ACIT 2(3), MUMBAI V. TATA SERVICES LTD, MUMBAI

ITA 1995/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55534 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 10-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C SRINIVAS REDDY
• Assessee Lawyers: BURZIZ S TARAPOREVALA
• Keywords: Business expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 2283/MUM/2010 ASSTT. YEAR : 2006-07. TATA SERVICES LTD., ASSTT. COMMISSIONER OF INCOME-TAX, 24, HOMI MODY STREET, VS. 2(3), MUMBAI. FORT, MUMBAI 400001. PAN : AAACT 3991J. APPELLANT. RESPONDENT . I.T.A. NO. 1995/MUM/2010 ASSESSME NT YEAR :006-07. ASSTT. COMMISSIONER OF M/S TATA SERVICES LTD., INCOME-TAX-2(3), MUMBAI. VS. MUMBAI. APPELLANT. RESPONDENT. ASSESSEE BY : SHRI BURZIZ S. TARAPOREVALA. DEPARTMENT BY : SHRI C. SRINIVAS REDDY. DATE OF HEARING : 10-10-2011. DATE OF PRONOUNC EMENT : 14-10-2011. O R D E R. PER P.M. JAGTAP, A.M. : THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO. 2283/MUM/2010 AND OTHER FILED BY THE REVENUE BEING ITA NO. 1995/M UM/2010 ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT (APPEALS)-6, MUMBAI DATED 15- 12-2009. 2 ITA NO.2283/MUM/2010 ITA NO. 1995/MUM/2010 ASSTT.YEAR:2006-07. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E WHICH INVOLVES A SOLITARY ISSUE RELATING TO DISALLOWANCE OF RS.68,31,922/- MA DE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) U/S 43B(F) OF THE ACT ON A CCOUNT OF PROVISION FOR LEAVE ENCASHMENT. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF RENDERING COMMON SERVICES TO OTHER GROU P COMPANIES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 29-11-2006 DECLARING TOTAL INCOME OF RS.4,63,66,910/-. THE SAID RETURN W AS SUBSEQUENTLY REVISED BY THE ASSESSEE ON 29-05-2007 DECLARING TOTAL INCOME OF RS .5,18,90,797/-. IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 12-12-2008, THE TOTAL INCOME OF THE ASSESSEE WAS DETERMINED BY THE AO AT RS.5,52 ,53,121/- AFTER MAKING CERTAIN ADDITIONS. THE SAID ADDITIONS WERE CHALLENGED BY TH E ASSESSEE IN AN APPEAL FILED BEFORE THE LEARNED CIT(APPEALS). DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(APPEALS), ADDITIONAL GROUNDS WERE RAISED BY THE ASSESSEE CHALLENGING INTER ALIA, THE DISALLOWANCE OF PROVISI ON FOR LEAVE ENCASHMENT MADE U/S 43B(F). THE LEARNED CIT(APPEALS) ADMITTED THE ADDIT IONAL GROUND RAISED BY THE ASSESSEE ON THIS ISSUE. HE, HOWEVER, DECIDED THE IS SUE RAISED BY THE ASSESSEE IN THE SAID ADDITIONAL GROUND AGAINST THE ASSESSEE FOLLOWI NG INTER ALIA, HIS OWN APPELLATE ORDER ON A SIMILAR ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LEARNED REPRES ENTATIVES OF BOTH THE SIDES, THE ISSUE INVOLVED IN THIS APPEAL OF THE ASSESSEE IS SQ UARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 VID E ITS ORDER DATED 9 TH SEPT., 2011 PASSED IN ITA NO. 6459/MUM/2009. A COPY OF THE SAID ORDER IS PLACED ON 3 ITA NO.2283/MUM/2010 ITA NO. 1995/MUM/2010 ASSTT.YEAR:2006-07. RECORD AND PERUSAL OF THE SAME SHOWS THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSMENT YEAR 2005-06 AGAINST THE ASS ESSEE FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 4 OF ITS ORDER : 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVE FOR THE ASSESSEE FAIRLY DREW OUR ATTENTION TO THE ORDER OF SUPREME COURT MADE ON 8 TH SEPTEMBER 2008, BY WHICH THE JUDGMENT OF THE CALCU TTA HIGH COURT (SUPRA) WAS STAYED UNTIL FURTHER ORDERS. OUR ATTENTION WAS ALSO DRAWN TO THE ORDER OF THE SUPREME COURT PASSED ON 8 TH MAY, 2009, IN WHICH IT WAS MADE CLEAR THAT THE ASSESSEE WOULD, DURING THE PENDENCY OF THE CIVI L APPEAL, PAY TAX AS IF SECTION 43B(F) WAS ON THE STATUTE BOOK, BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM (FOR DEDUCTION) IN THE RET URNS. THERE WAS NO MODIFICATION OF THE STAY OF OPERATION OF THE JUDGME NT OF THE CALCUTTA HIGH COURT. IN VIEW THEREOF, IT SEEMS TO US THAT THE ASS ESSMENT HAS TO BE MADE AS IF SECTION 43B(F) REMAINED IN THE STATUTE BOOK AS A VALID PROVISION. IT IS NOT DISPUTED THAT IF THE SECTION IS CONSTITUTIONALLY VA LID, THE DISALLOWANCE OF THE PROVISION WOULD BE CORRECT. SINCE THE JUDGMENT OF T HE CALCUTTA HIGH COURT (SUPRA) HAS BEEN STAYED, WE HAVE TO HOLD HAT THE DI SALLOWANCE HAS BEEN RIGHTLY MADE BY THE DEPARTMENTAL AUTHORITIES. WE AC CORDINGLY CONFIRM THE DISALLOWANCE. APPEAL IS DISMISSED WITH NO ORDER AS TO COST. 4. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO ASSE SSMENT YEAR 2005-06, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR A SSESSMENT YEAR 2005-06 AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEAL S) CONFIRMING THE DISALLOWANCE MADE ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT U/S 43B(F). THE APPEAL OF THE ASSESSEE IS ACCORDINGLY DISMISSED. 5. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE W HICH INVOLVES THE SOLITARY ISSUE RELATING TO THE DISALLOWANCE OF RS.33,62,325/ - MADE BY THE AO ON ACCOUNT OF 4 ITA NO.2283/MUM/2010 ITA NO. 1995/MUM/2010 ASSTT.YEAR:2006-07. EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS PAYMEN T OF FEES FOR MEMBERSHIP OF CLUBS WHICH HAS BEEN DELETED BY THE LEARNED CIT(APP EALS). 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD MADE PAYMENTS ON ACCOUNT OF ENTRANCE FEES TO CRICKET CLUB OF INDIA A ND DELHI GYMKHANA CLUB AGGREGATING TO RS.33,62,325/- AND THE SAID AMOUNT W AS CLAIMED AS DEDUCTION BEING BUSINESS EXPENDITURE. ACCORDING TO THE AO, THE SAID PAYMENT MADE BY THE ASSESSEE RESULTED INTO BENEFIT OF ENDURING NATURE TO THE ASS ESSEE AND THE SAME, THEREFORE, WAS IN THE NATURE OF CAPITAL EXPENDITURE. HE, THEREFORE , DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF EXPENDITURE IN CURRED ON PAYMENT OF ENTRANCE FEES TO THE CLUBS AND ADDED THE SAME TO THE TOTAL I NCOME OF THE ASSESSEE. THE MATTER WAS CARRIED BEFORE THE LEARNED CIT(APPEALS) AND ITS CLAIM FOR DEDUCTION ON ACCOUNT OF EXPENDITURE INCURRED ON PAYMENT OF ENTRA NCE FEES TO CLUB WAS SUPPORTED BY THE ASSESSEE BY RELYING ON THE FOLLOWI NG JUDICIAL PRONOUNCEMENTS : A) OTIS ELEVATOR CO. (INDIA) LTD. VS. COMMISSIONER OF INCOME-TAX (195 ITR 682) BOMBAY HIGH COURT; B) JINDAL DYE INTERMEDIATE (P) LTD. VS. DEPUTY COMM ISSIONER OF INCOME-TAX (1 SOT 243) ITAT MUMBAI; C) DEPUTY COMMISSIONER OF INCOME-TAX VS. BRITISH BA NK OF THE MIDDLE EAST (19 SOT 730) ITAT, MUMBAI; AND D) COMMISSIONER OF INCOME-TAX VS. SAMTEL COLOR LIMI TED (19 DTR 295) DELHI HIGH COURT, IN WHICH THE DECISION OF OTIS ELE VATORS STATED IN (A) ABOVE WAS FOLLOWED. 7. KEEPING IN VIEW THE RATIO OF THE ABOVE CASES CIT ED ON BEHALF OF THE ASSESSEE, THE LEARNED CIT(APPEALS) HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON PAYMENT OF ENTRANCE FEES TO CLUB WAS OF REVENUE NAT URE AND THE SAME WAS 5 ITA NO.2283/MUM/2010 ITA NO. 1995/MUM/2010 ASSTT.YEAR:2006-07. ALLOWABLE AS DEDUCTION. THE DISALLOWANCE MADE BY TH E AO ON THIS ISSUE WAS ACCORDINGLY DELETED BY THE LEARNED CIT(APPEALS). 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS CITED THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KO TAK INDIA LTD. RENDERED VIDE ITS ORDER DATED 16-02-2009 PASSED IN ITA NO. 904/MUM/20 07 WHEREIN THE DEDUCTION CLAIMED BY THE ASSESSEE OF RS.21,07,057/- ON ACCOUN T OF PAYMENT MADE TOWARDS CLUB MEMBERSHIP FEES WAS ALLOWED BY THE TRIBUNAL RE LYING INTER ALIA, ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F OTIS ELAVATOR CO. (INDIA) LTD. VS. CIT 195 ITR 682 (BOM.) WHEREIN IT WAS HELD THAT SINCE PAYMENT OF CLUB FEES WAS MADE TO ENABLE THE ASSESSEE TO INCREASE IT S BUSINESS RELATION AND PROSPECTS, THE EXPENDITURE WAS AN ALLOWABLE EXPENDI TURE. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF H ONBLE DELHI HIGH COURT IN THE CASE OF SAMTEL COLOUR LTD. 326 ITR 425 (DEL.) WHERE IN IT WAS HELD THAT THE ADMISSION FEES PAID TOWARDS CORPORATE MEMBERSHIP IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND NOT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISES. THE LEARNED DR, ON THE OTHER HAND, HAS NOT BROUGHT TO O UR NOTICE ANY JUDICIAL PRONOUNCEMENT WHICH IS IN FAVOUR OF THE REVENUE ON THIS ISSUE AND HAS SIMPLY RELIED ON THE ORDER OF THE AO., WE, THEREFORE, RESP ECTFULLY FOLLOW THE RATIO LAID DOWN IN THE VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LEARNED CIT(APPEALS) IN HIS IMPUGNED ORDER AND ALSO CITED B Y THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US AND UPHOL D THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF EXPENDITURE INCURRED TOWARDS FEES PAID FOR CLUB MEM BERSHIP. 6 ITA NO.2283/MUM/2010 ITA NO. 1995/MUM/2010 ASSTT.YEAR:2006-07. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WEL L AS THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCT., 2011. SD/- SD/- (V.DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14 TH OCT., 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, F-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT , MUMBAI. WAKODE