DCIT, CHENNAI V. Shriram Chits Tamilnadu Pvt Ltd., CHENNAI

ITA 732/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8692 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 24-03-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R SIVARAMAN
• Keywords: Depreciation; Revenue expenditure
• Section: 14A; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.373/MDS/2016 / ASSESSMENT YEAR : 2012-13 M/S SHRIRAM CHITS TAMILNADU PVT. LTD GREAMS DUGAR 4 TH FLOOR NO.149 GREAMS ROAD EGMORE, CHENNAI 600 006 VS. THE DY. COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 6(1) CHENNAI [PAN AABCS 0167 N] ( &' / APPELLANT) ( ()&' /RESPONDENT) ./ I.T.A.NO.732/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE DY. COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 6(1) CHENNAI VS. M/S SHRIRAM CHITS TAMILNADU PVT. LTD GREAMS DUGAR 4 TH FLOOR NO.149 GREAMS ROAD EGMORE, CHENNAI 600 006 ( &' / APPELLANT) ( ()&' /RESPONDENT) ASSESSEE BY : SHRI R.SIVARAMAN, ADVOCATE DEPARTMENT BY : SHRI SHIVA SRINIVAS, JCIT / DATE OF HEARING : 31 - 05 - 2016 / DATE OF PRONOUNCEMENT : 29 - 0 7 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER BOTH THE APPEAL OF THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE COMMIS SIONER OF INCOME- ITA NOS.373 AND 732/16 :- 2 -: TAX (APPEALS)-15, CHENNAI, DATED 24.9.2015 FOR ASSE SSMENT YEAR 2012-13. THEREFORE, WE HEARD THEM TOGETHER AND DISP OSING OF THE SAME BY THIS COMMON ORDER. 2. LET US FIRST TAKE UP ASSESSEES APPEAL I.T.A.NO.37 3/MDS/ 2016. 3. THE FIRST GROUND OF APPEAL IS WITH REGARD TO DISALL OWANCE OF ` 3,49,20,922/- TOWARDS FOREMAN DIVIDEND. 4. SHRI R. SIVARAMAN, LD. COUNSEL FOR THE ASSESSEE VER Y FAIRLY SUBMITTED THAT THIS ISSUE CAME BEFORE THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2010-11 AND 2011- 12 IN I.T.A.NOS.716 AND 717/MDS/2015. THIS TRIBUNAL FOUN D THAT THE ASSESSEE IS NOT ELIGIBLE FOR FOREMAN DIVIDEND. IN FACT, THIS TRIBUNAL FOR ASSESSMENT YEARS 2010-11 AND 2011-12 FOLLOWED ITS E ARLIER ORDER IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998-99 IN I.T.A.NO. 143/MDS/2002 DATED 15.2.2006. THE ASSESSEE CARRIE D THE MATTER BEFORE THE HIGH COURT FOR ASSESSMENT YEAR 1998-99 I N T.C.A.NO.141 AND THE HIGH COURT VIDE ITS ORDER DATED 30.8.2012 C ONFIRMED THE ORDER OF THIS TRIBUNAL. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE H IGH COURT. ITA NOS.373 AND 732/16 :- 3 -: 5. WE HEARD SHRI SHIVA SRINIVAS, LD. DEPARTMENTAL REPRESENTATIVE ALSO. THE ASSESSING OFFICER TREATED THE FOREMAN DIVIDEND OF ` 3,49,20,922/- AS INCOME OF THE ASSESSEE. THE AS SESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT FOREMAN D IVIDEND CANNOT BE TREATED AS INCOME OF THE ASSESSEE ON THE PRINCIPLE S OF MUTUALITY. THE ASSESSING OFFICER BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 1998-99 IN I.T.A.NO. 143/MDS/20 02 DATED 15.2.2006 FOUND THAT THE PRINCIPLES OF MUTUALITY IS NOT APPLICABLE IN RESPECT OF THE FOREMAN DIVIDEND. ACCORDINGLY, THE ASSESSING OFFICER TREATED THE SUM OF ` 3,49,20,922/- AS INCOME OF THE ASSESSEE. THE ASSESSEE FILED AN APPEAL BEFORE THE HIGH COURT AGA INST THE ORDER OF THIS TRIBUNAL FOR ASSESSMENT YEAR 1998-99 AND THE H IGH COURT FOUND THAT THE PRINCIPLES OF MUTUALITY IS NOT APPLICABLE AT ALL. IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT, THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT FOREMAN DIVIDEND TO THE EXTENT OF ` 3,49,20,922/- HAS TO BE TREATED AS INCOME OF THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY ADDED THE SAME. THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND ACCORDINGL Y THE SAME IS CONFIRMED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISALLO WANCE OF ` 1,15,318/- U/S 14A OF THE ACT. ITA NOS.373 AND 732/16 :- 4 -: 7. SHRI R. SIVARAMAN, LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE ASSESSING OFFICER DISALLOWED A SUM OF ` 1,15,318/- U/S 14A OF THE ACT. THE CIT(A) CONFIRMED THE SAME ON THE GROU ND THAT EXPENDITURE RELATING TO EXEMPTED INCOME CANNOT BE A LLOWED WHILE COMPUTING THE TAXABLE INCOME. ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION AS REQUIRED U/S 14A OF THE ACT. UNLESS THE ASSESSING OFFICER SATISFIES THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT CORRECT, THERE CANN OT BE ANY DISALLOWANCE U/S 14A OF THE ACT. MOREOVER, ACCORD ING TO THE LD. COUNSEL, THE ASSESSEE HAS INVESTED ITS OWN FUNDS, THEREFORE, THERE CANNOT BE ANY DISALLOWANCE. 8. ON THE CONTRARY, SHRI SHIVA SRINIVAS, LD. DEPARTMEN TAL REPRESENTATIVE SUBMITTED THAT SEC. 14A IS VERY CLEA R WHEN THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, T HE ASSESSING OFFICER CAN VERY WELL COMPUTE THE DISALLOWANCE UNDE R RULE 8D OF THE INCOME TAX RULES. IF THE ASSESSING OFFICER SATISFI ES THAT THE CLAIM MADE BY THE ASSESSEE IS NOT CORRECT, THE DISALLOWA NCE HAS TO BE MADE BY FOLLOWING THE METHOD PRESCRIBED UNDER RULE 8D. ACCORDING TO THE LD. DR, SEC. 14A DOES NOT REQUIRE THE ASSESSING OF FICER TO RECORD THE SATISFACTION FOR THE PURPOSE OF DISALLOWING THE CLA IM OF THE ASSESSEE. THE SATISFACTION HAS TO BE INFERRED FROM THE ORDER OF THE ASSESSING ITA NOS.373 AND 732/16 :- 5 -: OFFICER. THE VERY FACT THAT THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE U/S 8D SHOWS THAT HE IS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE WAS INCUR RED. THEREFORE, THE CIT(A) HAS RIGHTLY CONFIRMED THE ORDER OF THE A SSESSING OFFICER. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AD MITTEDLY, THE ASSESSEE INVESTED IN SHARES FOR EARNING THE EXEMPTE D INCOME. RULE 8D CLEARLY SAYS THAT IF THE ASSESSING OFFICER IS NO T SATISFIED WITH REGARD TO THE CLAIM OF THE ASSESSEE, HE CAN ALWAYS COMPUT E THE DISALLOWANCE BY APPLYING THE PROCEDURE PRESCRIBED UNDER RULE 8D( II). THE FACT THAT THE ASSESSEE HAS INVESTED IN SHARES IS NOT IN DISP UTE. THE ASSESSEE HAS ALSO BORROWED FUNDS DURING THE YEAR UNDER CONSI DERATION AND PAID INTEREST. THEREFORE, THE AGGREGATE AMOUNT HAS TO B E COMPUTED BY APPLYING THE PROVISIONS OF RULE 8D(2)(II). AS RIGH TLY SUBMITTED BY THE LD. DR, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE INFERRED FROM TH E ORDER OF THE ASSESSING OFFICER. NEITHER THE INCOME-TAX ACT, 196 1 NOR THE INCOME TAX RULES PRESCRIBES ANY FORM FOR RECORDING THE SAT ISFACTION. THE VERY FACT THAT THE ASSESSING OFFICER DISALLOWED THE CLAI M OF THE ASSESSEE SHOWS THAT THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION ITA NOS.373 AND 732/16 :- 6 -: THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED T HE CLAIM OF THE ASSESSEE. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 10. NOW COMING TO REVENUES APPEAL I.T.A.NO.732/MDS/201 6, THE ONLY GROUND IS WITH REGARD TO PAYMENT OF ROYA LTY TO THE EXTENT OF ` 1,10,69,512/-. 11. SHRI SHIVA SRINIVAS, LD. DR SUBMITTED THAT THE ASS ESSEE INCURRED AN EXPENDITURE OF ` 1,26,50,870/- TOWARDS ROYALTY PAID TO SHRIRAM OWNERSHIP TRUST FOR USING THEIR LOGO IN ITS BUSINESS. THE ASSESSING OFFICER FOUND THAT THE PAYMENT MADE BY TH E ASSESSEE IS CAPITAL IN NATURE, THEREFORE, IT CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER HAS ALSO ALLOWE D DEPRECIATION @ 12.5% ON THE PAYMENT MADE BY THE ASSESSEE TO SHRIR AM OWNERSHIP TRUST. THE CIT(A), HOWEVER, ALLOWED THE CLAIM OF T HE ASSESSEE BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN T HE CASE OF SHRIRAM TRANSPORT FINANCE COMPANY LTD. ACCORDING TO THE LD . DR, SINCE THE PAYMENT IS CAPITAL IN NATURE, THE SAME CANNOT BE A LLOWED. 12. ON THE CONTRARY, SHRI R. SIVARAMAN, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAYMENT WAS MADE TO SHR IRAM OWNERSHIP TRUST ON THE BASIS OF THE TURNOVER FOR USING THEIR LOGO IN THE ITA NOS.373 AND 732/16 :- 7 -: ASSESSEES BUSINESS. SINCE THE PAYMENT OF ROYALTY FOR USING THE LOGO WAS CONSIDERED TO BE REVENUE EXPENDITURE BY THIS TR IBUNAL IN THE CASE OF ASSESSEES GROUP CONCERN M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD, THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF TH E ASSESSEE. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SH RIRAM OWNERSHIP TRUST IS AN INDEPENDENT TRUST. THE ASSESSEE USED THE LOGO OF SHRIRAM OWNERSHIP TRUST FOR ITS BUSINESS. EVEN THOUGH SHRI RAM OWNERSHIP TRUST WAS MANAGED BY SOME OF THE DIRECTORS OF THE A SSESSEE-COMPANY, IT CANNOT BE CONSTRUED AS A GROUP CONCERN. THE OBJ ECT OF THE TRUST IS TOTALLY DIFFERENT THAN THE OBJECT OF THE ASSESSEE-C OMPANY. THE OBJECT OF THE ASSESSEE-COMPANY IS TO DO BUSINESS AND EARN PROFIT. THE OBJECT OF SHRIRAM OWNERSHIP TRUST IS NOT TO DO ANY BUSINES S. THEREFORE, THE ASSESSEE-COMPANY HAS TO NECESSARILY MAKE PAYMENT FO R USING THE LOGO BELONGS TO SHRIRAM OWNERSHIP TRUST. IT IS NOT IN D ISPUTE THAT THE PAYMENT WAS MADE ON THE BASIS OF TURNOVER, THEREFOR E, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SUCH PAYMENT HAS TO BE ALLOWED A REVENUE EXPENDITURE U/S 37(1) OF THE ACT. THIS TR IBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A ). ACCORDINGLY, THE SAME IS CONFIRMED. ITA NOS.373 AND 732/16 :- 8 -: 14. IN THE RESULT, BOTH THE APPEAL OF THE ASSESSEE AN D REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER / CHENNAI ! / DATED: 29 TH JULY, 2016 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+, # - / DR 3. ) () / CIT(A) 6. ,/ 0 / GF