FORD BROTHERS CAPITAL SERVICES LTD, MUMBAI V. ITO 4(1)(1), MUMBAI

ITA 3232/MUM/2010

• Counselvise Citation: 323219914 RSA 2010
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 26-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASHIMA GUPTA
• Keywords: Deemed to accrue or arise in india; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, F BENCH, MUMBAI. BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.3232/ MUM/2010 ASSESSMENT YEAR: 2006-07 FORT BROTHERS CAPITAL SERVICES LIMITED. .. APPE LLANT 10, HOMI MODY STREET, 2 ND FLOOR, MUMBAI-23. PA NO.AAACF 0757 E VS INCOME TAX OFFICER 4(1)(1) ,. RESPONDEN T CITY 4, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: N.R.AGARWAL, FOR THE APPELLANT ASHIMA GUPTA, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 18 TH MARCH, 2010, IN THE MATTER OF ASSESSMENT UNDER SEC TION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESS MENT YEAR 2006-07 ON THE FOLLOWING GROUND: THE LD CIT (A) ERRED IN CONFIRMING ADDITION FOR TH E PAYMENT OF RS.2,50,000 ON ACCOUNT OF BROKERS CONTINGENCY FUND & MEMBERSHIP PROCESSING FEES RS.2,50,000 AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE. I.T.A NO.3232/ MUM/2010 FORT BROTHERS CAPITAL SERVICES LIMITED 2 2. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE L IKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS DEBITED RS.2,50,000 TOWARDS BROKER CONTINGENCY FUND AND RS. 2,50,000 TOWARDS MEMBERSHIP PROCESSING FEES. IN RESPONSE TO ASSESSI NG OFFICERS REQUISITION, IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAME IS ONE TIME EXPENSE PAID TO BSE TOWARDS CONTINGENCY FUND AND PROCESSING FEES. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ABOVE FEES PAID TO BSE IS A PART OF N ECESSARY REQUIREMENT TO BE ADMITTED AS CORPORATE MEMBER OF BOMBAY STOCK EXCHAN GE AND THE PAYMENTS WOULD GIVE ENDURING BENEFIT TO THE ASSESSEE IN FORM OF BE ING A MEMBER OF BSE AND ARE TO BE TREATED AS EXPENDITURE. AGGRIEVED, THE ASSESSEE CA RRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. AGGRIEVED FUR THER, THE ASSESSEE IS IN APPEAL BEFORE US. 3. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY HONBLE MADRAS HIGH COURTS JUDG MENT IN THE CASE OF CIT VS S.VENKATASUBRAMANIAM, 291 ITR 193(MAD), WHEREIN, IT WAS HELD THAT THE AMOUNT PAID TOWARDS ADMISSION FEE AS WELL AS CONTRI BUTION TO INFRASTRUCTURE DEVELOPMENT FUND IS REVENUE EXPENDITURE. LEARNED DE PARTMENTAL REPRESENTATIVE, HOWEVER, RELIES UPON HONBLE CALCUT TA HIGH COURTS JUDGMENT IN THE CASE OF RAJENDRA KUMAR BACHHAWAT VS CIT, (27 6 ITR 567), WHICH HAS BEEN DISSENTED FROM BY HONBLE MADRAS HIGH COURT IN THE CASE OF S.VENKATASUBRAMANIAM(SUPRA) ARRIVED AT IN THESE JUD GMENTS ARE DIAMETRICALLY OPPOSED TO EACH OTHER. AS TO WHAT S HOULD WE DO IN SUCH A SITUATION, WE FIND GUIDANCE FROM A CO-ORDINATE BENC HS DECISION IN THE CASE OF TEJ INTERNATIONAL PVT LTD. V DCIT (69 TTJ 650), AS FOLLOWS: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORDS. IT IS NOT IN DISPUTE THAT TWO HIGH COURTS, NAMELY, GAUHATI HIGH COURT AND KARNATAKA HIGH COURT, HAVE EXPRESSED CONFLICTING VIEWS REGARDING LEVY OF INTEREST UNDER SS. 234B AND 234C ON DEEMED INCOME UNDER S. 115J. HON BLE GAUHATI HIGH COURT HAS OPINED THAT WHEN LEGAL FICTION IS TO BE CREATED FOR AN OBVIOUS PURPOSE, FULL EFFECT TO IT SHOULD BE GIVEN. QUOTING LORD ASQUITH WHO SAID, 'THE STATUTE SAYS THAT YOU MUST IMAGINE A CERTAIN STATE OF I.T.A NO.3232/ MUM/2010 FORT BROTHERS CAPITAL SERVICES LIMITED 3 AFFAIRS, IT DOES NOT SAY THAT HAVING DONE SO, YOU M UST CAUSE OR PERMIT YOUR IMAGINATION TO BOGGLE WHEN IT COMES TO INEVITABLE COROLLARIES OF THAT STATE OF AFFAIRS', HON BLE GA UHATI HIGH COURT HAS HELD THAT THERE IS NO STATUTORY EXCEPTION EXCLU DING THE OPERATIONS OF S. 115J OF THE ACT. HON BLE KARNATA KA HIGH COURT, ON THE OTHER HAND, HAS HELD THAT THE WORDS FOR THE P URPOSES OF THIS SECTION IN EXPLANATION TO S. 115J(1A) ARE RELEVAN T AND CANNOT BE CONSTRUED TO EXTEND BEYOND THE COMPUTATION OF LIABI LITY TO TAX. IN THE OPINION OF THE HON BLE KARNATAKA HIGH COURT, WHEN A DEEMING FICTION IS BROUGHT UNDER THE STATUTE, IT IS TO BE C ARRIED TO ITS LOGICAL CONCLUSION BUT WITHOUT CREATING FURTHER DEEMING FIC TION SO AS TO INCLUDE OTHER PROVISIONS OF THE ACT WHICH ARE NOT M ADE SPECIFICALLY APPLICABLE. IT IS THUS EVIDENT THAT VIEWS OF THESE TWO HIGH COURTS ARE IN DIRECT CONFLICT WITH EACH OTHER. CLEARLY, TH EREFORE, THERE IS NO MEETING GROUND BETWEEN THESE TWO JUDGMENTS AND W E ARE ALSO UNABLE TO ACCEPT THE SUGGESTION THAT WE CAN FOLLOW EARLIER DECISIONS OF THIS TRIBUNAL, OR SUCH VIEWS, WHICHEVE R SEEM MORE REASONABLE TO US, OF ONE OF THESE HIGH COURTS. 7. IT MAY BE MENTIONED THAT SOME BENCHES OF THE TRI BUNAL HAVE EITHER TAKEN INDEPENDENT VIEW ON THE ISSUE IN THIS APPEAL OR HAVE LATER ON FOLLOWED HON BLE GAUHATI HIGH COURT, REF ERRED TO ABOVE. HOWEVER, WITH THE LATEST JUDGMENT OF HON BLE KARN ATAKA HIGH COURT IN KWALITY BISCUITS LTD. S CASE (SUPRA) THE SITUATION IS MATERIALLY DIFFERENT. IN THE HIERARCHICAL JUDICIAL SYSTEM THAT WE HAVE, BETTER WISDOM OF THE COURT BELOW HAS TO YIELD TO HIGHER WISDOM OF THE COURT ABOVE AND, THEREFORE, ONCE AN A UTHORITY HIGHER THAN THIS TRIBUNAL HAS EXPRESSED AN OPINION ON THAT ISSUE, WE ARE NO LONGER AT LIBERTY TO RELY UPON EARLIER DE CISIONS OF THIS TRIBUNAL EVEN IF WE WERE A PARTY TO THEM. SUCH A HI GH COURT BEING A NON-JURISDICTIONAL HIGH COURT DOES NOT ALTER THE POSITION AS LAID DOWN BY HON BLE BOMBAY HIGH COURT IN THE MATTER O F CIT VS. GODAVARI DEVI SARAF (1978) 113 ITR 589 (BOM). THERE FORE, WE DO NOT CONSIDER IT PERMISSIBLE TO RELY UPON THE EARLIE R DECISIONS OF THIS TRIBUNAL EVEN IF ONE OF THEM IS BY A SPECIAL B ENCH. IT WILL BE WHOLLY INAPPROPRIATE FOR US TO CHOOSE VIEWS OF ONE OF THE HIGH COURTS BASED ON OUR PERCEPTIONS ABOUT REASONABLENES S OF THE RESPECTIVE VIEWPOINTS, AS SUCH AN EXERCISE WILL DE FACTO AMOUNT TO SITTING IN JUDGMENT OVER THE VIEWS OF THE HIGH COUR TS SOMETHING DIAMETRICALLY OPPOSED TO THE VERY BASIC PRINCIPLES OF HIERARCHICAL JUDICIAL SYSTEM. WE HAVE TO, WITH OUR HIGHEST RESPE CT OF BOTH THE HON BLE HIGH COURTS, ADOPT AN OBJECTIVE CRITERION FOR DECIDING AS TO WHICH OF THE HON BLE HIGH COURT SHOULD BE FOLL OWED BY US. 8. WE FIND GUIDANCE FROM THE JUDGMENT OF HON BLE SUPREME COURT IN THE MATTER OF CIT VS. VEGETABLE PRODUCTS LTD. 19 73 CTR (SC) 177 : I.T.A NO.3232/ MUM/2010 FORT BROTHERS CAPITAL SERVICES LIMITED 4 (1972) 88 ITR 192 (SC). HON BLE SUPREME COURT HAS LAID DOWN A PRINCIPLE THAT 'IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FA VOURS THE ASSESSEE MUST BE ADOPTED'. THIS PRINCIPLE HAS BEEN CONSISTENTLY FOLLOWED BY THE VARIOUS AUTHORITIES AS ALSO BY THE HON BLE SUPREME COURT ITSELF. IN ANOTHER SUPREME COURT JUDG MENT, PETRON ENGG. CONSTRUCTION (P) LTD. & ANR. VS. CBDT & ORS. (1988) 75 CTR (SC) 20 : (1989) 175 ITR 523 (SC), IT HAS BEEN REIT ERATED THAT THE ABOVE PRINCIPLE OF LAW IS WELL ESTABLISHED AND THER E IS NO DOUBT ABOUT THAT. HON BLE SUPREME COURT HAD, HOWEVER, S OME OCCASIONS TO DEVIATE FROM THIS GENERAL PRINCIPLE OF INTERPRET ATION OF TAXING STATUTE WHICH CAN BE CONSTRUED AS EXCEPTIONS TO THI S GENERAL RULE. IT HAS BEEN HELD THAT THE RULE OF RESOLVING AMBIGUI TIES IN FAVOUR OF TAX-PAYER DOES NOT APPLY TO DEDUCTIONS, EXEMPTIONS AND EXCEPTIONS WHICH ARE ALLOWABLE ONLY WHEN PLAINLY AUTHORISED. T HIS EXCEPTION, LAID DOWN IN LITTMAN VS. BARRON 1952(2) AIR 393 AND FOLLOWED BY APEX COURT IN MANGALORE CHEMICALS & FERTILIZERS LTD . VS. DY. COMMR. OF CT (1992) SUPPL. (1) SCC 21 AND NOVOPAN I NDIA LTD. VS. CCE & C 1994 (73) ELT 769 (SC), HAS BEEN SUMMED UP IN THE WORDS OF LORD LOHEN, 'IN CASE OF AMBIGUITY, A TAXING STAT UTE SHOULD BE CONSTRUED IN FAVOUR OF A TAX-PAYER DOES NOT APPLY T O A PROVISION GIVING TAX-PAYER RELIEF IN CERTAIN CASES FROM A SEC TION CLEARLY IMPOSING LIABILITY'. THIS EXCEPTION, IN THE PRESENT CASE, HAS NO APPLICATION. THE RULE OF RESOLVING AMBIGUITY IN FAV OUR OF THE ASSESSEE DOES NOT ALSO APPLY WHERE THE INTERPRETATI ON IN FAVOUR OF ASSESSEE WILL HAVE TO TREAT THE PROVISIONS UNCONSTI TUTIONAL, AS HELD IN THE MATTER OF STATE OF M.P. VS. DADABHOY S NEW CHIRMIRY PONRI HILL COLLIERY CO. LTD. AIR 1972 (SC) 614. THEREFORE , WHAT FOLLOWS IS THAT IN THE PECULIAR CIRCUMSTANCES OF THE CASE AND LOOKING TO THE NATURE OF THE PROVISIONS WITH WHICH WE ARE PRESENTL Y CONCERNED, THE VIEW EXPRESSED BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF KWALITY BISCUITS LTD. (SUPRA), WHICH IS IN FAVOUR OF ASSESSEE, DESERVES TO BE FOLLOWED BY US. WE, THEREF ORE, ORDER THE DELETION OF INTEREST UNDER S. 234B AND 234C IN THIS CASE. 4. IN VIEW OF THE ABOVE DISCUSSIONS, AND HAVING NOT ED THAT HONBLE MADRAS HIGH COURT DECISION ON THIS ISSUE IS IN FAVOUR OF T HE ASSESSEE, WE DEEM IT FIT AND PROPER TO FOLLOW THE ESTEEMED VIEW OF HONBLE M ADRAS HIGH COURT IN S.VENKATASUBRAMANIAMS CASE,(SUPRA) IN ANY EVENT E VEN HONBLE MADRAS HIGH COURT HAS FOLLOWED HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD V CIT (177 ITR 377) AND NOTE D THAT HONBLE CALCUTTA I.T.A NO.3232/ MUM/2010 FORT BROTHERS CAPITAL SERVICES LIMITED 5 HIGH COURT HAD NO OCCASION TO DEAL WITH THE SAME. RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE MADRAS HIGH COURT(SUPRA), WE U PHOLD THE GRIEVANCE OF THE ASSESSE, AND DIRECT THE ASSESSING OFFICER TO DE LETE THE IMPUGNED DISALLOWANCES. THE ASSESSEE GETS THE RELIEF ACCORDI NGLY. 4. IN THE RESULT, APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL, 2011 SD/- (N.V.VASUDEVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 27 TH APRIL, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),8, MUMBAI 4. COMMISSIONER OF INCOME TAX, 4 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI