M/s OEN India Ltd, Cochin V. The JT CIT, Cochin

ITA 233/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8652 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: SATYANARAYANAN
• Keywords: Question of law; Capital expenditure
• Section: 143(3); 37(1); 37; 28

Judgement Text

ITA NO . 233/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 233/COCH/2015 (ASST YEAR 2010 - 11 ) M/S OEN INDIA LTD VYTILLA KOCHI 19 VS THE JT COMMR OF INCOME TAX RANGE 4, KOCHI ( APPELLANT) (RESPOND ENT) PAN NO. AAACO2007Q ASSESSEE BY SH SATYANARAYANAN REVENUE BY SH K P GOPAKUMAR, SR DR DATE OF HEARING 11 TH MAY 2016 DATE OF PRONOUNCEMENT 13 TH MAY 2016 OR D ER PER GEORGE GEORGE. K. J M: THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE IS DI RECTED AGAINST THE ORDER DATED 12.1.2015 OF THE CITIA) - I KOCHI. THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. 2 THE GROUNDS RAISED READ AS FOLLOWS: 1 . THE ORDER OF THE LD AO TO THE EXTENT APPEALED AGAINST I S AGA I NST LAW , EQU I TY AND JUSTICE. 2 . A) THE LD CIT (A) ERRED IN UPHOLDING THE ORDER OF THE LEARNED ASSESSING OFFICER TREAT I NG THE CONTRIBUTION MADE BY THE APPELLANT COMPANY TO THE EMPLOYEES WELFARE FUND , IN TERMS OF THE LONG TERM SETTLEMENT AGREEMENT ENTERED INTO BY THE APPELLANT COMPANY WITH THE EMPLOYEES . AS PER THE TERMS OF THE LONG TERM SETTLEMENT , THE APPELLANT HAS TO CONTRIBUTE AN AMOUNT EQUAL TO THE CONTRIBUTION MADE BY THE EMPLOYEES TO THE WELFARE FUND. B) THE LEARNED CIT (A) OUGHT TO HAVE NOTED THAT THE SA I D CONTRIBUTION I S IN THE NATURE OF SALARY TO EMPLOYEES, WHICH IS ALLOWABLE U/S . 28 , R.W.S 37(1) OF THE IT ACT . IT IS NOW WELL SETTLED THAT EXPENDITURE INCURRED BY AN ASSESSEE ITA NO . 233/C/2015 2 WHOLLY AND EXCLUSIVELY FOR THE WELFARE OF THE EMPLOYEES OF THE ASSESSE, IS AN ALLOWABLE DEDUCTION IN COMPUTING THE INCOME O F THE ASSESSEE . C) THE STATEMENT MADE BY THE LEARNED CIT (A) T HAT ' ON A SPECIFIC QUERY RAISED DURING THE COURSE OF APPEAL PROCEEDINGS ASKING FOR THE NATURE OF THE WELFARE FUND, ITS INSTITUTION AND WHETHER OPERATED UNDER ANY TRUST , NO SUCH DOCUMENTS HAVE B EEN MADE AVAILABLE' WAS ONLY OUT OF MIS - APPREC I ATION OF FACTS OF THE CASE . AS SUBMITTED ABOVE, THE APPELLANT WAS ONLY CONTRIBUTING TO ITS SHARE AS PER T HE TERMS OF LONG TERM SETTLEMENT AGREEMENT ENTERED INTO WITH EMPLOYEES , TO WELFARE FUND SET UP BY AND RUN BY THE EMPLOYEES FOR PROVIDING FINANCIAL ASSISTANCE TO THE EMPLOYEES AND THE SA I D SUM I S IN THE NATURE OF SALARIES & WAGES . HENCE THE PROV I S I ONS OF SECTION 40A(9) HAS NO APPLICATION . 3 FOR THESE AND OTHER GROUNDS THAT MAY BE FURTHER ADDUCED AT THE T IME OF HEARING THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) REQUIRES TO BE MODIFIED 3 THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSMENT U/S 143(3) OF THE I T ACT WAS COMPLETED VIDE ORDER DATED 26.3.2013 DISALLOWING A SUM OF RS. 93.667 / - , BEING ASSESSEES WELFARE CONTRIBUTION TO OEN EMPLOYEESS WELFARE FUND. ACCORDING TO THE AO, THIS PAYMENT IS NOT IN ACCORDANCE WITH SECTION 36(1)((IV) & (V) AND HENCE, THE SAME IS TO BE DISALLOWED IN VIEW OF THE PROVISIONS OF SECTION 40A(9) OF THE ACT. 4 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) CONFIRMED THE VIEW TAKEN BY THE AO. THE RELEVANT FINDINGS OF THE CIT(A) READ AS UNDER: 3.3 ON A SPECIFIC QUERY RAISED DURING THE COURSE OF APPEAL PROCEEDINGS ASK ING FOR THE NATURE OF THE WELFARE FUND, ITS INSTITUTION AND WHETHER OPERATED UNDER ANY TRUST; NO SUCH DOCUMENTS HAVE BEEN MADE AVAILABLE. THE PROVISIONS OF SECTION 40A(9) IS APPLICABLE WHERE NO DEDUCTION IS ALLOWANCE WHERE THE SUM PAID IS NOT IN ACCORDANCE WITH THE PROVISION OF SECTION 36(I) (IV) (IVA) AND (V). ITA NO . 233/C/2015 3 SINCE THE APPELLANT HAS FAILED TO SUBSTANTIATE THE SAME, THE DISALLOWANCE MADE BY THE AO IS UPHELD AND THE APPEAL ON THIS GROUND IS DISMISSED. 5 AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. ON THE OTHER HAND, THE LD DR SUPPORTED THE FINDING/CONCLUSION OF THE AO AND THE CIT(A). 6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECOR D. S ECTION 40A OF THE I T ACT PROVIDE FOR 'EXPENSES OR PAYMENTS NOT DEDUC TIBLE IN CERTAIN CIRCUMSTANCES'. TO THE EXTENT THE SECTION, READS THUS : '(1) THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THIS ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. (9) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER TOWARDS THE SETTING UP OR FOR MATION OF, OR AS CONTRIBUTION TO, ANY FUND, TRUST, COMPANY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1860), OR OTHER INSTITUTION FOR ANY PURPOSE, EXCEPT WHERE SUCH SUM IS SO PAID, FOR THE PURPOSES AND TO THE EXTENT PRO VIDED BY OR UNDER CLAUSE (IV) OR CLAUSE (V) OF SUB - SECTION (1) OF SECTION 36, OR AS REQUIRED BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE.' 6.1 . SECTION 40A OF THE I T ACT STARTS WITH THE NON OBSTANTE CLAUSE. PRIOR TO ITS AMENDMENT BY THE FINANCE ACT, 2011, AS PER SUB - SECTION (9) INTRODUCED BY THE FINANCE ACT, 1984, WITH EFFECT FROM APRIL 1, 1980, DEDUCTION OF ONLY PAYMENTS FOR ITA NO . 233/C/2015 4 THE PURPOSES AND THE EXTENT PROVIDED WAS PERMITTED. THE ASSESSEE DOES NOT HAVE A CAS E THAT THE CONTRIBUTION MADE BY IT TO THE EMPLOYEE WELFARE FUND IS PAYMENT WHICH IS PERMITTED UNDER SECTION 36 OF THE I T ACT. I F THAT BE SO, IN VIEW OF SECTION 40A(9), THE PAYMENT MADE BY THE ASSESSEE COULD NOT ALLOWED AS DEDUCT ION . 6.2 THE JUDGMENT OF T HE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS TRAVANCORE COCHIN CHEMICALS LTD REPORTED IN 243 ITR 284 IS TOTALLY DISTINGUISHABLE ON FACTS. IN THAT CASE THE EXPENDITURE INCURRED BY THE ASSESSEE WAS A DONATION TO SCHOOL WHERE THE CHILDREN OF THE ASSES SEES EMPLOYEES WERE GIVEN ADMISSION. IN THAT CONTEXT , IT WAS HELD BY THE HONLE HIGH COURT THAT CONTRIBUTION OF A SUM OF RS. 5,34,406/ - WAS WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSIENSS OF THE ASSESSEE. THE HONBLE JURISDICTIONAL HIGH COURT ALSO CONSI DERED THE IMPACT OF SECTION 40A(10) OF THE ACT , WHICH IS NOT APPLICABLE TO THE FACTS OF TH IS CASE. 6 .3 ON THE CONTRARY, T HE RECENT JUDGMENT OF THE HONBLE KERALA HIGH COURT , IN THE CASE OF CIT VS STATE BANK OF TRAVANCORE , REPORTED IN 378 ITR 219 (K ER) , IS MORE IDENTICAL TO THE FACTS OF THE INSTANT CASE. IN THAT CASE THE CONTRIBUTIONS WERE MADE BY THE ASSESSEE TO MEDICAL BENEFITS SCHEME OF ITS RETIRED EMPLOYEES. THE HONBLE HIGH COURT HELD THAT SECTION 40A(9) IMPOSES AN EMBARGO ON DEDUCTION OF S UCH CONTRIBUTION. THE RELEVANT FINDINGS OF THE HONBLE HIGH COURT AT PAGE 221 READ AS FOLLOWS: ITA NO . 233/C/2015 5 2. WE HEARD THE COUNSEL FOR THE APPELLANT AND THE LEARNED COUNSEL APPEARING FOR THE RESPONDENT. 3. WHILE THE STANDING COUNSEL FOR THE REVENUE CONTENDED THAT IN THE LIGHT OF SECTION 40A(9) OF THE ACT THE TRIBUNAL COULD NOT HAVE ALLOWED DEDUCTION UNDER SECTION 37 OF THE ACT THE LEARNED COUNSEL FOR THE ASSESSEE RELIED NOT ONLY ON SECTION 37 OF THE ACT BUT ALSO ON THE JUDGMENT OF THE MADRAS HIGH COURT IN CIT V. T. ST ANES AND CO. LTD. [1976] 105 ITR 251 (MAD). 4. WE HAVE CONSIDERED THE SUBMISSIONS MADE. SECTION 37 PROVIDES THAT ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTION 30 TO SECTION 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE) LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINE SS OR PROFESSION'. IT WAS IN THE CONTEXT OF THIS PROVISION THAT THE MADRAS HIGH COURT RENDERED ITS JUDGMENT IN T. STANES AND CO. LTD. (SUPRA). HOWEVER, SECTION 40A PROVIDE FOR 'EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES', TO THE EXTENT IT IS RELEVANT READS THUS : '(1) THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THIS ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PRO FESSION'. (9) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER TOWARDS THE SETTING UP OR FORMATION OF, OR AS CONTRIBUTION TO, ANY FUND, TRUST, COMPANY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIETY REGISTERED U NDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1860), OR OTHER INSTITUTION FOR ANY PURPOSE, EXCEPT WHERE SUCH SUM IS SO PAID, FOR THE PURPOSES AND TO THE EXTENT PRO VIDED BY OR UNDER CLAUSE (IV) OR CLAUSE (V) OF SUB - SECTION (1) OF SECTION 36, OR AS REQUI RED BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE.' 5. SECTION 40A WHICH STARTS WITH THE NON OBSTANTE CLAUSE. PRIOR TO ITS AMENDMENT BY THE FINANCE ACT, 2011, AS PER SUB - SECTION (9) INTRODUCED BY THE FINANCE ACT, 1984, WITH EFFECT FROM APRIL 1, 198 0, DEDUCTION OF ONLY PAYMENTS FOR THE PURPOSES AND THE EXTENT PROVIDED WAS PERMITTED. THE ASSESSEE DOES NOT HAVE A CASE THAT THE CONTRIBUTION MADE BY IT TO THE PENSION FUND IS PAYMENT WHICH IS PERMITTED UNDER SECTION 36. IF THAT BE SO, IN VIEW OF SECTION 4 0A(9), THE PAYMENT MADE BY THE ASSESSEE COULD NOT HAVE BEEN ALLOWED TO BE DEDUCTED AND ITS DISALLOWANCE BY THE ASSESSING OFFICER IS PERFECTLY IN LINE WITH THE STATUTORY PROVISIONS. WE MAY ALSO ADD THAT SINCE SUB - SECTION (9) WAS ADDED TO SECTION 40A BY THE FINANCE ACT, 1984, THE JUDGMENT OF THE MADRAS HIGH COURT IN T. STANES AND CO. LTD. (SUPRA) RENDERED IN THE CONTEXT OF THE ASSESSMENT YEARS 1959 - 60 TO 1964 - 65 HAS NO RELEVANCE IN SO FAR AS THE CASE OF THE ASSESSEE IS CONCERNED. ITA NO . 233/C/2015 6 IN SUCH CIRCUMSTANCES, ANSWER ING THE QUESTION OF LAW IN FAVOUR OF THE REVENUE, THIS APPEAL IS ALLOWED. 6 .4 IN THE INSTANCE CASE, ADMITTEDLY, THE ASSESSEES CONTRIBUTIO N IS TO THE OEN EMPLOYEES WELFARE FUND . THE ASSESSEE DOES NOT HAVE A CASE THAT THE SAID PAYMENT TO THE FUND IS COVER ED U/S 36 OF THE I T ACT. HENCE, IN VIEW OF SPECIFIC PROVISION, 40A(9) OF THE ACT, THE SAME CANNOT BE ALLOWED AS DEDUCTION. IT IS ORDERED ACCORDINGLY. 7 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF MA Y 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 13 TH M AY 2016 RAJ* COPY TO: 1 . APPELLA NT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN