFER: CIT VS. H. ABDUL BAKSHI & BROS. , 160 ITR 94 (AP)(FB); CIT VS. INDIA SEA FOODS , 218 ITR 629 (KER.)(FB)], SO THAT THE INFERENCE DR AWN BY THE REVENUE, APART FROM BEING COGENT, IS IN CONFORMITY WITH THE LAW. E VEN OTHERWISE, IT IS A FUNDAMENTAL RULE OF LAW THAT A TRANSACTION IS TO BE VIEWED IN ITS SU BSTANCE, IGNORING THE FORM. IN THE PRESENT CASE, THIS WOULD BE APPLICABLE WITH MUCH MORE FORCE ; THE FORM ADOPTED BEING ONLY A DEVICE TO DEFEAT THE PROVISION OF LAW. 4.6 UNDER THE CIRCUMSTANCES, IT DOES NOT TAKE M UCH STRAIN TO INFER THAT THE BOOKS OF ACCOUNT STAND MANIPULATED TO REFLECT THE IMPUGNED P AYMENTS IN INSTALMENTS OF RS. 20,000/- IN AN ORCHESTRATED MANNER TO APPARENTLY AC CORD WITH THE PROVISION OF LAW, SO AS TO CIRCUMVENT ITS RIGOUR AND EFFECT, I.E., AS CONTE NDED BY THE REVENUE, SO THAT ITS FINDINGS CANNOT BE FAULTED WITH. HERE, IT WOULD ALSO BE RELE VANT TO NOTE THAT THE DECISIONS CITED BY THE ASSESSEE IN ADVANCEMENT OF ITS CASE, ARE ALSO O N THE BASIS AND PREMISES THAT THE PROVISION REFERS TO A SINGLE PAYMENT, AS IT WOULD N OT BE KNOWN TO THE PAYER WHETHER ANY FURTHER PAYMENT DURING THE SAME DAY WOULD BE REQUIR ED TO BE MADE, SO AS TO OPERATE TO CLUB TWO (OR MORE) PAYMENTS MADE SEPARATELY AND WIT HOUT REFERENCE TO EACH OTHER. THE CITED CASE LAW, THUS, BY EXPLAINING THE RATIONALE B EHIND THE INTERPRETATION ACCORDED, IN EFFECT, SUPPORTS THE CASE AND CAUSE OF THE REVENUE, AND IT IS NOBODYS CASE THAT THE PROVISION WOULD NOT APPLY EVEN WHERE A SINGLE PAYME NT EXCEEDS THE PRESCRIBED LIMIT OR IS BROKEN DOWN TO BE REFLECTED AS A SERIES OF PAYMENTS . FURTHER, EVEN AS WE HAVE PERUSED THE CASE LAW REFERRED TO BY THE ASSESSEE, WE DO NOT THI NK IT NECESSARY TO ADVERT TO EACH DECISION INDIVIDUALLY, GIVEN OUR FINDING OF THE MAT TER BEING BASICALLY ONE OF FACT, AND OUR DECISION RESTING ON THE PERTINENT FACTUAL FINDINGS IN THE CASE. 5.1 IT WOULD, NEVERTHELESS, AT THIS STAGE, BE RELEV ANT TO DISCUSS THE LAW IMPINGING ON THE MATTER; THE LD. CIT (A) HAVING ADVERTED TO THE DECISION IN THE CASE OF SUMATI DAYAL (SUPRA). IN THAT CASE, IT STANDS CLEARLY HELD BY TH E APEX COURT THAT WHERE A TRANSACTION(S) DEFIES NORMAL HUMAN BEHAVIOUR, THE TAXING AUTHORITI ES ARE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES AND DECIDE THEREUPON APPL YING THE TEST OF HUMAN PROBABILITIES. IN THE CASE OF MCDOWELL CO. LTD. VS. CTO , 154 ITR 148 (SC), IT STANDS HELD THAT THERE WAS AS MUCH MORAL SANCTION BEHIND THE TAXATIO N LAWS AS IS BEHIND ANY OTHER WELFARE LEGISLATION, AND THAT IT STOOD ON NO LESS A MORAL P LANE THAN HONEST PAYMENT OF TAX. THAT, THE PROPER WAY TO CONSTRUE A TAXING STATUTE, WHILE CONSIDERING A DEVICE TO AVOID TAX, IS NOT TO ASK WHETHER THE PROVISION SHOULD BE CONSTRUED LI TERALLY 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. IT IS UP TO THE COURT TO TAKE STOCK TO DETERMINE THE NATURE OF THE ITA NOS.174 & 190 /COCH/2009 19 LEGAL DEVICE TO AVOID THE TAX AND EXPOSE THE SAME F OR WHAT IT REALLY IS AND TO REFUSE TO GIVE JUDICIAL BENEDICTION TO IT. IN OUR VIEW, THE PRINCIPLES OF LAW ENUME RATED BY THE APEX COURT, IN, AMONG OTHERS, THE SAID CASES, ARE FULLY APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN VIEW OF THE FOREGOING, WE FIND NO MERI T IN THE ASSESSEES CASE, AND UPHOLD THAT OF THE REVENUE, WHICH IS NOT SUPPOSED TO PUT BLINKERS ON ITS EYE WHILE MAKING AN ASSESSMENT, BUT VIEW THE TRANSACTION/S IN ITS SUBST ANCE AND IN REALITY. WE DECIDE ACCORDINGLY. 11. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED AND THE REVENUES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: JUNE 22, 2011 GJ COPY TO: 1. BRILLIANT STUDY CENTRE, PULIYANNOOR P.O., MUTHOL Y, PALA. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1, KOTTAYAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOC HI 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. // TRUE COPY //