ACIT, Vaikkom V. M/s. SBT Retd Employees, Trivandrum

ITA 27/COCH/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52304 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 17-10-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 18-01-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Section: 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NOS. 27, 28 & 29/COCH/2010 ASSESSMENT YEARS: 2004-05-2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), RANGE- 1, TRIVANDRUM. VS. M/S. SBT RETD. EMPLOYEES MEDICAL BENEFIT SCHEME, PPG SECTION, H.O. POOJAPPURA, TRIVANDRUM. [PAN: AABAS 1263R] (REVENUE-APPELLANT) (ASSESSEE - RESPONDENT) REVENUE BY MS. S.VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI C.NARESH, CA DATE OF HEARING 17/10/2011 DATE OF PRONOUNCEMENT 16/12/2011 O R D E R PER N.R.S.GANESAN, JM THESE THREE APPEALS ARE DIRECTED AGAINST THRE E INDEPENDENT ORDERS OF THE CIT(A)-I, TRIVANDRUM DATED 30.9.2009 AND PERTAINS TO THE ASSE SSMENT YEAR 2004-05, 2005-06 AND 2006-07. SINCE COMMON ISSUES ARE ARISING FOR CONSI DERATION IN THE APPEALS, THE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER. 2. MS. S. VIJAYAPRABHA, THE LD. DEPARTMENTAL REPRES ENTATIVE SUBMITTED THAT THE ONLY ISSUE ARISING FOR CONSIDERATION IS ALLOWABILITY OF MEDICAL EXPENSES INCURRED BY THE ASSESSEE FOR THE BENEFICIARIES OUT OF THE INTEREST INCOME. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS NOT REGISTERED AS A TRUST U/S. 12AA OF THE ACT. ACCORDING TO THE LD. DEPARTMENTAL REPRESENTAT IVE, THE INTEREST INCOME WAS NOT I.T.A. NOS.27-29 /COCH/2010 2 ALLOWABLE U/S. 57(III) OF THE ACT THE ONLY DEDUCT ION ALLOWABLE IS THE EXPENDITURE INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF EARNING THE INTEREST INCOME. MEDICAL EXPENSES FOR THE BENEFICIARIES CAN NOT BE AN EXPENDITURE FOR EARNING THE INTEREST INCOME. THEREFORE, THE LD. DEPARTMENTAL R EPRESENTATIVE SUBMITTED THAT THE MEDICAL EXPENSES INCURRED BY THE ASSESSEE FOR THE B ENEFIT OF THE BENEFICIARIES CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME. R EFERRING TO THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SBH RETIRED EMPLOYEES MEDICAL BENEFIT SCHEME VS. ITO IN I.T.A. NOS. 1271 & 1272/HYD/2006 DATED 6.7.2007, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL PLACED RELIANCE ON THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT IN THE CA SE OF CIT VS. TRUSTEES OF HEH NIZAMS MISCELLANEOUS TRUST, 160 ITR 270 AND 160 ITR 253. 3. ON THE OTHER HAND, SHRI C. NARESH, THE LD. CHART ERED ACCOUNTANT-REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEES TRUST WA S FORMED ONLY FOR THE PURPOSE OF REIMBURSEMENT OF MEDICAL EXPENSES OF THE RETIRED EM PLOYEES OF THE STATE BANK OF TRAVANCORE. NO DOUBT, THE ASSESSEE WAS NOT REGIST ERED AS A TRUST U/S. 12AA OF THE ACT. ON IDENTICAL CIRCUMSTANCES, THE HYDERABAD BENCH OF THE TRIBUNAL CONSIDERED THIS ISSUE AND OBSERVED THAT EVEN THOUGH THE ASSESSEE WAS NOT REGISTERED AS A TRUST U/S. 12AA OF THE ACT, THE INCOME HAS TO BE COMPUTED ON COMMERCIA L PRINCIPLES. REFERRING TO THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SBH RETIRED EMPLOYEES MEDICAL BENEFIT SCHEME VS. ITO (SUPRA), THE LD. REPRESENTATIVE FOR THE ASSESSEE S UBMITTED THAT WHAT IS TO BE TAXABLE IS ONLY THE NET INCOME AFTER GIVING THE BENEFIT TO THE BENEFICIARIES FOR MEETING THE MEDICAL EXPENSES. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. ADMITTEDLY, THE CIT(A) AFTER FOLLOWING THE DECISION OF THE HYDERABAD BENCH OF TRIBUNAL IN THE CASE OF SBH RETIRED EMPLOYEES MEDICAL BENEFIT SCHEME V. ITO (SUPRA) DIRECTED THE ASSESSING OFFICER TO ALLOW THE MEDICAL EXPENSES INC URRED FOR THE BENEFIT OF THE BENEFICIARIES. THE ONLY CONTENTION OF THE LD. DEPA RTMENTAL REPRESENTATIVE IS THAT THE I.T.A. NOS.27-29 /COCH/2010 3 MEDICAL EXPENSES REIMBURSED BY THE ASSESSEE ARE NO T EXPENSES FOR EARNING THE INTEREST, THEREFORE IT CANNOT BE ALLOWED WHILE COMPUTING THE TAX. THE LD. DEPARTMENTAL REPRESENTATIVE HAS ALSO CONTENDED THAT THE ASSESSEE IS NOT REGISTERED U/S. 12AA OF THE ACT. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS NO T CLAIMED DEDUCTION U/S. 11 AND 12 OF THE ACT. ONLY FOR THE PURPOSE OF CLAIMING EXEMPTION UN DER SECTION 11 AND 12 OF THE INCOME TAX ACT, THE ASSESSEE NEEDS TO BE REGISTERED U/S. 1 2AA OF THE ACT. IT IS NOT THE CASE OF THE ASSESSEE THAT ITS ENTIRE INCOME IS EXEMPT. WHAT T HE ASSESSEE CLAIMS IS THAT ONLY THE NET INCOME AFTER DEDUCTING THE EXPENSES INCURRED FOR RE -IMBURSEMENT OF THE MEDICAL EXPENSES HAS TO BE BROUGHT TO TAX. 5. THIS ISSUE WAS CONSIDERED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SBH RETIRED EMPLOYEES MEDICAL BENEFIT SCHEME VS. IT O (SUPRA) (COPY OF THE ORDER FILED BY THE ASSESSEE IS PLACED ON RECORD). ON IDENTICAL CIRCUMSTANCES, THE HYDERABAD BENCH OF THE TRIBUNAL FOUND THAT THE CONTRIBUTIONS MADE B Y THE BENEFICIARIES AND THE BANK SHALL REMAIN INTACT AND NOT ADDED TO THE TOTAL INCOME OF THE ASSESSEE AND ONLY INTEREST EARNED ON SUCH INVESTMENT WILL BE UTILISED TOWARDS MEDICAL CLAIMS OF THE MEMBERS. THE TRIBUNAL FOUND THAT THE FUND WILL REMAIN INTACT. IN THE CA SE BEFORE US ALSO THE FUND SHALL REMAIN AS SUCH IN THE BANK DEPOSITS OR SECURITIES AND THE ASS ESSEE HAS TO UTILISE THE INTEREST OUT OF THE CONTRIBUTIONS FOR MEETING THE MEDICAL EXPENSES OF T HE MEMBERS. THE HYDERABAD BENCH OF THE TRIBUNAL FOUND THAT FROM THE GROSS INTEREST, THE AMOUNT UTILISED TOWARDS THE OBJECTS OF THE SCHEME AS WELL AS THE ADMINISTRATIVE EXPENSE S WILL HAVE TO BE DEDUCTED AND ONLY THE SURPLUS REMAINING THEREAFTER SHALL BE TAXED. T HIS DECISION WAS TAKEN ON THE COMMERCIAL PRINCIPLES. ACCORDINGLY, THE ASSESSING OFFICER WAS DIRECTED TO TAX ONLY THE NET INCOME. THE QUESTION ARISING FOR CONSIDERATION IS THAT WHETHER THE INTEREST RECEIVED BY THE ASSESSEE ON THE DEPOSIT MADE FROM CONTRIBUT IONS WOULD HAVE DIRECT NEXUS WITH THE EXPENDITURE INCURRED FOR MEETING THE MEDICAL EXPENS ES OF THE BENEFICIARIES. ADMITTEDLY, THE BENEFICIARIES MADE CONTRIBUTIONS AS PER THE SCH EME PROMOTED BY THE ASSESSEE FOR MEETING THE MEDICAL EXPENSES. THE