M/s. Shri Ram Chits Private Limited V. The Joint Commissioner of Income Tax,

ITTA/471/2006

AI Insights

The case involves multiple appeals by M/s. Shriram Chits (India) Private Limited against various orders of the Income Tax Appellate Tribunal, Hyderabad, concerning the assessment years 1991-92 to 2000-01. The primary legal issue was whether the income from chit funds could be exempted under the principle of mutuality, which the Tribunal and the High Court rejected, categorizing the appellant as a business concern. The court also addressed additional questions regarding the admissibility of certain expenditures and the retrospective amendment to the Income Tax Act by the Finance Act, 2013.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 753126 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 30-11-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v. Kovur Textiles, Checkmate Services Pvt Ltd v. Commissioner of Income Tax-12
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: J V PRASAD
• Assessee Lawyers: R V EASWAR
• Keywords: Business concern; Chit Fund; Exemption; Income Tax; Mutuality
• Section: 260-A

Judgement Text

"IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY ,THE THIRTIETH DAY OF NOVEMBER TWO THOUSAND AND TWENTY TWO PRESENT THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE C.V. BHASKAR REDDY INCOME TAX TRIBUNAL APPEAL Nos : 296. 316. 3't7. 419.47 1 &472 0F 2006 LT.T.A. NO. 296 oF 2006 Appeal Under Section 260- A of the lncome Tax Act , 1961 against the order of the lncome Tax Appellate Tribunal, Hyderabad \"8\" Bench, Hyderabad in l.T.A. Nos. 1916to 1919/Hyd/ 1996dated 31- 01-2002 for the Assessment Year 1991-92 to ,1994-95) preferred against the order of the Commissioner of lncome Tax ( Appeals ) lll Hyderabad in Appeal No. 8 / DC (A)SR3/ CtT (A) [U 94-95 dared 19-09-1996 preferred against the order of the Deputy Commissioner of lncome Tax ( Assts ) Special Range -3 , Hyderabad in G.!. No. 5-230 Between: Mls.^S^!{ra1n Chits (lndia ) Private Limited, 3:5-9Q9 , Himayathnagar , Hyderabad - 500 029, Represented by its Director Mr. KRC Sekhar ( Amended as per Court Order dated 30-11-2022 in l.A.No. 1 ot 2022) ...APPELLANT AND The Deputy Commissioner of lncome Tax, [Assts] Special, Range-S Hyderabad. ...RESPONDENT Counsel for the Appellant: Mr R.V. EASWAR, Senior Counsel for MR. R. SIVARAMAN Counsel for the Respondents: SRI J.V. PRASAD SC FOR l.T. DEPARTMENT I I I I I I ;:r7 |.T.T.A. NO. 316 (fF 21106 Appeirl Under Section 260- A of the lncotne Tax Act , 1961 against the order of the lncome Tax Appellate Tribunal, Hyderabad \"8\" Bench, Hyde abad in LT.A. No. 506 / Hyd/ 1999 dated 26-07-2004 for the Assessmert Years 1995-96 . preferred against the order of the Commissioner of ncome Tax ( Appeals ) - l Hyderaltad in Appeal No. 132 / DCSR -3 / C T (A) -l / 98 99 dated 30-03-199 preferred against the order of the Deputy Commissioner of lncome Ta:< ( Assts ) Special Range -3 , Hyderal ad dated 17-11-1997 in G.l. No. S-1 7/rSR 3 Between: M/s. Shriram Chits, ( ndia )Private Limited, 3-5-909, Hrmaya h,rag.ar, Hyderabad - 500 029, Represenl -.d by its Director IVlr. KRC Sekhar ( Amended as per Oo rrt Order dated 30-11-2022in l.A.No 1 ol','O'.22) -,.APPELLANT AND The Joint Commissic ne.r of lncome Tax, [Assts] Special, tlange 5 Hyderabad. ...RESPONDENT Counsel for the Appe llant: SRI R.V. EASWAR Senior Couns-.1 for MR. R. SIVARAMAN Counsel for the Res6 orrdents: SRI J.V. PRASAO SC FOR LT. DEP, RTMENT I.T.T.A. NO. 317 0F ' 006 Appeal Under Section 260- A of the lncom-'Tax Act,1961 against the order cf the lncome Tax Appellate Tribunal Hyderabad \"8\" Bench, Hyder: bad in l.T.A. No. 11751 Hydl 2003 dated 30-07- 2OO4 tor the Assessrnent Year 2000 - 2001 preferred irgainst the order of the Commissio nerr of lncome Tax ( Appeals ) l /, Hyderabad in Appeal No. 79 DC -3 (1) CIT (A) - lV / 2003 -04 datr:d 18-09-2003 preferred against th l order of the Deputy Commissioncr of lncome Tax ( Assts ) Special Ri nge -3 , Hyderabad dated 31-03-200it in G.l. No. AAFCS4916D/ S -12:: L Between: Mlsr^S^[rIag Chits ( lndia )..Prrvate Limited, 3-5-909 . Himayathnagar, Hyderabad - 500 02S, Represented by its Director trrtr. kRC Sekfra. ( Amended as per Court Order dated 3O-11-2022 in l.A.No. 1 of 2OZ2 ) ...APPELLANT AND The Deputy Commissioner of lncome Tax, Circle 3 (.1) , Hyderabad ...RESPONDENT Counsel for the Appellant: Mr. R.V. EASWAR Senior Counsel for Mr. R. SIVARAMAN counsel for the Respondents: SRr J.v. PRASAD sc FoR r.T. DEPARTMENT |.T.T.A. NO.41I OF 2006 Appeal Under Section 260- A of the lncome Tax Act , 1961 against the order of the rncome Tax Appeflate Tribunar, Hyderabad \"8\" Bench, Hyderabad in l.T.A. Nos 327 tHyd 12001 dated: 26_0I-2004 for the Assessment Year 1g97 -98 preferred against the order of the Commissioner of lncome Tax ( Appeals ) Vijayawada in ITA No. 135 / cSR 4 / Hyd/ CtT (A) / VJA / 2000-01 otd tTA No. 7/ JCSR 4 / ctT (A) it / 2000'ol dated 22-02-2001 preferred against the order of the Joint Commissioner of lncome Tax ( Assts ) Special Range -4 , Hyderabad dated 27-03-2000 in G.t. No. 5-122. Between: M/s ^s^hriram chits ( lndia ).. private Limite-d, 3-5-909 , Himayathnagar , Hyderabad - 500 029, Represented by its Director Mr. KRC Sekhar ( Amended as per Court Order dated 30.11-2022 in l.A.No. 1 ot 2022 ) ...APPELLANT AND The Joint Commissioner of lncome Tax, [Assts] Special, iange-S Hyderabad. ...RESPONDENT r r), Counsel for the A6 pr:llant: Mr. R.V. EASWAR, Senior Coun-..e1 r'or Mr. R. SIVARAMAN Counsel for the Re spondents: SRI J.V. PRASAD SC FOR l.T D[:PARTMENT |.T.T.A. NO. 471 (tF 2006 Appeal Under Section 260- A of the lnccme '1'ax Act, 1961 against the order of the lncome Tax Appellate Tribrrrral, Hyderabad \"B\" Bench, Hyderabad in l.T.A. No.471 lHyd 12002 dated 26-07-2004 for the Assessm, rnt Year 1998-99 preferred againsl the, order of the Commissioner of lncome Tax ( Appeals )lV Hyderab;rd in Appeal No. 359 / JCSR -4 t Cll (A) / lV I 01-02 dated 28 -03- 2002 preferred against the order c,f the Joint Commissioner of ln<;ome Tax ( Assts ) Special Range -4, Hyderabad dated 30-03-2001 in G.t. No S-122 Between: lvl/s. Shriram Chits ( lndia ) Private Limited, 3-5-909 , Himayirll-na(lar , Hyderabad - 500 029, Represer:er1 by its Director, lr/r. KRC Sekhar ( Amended as per Cc urt Order dated 30-1 1-2022 in LA.No. 1af 21 22 ) ...APPELLANT AND The Joint Commissi >ner of lncome Tax, [Assts] Special, Range ,4 Hyderabad. ...RESPONDENT Counsel for the App ellant: Mr. R.V. EASWAR, Senior Coun,;el for Mr. R. SIVARAMAN Counsel for the Res rondents: SRI J.V. PRASAD SC FOR I.T. I)EF,ARTMENT I.T.T.A. NO. 472 0F 2006 Appea Llnder Section 260- A of the lnconre Tax Act , 1961 against the order ,rf the lncome Tax Appellate Triburra , Hyderabad \"Bl'Bench, Hyderatrad in l.T.A. No. 1049 lHydl 200it oated 26-07- 2004fortheAssessmentYear,l999.2000)preferredagainsttheorder of the Commissioner of lncome Tax ( Appeals ) lV, Hyderabad in Appeal No. 94 / DC -3 (1) / CIT (A) -lV t 2OO2'03 dated 26-11'2002 preferred against the order of the Deputy Commissioner of lncome Tax , Circle 3 (1), Hyderabad dated 28'03'2002 in G'l' No' AAFCS4916D ' S- 122 Between: M/s. Shriram chits ( lndia ) Private Limited, 3-5-909 , Himayathnagar , Hyderabad - SOO OZS, Represented by its Director, Mr. KRC Sekhar ( Amended as per Court Order dated 30-11-2022 in l A No' 1 of 2022 ) ...APPELLANT AND The Deputy Commissioner of lncome Tax, Circle 3 (1), Hyderabad' ...RESPONDENT Counsel for the Appellant: Mr. R.V. EASWAR Senior Counsel for MT. R. SIVARAMAN CounselfortheRespondents:SRIJ'v.PRASADScFoRI.T.DEPARTMENT The Court made the following: COMMON JUDGMENT l I 'l l I lr {()N'BLE 'lI{E CfIIEF US'IICE U .lar= Ell !ll', ANT) '11 r r t r QN]B LE Sel_IUSTIe E!-Y-EIIA.q K4 Rl ( t D tl Y J,T.A.Nrl:s.296, 316. 31L419. 47I & 4l2 :r[ 4t!tt Tlris .rrdcr wrll dispose of I.T.T.A.NoS.296, . 6. )17, 419, 471 U472 o[ 2()06. 2. I{'ard I &. RV.Easwar, leamed Senior Cour.tse I ppearing for Mr. I{sivann'an, leamed counsel for the app,'llanr (l/s. Shrirern Chits Private i-imited) and Mr. J.V.Prasad, lea..u,:d Standir.rg (bunsel, In,:o n,r Tax Depanment for the responden 3. Thcse ir )f'eals under Section 260A of the Incc,:ne Tax Act, 1961 (brief ly 'rher Act' hereinafter) ar-ise out cf th,: orders dated 31.01..20 )-2,26.07.2A04 and30.07.2004 passt:d by tht: Income Tax Appcllate 'I'ribunal, H/erabad Bench 'B', Hychrbatl (briefly 'the TribLrnal' hereinafter) in I.T.ANo.1916/Htd/1'.)96 for the assessment rcar 1991-92; I.T.ANos.5C6 ill,d/1999, 327/Hyd,'2aa1 , +71 U 1049/Htd/2002 for the ass('sr:me nr yexrs COMIdONJ tll XiMENA, rt'r.rr.' rlot hL th {.ttiet lrcrr,t I.r:t \"tu).,t 1995-96, I)97-98, 1998-99 E( 1999ia00; end I.T.ANo. 117'5 , tl1,cV2003 for the assessment year 20CC)-01. il 2 4. Though at the time of filing appcal, substantial questions o[ law were not framed, appellant has proposed the following two quesdons as substantial questions of law. \"1. ,Xr'hether on the facts and in the circun-stances of rc c''r-se' the Income Tax Appellate Tribunal tras colrect in law in rejecting the appellant's claim for exemption of the chit fund incomc on the principal of muualiry on the ground that appellant is a business concem ? 2. ,(hether on the facts and in the circumstances of tlre case' the Income Tax Appellate Tribunal was colrect in law in ignoring the fact that when the appellant subscribed to a chit, it does so in its character as a subscriber ? 5. The rwo quesdons raise only one issue z'e', whether appellant's claim to exemPtion of the chit fund income on the principle of mutualiry was justified. We may mention that Tribunal had rejected the claim of the appellant for exemption of its income from chit fund busrness on the principle of mutualiry holding that appellant is a btsiness concem. ::3: 6. f'his r ur:stior.r has .rlready been decicied b r :his Co,ut in c.,.rissr.r Lcr .f Inc,,rc-Tzrx r.. Kovur l'cxtil,rs h.lding that pnnciplc r:l nr-rttnlity cannot be extended to inco rrc e;rmerl 1r1.. a chjt I'und c:)r rpany. 7. Appt,ll. nr has proposed two more quesrion:; :Ls :;ubstrntial qrresrions ol I t.s, in I.T.T.ANo.i 1 6 of 2006, which a t as r1n6l6r. 1. i7]rerlrt,r' ol rhc facts and in the circumstan( cs oi rr r c;,sc, rlre lnconic 'l',r -{ppcllate Tribunal rvas right in not co;r,;iCenng tl.rc appell.rnt's s:bmrssions that the retrospecrive amcndme rr ro :jecri()rl 4.-) I] of rht Incorne T:r-x Act, 1961 by Finance Ac , 2O[r3 rv.rs ,:larilit :rto rr,. ard ircnce retrospective ? 2. X4rerixrr .h,: I ribunal on rhe facs and in the circums ru ces of the casc, e rrcd i r holding that the pa)lnents. ro ESI Ea pF (;,r?o:rtiorrs nrarle aftc,-rlre duc dates under the respective stanrtes br r bef< u-e rhe duc daLe lor f i[inq of the retum of income was inadrn ss ble a-s ,rn expenditurc i 8. Though nvo quesrions have been proposed, Lhe issuc is basically ofl( . o(l the same. The question is whet.urr paymenrc made on accc urlt of enrployees' contribution to tilll and pF Colporati,rns a r(,r rhe due date under the respectiv(. : rat rtes bLrt 0182) 1.16 ItR {,r rt' 1 before the duc date of filirrg of return of incomc *,as inadmrssible as an expendirure. 9 This issue is also no longer res integru in view o[ the decision rendered by the Supreme Court in Checkmate Services p Limitcd v. Comrnissioner of Income T ax-12. In the said decision, Supreme Court has held as follows : The distinction berween an emplopr's contribution which is is primary liabiliry under law - in terms of Section 36(1Xr\"), and ia liabilfuy to deposit amounrs received by it or deducted by it (Section 36(1X\"d) is, thus crucial. The former forms pan of the employers' income, and the lamer retairx its character as an income (a,lbeit deemed), by vinue of Section 2Q4)(x) - unless the conditions spelt by explanation to Section 36(1X\"d are satisfied ie., deposiring such amount received or deducted from the employee on or before the due date. In other wonds, there is a madn is albwed' 'Ih;rt, lrol,,cr er, cannot ,rpply in the case of anrounts s'hich are held in trus, as it is in the case of emplopes' coruribur'ions- u,hich ,rre dt drrcted from their income. They are not P;ft ()f the $sessec e m rkry:r's income, nor are they heads of dedtction per v itt tLLe 'onn of statutory pay out. They are othes' inc ome' monies. onl', deemed to be income, wth the object of ensuring that they,rrt pairl within the due date specified in th': ;'anicular law. 'I her' , ra're to be deposited iri rcrms 'rf su':h w:lfare enactments. .t is upon deposit, in terms of thost' enacr Ir:ents and on or befc,r-e tl e tlue date s mandated by such concemt d lau; that tire amotutt vhich is otherwise retained, and detued tr income, is treatcd es rcleduction Thus, it is an essential conditio r fc'r the deductLon th rt such xmounts are deposited on c'r bef<'tr' th': due I t date. If such interpretation were to be adopted, the mt obrltult clause under Section 4lB or anything conaircd h that pro\"ision would not absolve the assessee from its liability to deposit the emplope's contribution on or before the due date as a condition for deduction. i0. In view of above, all the questions proPosed are answered agairxt the apPellant/assessee and in favour of the revenue/ respondent. 11. Appeals are accordinglydismissed' No costs' fu a sequel, miscellaneous petitions, pending if any' shnd dismissed. ,/TRUE COPY// Sd/. B.S. CHIRANJEEVI JOINT REGISTRAR L]D SECTION OFFICER t I To 1. The lncome Tax Appellate Tribunal' Hyderabad \"B\" Bench' Hvderabad 2. ;il:\"6;rrissioner of lncome Tax ( Appeals ) lll Hvderabad 3. The Commissioner \"f i;;;; Tax i Appeals ) lV' Hvderabad ;: il ior.i\"tion\"' or in\"o'nu Tax ( Appeals ) Vijavawada ;: ii;; c1-rnrni..ion\"t of lncome Tax (Appeals)-l' Hvderabad 6. The Deputy co*'i\"\"jJn\"itrr*\"titj Tax ( Assts ) Special Range -3 ' Hyderabad 7. The Deputy Commissioner of lncome Tax '.Circle 3 ('l )' Hyderabad 8. The Joint Commis\"#;;;ii;;ffie rat t Assts ) Special Range -4 ' :. H{:1i'L'si Y t ? 8lw%f \"#liE'F,!\"d' \"1 11.One CC to Mr. MAHESWARA RAO KUNCHEAM' Advocate IOPUCI 'l2.Two CD CoPies ,r ^- ::6:: HIGH COUFIT' DATED:30 t11t2O2Z /... 4 l,jit iii123 _,' i j j COMM()N JI]D(;1II,]NT tNcOME TAX TRlBLr NAL APPEAL No 316 317 419 | &472 s:296 17' OF 2006 DISMISSING THI A r.r 1 .pl,EAr.s WITHOUI'COSTS t tt $ t --- -_ --:' -) l "