Shriram Equipment Finance Co. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2615/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7749 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 09-09-2016
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C, CHENNAI , . , ! ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ITA NO.2615/MDS/2016 ! # $# / ASSESSMENT YEAR : 2013-14 SHRIRAM EQUIPMENT FINANCE CO. LTD. (SINCE AMALGAMATED WITH SHRIRAM TRANSPORT FINANCE CO. LTD.) MOOKAMBIKA COMPLEX, NO.4, LADY DESIKA ROAD, MYLAPORE, CHENNAI 600 004. [PAN: AAACS 7018R] ( %& /APPELLANT) VS. DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1) CHENNAI. ( '(%& /RESPONDENT) %& ) * /APPELLANT BY : SHRI ANR JAYAPRATHAP, ADVO CATE '(%& ) * /RESPONDENT BY : SHRI PATHLAVATH PEERYA, C IT ) + /DATE OF HEARING : 01.12.2016 ,$ ) + /DATE OF PRONOUNCEMENT : 21.02.2017 /O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI ( CIT(A) FOR SHORT) DATED 15.06.2016, PARTLY ALLOWING THE ASSESSEES APPEAL C ONTESTING ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREI NAFTER) DATED 20.03.2016 FOR ASSESSMENT YEAR (AY) 2013-14. 2 ITA NO.2615/MDS/2016 (AY 2013-14) SHRIRAM EQUI PMENT FINANCE CO. LTD. V. DY. CIT 2. PER THIS APPEAL, THE ASSESSEE, A NON BANKING FIN ANCIAL COMPANY (NBFC), CHALLENGES THE CONFIRMATION OF THE DISALLOWANCE OF ITS CLAIM FOR DEDUCTION IN THE SUM OF . 2640.36 LACS ON ACCOUNT OF TRANSFER OF TWENTY PER CENT (20%) OF ITS NET PROFIT TO A RESERVE FUND, TERMED STATUTORY RESE RVE FUND, IN PURSUANCE TO SECTION 45-IC OF THE RESERVE BANK OF INDIA ACT, 193 4 (RBI ACT HEREINAFTER). LIKEWISE, A DISALLOWANCE FOR .1800 LACS STANDS MADE IN COMPUTING BOOK-PROFIT UNDER SECTION 115 JB OF THE ACT. THE RESPECTIVE CLA IMS ARE MADE BY THE ASSESSEE ON THE BASIS THAT THE RBI ACT IS BINDING ON IT, A N BFC, SO THAT INCOME GETS DIVERTED AT THE THRESHOLD. THE FUNDS TRANSFERRED, T HEREFORE, DO NOT FORM PART OF ITS REAL INCOME. THE MATTER, IT WAS FAIRLY CONCEDED BEF ORE US, HAD TRAVELLED TO THE TRIBUNAL FOR EARLIER YEARS, I.E., FOR AY 2009-10 (I N ITA NO. 1744/MDS/2012 DATED 11/4/2013) AND AY 2011-12 (IN ITA NO. 576/MDS /2015 DATED 25/6/2015), PLACING A COPY OF THE LATTER ON RECORD, WHEREBY THE TRIBUNAL HAS DECIDED IN FAVOUR OF THE REVENUE. THE MATTER, IT WAS FURTHER I NFORMED, IS SUBJUDICE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEES CLAIM IS BASED ON THE BINDING NATURE OF THE MANDATE OF SEC.45-IC OF THE RBI ACT, REPRODUCED IN THE ASSESSM ENT ORDER, WHICH, FALLING UNDER CHAPTER III-B OF THE SAID ACT, OVERRIDES ANYT HING INCONSISTENT THEREWITH (I.E., THE PROVISIONS OF CHAPTER III-B) CONTAINED I N ANY LAW FOR THE TIME BEING IN FORCE (OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW), IN VIEW OF S.45Q. THE ARGUMENT IS CLEARLY MISPLACED. THE MANDA TORY NATURE OF S.45-IC, OR THE PROVISIONS OF CHAPTER III-B OF THE RBI ACT FOR THAT MATTER, IS NOT IN DISPUTE AND THE COMPANY HAS DULY COMPLIED THEREWITH BY TRAN SFERRING 20% OF ITS NET PROFIT TO A RESERVE ACCOUNT, CALLED STATUTORY RESE RVE FUND. HOW IS THAT, HOWEVER, WE ARE UNABLE TO SEE, IN CONFLICT WITH ANYTHING CON TAINED IN THE ACT, WHICH PROVIDES THE BASIS FOR THE CHARGE OF INCOME-TAX, AS WELL AS PROVISIONS FOR COMPUTING THE INCOME CHARGEABLE TO TAX THERE-UNDER. THERE IS NO SCOPE FOR THE 3 ITA NO.2615/MDS/2016 (AY 2013-14) SHRIRAM EQUI PMENT FINANCE CO. LTD. V. DY. CIT APPLICATION OF S.45Q AND, AS CLARIFIED IN SOUTHERN TECHNOLOGIES V. JT. CIT [2010] 320 ITR 577 (SC), THE TWO OPERATE IN DIFFERENT FIEL DS. THIS DECISION HAS BEEN SOUGHT TO BE DISTINGUISHED BY THE ASSESSEE, STATING IT TO BE IN THE CONTEXT OF THE RBI DIRECTIONS, 1998. THE SAME, ISSUED UNDER SEC. 4 5-JA, FALLING UNDER CHAPTER III-B, ARE EQUALLY BINDING, AS INDEED WAS ARGUED IN THAT CASE. THE ARGUMENT WOULD THUS BE OF NO MOMENT, AND THE REVENUE HAS RIG HTLY RELIED ON THE SAID JUDGMENT. AS EXPLAINED THEREIN, THE SAID DIRECTIONS MAY BE BINDING, AS INDEED ARE, SO THAT A NBFC HAS TO PROVIDE FOR THE NON-PERF ORMING ASSETS (NPAS) AS WELL AS CLASSIFY ITS ASSETS IN ACCORDANCE THEREWITH, BUT THE SAME SHALL NOT IMPACT THE DETERMINATION OF INCOME CHARGEABLE TO TAX UNDER THE ACT. THAT THE ACT IS A COMPLETE CODE IN ITSELF, AND INCOME CHARGEABLE TO T AX IS TO BE COMPUTED ON THE BASIS OF ITS PROVISIONS, IS WELL-SETTLED, AS ALSO CLARIFIED THEREIN. THAT APART, WHERE IS, WE WONDER, THE QUESTION OF AN OVERRIDING TITLE? WE FIND NO CHARGE ON THE COMPANYS PROFITS OR ASSETS, SO THAT ITS TITLE THERETO IS COMPLETE. THE FUNDS REPRESENTED BY THE STATUTORY RE SERVE ARE DEPLOYED BY, AND THE ASSETS IN WHICH THE SAME ARE EMPLOYED BELONG TO , THE COMPANY ONLY. THE SAME ARE TO BE APPLIED ONLY FOR ITS PURPOSES, SUBJE CT TO THE DIRECTIONS AND REPORTING TO THE RBI. THAT IS, S.45-IC DOES NOT IMP ORT ANY LIABILITY ON THE COMPANY, WITH THE VERY MENTION OF A RESERVE IMPLYIN G CAPITALIZATION OF ITS PROFITS TO THAT EXTENT. RATHER, AS A READING OF S. 45-IC(3) REVEALS, THE RESERVE FUND IS MEANT TO STRENGTHEN THE COMPANYS CAPITAL STRUCT URE, AND ON A SUFFICIENT CAPITAL (VIS-A-VIS ITS LIABILITIES) BEING SHOWN, MA Y STAND EXCLUDED. THE TRIBUNAL FOR THE EARLIER YEARS, WE OBSERVE, APPLIED THE RATI O OF THE DECISIONS IN CIT V. SITALDAS TIRATHDAS [1961] 41 ITR 367 (SC) AND SESHASAYEE PAPERS & BOARDS LTD. V. CIT [1999] 237 ITR 488 (MAD) TO MEET THE ASSESSEES CL AIM. THOUGH THE SAME RIGHTLY CLARIFY THE CONCEPT OF OVERRIDING TIT LE, THERE IS, WE OBSERVE, NO APPLICATION OF FUNDS IN THE PRESENT CASE IN PURSUAN CE TO ANY DIRECTION ISSUED UNDER SEC.45-IC, SO THAT THERE IS NO DIVERSION, M UCH LESS BY OVERRIDING TITLE, 4 ITA NO.2615/MDS/2016 (AY 2013-14) SHRIRAM EQUI PMENT FINANCE CO. LTD. V. DY. CIT AND THE FUNDS REPRESENTED BY THE RESERVE FUND, THER EFORE, CONTINUE TO BE EMPLOYED BY THE COMPANY IN ITS BUSINESS. THE ASSES SEES CASE IS WHOLLY MISCONCEIVED, AND IN FACT COVERED AGAINST IT BY THE FOREGOING AS WELL AS SEVERAL OTHER BINDING DECISIONS. WE, IN VIEW OF THE FOREGOING, HAVE NO HESITATION IN CONFIRMING THE IMPUGNED ORDER, AND THE ASSESSEE FAILS. HOWEVER, B EFORE PARTING WITH THIS ORDER, WE WISH TO CLARIFY THAT WE ARE UNABLE TO SEE THE BA SIS FOR THE DISALLOWANCE OF . 2640.36 LACS WHEN THE ASSESSEE HAS, AS IT APPEARS, TRANSFERRED ONLY .1800 LACS FROM ITS PROFITS TO THE STATUTORY FUND. THERE CANNO T, IN ANY CASE, BE TWO TRANSFERS DURING THE YEAR. THE DISALLOWANCE IN COMPUTING THE REGULAR INCOME SHOULD THEREFORE BE WITH REFERENCE TO THE AMOUNT CLAIMED O N ACCOUNT OF TRANSFER TO THE SAID FUND. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED ON FEBRUARY 21, 2017 AT CHENNAI . SD/- SD/- ( . ) ( ) (G. PAVAN KUMAR) (SANJAY ARORA) ! /JUDICIAL MEMBER /ACCOUNTANT MEMBER /CHENNAI, - /DATED, FEBRUARY 21, 2017. EDN . ) '!+/0 10$+ /COPY TO: 1. %& /APPELLANT 4. 2+ /CIT 2. '(%& /RESPONDENT 5. 034 '!+! /DR 3. 2+ ( )/CIT(A) 6. 45# 6 /GF