Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 82508 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-10-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2011-2012
Appeal Filed On
05-05-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.809/HYD/14 : ASSESSMENT YEAR 2011 - 12 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD (PAN AAFCS 4916 D) V/S. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 3(1), HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.1210/HYD/14 : ASSESSMENT YEAR 2011 - 12 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 3(1), HYDERABAD V/S. M/S. SHRIRAM CHITS (P) LTD., HYDERABAD (PAN AAFCS 4916 D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C.DEVADAS DEPARTMENT BY : SHRI B.RAMAKRISHNA, DR DATE OF HEARING 21 . 1 0.2014 DATE OF PRONOUNCEMENT 29.10.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : THESE TWO APPEALS, ON E FILED BY TH E ASSESSEE BEING ITA NO.809/HYD/2014 AND THE OTHER FIL E D BY THE R E VE N UE, BEING ITA NO.1210/HYD/2014, ARE CROSS APPEALS, W H I C H ARE DIREC TE D AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) IV, HYDERABAD. 2. THE ISSUES INVOLVED IN GROUNDS NO.1 AND 7 OF THE ASSESSEES APPEAL AND GROUNDS NO.1 AND 5 IN REVENUES APPEAL ARE GENERAL IN NATURE REQUIRING NO SPECIFIC ADJUDICATION. I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 2 3. THE ISSUE INVOL V ED IN GROUND NO S .2 AND 3 OF THE ASSESSEES APPEAL AND G R OUN D NO.2 OF THE REVENUES APPEAL IS COMMON AND IT RELAT ES TO TH E ASSESSEE S CLAIM FOR DEDUCTION ON ACCOUN T O F BAD DEBTS IN RESPECT OF RUN N ING AND TERMINAT ED GROUPS. 4. THE ASSESSEE IN TH E PRESENT CA S E IS A COMPANY WHICH IS RUNNING CHIT FUND BUSIN ES S THROUGHOUT THE S T ATE OF ANDHRA PRADESH THROUGH ITS VARIOUS BRANCHES. THE CHIT FUND BUSIN ES S IS GOVERNED BY THE CHIT FUNDS ACT, 1982 AND RULES FRAMED TH E REUN DER FROM TIME TO TIME. AS PER TH E PROV I SION S OF THE CHI T FUND ACT, THE RELEVANT BYE - LAWS ARE REGISTERED WITH R E GI S TRAR OF CHI T S AND AFTER OBTAINING CERTIFICATE OF COMMENCEMENT, THE COMPANY CONDUCTS AUCTIONS. AS PER THE PROVISIONS OF THE BYE - LAWS AND CHI T AGREEMENT, EACH SUBSCRIBER IN HIS TERM AS DETERMINED BY LOT OR BY AUCTION SHALL BE ENTITLED TO PRIZE AMOUNT. THE MINUTES OF THE PROCEEDINGS OF THE AUCTION WILL BE RECORD ED AND SUCH MINUTES WILL BE FILED WITH REGISTRAR AS PER THE PROVISIONS OF THE ACT. THE PRIZED SUBSCRIBER IS PAID PRIZE MONEY AFTER THE PROCESS OF VERIFICATION AND SUBMISSION OF SURETIES. THE COMPANY DERIVES 5% OF THE CHIT VALUE AS FOREMAN COMMISSION. 5. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FIL E D BY THE ASSESSEE ON 1 9.9.2011 DECLARING A TOTAL INCOME OF RS .12,04,63,030. IN THE PROFIT & LOSS ACCOUNT FILED ALONGWITH THE RETURN, A SUM OF R S .28,30,96,460 W A S DEBITED BY THE ASSESSEE ON ACCOUNT OF BAD DEBTS WRITTEN OFF WHICH PERTAINED TO THE RUNNIN G CHITS AND TERMINATED CHITS. FOLLO W IN G TH E VIEW TAKEN ON A SIMILAR ISSUE IN THE ASSESSMENTS MADE FOR TH E EARLIER YEARS, THE ASSESSING OFFICER RESTRICTED THE CLAIM O F THE ASSESSEE FOR BAD DEBTS TO 5% OF THE AMOUNTS DUE FROM THE PRIZED SUBSCRIBERS, WHICH I S THE F OR E MANS COMMISSION AS THE SAME ALONE WAS OFFERED TO TAX BY THE ASSESSEE AS THE INCOME EITHER IN THE YEAR UNDER CONSIDERATION OR IN I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 3 THE EARLIER YEARS. THE REMAINING 95% OF THE AMOUNT OF BAD DEBTS CLAIMED BY THE ASSESSEE ACCORDINGLY WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAME DID NOT REPRESENT THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CON S ID E RATION OR FOR THE EARLIER YEARS. HE ALSO REJECTED THE ALTERNATIVE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF ENTIRE AMOUNT O F BAD DEBTS UN D ER S.37(1) OR AS BUSINESS LOSS UNDER S.28 OF THE AC T. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM OF TH E ASSESSEE FOR DEDUC T ION ON ACCOUNT OF BAD DEBTS RELATABLE TO TERMINATE D CHITS, FOLLOWING THE ORDERS OF THE T RIBUNAL IN ASSESSEES O WN CA S E FOR EARLIER YEARS. HE ALSO DIRECTED THE ASSESSING OFFICER TO COMPU T E THE BAD DEBTS RELATING TO RUNNING CHITS AS P E R THE DIRECTION O F THE TRIBU N AL GIVEN IN THE EARLIER YEARS. 6. AGGRI E VED BY THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE, THE RE VE NUE HAS R AISED GROUND NO.2 IN ITS APPEAL, CHALLENGING THE RELIEF ALLOWED BY THE LEARNED CIT(A) BY WAY OF ALLOWING THE CLAIM OF THE ASSESSE E FOR DEDUCTION ON ACCOUNT OF BAD DEBTS, WHILE THE ASSESSEE HAS RAISED GROUNDS NO.2 AND 3 IN ITS APPEAL, MAINLY RAISIN G ITS ALTERNATIVE CLAIM THAT ITS CLAIM FOR BAD DEBTS IS ALLOWABLE EVEN UNDER S.37(1) OR AS BUSINESS LOSS UNDER S.28 OF THE ACT. 7. W E HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORDS. IT I S OBSERVED THAT A SIMILAR ISSUE INVOLVING IDENTICAL FACTS AND CIR C UM S TANCES HAS ALREADY B E EN DECIDED BY THE TRIBUNAL CONSISTENTLY IN FAVOUR O F TH E ASSESSEE IN THE EARLIER YEARS, AND IN ONE SUCH DECI S ION S RENDERED FOR ASSESSMENT YEAR 2009 - 10 VIDE O R DER D ATED 5.4.2013 P A SSED IN ITA NO.651/HYD/2012, A SIMILAR CLAIM O F TH E ASSESSEE FOR DEDUCTION ON ACCOUNT OF CL A IM OF BAD DEBTS IN RESPECT OF R U NNIN G AND TERMINATED I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 4 GROUPS HAS BEEN ALLO W E D BY THE T RIBUNAL FOR THE FOLLO W IN G REASONS GIVEN IN PARAGRAPH 10 - '10. WE HAVE HEARD BOTH TH E PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CRUX OF ARGUMENT OF THE ASSESSEE'S COUNSEL IS THAT IN EARLIER YEARS SIMILAR CLAIM OF THE ASSESSEE HAS BEEN ALLOWED BY THE TRIBUNAL AND ON THAT BASIS THE PRESENT CLAIM IS TO BE ALLOWED. HE RELIED ON THE ORDE R OF THE TRIBUNAL DATED 12.10.2012 IN M/S SRI RAM CHITS PVT. LTD. ITA NO. 975/12 FOR A.Y. 2009 - 10. WHILE DISPOSING THE APPEAL FOR A.Y. 2009 - 10, THE TRIBUNAL RELIED ON THE EARLIER ORDER OF THE TRIBUNAL FOR A.YS. 1995 - 96 TO 19 99 - 2000, 2002 - 03 TO 2006 - 07 AND 2008 - 09. IN EARLIER YEAR, THE TRIBUNAL REMITTED THE ISSUE FOR COMPUTING THE BAD DEBTS RELATABLE TO RUNNING CHITS. WE HAVE NO DISPUTE WITH REGARD TO THE FINDINGS OF THE TRIBUNAL ON EARLIER OCCASION. THE AMOUNT OF LOSS INCUR RED BY THE ASSESSEE HAS TO BE ALLOWED ON BOTH RUNNING AND TERMINATED CHITS IF IRRECOVERABLE IF THE PRIZED CHIT AMOUNT HAS GONE OUT OF THE HANDS OF THE ASSESSEE. IN OTHER WORDS, BAD DEBTS CAN BE ALLOWED TO THE EXTENT OF INSTALMENTS DEFAULTED BY THE PRIZED S UBSCRIBERS AND WRITTEN OFF AS BAD DEBT IN THE BOOKS OF THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUE IN THE LIGHT OF THE ORDER OF THE TRIBUNAL FOR A.YS. 1995 - 96, 1997 - 98, 1998 - 99 AND 1999 - 2000 IN ITA NO.500/HYD/1999 AND 50 6/HYD/1999 (1995 - 96), 294/HYD/2010 AND 327/HYD/ 2001 (1997 - 98), 471/HYD/2002(1998 - 99), 1049/HYD/2002 (1999 - 2000) IN ASSESSEE'S OWN CASE DATED 26.7.2004 WHEREIN THE TRIBUNAL REMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO SEE WHETHER THE ASS ESSEE MADE A CLAIM OF BAD DEBT AND WRITTEN OFF IN THE BOOKS OF ACCOUNT. THUS ON SIMILAR DIRECTION WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO RE - EXAMINE THE ISSUE IN THE LIGHT OF THE ORDER OF EARLIER YEARS I.E., 1995 - 96, 1997 - 98, 1998 - 9 9 AND 1999 - 2000 (SUPRA). THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES.' 8. THE ABOVE DECISION RENDERED FOR ASSESSMENT YEAR 2009 - 10 HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL TO DECIDE SIMILAR ISSUE IN ASSESSMENT YEAR 2010 - 11, VID E CONSOLIDATED ORDER DATED 6.12.29013 PASSED IN ITA NO.1142/HYD/2013 OF THE REVENUE AND ITA NO.1049/HYD/2013 OF THE ASSESSEE . RESPECTFULLY FOLLOWING THE O R DERS OF THE TRIBUNAL FOR ASSESSMENT YEAR 2009 - 10 AND 2010 - 11 I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 5 IN ASSESSEES OWN CASE ON SIMILAR ISSUE , WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS RELATING TO RUNNING CHITS AND TERMINATED GROUPS. GROUND NO.2 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 9. AS REGARDS T HE ISSUE RAISED IN GROUNDS NO.2 AND 3 OF THE ASSESSEES APPEAL RELATING TO ITS ALTERNATIVE CLAIM FOR DEDUCTION ON ACCOUNT OF BAD DEBTS UNDER S.28, AS BUSINESS LOSS, IT IS OBSERVED THAT THE SAME IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT V/S. SRI RAM CHITS AND INVESTMENTS LIMITED (83 DTR (MDS) 208), WHEREIN IT WAS HELD THAT CONTRIBUTION OF THE ASSESSEE AS A FOREMAN IN THE PLACE OF A DEFAULTING SUBSCRIBER IS DEDUCTIBLE AS BAD DEBT UNDER S.37(1) OR AS A BUSINESS LOSS UNDER S.28 (I) OF THE ACT. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF SRI RAM CHITS AND INVESTMENTS LTD. (SUPRA), WE HOLD THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF BAD DEBTS WRITTEN OFF IS ALSO ALLOWABLE ALTERNATIVELY AS BUSINESS LOSS UNDER S.28(I). THE RELEVANT GROUNDS OF THE ASSESSEE ON THIS ISSUE, BEING GROUNDS NO.2 AND 3 IN ITS APPEAL, ARE ACCORDINGLY ALLOWED. 10. IN GROUND NO.4 OF ITS APPEAL, THE ASSESSEE HAS CHALLENGED THE ACTI ON OF THE LEARNED CIT(A) IN UPHOLDING THE TAXABILITY OF FOREMANS DIVIDEND AMOUNTING TO RS.12,02,66,441. 11. IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, THE INCOME RECEIVED IN THE FORM OF FOREMANS DIVIDENDS WAS CLAI MED TO BE EXEMPT BY THE ASSESSEE COMPANY ON THE BASIS OF PRINCIPLE OF MUTUALITY. THE ASSESSING OFFICER REJECTED THIS CLAIM OF THE ASSESSEE AND BROUGHT TO TAX THE AMOUNT OF FOREMANS DIVIDEND RECEIVED BY THE ASSESSEE COMPANY IN I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 6 ITS HANDS. ON APPEAL, THE L EARNED CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THIS ISSUE FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE REPORTED IN 83 ITD 792. 12. AT THE TIME OF HEARING BEFORE US, THE LEARNED REPRESENTATIVES OF BOTH SIDES HAVE AGREED THAT THIS GROUND IS SQUARELY COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE DECISIONS RENDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEARS. IN ONE SUCH DECISION S RENDERED FOR ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 5.4.2 013 , CITED SUPRA, THE TRIBUNAL DISCUSSED SIMILAR ISSUE AGAINST THE ASSESSEE VIDE PARAGRAPH 11 TO15 OF ITS ORDER, WHICH READ AS FOLLOWS - 11. THE NEXT GROUND (GROUND NO. 4) IS WITH REGARD TO UPHOLDING THE TAXABILITY OF FOREMAN DIVIDEND AT RS.8,44,39,492. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ABOVE REFERRED DIVIDEND INCOME ON COMPANY'S CHITS WAS CLAIMED AS NOT TAXABLE IN VIEW OF THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE C ASE OF SODA SILICATE AND CHEMICAL WORKS (179 ITR 588). HOWEVER, THE ASSESSING OFFICER CONCLUDED THAT THE CONTRIBUTORS TO THE CHIT WERE NOT CONTRIBUTORS TO THE MUTUAL SOCIETY. BESIDES, THE PROFIT ARISING AS DIVIDEND ON THE CHIT SUBSCRIBED BY THE FOREMAN IS NOT DISTRIBUTED AMONG THE SUBSCRIBERS BUT AMONG THE SHARE HOLDERS OF THE ASSESSEE COMPANY. HE FURTHER FOUND THAT DEPARTMENT'S CONTENTION HAD BEEN UPHELD BY THE TRIBUNAL FOR ASST. YEARS 1999 - 2000, 2000 - 01 AND 2001 - 02 AS REPORTED IN 83 ITD 792, BESIDES IN THE ASSESSEE'S OWN APPEALS FOR THE A.YS. 2002 - 03 TO 2007 - 08. HE ALSO REFERRED TO THE DECISION OF THE TRIBUNAL DELHI BENCH IN THE CASE OF SARVPRIYA CHITS PVT. LTD. VS. CIT (60 ITD 674) WHEREIN IT WAS HELD THAT IN CASE OF CHIT FUND BUSINESS, PRINCIPLE OF MUT UALITY WILL NOT APPLY. ACCORDINGLY, THE CLAIM OF EXEMPTION OF FOREMAN'S DIVIDEND WAS REJECTED AND ADDITION UNDER REFERENCE WAS MADE. 12. DURING THE APPELLATE PROCEEDINGS, THE REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THOUGH THE DEPARTMENT'S CONTENTI ON HAS BEEN UPHELD BY THE TRIBUNAL, THE ASSESSEE'S APPEAL UNDER SEC. 260A OF THE ACT ON THIS ISSUE IS STILL PENDING BEFORE THE HON'BLE ANDHRA PRADESH HIGH COURT. HE, I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 7 THEREFORE, REITERATED THE ARGUMENTS SUBMITTED ON THIS ISSUE IN THE EARLIER YEARS. 13. ON APPEAL THE CIT(A) FOLLOWED THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE REPORTED IN 83 ITD 792 (HYD) FOR A.Y. 1991 - 92 TO 1994 - 95 WHEREIN THE TRIBUNAL OBSERVED AS FOLLOWS: 'THE ONLY ISSUE TO BE DECIDED WAS WHETH ER THE PRINCIPLE OF MUTUALITY WAS APPLICABLE TO THE ASSESSEE, WHICH WAS A CHIT FUND COMPANY. ADMITTEDLY, THE ASSESSEE WAS A COMMERCIAL ENTITY FORMED TO DERIVE PROFITS AND GAINS FROM THE BUSINESS OF CHITS. IT IS A SETTLED PROPOSITION OF LAW THAT THE PRINCIP LE OF MUTUALITY IS NOT APPLICABLE TO COMMERCIAL ORGANISATIONS FORMED WITH AN OBJECT OF EARNING PROFIT OF COMMERCIAL NATURE. UNDER CONSIDERATION WAS THE CASE OF A COMPANY WHICH CARRIED ON THE BUSINESS OF CHIT FUNDS AND NOT THAT OF AN ASSESSEE WHO JOINED AS A SUBSCRIBER TO CHITS FOR PERSONAL SAVINGS OR OTHERWISE. THE ISSUE ON HAND WAS THE TAXABILITY OF THE DIVIDEND EARNED BY THE ASSESSEE - COMPANY, WHICH JOINED THE CHIT GROUPS PROMOTED BY IT EITHER AS A FOREMAN IN FULFILMENT OF THE REQUIREMENT OF LAW, I.E., CHI T FUNDS ACT, 1982 (CENTRAL ACT 40 OF 1982) OR ON THE ASSESSEE - COMPANY ENTERING INTO THE SHOES OF DEFAULTING SUBSCRIBERS OR IN SOME CASES TO FILL UP VACANT CHITS AS A MATTER OF NECESSITY OR EXPEDIENCY OF ITS BUSINESS AND NOT BY CHOICE. IT WAS NOT THE CASE OF THE ASSESSEE - COMPANY THAT IT PARTICIPATED IN CHITS PROMOTED BY OTHER COMPANIES OR ENTITIES. THE BASIC PRINCIPLE OF MUTUALITY CANNOT BE APPLIED TO INCOME FROM COMMERCIAL PURSUITS. PROFIT EARNING WAS THE MOTTO OF THE ASSESSEE - COMPANY. THE PROFITS IN QUES TION AROSE AND ACCRUED FROM THE TRADE OR VOCATION WHICH IT CARRIED ON. THE PRINCIPLES OF MUTUALITY ARE BASED ON THE CONCEPT THAT NO ONE CAN MAKE PROFITS OUT OF HIMSELF. THE ESSENCE OF MUTUALITY IS OF COMPLETE IDENTITY BETWEEN THE CONTRIBUTOR AND THE PARTIC IPATOR. UNDER SECTION 21 OF THE CHIT FUNDS ACT, 1982, THE FOREMAN 5 ROLE AND RIGHTS ARE AT VARIANCE WITH THE OTHER PARTICIPATORS AND CONTRIBUTORS. THE FOREMAN NEED NOT FOREGO DISCOUNT OR LOSS AND CAN TAKE THE FIRST INSTALMENT. THUS, IT CANNOT BE SAID THAT THERE IS COMPLETE IDENTITY BETWEEN THE FOREMAN AND OTHER PARTICIPATORS IN THE CHIT. IT CANNOT ALSO BE SAID THAT THE PROFIT IS MADE OUT OF ITSELF. THUS, THE PRINCIPLES OF MUTUALITY CANNOT ON THIS COUNT ALSO BE APPLIED TO CHIT FUND COMPANIES. THE ASSESSEE WA S A BUSINESS CONCERN AND ITS AIM WAS TO MAKE PROFITS AND, THUS, THE PRINCIPLES OF MUTUALITY COULD NOT BE APPLIED TO IT. THE ISSUE ON HAND, WAS COVERED BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF KOVUR TEXTILES (SUPRA), INASMUCH AS THE ASSESSEE HAD EARNED INCOME FOR THE PURPOSES OF ITS BUSINESS AND TO BE UTILISED ONLY FOR THE PURPOSES OF ITS BUSINESS. THE I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 8 ISSUE WAS SQUARELY COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE JURISDICTIONAL HIGH COUR T IN THE CASE OF PURUSHOTHAM REDDY (SUPRA) AS THE ONLY PLANK ON WHICH EXEMPTION WAS CLAIMED IN THAT CASE, WAS MUTUALITY AND NOTHING ELSE. IT COULD BE SAID THAT IT WAS A CONSISTENT VIEW OF THE JURISDICTIONAL HIGH COURT. THUS, THE ORDER OF THE COMMISSIONER ( APPEALS) WAS UPHELD AND APPEALS OF THE ASSESSEE DISMISSED.' 14. BEFORE US THE LEARNED AR MADE A PLEA THAT THE ASSESSEE CLAIM HAS TO BE ALLOWED IN VIEW OF THE JUDGEMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS. SHRIRAM CHITS AND INVESTMENTS LTD. (83 DTR 208). 15. WE HAVE HEARD BOTH THE PARTIES AD PERUSED THE MATERIAL ON RECORD. THE PLEA OF THE ASSESSEE IS DEVOID OF MERIT. THE ISSUE CONSIDERED BY THE MADRAS HIGH COURT IS RELATING TO ALLOWABILITY OF CONTRIBUTION OF THE ASSESSEE AS A FOREMAN IN THE PLACE OF A DEFAULTED SUBSCRIBER AS BAD DEBT U/S. 36(1)(VII) OR AS A BUSINESS LOSS U/S. 28(1) OF THE ACT. NOW WE ARE CONCERNED IN ASSESSEE'S CASE WITH REGARD TO TAXABILITY OF FOREMAN DIVIDEND RECEIVED. IT WAS CATEGORICALLY HELD BY THE TRIBUNAL IN EARLIER YEARS A S THERE IS NO APPLICABILITY OF 'MUTUALITY' ON THIS INCOME. BEING SO, WE ARE INCLINED TO FOLLOW THE EARLIER ORDER OF THIS TRIBUNAL AND DISMISS THIS GROUND. 13 . THE ABOVE DECISION RENDERED FOR ASSESSMENT YEAR 2009 - 10 HAS BEEN SUBSEQUENTLY FOLLOWED BY TH E TRIBUNAL TO DECIDE SIMILAR ISSUE IN ASSESSMENT YEAR 2010 - 11, VIDE CONSOLIDATED ORDER DATED 6.12.29013 PASSED IN ITA NO.1142/HYD/2013 OF THE REVENUE AND ITA NO.1049/HYD/2013 OF THE ASSESSEE . RESPECTFULLY FOLLOWING THE DECISION OF TH E COORDINATE BENCHES O F THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11, WE UPHOLD THE IMPU G N E D O R DER O F THE LEARNED CIT(A) CONFIR M IN G THE TAXABILITY OF FOREMANS DIVIDEND IN THE HANDS O F TH E ASSESSEE . GROUN D NO.4 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMI S SED. 14 . THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.6 RELATING TO LEVY OF I N TEREST UNDER S.234B IS CON SE QUENTIAL IN NATURE. ASSESSING OFFICER IS ACCOR D I N GLY DIRECTED TO ALLOW CONSEQUENTIAL RELIEF, I F ANY, TO THE ASSESSEE ON THIS ISSUE. I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 9 1 5 . IN G R OUN D NO.3 OF ITS APPE A L, REVENUE HAS CHALLENGED THE AC T ION OF THE LEARNED CIT(A) IN DELETING THE DISALLOW ANC E MADE BY THE ASSESSING OFFICER ON AC C OUNT OF COMMISSION ON CANCELLED CHITS. 16. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH SIDES AT THE TIME OF HEARING BEFORE US, THE ISSUE INVOLVED IN GROUND NO.3 OF THE REVENUE APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR THE EARL IER YEARS. IN ONE SUCH ORDER S PASSED ON 12 . 10 .201 2 IN ITA NO.975/HYD/2012 FOR ASSESSMENT YEAR 2009 - 10, THE TRIBUNAL HA S DISCUSSED AND DECIDED SIMILAR ISSUE IN FAVOUR O F TH E ASSESSEE , VIDE PARAGRAPHS 9 TO 15 THEREOF , WHICH READ AS UNDER - '9. GROU ND NO. 3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE AO TOWARDS COMMISSION ON CANCELLATION CHITS. 10. THE AO HAD NOTICED THAT FROM THE AY 1998 - 99, THE ASSESSEE IS RECOGNIZING THE INCOME FROM 'COMMISSION ON CANCELLED CHITS' ON ACTUAL PAYMENT BASIS, AS AGAINST THE EARLIER POLICY OF RECOGNIZING THE SAME ON REMOVAL BASIS. HE NOTED THAT WHEN NON - PRIZED SUBSCRIBERS MAKE DEFAULT IN PAYMENT OF LATER INSTALMENTS OF THEIR SUBSCRIPTIONS, NEW SUB SCRIBERS WERE TAKEN IN THEIR PLACE. THE DEFAULTING NON PRIZED SUBSCRIBERS GET BACK THEIR SUBSCRIPTIONS AFTER DEDUCTION OF COMMISSION OF 5% OF THE CHIT VALUE ON CANCELLED CHITS. HE OPINED THAT THE INCOME BY WAY OF COMMISSION @5% ON THE AMOUNT PAYABLE TO THE REMOVED SUBSCRIBERS ACCRUES AT THE TIME OF COMPLETION OF THE SERIES AS PER THE CHIT AGREEMENT AND NOT WHEN THE ACCOUNT OF THE DEFAULTING NON - PRIZED SUBSCRIBER IS SETTLED BY PAYMENT TO HIM, AS CONTENDED BY THE ASSESSEE. AFTER REFERRING TO THE PROVISIONS OF THE ANDHRA PRADESH CHIT FUND ACT, 1971, DECISIONS OF HIGH COURT AND SUPREME COURT AND THE DETAILS FURNISHED BY THE ASSESSEE, THE AO OBSERVED THAT THE AMOUNT TO WHICH THE ASSESSEE WAS ENTITLED AS COMMISSION FROM THE REMOVED SUBSCRIBERS IN RESPECT OF THE CH IT SERIES WHICH WERE COMPLETED DURING THE FY 2008 - 09, @5% OF CHIT VALUE OF CANCELLED CHITS WAS RS. 8,75,71,450/ - AND OUT OF THE SAME, AN AMOUNT OF RS. 8,00,92,773/ - HAD BEEN ADDED BACK TO THE INCOME OF THE ASSESSEE IN THE ASSESSMENT ORDER FOR AY I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 10 2008 - 09.TH E BALANCE AMOUNT OF RS. 74,78,677/ - WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 11. ON APPEAL, BEFORE THE CIT(A), THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE HON'BLE ITAT 'B' BENCH IN ITS ORDER DATED 20/07/20 04 HELD THAT THE METHOD OF ACCOUNTING OF COMMISSION ON CANCELLED CHITS ADOPTED BY THE ASSESSEE WAS CORRECT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) HELD THAT SINCE THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE TO SUCH 'COMMISSION' HA S BEEN UPHELD BY THE HON'BLE ITAT IN THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT, DIRECTED THE AO TO ACCEPT THE SAME AND DELETED THE ADDITION OF RS. 74,78,677/ - MADE BY THE AO. 12. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 13. THE LEARNED COUNSEL FOR THE ASSESSEE CANVASSED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISIONS OF THE ITAT IN ASSESSEE'S OWN CASE FOR EARLIER YEARS. THE LEARNED DR, ON THE OTHER HAND, DID NOT CONTROVERT THE SUBMISSION MADE BY THE LEARNED CO UNSEL FOR THE ASSESSEE NOR BROUGHT ANY CONTRARY DECISION IN THIS REGARD. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISIONS OF THE ITAT IN ASSESSEE'S OWN CASES IN EARLIER YEARS. IN AY 2008 - 09 BEING ITA NOS. 390/HYD/2012(REVENUE'S APPEAL) AND 324/HYD/2012 (ASSESSEE'S APPEAL), THE TRIBUNAL DISMISSED SIMILAR GROUND RAISED BY THE REVENUE BY OBSERVING AS UNDER: - '11. IN GROUND NO.3, THE REVENUE HAS CHALLENGED TH E DELETION OF THE AMOUNT OF RS.1,62,45,800/ - TOWARDS COMMISSION ON CANCELLED CHITS. WE FIND IDENTICAL ISSUE CAME UP BEFORE THE ITAT, HYDERABAD BENCH IN ASSESSEE'S OWN CASE PASSED IN ITA NO.120/HYD/2010 THE ITAT FOLLOWING ITS EARLIER ORDER PASSED IN ASSESSE E'S OWN CASE UPHELD THE ORDER OF THE CIT (A) IN ALLOWING THE COMMISSION ON CANCELLED CHITS. THE OBSERVATION OF THE ITAT IN PARA - 15 WHICH IS EXTRACTED HEREUNDER: - '15. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN E ARLIER ORDERS FOR THE ASSESSMENT YEARS 1998 - 99, 1999 - 2000 IN ITA NOS.471/H/2002 & 1049/H/2002 RESPECTIVELY WHEREIN THE TRIBUNAL HELD IN PARA 6.3 AS FOLLOWS: I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 11 6.3. TIME OF RECOGNITION OF INCOME FROM COMMISSION ON CANCELLED CHITS. THIS ISSUE IS INVOLVED IN THE ASSESSEE'S APPEALS FOR ASSESSMENT YEARS 1998 - 99 AND 1999 - 2000. THE DISPUTE IS ABOUT TIME OF ACCRUAL OF THE INCOME BY WAY OF COMMISSION IN RESPECT OF CASES WHERE DEFAULTING NON PRIZED SUBSCRIBERS WHO ARE REMOVED FROM THE CHIT AND IN WHOSE PLACE NEW SUBSCRIBERS ARE SUBSTITUTED. ON A CAREFUL CONSIDERATION OF THE ISSUE, WE FIND THAT FROM OUT OF THE AMOUNT THAT IS PAYABLE TO THE DEFAULTING SUBSCRIBER CONSEQUENT TO HIS REPLACEMENT BY ANOTHER PERSON THE COMPANY IS ENTITLED TO DEDUCT 5% AS COMMISSION. THIS HAS NOTHING TO DO WITH THE REGULAR COMMISSION INCOME OF THE ASSESSEE. THUS THE STAND OF THE ASSESSEE THAT THE COMMISSION INCOME ACCRUES WHEN THE ACCOUNTS HAVE BEEN FINALLY SETTLED TO THE DEFAULTING NON SUBSCRIBER TO OUR MIND APPEARS TO BE THE CORRECT POS ITION. OTHERWISE IN CASE OF A NON PRIZED SUBSCRIBER THE AMOUNT ,OF 5% WOULD BE DEDUCTED FROM THE AMOUNTS DUE TO HIM MUCH BEFORE THE SETTLEMENT OF HIS ACCOUNT AND RECOGNISED AS INCOME BY WAY OF TRANSFER FROM CURRENT LIABILITIES TO PROFIT AND LOSS ACCOUNT. R ELIANCE PLACED BY THE REVENUE ON THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF SHRIRAM CHITS & INVESTMENTS P LTD. CHENNAL VS. ACIT (263 ITR (AT) 65). THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THE COMMISSION/REMUNERATION TO THE FOREMAN IN THAT CASE WAS SOUGHT TO BE RECOGNISED ON THE COMPLETION OF CHIT METHOD AND HAD NOTHING TO DO WITH THE TYPE OF ADDITIONAL COMMISSION RECEIVABLE IN CASE OF SUBSTITUTION OF A SUBSCRIBER AS IN THIS CASE. THE NATURES OF INCOME IN BOTH THESE CASES ARE DIFFERENT. THE FURTHER COMMISSION OF 5% RECEIVABLE FROM A DEFAULTING SUBSCRIBER CONSEQUENT TO HIS REMOVAL AND SUBSTITUTION ON A FULL AND FINAL SETTLEMENT OF A DEFAULTING SUBSCRIBER ACCOUNT IS RECOGNISED AS INCOME ON THE FIN ALISATION OF THE ISSUES. THIS IS NOT AN UNACCEPTABLE PROPOSITION. WE AGREE WITH THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE. ASSESSEE, WHICH ARE AT PARA 4.11 OF THIS ORDER. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED.' FOLLOWING THE AFORESAID ORDER OF THE ITAT, WE UPHOLD THE ORDER OF THE CIT (A) AND REJECT THE GROUND RAISED BY THE REVENUE.' I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 12 15. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF AY 2008 - 09, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE B ENCH IN THAT YEAR, WE UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS. 74,78,677/ - MADE BY THE AO AND DISMISS THE GROUND OF APPEAL OF THE REVENUE. 17 . THE ABOVE DECISION RENDERED FOR ASSESSMENT YEAR 2009 - 10 HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL TO DECIDE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2010 - 11, VIDE CONSOLIDATED ORDER DATED 6.12.2013 PASSED IN ITA NO.1142/HYD/2013 OF THE REVENUE AND ITA NO.1049/HYD/2013 OF THE ASSESSEE . RESPECTFULLY FOLLOWING THE DECIS ION OF TH E COORDINATE BENCHES OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11, WE UPHOLD THE IMPU G N E D O R DER O F THE LEARNED CIT(A) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMMISSION ON THE CANC ELLED CHITS. GROUN D NO. 3 OF THE REVENUE S APPEAL IS ACCORDINGLY DISMI S SED. 18. IN GROUND NO.4, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PAYMENT OF ROYALTY. 19. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH SIDES AT THE TIME OF HEARING BEFORE US, THE ISSUE INVOLVED IN GROUND NO.4 OF THE REVENUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR TH E ASSESSMENT YEARS 2009 - 10 AND 2010 - 11, CITED SUPRA. IN ITS ORDER PASSED ON 12.10.2012 PASSED IN ITA NO.975/HYD/2012 FOR ASSESSMENT YEAR 2009 - 10, THE TRIBUNAL HAS DISCUSSED AND DECIDED SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE, VIDE PARAGRAPHS 21 TO 22 TH EREOF, WHICH READ AS UNDER - '21. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE RECORD, WE FIND THAT THE ISSUE IN DISPUTE IS SQUARELY I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 13 COVERED BY THE ORDERS OF THE ITAT IN ASSESSEE'S OWN CASES IN EARLIER YEARS. IN AY 2008 - 09, THE ITAT WHILE REJECTI NG THE GROUND RAISED BY THE REVENUE HELD AS UNDER: '12. GROUND NO. 4 RELATES TO DELETION OF THE ROYALTY PAYMENT OF RS.3,34,31,583/ - . SIMILAR ISSUE CAME UP BEFORE THE ITAT FOR THE EARLIER ASSESSMENT YEAR IN I TA NO. 490/HYD/10, ITA NO.720/HYD/10 AND THE IT AT HELD IN THE FOLLOWING MANNER: - '20. SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL FOR THE ASSESSMENT YEARS 2004 - 05 , 2005 - 06 AND 2006 - 07. THE TRIBUNAL VIDE ITS ORDER DATED 26.7.2004 IN PARA 20 HELD AS FOLLOWS: PAGE 136, 137, 138 OF PB. 6.7(I V): WE ARE CONVINCED WITH THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE BANGALORE BENCH OF THE TRIBUNAL IN ITA NO.751, 750, 749 &. 748/(BANG.)/1998 IN THE CASE OF M/S SR I RAM CHITS (BANGALORE) LTD. VS. DCIT (ASSISTANT) SPECIAL RANGE, BA NGALORE HELD AS FOLLOWS: '29. WE HAVE CAREFULLY GONE THROUGH THE RECORDS AND CONSIDERATION THE RIVAL CONTENTIONS. M/S SRIRAM CHITS &. INVESTMENT (P) LTD. HAVING REGISTERED OFFICE AT MADRAS WAS THE ABSOLUTE OWNER OF THE COPY RIGHT RELATING TO EXISTING ARTI STIC WORK 'SR I RAM CHITS' LOGO REGISTERED AS SUCH UNDER THE PROVISIONS OF THE COPY RIGHT ACT, 1957 WITH THE REGISTRAR OF COPYRIGHTS BEARING REGISTRATION NO.A/49899/88 DATED 7.7.1988. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH THE HOLDING COMPANY FOR EXCLUSIVE USE OF THE LOGO OF THE HOLDING COMPANY IN THE COURSE OF SOLICITING ITS BUSINESS AMONGST POTENTIAL INVESTORS. THE CONDITIONS OF THE AGREEMENT PROVIDED THAT THE ASSESSEE SHALL PAY ROYALTY OF 0.5% ON THE AN NUAL AUCTION TURNOVER OF THE ASSESSEE DETERMINED ON THE BASIS OF VALUE OF AUCTIONS FIXED DURING THE YEAR. IN FACT, THE ASSESSEE HAS USED THE LOGO TO THE BEST ADVANTAGE OF BUSINESS. THE ASSESSEE WAS TO CARRY ON THE BUSINESS OF CHIT FUND IN THE STATE OF KARN ATAKA AND THE HOLDING COMPANY GRADUALLY STOPPED FLOATING NEW (GROUNDS AS IT DID IN 1984) ALLOWING SUBSIDIARY COMPANY TO EXPAND ITSELF. THE GROWTH OF BUSINESS OF THE ASSESSEE OVER THE YEARS OF THE ORDER OF THE CIT (A) IS VERY MUCH RELEVANT. THE RELEVANT POR TION READS: I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 14 1. SR I RAM CHITS 8R. INVESTMENTS (P) LTD. COMMENCED OPERATIONS IN KARNATAKA IN THE YEAR 1984. THE BUSINESS OF THE COMPANY IN KARNATAKA INCREASED OVER THE YEARS UPTO 1990 - 91 WHEN THE AUCTION TURNOVER TOUCHED RS.80.39 LAKHS. 2. SR I RAM CHITS AND INVESTMENTS (P) LTD. DECIDED TO EXPAND ITS BUSINESS IN KARNATAKA BY FORMING A SUBSIDIARY COMPANY SR I RAM CHITS (BANGALORE) (P) LTD. 3. IN THE YEAR 1990, SR I RAM CHITS (BANGALORE) (P) LTD. WAS FORMED AND WAS CARRYING ON THE BUSINESS OF CHIT FUNDS I N THE STAT E OF KARNATAKA AND SRI RAM CHITS AND INVESTMENTS (P) LTD. GRADUALLY STOPPED FLOATING NEW GROUPS ALLOWING THE SUBSIDIARY COMPANY TO EXPAND. 4. SRI RAM CHITS (BANGALORE) (P) LTD. SINCE INCEPTION CONTINUED TO BOOK NEW BUSINESS BY USING THE LOGO OF ITS HOLDING COMPANY. 5. THE BUSINESS GROWTH OF SR I RAM CHITS (BANGALORE) (P) LTD. OVER THE YEARS CAN BE INFERRED FROM THE FOLLOWING FIGURES: FY 1990 - 91 1991 - 92 1992 - 93 1993 - 94 1994 - 95 1995 - 96 1996 - 97 BRANCHES BUSINESS 29.49 66.41 105 81.26 184. 01 260.05 359.05 (IN LAKHS) AUCTION 29.49 95.9 181.15 225.69 348.29 542.28 753.23 TURNOVER 6. THE RIGHT TO USE THE LOGO FROM THE HOLDING COMPANY SRIRAM CHITS AND INVESTMENTS (P) LTD. WAS FORMALLY GIVEN TO SRI RAM CHITS (8ANGALORE) (P) LTD. THE SUBSIDIARY COMPANY IN THE YEAR 1994 VIDE AN AGREEMENT ENTERED INTO, WHICH PROVIDED FOR THE PAYMENT OF CERTAIN 010 OF THE AUCTION TURNOVER AS ROYALTY TO SRIRAM CHITS AND INVESTMENTS (P) LTD. 8 7. BY THE AGREEMENT, SRIRAM CHITS AND INVESTMENTS (P) LTD., HAS FORMALLY C OMMITTED ITSELF TO THE GROWTH AND DEVELOPMENT OF SRIRAM CHITS (BANGALORE) (P) LTD. FOR A FURTHER PERIOD OF 7 YEARS. 8. THE DUTY OF SRIRAM CH I TS AND INVESTMENTS (P) LTD. DOES NOT END WITH MERELY TRANSFERRING THE RIGHT TO U S E I TS LOGO TO I TS SUBSIDIARY COMP ANY. IT ALSO ASSUMES THE RESPONSIBILITY TO ENSURE THAT THE NAME WHICH IT HAS BUILT UP OVER THE YEARS IS MAINTAINED BY SRIRAM CHITS (BANGALORE) (P) LTD. TOWARDS THE, SRIRAM CHITS AND INVESTMENTS (P) LTD. HAS PROVIDED FINANCIAL ASSISTANCE TIME AND AGAIN TO S RLRAM CHITS (BANGALORE) (P) LTD. TO HELP ITS WORKING CAPITAL REQUIREMENTS. I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 15 WHEN SRIRAM CHITS (BANGALORE) (P) LTD. COMMENCED OPERATIONS, ALL ITS EMPLOYEES WERE FROM SRIRAM' CHITS A. INVESTMENTS (P) LTD. WHO HAD PRIOR EXPERIENCE IN THIS LINE. EVEN NOW, SRIRAM CHITS (BANGALORE) {P} LTD. LOOKS FOR MANAGERIAL SUPPORT FROM SR I RAM CHITS AND INVESTMENTS (P) LTD. WHICH IS BEING PROVIDED. IN ADDITION TO THIS, THE ENTIRE SOFTWARE PACKAGE OF SRIRAM CHITS AND INVESTMENTS {P} LTD. WHICH WAS BEING USED BY IT FOR ITS OPERATIONS WAS TRANSFERRED TO SRIRAM CHITS. ,. (BANGALORE) (P) LTD. FOR CARRYING OUT ITS DAY TO DAY ROUTINES. THE HOLDING COMPANY ALSO HOLDS PERIODICAL MEETINGS WITH THE EXECUTIVES OF THE SUBSIDIARY COMPANY IN ORDER TO MONITOR ITS ACTIVITIES. : ... 10. THE REASONABILITY OF 0.5% ROYAL. THE USE OF LOGO I S ENHANCING THE GROWTH OF SRIRAM CHITS (BANGALORE) (P) LTD. CANNOT BE UNDER ESTIMATED.' 30. THE RECORD ALSO SHOWS THAT HOLDING COMPANY WAS PROVIDING FINANCIAL ASSISTANCE TIM E AND AGAIN TO THE ASSESSEE TO HELP IN ITS WORKING CAPITAL REQUIREMENTS. THE RECORD FURTHER SHOWS THAT WHEN THE ASSESSEE COMMENCED ITS OPERATION, AILS ITS EMPLOYEES WERE FROM HOLDING COMPANY WHO HAD PRIOR EXPERIENCE IN THIS LINE. IT I S CLAIMED THAT EVEN TH E ASSESSEE LOOKS FOR MANAGERIAL SUPPORT, FROM ITS HOLDING COMPANY WHICH I S AGAIN PROVIDED. THE HOLDING COMPANY IS ALSO STATED TO HAVE CONDUCTED PERIODICAL MEETINGS WITH THE EXECUTIVES OF THE ASSESSEE IN ORDER TO MONITOR ITS MEETINGS. ALL THESE AND THE TABL E EXTRACTED ABOVE SHOWS THAT THERE HAS BEEN A SUBSTANTIAL INCREASE IN THE NEW BUSINESS AS ALSO AUCTION TURNOVER FROM WHAT WAS ONLY 29.49 LAKHS IN ASSESSMENT 1990 - 91 TO RS:225.69 LAKHS IN THE ASSESSMENT YEAR 1994 - 95 AND RS.348.29 LAKHS IN THE ASSESSMENT YEA R 1995 - 96 AND THE BUSINESS HAS BEEN SUBSTANTIALLY GROWING FROM YEAR TO YEAR. THE FINANCING BUSINESS AND CONDUCTING OF THE CHIT BUSINESS IS NOT THAT EASY UNLESS I T I S BACKED BY THE PROMOTERS WHO HAVE HIGHEST I NTEGRITY AND TRUSTWORTHINESS. M / S SR I RAM CHITS AND INVESTMENTS (P) LTD. MADRAS (HOLDING COMPANY HAS BEEN IN THE NAMES FOR ITSELF WITH THE INVESTORS I N THE SOUTH. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT THE PAYMENT OF ROYALTY AT 0.5% OF HAVING REGARD TO THE BUSINESS REQUIREMENTS OF THE ASSESSE E. IN OUR VIEW, THE PAYMENT IS FOR, LEGITIMATE BENEFIT TAKEN I N THE COURSE OF BUSINESS AND FROM ANY STANDARD, I T CANNOT BE SAID THAT PAYMENT OF RS.1 LAKH AS ROYALTY I S SUFFICIENT TO PRODUCE THE BUSINESS OF THE MAGNITUDE PROCURED BY THE ASSESSEE OVER THE YEARS. THE HOLDING COMPANY HAS ENTERED INTO SIMILAR AGREEMENTS WITH OTHER SUBSIDIARY I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 16 COMPANIES AND THE CIT(A) HAS CONSIDERED THE SAME TO BE REASONABLE BUSINESS OUTFLOW PROPERTY UNDER A SPECIFIC AGREEMENT EXECUTED BY THE PARTIES I S VERY MUCH REASONABLE AND SHOULD HAVE BEEN ACCEPTED AS A BUSINESS EXPENDITURE ALLOWABLE AS DEDUCTION. WE, THEREFORE, DELETE THE DISALLOWANCE FOR THESE TWO YEARS. THE DISALLOWANCE HAS BEEN PRIMAR ILY BASED ON A SUSPICION AND INCORRECT APPRECIATION OF HARD REALITIES OF THE BUSINESS BY THE REVENUE AUTHORITIES. THE DISALLOWANCE IS ACCORDINGLY DELETED. FOLLOWING THE AFORESAID FINDING OF THE ITAT, WE UPHOLD THE ORDER OF THE CIT (A) AND REJECT THE GROUND RAISED BY THE REVENUE.' 22. AS THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF AY 2008 - 09, RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT IN THAT YEAR, WE UPHOLD THE ORDER OF THE CIT( A) ON THIS COUNT AND DISMISS THE GROUND OF APPEAL OF THE REVENUE.' 20 . THE ABOVE DECISION RENDERED FOR ASSESSMENT YEAR 2009 - 10 HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL TO DECIDE SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2010 - 11, VIDE CONSOLIDATED ORDER DATED 6.12.2013 PASSED IN ITA NO.1142/HYD/2013 OF THE REVENUE AND ITA NO.1049/HYD/2013 OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCHES OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009 - 10 AND 2010 - 11, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(A) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PAYMENT OF ROYALTY . GROUND NO. 4 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 21 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF ASSESSEE IS PARTLY ALLOWED . \ ORDER PRONOUNCED IN THE COURT ON 29 TH OCTOBER, 2014 SD/ - SD/ - ( SAKTIJIT DEY ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 29 TH OCTOBER, 2014 I TA NO. 809 & 1214/ H YD/20 1 4 M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 17 COPY FORWARDED TO: 1. M/S. SHRIRAM CHITS (P) LTD., HYDERABAD 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 14(1), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) II, HYDERABAD COMMISSIONER OF INCOME - TAX I, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S
