KOZHIKODE DISTRICT PETROLEUM DEALERS ASSOCIATION V. THE INCOME TAX OFFICER

WP(C)/2255/2017

AI Insights

The case involves the Kozhikode District Petroleum Dealers Association and individual dealers challenging the opinion of the Joint Commissioner of Income Tax, Kozhikode, regarding the taxability of commissions received by petroleum dealers. The petitioners argued that the commissions included losses during transportation, such as evaporation and accidental losses, which should not be taxed. The Joint Commissioner opined that the commissions were based on actual sales, not on losses, and thus, the entire commission was taxable. The petitioners sought a re-evaluation of this opinion, claiming it was given without consulting the oil companies, which was necessary for an informed decision. The court dismissed the writ petition, agreeing with the Joint Commissioner's opinion and noting that the petitioners could raise their concerns in the ongoing appeals against the assessment orders.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 675434 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 02-08-2023
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM; M NAMBIAR; K MATHAI; JOSON MANAVALAN; KURYAN THOMAS; PAULOSE ABRAHAM; K V M PANDALA; JOSE JOSEPH
• Assessee Lawyers: HARISANKAR MENON; MEERA MENON
• Keywords: Commission; Evaporation Loss; Income Tax; Petroleum Dealers; Transportation Losses; Accidental Loss
• Section: 144A

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH WEDNESDAY, THE 2ND DAY OF AUGUST 2023 / 11TH SRAVANA, 1945 WP(C) NO. 2255 OF 2017 PETITIONERS: 1 KOZHIKODE DISTRICT PETROLEUM DEALERS ASSOCIATION, EVERGREEN SYNDICATE BUILDING, DOOR NO.4/228, ARABIND GHOSH ROAD, KOZHIKODE - 673 032, REPRESENTED BY ITS SECRETARY, SHAMSUDHIN. 2 K.P.SIVANANDAN, M/S.CHOISONS, KANNUR ROAD, KOZHIKODE - 673 001. 3 M/S.GREEN FUEL SERVICES NARAYANA NAGAR, VADAKARA, KOZHIKODE DISTRICT, REPRESENTED BY ITS MANAGING PARTNER K.VINOD. BY ADVS. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON RESPONDENTS: 1 THE INCOME TAX OFFICER, WARD - 2(3), KOZHIKODE - 673 001. 2 THE INCOME TAX OFFICER, WARD - 2 (2), KOZHIKODE - 673 001. 3 JOINT COMMISSIONER OF INCOME TAX, RANGE - 2, KOZHIKODE - 673 001. 4 THE REGIONAL MANAGER, M/S.HINDUSTAN PETROLEUM CORPORATION LTD., SEAPORT AIRPORT ROAD, IRUMPANAM, ERNAKULAM, KOCHI - 682 309. 5 THE MANAGER M/S. INDIAN OIL CORPORATION, GLOBNET MEDIA, PANAMPILLY NAGAR AVENUE, MIG HOUSING SOCIETY, ERNAKULAM, KOCHI - 682 036. BY ADVS. CHRISTOPHER ABRAHAM SRI.M.GOPIKRISHNAN NAMBIAR-R4 & R5 SRI.K.JOHN MATHAI W.P.(C). NO. 2255 OF 2017 2 SRI.JOSON MANAVALAN SRI.KURYAN THOMAS SRI.PAULOSE C. ABRAHAM SRI. K.V.M.PANDALA-R1 TO R3 SRI. JOSE JOSEPH-SC CHRISTOPHER ABRAHAM-INCOME TAX THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 02.08.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C). NO. 2255 OF 2017 3 JUDGMENT Dated this the 2nd day of August, 2023. 1. Heard Sri. Harisankar V. Menon, learned counsel for the petitioners and Sri. Christopher Abraham, learned Standing Counsel. 2. This writ petition has been filed impugning the letter in Ext.P6 dated 01.01.2016 passed by the Joint Commissioner of Income Tax, Kozhikode under Section 144A of Income Tax Act, 1961 (In short 'the Act'). 3. Petitioners are Association of Petroleum product Dealers. The members of the Petitioner's Association purchase the petroleum products from the oil companies. The dealers are paid commission on sale of the petroleum products from the petrol pumps of dealership establishment. The oil companies fix the dealer's commission considering the various factors such as operating costs, stock loss, return on working capital and return on W.P.(C). NO. 2255 OF 2017 4 net fixed asset. 4. It is not in dispute that some losses do occur during the transportation of the petroleum products from the petroleum companies to the dealer's place. 5. During assessment proceedings, the Assessing Officer was proceeding to tax entire commission. However, the petitioners were of the view that the commission also included the losses which do occur during the transportation of the petroleum products from the petroleum companies to the dealer's place and therefore, the proportionate portion of the commission was not liable to be taxed. Petitioners moved an application under Section 144A of the Act before the Joint Commissioner of Income Tax for his guidance and direction to the Assessing Officer. Ext.P2 read as under: “Respected sir, Ours is a partnership concern with two partners K. Vinod and K. Biyu Kumar, Shailaja Nivas, Vadakara. We are assessed with Income Tax Officer, Ward 2(2) with PAN. AAGFG 6453 R. We have filed our return of income for the Assessment Year 2013-14 on 30.11.2013 declaring a total income of Rs. 2,951,097/- after providing Interest to W.P.(C). NO. 2255 OF 2017 5 Partners Rs. 4,31,256/- and Salary to Working Partners Rs. 6,01,646/-. The case was selected for scrutiny under CASS as high turnover but low profit and the assessment proceedings are in progress. During the course of assessment proceedings, the Assessing Authority ts of the opinion that the evaporation loss and accidental loss cannot be allowed, the quantity of which has already been disclosed in the Trading Account for the year end 31% March 2013. The evaporation loss for the year is 5,503 Litres of Petrol and 6,034 Litres of Diesel and the tanker accidental loss in the case of Petrol 1,215 Lities and Diesel 602 Litres. We have not disclosed the value for these losses in the Trading Account as the value is to be credited in the Trading Account and debited in the Profit and Loss Account. So the net result will not affect the Trading and Profit and Loss Account or profit of the unit. The permissible evaporation loss as per the oil company norms is 0.6 % in the case of Petrol and 0.2% in the case of Diesel. We are getting an average commission of Rs 1.63/Litre in the case of Petrol and Rs. 1.00/Litre in the case of Diesel (Confirmation from IOC). This commission receipt is inclusive of all the losses which we have to suffer in selling the products. So we request you to consider these issues and suitable direction may be given to the assessing authority to consider these aspects while completing the assessment. For your ready reference we are furnishing here with the details of quantity purchased, sold, opening Stock, closing stock and evaporation loss, etc as Annexure I. If the evaporation loss and accidental are taken in to consideration for calculating G.P, the commission receipt of Petrol and Diesel will be more than Rs. 1.63/Litre and Rs. 1.00/Litre respectively, the working of which are given below.” 6. The Joint Commissioner gave his opinion in Ext.P6 letter W.P.(C). NO. 2255 OF 2017 6 dated 01.01.2016. The Joint Commissioner was of the opinion that petitioner itself has not shown the loss of evaporation and other incidental loss in the closing stock of petrol. And therefore, the commission was paid on the actual sale of the petroleum products. It was not on the losses in transportation of the petroleum products. 7. Sri. Harishankar V. Menon, learned counsel for the petitioners submits that it was incumbent upon the Joint Commissioner to have taken opinion from the oil companies regarding the fact that whether the commission paid to the dealers would also include the losses during transportation which includes evaporation and other incidental loss. Without taking the opinion from the oil companies, the Joint Commissioner has given the opinion in Ext.P6 and therefore, he did not exercise the discretion vested under Section 144A of the Act properly. Therefore, the impugned opinion of the Joint Commissioner is liable to be set aside and the matter be remanded to him to consider the application of the petitioner afresh. W.P.(C). NO. 2255 OF 2017 7 8. Sri. Raja Kannan, learned counsel for respondents 4 and 5 submits that the commission includes the losses which do occur during transportation. However, it is for the Income Tax Department to assess the tax in accordance with the provisions of the Act. 9. Sri. Christopher Abraham, learned Standing Counsel for the Income Tax Department submits that on an application of the petitioner the Joint Commissioner has given the opinion under Section 144A of the IT Act, 1961 which is justified in law and no interference is required by this Court in the discretion exercised while passing order dated 01.01.2016 by the Joint Commissioner on the application filed under Section 144A of the Act. It is further submitted that the assessment order which has been finalised has been challenged in the appeal before the commissioner (Appeal). The petitioner will take all the grounds available to them in respect of inclusion or non inclusion of the commission as income. 10. I have considered the submission of learned counsel for W.P.(C). NO. 2255 OF 2017 8 the parties. Section 144A of the Act is reproduced and read as under: “144A. Power of Joint Commissioner to issue directions in certain cases:-- A Joint Commissioner may, on his own motion or on a reference being made to him by the Assessing Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer: Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. Explanation: - For the purposes of this section no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.” The said provision contemplates discretion of the Joint Commissioner to give his opinion for guidance of Assessing Officer. The opinion is binding on the Assessing Officer. If the Joint Commissioner gives the opinion then the Assessing Officer has to W.P.(C). NO. 2255 OF 2017 9 finalise the assessment in accordance with the opinion given by the Joint Commissioner. I do not find the Joint Commissioner has committed an error of law or jurisdiction in giving his opinion on Ext.P6 impugned in the present petition. The IT Act, 1961 does not mandate the Joint Commissioner to take an opinion of a third party while giving his opinion under Section 144A of the IT Act, 1961. Petitioners have already filed appeals against the assessment finalised by the Assessing Officer and they may take all grounds which may be available to them under the law before the Commissioner. 11. In the aforesaid, I do not find any substance in the writ petition. Hence, the writ petition fails and is hereby, dismissed. Sd/- rps/ DINESH KUMAR SINGH, JUDGE W.P.(C). NO. 2255 OF 2017 10 APPENDIX OF WP(C) 2255/2017 PETITIONER EXHIBITS EXHIBIT-P1: COPY OF LETTER ISSUED BY THE 2ND RESPONDENT TO THE 3RD PETITIONER 04.09.2015. EXHIBIT-P2: COPY OF PETITION FILED BY THE 3RD PETITIONER BEFORE THE 3RD RESPONDENT. EXHIBIT-P3: COPY OF ASSESSMENT ORDER PASSED BY THE 2ND RESPONDENT OF THE 3RD PETITIONER 28.01.2016. EXHIBIT-P4: COPY OF ASSESSMENT ORDER PASSED BY THE 1ST RESPONDENT OF THE 2ND PETITIONER 14.03.2016. EXHIBIT-P5: COPY OF JUDGMENT IN W.P.(C) NO.29348/16 OF THIS HON'BLE COURT 06.09.2016. EXHIBIT-P6: COPY OF LETTER ISSUED BY THE 3RD RESPONDENT 01.01.2016. "