DCIT CIR. 1(1), MUMBAI V. M/s. DEPOSIT INSURANCE & CREDIT GUARANTEE CORPORATION, MUMBAI

ITA 7950/MUM/2003

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7842 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-08-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 15-12-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS REENA JHA TRIPATHI
• Section: 43B

Judgement Text

1 ITA NOS. 7950&7951/MUM/2003, ITA NO. 1738/MUM/2005 ASSTT. YEARS1999-2000, 2000-01&2002-03 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER. I.T.A. NOS. 7950 & 7951/MUM/2003 ASSESSMENT YE ARS : 1999-2000 & 2000-01. AND I.T.A. NO. 1738/MUM/2005 ASSESSM ENT YEAR : 2002-03. DY. COMMISSIONER OF INCOME-TAX, M/S DEPOSIT INSURANCE & CREDIT CIRCLE-1(1), MUMBAI. VS. GUARANTEE CORPN., RESERVE BANK OF INDIA BLDG ., 2 ND FLOOR. OPP. MUMBAI CENTRAL RAILWAY STATION, MUMBAI-4 00 008. PAN AAACD 2094F APPELLANT RESPONDENT. APPELLANT BY : MRS. REENA JHA TRIPATHI. RESPONDENT BY : SHRI YOGESH THAR. O R D E R PER J. SUDHAKAR REDDY, A.M. : ALL THESE APPEALS ARE FILED BY THE REVENUE DIRECTE D AGAINST THE SEPARATE ORDERS OF THE CIT(APPEALS)-I, MUMBAI DATED 30-9-200 3 AND 26-7-2004 AND THE COMMON GROUND IS AS FOLLOWS: 2 ITA NOS. 7950&7951/MUM/2003, ITA NO. 1738/MUM/2005 ASSTT. YEARS1999-2000, 2000-01&2002-03 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCES OF RS .96.30 LACS, RS.77.32 LACS AND RS.20,11,830/- FOR A.YS. 1999-2000, 2000-0 1 AND 2002-03 RESPECTIVELY BEING PAYABLE TO THE RBI ON ACCOUNT OF GRATUITY LIABILITY OF THE STAFF WORKING ON DEPUTATION BASIS WITH THE ASSESSEE AND FURTHER HOLDING THAT THE SAME IS NOT COVERED UNDER THE PROVISIONS OF SEC TION 40A(7) OF THE I.T. ACT. 2. THE FACTS OF THE CASE ARE BROUGHT OUT AT PARA 2 OF THE CIT(APPEALS) ORDER WHICH ARE EXTRACTED BELOW FOR READY REFERENCE: THE APPELLANT IS A CORPORATION , AND IS 100% SUBS IDIARY OF THE RESERVE BANK OF INDIA. THE ACTIVITIES OF THE CORPORATION AR E TO PROVIDE INSURANCE PROTECTORS TO THE SMALL BANK AND TO PROVIDE GUARANT EE COVER IN RESPECT OF CREDIT FACILITIES PROVIDED BY THE BANKS. THE INSURA NCE PREMIUM AND GUARANTEE FEES RECEIVED BY THE CORPORATION INTER AL IA CONSTITUTES ITS INCOME. THE SURPLUS FUNDS ARE INVESTED IN GOVERNMENT SECURI TIES AND INTEREST EARNED THEREON. THE INTEREST INCOME ON THE SECURITIES IS A CCOUNTED ON DAY TO DAY BASIS IN THE BOOKS OF ACCOUNTS. THE APPELLANT FILED ITS RETURN OF INCOME ON THE BASIS THAT THE SAID GOVERNMENT SECURITIES BEING IN VESTMENTS OF THE CORPORATION, INTEREST ON THESE SECURITIES WOULD BE ACCOUNTED ON DIE BASIS ON THE BASIS OF PAST PRACTICE OF JUDICIAL DECISIONS FOR THE PURPOSES OF COMPUTING TAXABLE INCOME AND CONSISTENTLY FOLLOWED BY IT. 3. THE ISSUE ON HAND IS BROUGHT OUT AT PARA 3 OF TH E CIT(APPEALS) ORDER FOR A.Y. 1999-2000, WHICH IS EXTRACTED BELOW FOR READY REFERENCE: THE ONLY OTHER GROUND CHALLENGES THE ACTION OF TH E AO IN DISALLOWING RS.96,30,000/- PAYABLE TO THE RBI ON ACCOUNT OF GRA TUITY LIABILITY OF THE STAFF OF THE RESERVE BANK OF INDIA WORKING ON DEPUTATION WITH THE APPELLANT CORPORATION. IT HAS BEEN THE APPELLANTS CASE ALL AL ONG THAT THIS AMOUNT WAS A CONTRACTUAL LIABILITY AND HENCE WAS NOT HIT BY THE PROVISIONS OF SECTION 40A(7) OF THE INCOME TAX ACT. THE AO WHILE DEALING WITH THE ISSUE IN PARA 6 OF HIS ORDER HAS RELIED ON HIS ORDER FOR 97-98 AND 98-99. HE HAS HELD THAT IT ON FACTS IS ONLY A CONTINGENT LIABILITY WHICH HAD N OT ACCRUED. MOREOVER, THE ASSESSEE COMPANY DID NOT HAVE ITS OWN ACCRUED GRATU ITY FUNDS. 3 ITA NOS. 7950&7951/MUM/2003, ITA NO. 1738/MUM/2005 ASSTT. YEARS1999-2000, 2000-01&2002-03 4. WE HAVE HEARD MRS. REENA JHA TRIPATHI, THE LEARN ED DR AND SHRI YOGESH THAR, LEARNED COUNSEL FOR THE ASSESSEE. 5. AFTER HEARING RIVAL CONTENTIONS AND CONSIDERING THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOWS . 6. THE CIT(APPEALS) WHILE DISPOSING OF THE APPEAL F OR ASSESSMENT YEAR 1989- 90 IN CIT(A)-XII/71/91-92, ORDER DATED 28-7-1992, AT PARA 6 TO 6.3 HELD AS FOLLOWS: 6. NEXT GROUND OF APPEAL RELATES TO THE DISALLOWAN CE OF GRATUITY OF RS.12,45,039/- ON THE GROUND THAT THE SAME WAS ONLY A PROVISION. THE DISALLOWANCE IS, APPARENTLY, EFFECTED U/S. 43B. 6.2 THE AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E ABOVE AMOUNT WAS PAYABLE TO THE RESERVE BANK OF INDIA FOR SERVICES OF THEIR STAFF DEPUTED TO THE APPELLANT CORPORATION. THIS WAS NOT A STATUTORY PAYMENT BUT THE CONTRACTUAL PAYMENT. THEREFORE, IT WAS NOT GOVERNED BY SECTION 43B. UNDER THE CIRCUMSTANCES, WHETHER IT WAS PAID OR PROVIDED FOR DURING THE YEAR, DID NOT MATTER. IT COULD NOT BE DISALLOWED U/S 43B. IN SUPPORT OF THEIR CONTENTION, THE AUTHORISED REPRESENTATIVE REFERRED TO KERALA HI GH COURT DECISION IN THE CASE OF C.I.T. V. SUDARSAN CHITS (INDIA) LTD. (182 ITR 94). IN THIS CASE, THE KERALA HIGH COURT CONSIDERED THE APPLICATION OF SEC TION 40(C) WITH RESPECT TO EXPENDITURE, BEING REMUNERATION TO THE DIRECTOR PAI D UNDER AN AGREEMENT FOR USE OF SERVICES BY THE SUBSIDIARY COMPANY TO ITS HO LDING COMPANY. IT WAS HELD THAT PAYMENT, IN QUESTION, WAS MADE ON CONTRAC TUAL BASIS AND WAS INCURRED ON ACCOUNT OF BUSINESS EXPEDIENCY. THE ARR ANGEMENT WAS MADE BONAFIDE, THEREFORE, SECTION 40(C) WAS NOT APPLICAB LE. 6.3 I HAVE CONSIDERED THE ABOVE SUBMISSION AS ALSO THE APPLICABILITY OF ABOVE DECISION TO THE FACTS OF THE PRESENT CASE. I AM INCLINED TO AGREE WITH THE AUTHORIZED REPRESENTATIVE THAT IN CASE OF CONTR ACTUAL OBLIGATION BETWEEN THE HOLDING COMPANY AND SUBSIDIARY COMPANY, SECTION 43B WOULD NOT BE APPLICABLE. THIS SECTION COVERS THE INSTANCES WHERE THE PAYMENTS ARE DUE BY 4 ITA NOS. 7950&7951/MUM/2003, ITA NO. 1738/MUM/2005 ASSTT. YEARS1999-2000, 2000-01&2002-03 OPERATION OF LAW AND NOT BY OPERATION OF CONTRACT. ADDITION, ON THIS ACCOUNT, IS NOT WELL-FOUNDED AND IS, THEREFORE, DELETED. WE AGREE WITH THESE FINDINGS. THE PAYMENT IN QUESTI ON IS MADE TO RESERVE BANK OF INDIA IN PURSUANCE TO A CONTRACT, WHEREBY THE RBI D EPUTED CERTAIN STAFF TO THE ASSESSEE CORPORATION. IT IS THE RBI WHICH HAS PAID THE GRATUITY TO ITS STAFF AND WHAT THE ASSESSEE PAID TO RBI WAS A COST FOR DEPUTING TH E STAFF. THUS WE FIND NO MERIT IN THE APPEALS FILED BY THE REVENUE. THUS WE DISMISS A LL THE THREE APPEALS. 7. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MARCH , 2011. SD/- SD/- (R.S.PADVEKAR) (J. SUD HAKAR REDDY) JUDICIAL MEMBER. ACCOUNT ANT MEMBER WAKODE MUMBAI, DATED: 30 TH MARCH, 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTR AR, WAKODE ITAT, MUMBAI.