BANK HAS ALSO EQ UALLY CONTRIBUTED. THE SCHEME IS ONLY FOR THE PURPOSE OF MEETING THE MEDICAL EXPENSE S OF ITS MEMBERS FROM THE INTEREST ON THE INVESTMENTS LIKE DEPOSITS AND SECURITIES. THERE FORE, THE INTEREST RECEIVED BY THE I.T.A. NOS.27-29 /COCH/2010 4 ASSESSEE ON THE DEPOSITS/SECURITIES HAS TO BE UTILI SED FOR MEETING THE MEDICAL EXPENSES OF ITS MEMBERS. AS PER THE SCHEME, THE ASSESSEE IS UND ER OBLIGATION TO REIMBURSE THE MEDICAL EXPENSES INCURRED BY ITS MEMBERS FROM THE INTEREST INCOME ON THE DEPOSIT MADE FROM THE CONTRIBUTORS. THEREFORE, THE MEMBERS HAVE OVERRIDIN G TITLE ON THE INTEREST INCOME IN RESPECT OF THEIR RESPECTIVE MEDICAL CLAIMS. THEREFO RE, WE ARE OF THE OPINION THAT THERE WAS A CLEAR NEXUS BETWEEN THE INTEREST RECEIVED AND EXP ENDITURE INCURRED FOR REIMBURSEMENT OF MEDICAL CLAIMS. 6. THIS CAN BE EXAMINED IN ANOTHER ANGLE, WHEN THE ASSESSEE DEPOSITS MONEY IN A BANK FOR THE PURPOSE OF GETTING LETTER OF CREDIT FO R IMPORTING RAW MATERIAL. ADMITTEDLY, THE INTEREST RECEIVED BY THE ASSESSEE ON SUCH DEPOSITS HAS TO BE CLASSIFIED AS INCOME FROM OTHER SOURCES. HOWEVER, THE DEPOSITS WERE MADE ON LY FOR THE PURPOSE OF OBTAINING LETTER OF CREDIT IN ORDER TO IMPORT RAW MATERIAL. THE QUE STION THAT ARISES FOR OUR CONSIDERATION IS THAT IN THAT CIRCUMSTANCE, WHETHER THE INTEREST REC EIVED ON SUCH DEPOSIT WOULD GO TO REDUCE THE COST OF IMPORT OF THE RAW MATERIAL. THI S ISSUE WAS EXAMINED BY THE APEX COURT IN THE CASE OF CIT VS. KARNAL CO-OPERATIVE SUGAR MILLS LTD. (2000) 243 ITR 2 (SC) AND IT WAS FOUND THAT THE INTEREST RECEIVED BY THE ASSESSEE FOR THAT DEPOSIT, WILL GO TO REDUCE THE COST OF THE IMPORT OF THE RAW MATERIAL. SIMILARLY, IN THIS CASE ALSO AS PER THE SCHEME PROMOTED BY THE ASSESSEE, THE CONTRIBUTIONS RECEIVED FROM THE BENEFICIARIES AND THE BANK WERE TO BE INVESTED IN THE DEPOSITS/SECURI TIES ONLY FOR THE PURPOSE OF EARNING INTEREST IN ORDER TO MEET THE MEDICAL EXPENSES. TH EREFORE, THE INTEREST INCOME WOULD GO TO REDUCE THE EXPENDITURE INCURRED BY THE ASSESSEE FOR MEETING THE MEDICAL EXPENSES. IN VIEW OF THE ABOVE FINDING, IN OUR OPINION THE DECIS ION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SBH RETIRED EMPLOYEES MEDICAL BENEFIT SCHEME VS. IT O (SUPRA) WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE PR ESENT CASE. ONE OF THE MEMBER, THE JUDICIAL MEMBER IS A PARTY TO THE ORDER OF THE HYDE RABAD BENCH OF THE TRIBUNAL. BY FOLLOWING THE DECISION OF THE HYDERABAD BENCH OF TH E TRIBUNAL IN THE CASE OF SBH RETIRED EMPLOYEES MEDICAL BENEFIT SCHEME VS. ITO (SUPRA), WE UPOLD THE ORDER OF THE CIT(A). I.T.A. NOS.27-29 /COCH/2010 5 7. IN THE RESULT, ALL THE THREE APPEALS OF THE REVE NUE ARE DISMISSED. SD/- SD/- (SANJAY ARORA) (N.R.S.GANESAN) (ACCOUNTANT MEMBER) JUDICIAL MEMBER PLACE: ERNAKULAM DATED: 16 TH DECEMBER, 2011 GJ COPY TO: 1. M/S. SBT RETD. EMPLOYEES MEDICAL BENEFIT SCHEME, PPG SECTION, H.O. POOJAPPURA, TRIVANDRUM. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(2 ), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE .