NICHOLAS PIRAMAL INDIA LTD, V. ADDL CIT RG 34,

MA 597/MUM/2012

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 0053 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 15-03-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 01-03-2013
• Assessment Year: 1997-1998
• Appeal Filed On: 17-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Assessee Lawyers: J D MISTRY
• Keywords: Scheme of amalgamation; Capital receipt; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIVEK VARMA, J M MA NO. 597/MUM/2012 ARISING OUT OF ITA NO. 4602/MUM/2001 ASSESSMENT YEAR 1997-98 PIRAMAL ENTERPRISES LIMITED, (PREVIOUSLY KNOWN AS NICHOLAS PIRAMAL INDIA LTD.), PIRAMAL TOWER ANNEXE, 4 TH FLOOR, PENINSULA CORPORATE PARK, GANPATRAO KADAM MARG, LOWER PAREL, MUMBAI 400 013. PAN AAACN 4538P. VS. ADDL. CIT, RANGE 34, AAYAKAR BHAVAN, ROOM NO. 482, 4 TH FLOOR, M.K. ROAD, MUMBAI 20. APPLICANT RESPONDENT APPLICANT BY SHRI J.D. MISTRY RESPONDENT BY SHRI O.P. MEENA DATE OF HEARING : 01-03-2013 DATE OF PRONOUNCEMENT : 15-03-2013 ORDER PER P.M. JAGTAP, A.M. BY THIS MISC. APPLICATION, THE ASSESSEE IS SEEKING RECTIFICATION OF THE MISTAKES ALLEGED TO HAVE CREPT IN THE ORDER OF THE TRIBUNAL DTD. 16-5-2012 PASSED IN ITA NO. 4602/MUM/2001 FOR A.Y. 1997-98. 2. AS SUBMITTED BY THE ASSESSEE IN THE PRESENT MISC . APPLICATION AND FURTHER REITERATED BY THE LD. COUNSEL FOR THE ASSES SEE AT THE TIME OF HEARING MA NO. 597/MUM/ 2012 2 BEFORE US, A FINDING HAS BEEN GIVEN BY THE TRIBUNAL IN PARA NO. 21 OF ITS ORDER ON THE PERUSAL OF LETTER OF BMG DTD. 14-11-1996 ADD RESSED TO BMIL THAT THE RELEVANT PAYMENT WAS MADE IN RECOGNITION OF THE SER VICES RENDERED BY BMIL TO BMG AND THE BUSINESS CONSIDERATION DID WEIGH FOR MA KING THE SAID PAYMENT. HE SUBMITTED THAT THE SAID FINDING GIVEN BY THE TRI BUNAL IS FACTUALLY INCORRECT INASMUCH AS THE PURPOSE OF PAYMENT INDICATED IN THE LETTER DTD. 14-11-1996 WAS CLEARLY DIFFERENT. HE INVITED OUR ATTENTION TO THE RELEVANT PORTION OF THE SAID LETTER EXTRACTED IN THE PRESENT MISC. APPLICAT ION AND SUBMITTED THAT THE RELEVANT PAYMENT WAS MADE BY THE BMG TO BMIL TO REC OUP THE LOSS INCURRED BY THE BMIL ON ACCOUNT OF NON-RECURRING EXPENSES AGGRE GATING TO RS. 18.60 CRORES INCURRED FOR PROTECTING ITS OWN BRAND IMAGE. HE CO NTENDED THAT THE SAID PAYMENT THUS WAS MADE BY BMG VOLUNTARILY AND DID NO T ARISE FROM ANY SERVICES RENDERED BY BMIL TO BMG. 3. THE LD. COUNSEL FOR THE ASSESSEE THEN INVITED OU R ATTENTION TO PARA 21 OF THE TRIBUNALS ORDER WHICH READS AS UNDER:- 21. IN THE PRESENT CASE WE FIND THAT BMG IN ITS LE TTER DATED 14/11/1996 ADDRESSED TO BMIL HAD CLEARLY EXPLAINED THE PURPOSE OF THE PAYMENT WHICH WE HAVE ALREADY REFERRED TO IN THE EARLIER PART OF THI S ORDER. IT IS CLEAR FROM THE AFORESAID LETTER OF BMG THAT THE PAYMENT IS IN RECO GNITION OF THE SERVICES RENDERED BY BMIL TO BMG. MOREOVER BUSINESS CONSIDE RATION DID WAY FOR MAKING AFORESAID PAYMENTS. IT IS ALSO A FACT THAT THE ASSESSEE HAD INCURRED EXPENSES IN CONNECTION WITH THE EFFORT IT HAD TAKEN TO PROTECT AND ENHANCE THE GOODWILL AND IMAGE OF PMG IN INDIA AND THOSE HAVE B EEN CLAIMED AS DEDUCTIBLE REVENUE EXPENDITURE. THUS THE CASE OF THE ASSESSE STAND ON TOTALLY DIFFERENT FOOTING FROM ALL THE CASES RELIED UPON BY THE LD. C OUNSEL FOR THE ASSESSEE BEFORE US. IT IS NOT A PAYMENT TO ENABLE BMIL TO RECOUP ITS LOSSES NOR IS IT A PAYMENT WHICH DID NOT HAVE BUSINESS CONSIDERATION FOR MAKIN G SUCH PAYMENTS. THE FACT THAT IT WAS VOLUNTARY OR THAT IT WAS AN UNCONDITION AL PAYMENT, IN OUR VIEW, WILL NOT MAKE IT A CAPITAL RECEIPT NOT CHARGEABLE TO TAX . THE STAND OF THE ASSESSEE BEFORE THE REVENUE AUTHORITIES THAT BMIL WAS IN LOS SES AND THE PAYMENT IN MA NO. 597/MUM/ 2012 3 QUESTION WAS MADE TO RECOUP SUCH LOSSES IS CONTRARY TO THE MATERIAL ON RECORD. THERE WAS HOLDING AND SUBSIDIARY COMPANY RELATIONSH IP BETWEEN BMIL AND BMG BESIDES BUSINESS RELATIONSHIP VIZ., BMIL WAS US ING THE BRAND IMAGE OF BMG, MAKING USE OF THE TECHNICAL KNOW-HOW OF THE PA RENT COMPANY AND WAS ALSO ACTING AS THE MARKETING AGENT FOR BMG FOR SALE OF DIAGNOSTIC PRODUCTS, BIO CHEMICALS AND BIO CATALYSTS. IT IS ONLY BECAUSE O F SUCH RELATIONSHIP AND ALSO IN THE LIGHT OF THE HELP RENDERED BY BMIL IN TERMS OF PROTECTING AND PROMOTING THE INTERESTS OF BMG IN THE WAKE OF COMSAT INCIDENT, TH E PAYMENT IN QUESTION WAS MADE BY BMG AND WAS THEREFORE A PAYMENT CONNECTED W ITH THE BUSINESS OF BMIL AND WAS LIABLE TO BE TAXED U/S.28(I) READ WITH SEC.2(24) OF THE ACT. WE ARE OF THE VIEW THAT THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF G.R.KARTHIKEYAN WOULD BE CLEARLY APPLICABLE IN THE PRESENT CASE. WE ARE OF THE VIEW THAT THE CIT(A) ERRED IN COMING TO THE CONCLU SION THAT RECEIPT WAS NOT IN THE NATURE OF INCOME. IN FACT WE FIND THAT THE CIT (A) HAS GIVEN CONTRADICTORY FINDING. ON THE ONE HAND THE CIT(A) SAYS THAT THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURE AND SALE OF DRUGS AND NOT I N THE BUSINESS OF PUBLIC RELATION OR IMAGE BUILDING. THUS IT IS AN ADMITTED POSITION THAT THE PAYMENT WAS MADE FOR PROTECTING AND ENHANCING THE GOODWILL AND IMAGE OF BMG IN INDIA. THE CIT(A) CONTRARY TO THE ABOVE FINDING HA S COME TO THE CONCLUSION THAT THERE WAS NO QUID PRO QUO FOR THE PAYMENT. AS HELD IN THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF G.R.KARTHIKEYA N THE PAYMENT HAD ALL THE CHARACTERISTIC OF INCOME AND WAS LIABLE TO BE BROUG HT TO TAX. IN OUR VIEW THE CIT(A) ERRED IN REVERSING THE ORDER OF THE AO. WE, THEREFORE, REVERSE THE ORDER OF CIT(A) AND RESTORE THE ORDER OF THE AO IN THIS REG ARD. GROUND NO.1 RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED. HE SUBMITTED THAT THE FINDING RECORDED BY THE TRIBU NAL IN THE RELEVANT PORTION OF ITS ORDER AS ABOVE THAT PAYMENT WAS CONNECTED WI TH THE BUSINESS OF THE ASSESSEE WAS WITHOUT ANY MATERIAL OR BASIS. HE CON TENDED THAT THE PAYMENT WAS MADE TOWARDS RECOUPMENT OF LOSS INCURRED BY BMI L AND THEREFORE IT WAS A CAPITAL RECEIPT AS HELD BY THE JUDICIAL PRONOUNCEME NTS CITED ON BEHALF OF THE ASSESSEE. HE SUBMITTED THAT EVEN THE FACT OF AMALG AMATION OF BMIL WITH THE ASSESSEE COMPANY AS ON 1-4-1996 WAS NOT CONSIDERED BY THE TRIBUNAL AND THE FINDINGS WERE GIVEN AS IF THE BMIL WAS STILL A DIFF ERENT ENTITY. HE CONTENDED THAT THERE ARE THUS MISTAKES IN THE ORDER OF THE TR IBUNAL AND THE SAME BEING APPARENT FROM RECORD ARE REQUIRED TO BE RECTIFIED B Y PASSING A SUPPLEMENTARY MA NO. 597/MUM/ 2012 4 ORDER AS MAY BE DEEMED FIT DEPENDING ON THE FACTS A ND CIRCUMSTANCES OF THE CASE. 4. THE LD. D.R., ON THE OTHER HAND SUBMITTED THAT A WELL CONSIDERED VIEW HAS BEEN TAKEN BY THE TRIBUNAL ON THE ISSUE UNDER C ONSIDERATION AFTER TAKING INTO ACCOUNT ALL THE RELEVANT FACTS OF THE CASE AS IS EVIDENT FROM THE DETAILED ORDER PASSED BY THE TRIBUNAL. HE CONTENDED THAT WH AT THE ASSESSEE IS NOW SEEKING BY WAY OF PRESENT MISC. APPLICATION IS REVI EW OF THE DECISION OF THE TRIBUNAL WHICH IS NOT PERMISSIBLE U/S 254(2) OF THE ACT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ISSUE RELATING TO THE ADDITION OF RS. 29.26 CRORES MADE BY THE A.O. AND DELETED BY THE LD . CIT(A) ON ACCOUNT OF THE SUM RECEIVED BY BMIL FROM BMG AS RAISED IN GROUND N O. 1 OF THE REVENUES APPEAL WAS CONSIDERED AND DISCUSSED IN DETAIL BY TH E TRIBUNAL IN PARA 3 TO 20 OF ITS ORDER DTD. 16-5-2012 (SUPRA) BEFORE FINALLY RECORDING ITS CONCLUSION IN PARA 21 AS UNDER:- 21. IN THE PRESENT CASE WE FIND THAT BMG IN ITS LE TTER DATED 14/11/1996 ADDRESSED TO BMIL HAD CLEARLY EXPLAINED THE PURPOSE OF THE PAYMENT WHICH WE HAVE ALREADY REFERRED TO IN THE EARLIER PART OF THI S ORDER. IT IS CLEAR FROM THE AFORESAID LETTER OF BMG THAT THE PAYMENT IS IN RECO GNITION OF THE SERVICES RENDERED BY BMIL TO BMG. MOREOVER BUSINESS CONSIDE RATION DID WAY FOR MAKING AFORESAID PAYMENTS. IT IS ALSO A FACT THAT THE ASSESSEE HAD INCURRED EXPENSES IN CONNECTION WITH THE EFFORT IT HAD TAKEN TO PROTECT AND ENHANCE THE GOODWILL AND IMAGE OF PMG IN INDIA AND THOSE HAVE B EEN CLAIMED AS DEDUCTIBLE REVENUE EXPENDITURE. THUS THE CASE OF THE ASSESSE STAND ON TOTALLY DIFFERENT FOOTING FROM ALL THE CASES RELIED UPON BY THE LD. C OUNSEL FOR THE ASSESSEE BEFORE US. IT IS NOT A PAYMENT TO ENABLE BMIL TO RECOUP ITS LOSSES NOR IS IT A PAYMENT WHICH DID NOT HAVE BUSINESS CONSIDERATION FOR MAKIN G SUCH PAYMENTS. THE FACT THAT IT WAS VOLUNTARY OR THAT IT WAS AN UNCONDITION AL PAYMENT, IN OUR VIEW, WILL NOT MAKE IT A CAPITAL RECEIPT NOT CHARGEABLE TO TAX . THE STAND OF THE ASSESSEE BEFORE THE REVENUE AUTHORITIES THAT BMIL WAS IN LOS SES AND THE PAYMENT IN MA NO. 597/MUM/ 2012 5 QUESTION WAS MADE TO RECOUP SUCH LOSSES IS CONTRARY TO THE MATERIAL ON RECORD. THERE WAS HOLDING AND SUBSIDIARY COMPANY RELATIONSH IP BETWEEN BMIL AND BMG BESIDES BUSINESS RELATIONSHIP VIZ., BMIL WAS US ING THE BRAND IMAGE OF BMG, MAKING USE OF THE TECHNICAL KNOW-HOW OF THE PA RENT COMPANY AND WAS ALSO ACTING AS THE MARKETING AGENT FOR BMG FOR SALE OF DIAGNOSTIC PRODUCTS, BIO CHEMICALS AND BIO CATALYSTS. IT IS ONLY BECAUSE O F SUCH RELATIONSHIP AND ALSO IN THE LIGHT OF THE HELP RENDERED BY BMIL IN TERMS OF PROTECTING AND PROMOTING THE INTERESTS OF BMG IN THE WAKE OF COMSAT INCIDENT, TH E PAYMENT IN QUESTION WAS MADE BY BMG AND WAS THEREFORE A PAYMENT CONNECTED W ITH THE BUSINESS OF BMIL AND WAS LIABLE TO BE TAXED U/S.28(I) READ WITH SEC.2(24) OF THE ACT. WE ARE OF THE VIEW THAT THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF G.R.KARTHIKEYAN WOULD BE CLEARLY APPLICABLE IN THE PRESENT CASE. WE ARE OF THE VIEW THAT THE CIT(A) ERRED IN COMING TO THE CONCLU SION THAT RECEIPT WAS NOT IN THE NATURE OF INCOME. IN FACT WE FIND THAT THE CIT (A) HAS GIVEN CONTRADICTORY FINDING. ON THE ONE HAND THE CIT(A) SAYS THAT THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURE AND SALE OF DRUGS AND NOT I N THE BUSINESS OF PUBLIC RELATION OR IMAGE BUILDING. THUS IT IS AN ADMITTED POSITION THAT THE PAYMENT WAS MADE FOR PROTECTING AND ENHANCING THE GOODWILL AND IMAGE OF BMG IN INDIA. THE CIT(A) CONTRARY TO THE ABOVE FINDING HA S COME TO THE CONCLUSION THAT THERE WAS NO QUID PRO QUO FOR THE PAYMENT. AS HELD IN THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF G.R.KARTHIKEYA N THE PAYMENT HAD ALL THE CHARACTERISTIC OF INCOME AND WAS LIABLE TO BE BROUG HT TO TAX. IN OUR VIEW THE CIT(A) ERRED IN REVERSING THE ORDER OF THE AO. WE, THEREFORE, REVERSE THE ORDER OF CIT(A) AND RESTORE THE ORDER OF THE AO IN THIS REG ARD. GROUND NO.1 RAISED BY THE REVENUE IS ACCORDINGLY ALLOWED. 6. AS IS CLEARLY EVIDENT FROM THE RELEVANT PORTION OF THE TRIBUNALS ORDER EXTRACTED ABOVE, THE LETTER OF BMG DTD. 14-11-1996 ADDRESSED TO BMIL WAS PERUSED BY THE TRIBUNAL AND ON SUCH PERUSAL A CONCL USION WAS ARRIVED AT BY THE TRIBUNAL THAT THE RELEVANT PAYMENT, AS IT APPEA RS FROM THE SAID LETTER, WAS MADE IN RECOGNITION OF THE SERVICES RENDERED BY THE BMIL TO BMG. IT WAS ALSO OPINED BY THE TRIBUNAL THAT BUSINESS CONSIDERATION DID WEIGH FOR MAKING THE SAID PAYMENT. IT WAS ALSO NOTED BY THE TRIBUNAL TH AT THE ASSESSEE HAD INCURRED EXPENSES IN CONNECTION WITH THE EFFORT IT HAD TAKEN TO PROTECT AND ENHANCE THE GOODWILL AND IMAGE OF BMG IN INDIA AND THE SAID EXPENSES WERE CLAIMED AS DEDUCTIBLE REVENUE EXPENDITURE. IT WAS ACCORDINGLY HELD BY THE TRIBUNAL THAT THE CASE OF THE ASSESSEE STOOD ON TOT ALLY DIFFERENT FOOTING FROM ALL MA NO. 597/MUM/ 2012 6 THE CASES RELIED UPON BY THE LD. COUNSEL FOR THE AS SESSEE INASMUCH AS IT WAS NOT A PAYMENT TO ENABLE BMIL TO RECOUP ITS LOSSES NOR WAS IT A PAYMENT WHICH DID NOT HAVE BUSINESS CONSIDERATION AND THE FACT TH AT THE SAID PAYMENT WAS VOLUNTARY OR UNCONDITIONAL PAYMENT WOULD NOT MAKE I T A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. IT IS ALSO OBSERVED THAT WHILE NARRATING THE MATERIAL FACTS RELEVANT TO THIS ISSUE, IT WAS NOTED BY THE TRIBUNA L IN PARA NO. 4 OF ITS ORDER THAT BMIL HAD GOT AMALGAMATED WITH THE ASSESSEE AND AS PER THIS SCHEME OF AMALGAMATION APPROVED BY THE HONBLE BOMBAY HIGH CO URT, THE APPOINTED DATE WAS 1-4-1996 WHEREAS THE EFFECTIVE DATE FOR AMALGAM ATION WAS 24-7-1997. 7. KEEPING IN VIEW THE ABOVE DISCUSSION, WE AGREE W ITH THE CONTENTION OF THE LD. D.R. THAT A WELL CONSIDERED AND WELL DISCUSSED VIEW HAS BEEN TAKEN BY THE TRIBUNAL ON THE ISSUE INVOLVED IN GROUND NO. 1OF RE VENUES APPEAL AFTER TAKING INTO CONSIDERATION ALL THE MATERIAL FACTS RELEVANT THERETO AND WHAT THE ASSESSEE NOW IS SEEKING BY THE PRESENT MISC. APPLICATION IS NOTHING BUT RE-APPRECIATION OF THE SAID FACTS AND REVIEW OF THE WELL CONSIDERED DECISION OF THE TRIBUNAL WHICH IS BEYOND THE SCOPE OF RECTIFICATION PERMISSI BLE U/S 254(2) OF THE ACT. WE THEREFORE FIND NO MERIT IN THE SAID MISC. APPLICATI ON AND DISMISS THE SAME. 8. IN THE RESULT, THE MISC. APPLICATION FILED BY TH E ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 5-03-2013. SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 15-03-2013. MA NO. 597/MUM/ 2012 7 RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED - MUMBAI 4. THE CIT- CONCERNED, MUMBAI 5. THE DR BENCH, E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI