THE COMMISSIONER OF INCOME TAX V. M/S STI PRODUCTS INDIA LTD

ITA/1188/2006

AI Insights

The case involves multiple appeals by the Commissioner of Income-Tax and the Assistant Commissioner of Income-Tax against STI Products India Ltd., concerning the classification of deposits made by the Madhya Pradesh State Industrial Development Corporation (MPSIDC). The primary legal issue was whether these deposits were to be classified as Inter Corporate Deposits (ICDs) or loans. The assessing officer initially classified them as loans, leading to a disallowance of interest deductions due to late payment. However, upon appeal, the CIT(A) and the Appellate Tribunal reclassified the deposits as ICDs, allowing the interest deductions. The revenue's appeals challenged this reclassification.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 729242 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 06-08-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAGANAND
• Assessee Lawyers: C SHYAMALA; K V ARAVIND
• Keywords: Assessment Year; Inter Corporate Deposit; Interest deduction; Loan
• Section: 43B(d); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 6TH DAY OF AUGUST 2012 PRESENT: THE HON’BLE MR.JUSTICE K.SREEDHAR RAO AND THE HON’BLE MR.JUSTICE B.MANOHAR INCOME TAX APPEAL No. 1188/2006 (T-IT) C/W INCOME TAX APPEAL No. 1193/2006 (T-IT) & INCOME TAX APPEAL No. 1076/2006 (T-IT) IN I.T.A.NO.1188/2006 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE C.R.BUILDING, QUEENS ROAD BANGALORE 2. THE ASST COMMISSIONER OF INCOME-TAX CIRCLE-12(2), C.R.BUILDING QUEENS ROAD BANGALORE ... APPELLANTS (BY SMT. C. SHYAMALA, ADVOCATE) 2 AND: M/S STI PRODUCTS INDIA LTD. NO.44-45, 2ND FLOOR, VINAYAKA COMPLEX RESIDENCY ROAD BANGALORE ... RESPONDENT (BY SRI. NAGANAND, SR. COUNSEL FOR JUST LAW) THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 26-04- 2006 PASSED IN ITA NO.144/BANG/2004 FOR THE ASSESSMENT YEAR 2002-2003, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS OF THE ITAT, BANGALORE IN ITA NO.144/BANG/2004 DTD: 26-04-2006 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(2), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. IN I.T.A.NO.1193/2006 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE C.R.BUILDING QUEENS ROAD BANGALORE 3 2. THE ASST COMMISSIONER OF INCOME-TAX CIRCLE-12(2) C.R.BUILDING QUEENS ROAD BANGALORE ... APPELLANTS (BY SMT. C. SHYAMALA, ADVOCATE) AND: M/S STI PRODUCTS INDIA LTD. NO.44-45, 2ND FLOOR, VINAYAKA COMPLEX RESIDENCY ROAD BANGALORE ... RESPONDENT (BY SRI. NAGANAND, SR. COUNSEL FOR JUST LAW) THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 26-04- 2006 PASSED IN ITA NO.143/BANG/2004 FOR THE ASSESSMENT YEAR 2001-2002, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS OF THE ITAT, BANGALORE IN ITA NO.143/BANG/2004 DTD: 26-04-2006 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(2), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. 4 IN I.T.A.NO.1076/2008 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX C.R.BUILDING QUEENS ROAD BANGALORE 2. THE ASST COMMISSIONER OF INCOME-TAX CIRCLE-12(5) C.R.BUILDING QUEENS ROAD BANGALORE ... APPELLANTS (BY SRI. K. V. ARAVIND, ADVOCATE) AND: M/S STI PRODUCTS INDIA LTD. NO.44-45, 2ND FLOOR, VINAYAKA COMPLEX RESIDENCY ROAD CROSS BANGALORE-560 046 ... RESPONDENT (BY SRI. NAGANAND, SR. COUNSEL FOR JUST LAW) THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 11-07- 2008 PASSED IN ITA NO.1175/BANG/2007 FOR THE ASSESSMENT YEAR 2003-2004, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, 5 II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS OF THE ITAT, BANGALORE IN ITA NO.1175/BANG/2007 DTD: 11-07-2008 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(5), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THESE APPEALS COMING ON FOR HEARING, ON THIS DAY, SREEDHAR RAO, J., DELIVERED THE FOLLOWING: J U D G M E N T Sri. Sriranga, advocate undertakes to file Vakalath for the respondent in ITA No. 1193/2006. 2. The Madhya Pradesh State Industrial Development Corporation (MPSIDC) had kept certain deposits with the respondent – assessee. The assessee’s contention before the assessing officer was that the deposit was in the nature of Inter corporate deposit. The assessing officer rejected the contention and held the said deposit was a loan. The interest payable on the said deposit/loan was not paid in time. Therefore, the 6 deduction was not allowed in view of Section 43B(d). The CIT(A) called for a remand report from the assessing officer to consider “whether the deposited amount in question was Inter corporate deposit or a loan?” The assessing officer after considering the materials submitted a report to the CIT(A), who, in view of the report of the assessment officer held that the amount in question was Inter corporate deposit. The appellate tribunal confirmed the order of the CIT. The revenue aggrieved by the said order has filed these appeals. The following questions of law are framed while admitting the appeals. “ 1. Whether the Appellate Authorities were right in holding that the assessee has received the deposits from the MPSIDC in the form of Inter Corporate Deposit and there was no loan or borrowing and the provisions of Sec. 43B of the IT Act are not applicable. Admittedly when the assessee had classified the amounts received from MPSIDC under loans and advances. 7 2. Whether the Appellate Authorities failed to take into consideration that the interest on the amounts borrowed are not paid within the due date for filing the return of income and hence, the assessee was entitled to deduction of amount of interest under the provisions of Sec. 43B of the Act.” 3. It is the contention of the appellants that the amount in question cannot be considered as Inter corporate deposit and it constitutes a loan. Since the interest is not paid in time, as per the agreements of the said deduction will not be valid. The question raised in the appeal is a mixed question of law and fact and puritans to appreciation of the evidentiary materials while coming to the conclusion whether the said amount represents inter Corporate deposit or a loan. In this regard the CIT appellate had specifically remanded the matter to the assessing officer to consider the material and give a report. The CIT (A) in para 4.4 of its order has extracted the contents of the report of the assessing 8 officer submitted pursuant to the remand which is in the following words: “ This is an acceptable fact, as per materials made available before the CIT(A). The materials and documents which existed and now made available to the Department, VIZ., the demand promissory note and the deed of corporate guarantee/indemnity (Annexure C) show that funds were placed at the hands of the assessee by MPSIDC by way of Inter Corporate Deposits (ICDs). The copies of statement of accounts as appearing in the books of MPSIDC also show that the interests are payable on maturity and at certain stages, the interests are compounded and added to the principal sum.” The assessee has furnished copies of the said MPSIDC’s accounts wherein the transaction is shown as ICD, and the same has also been shown as ICD in the Balance Sheet, under Schedule-6- Current Assets-Item ‘C’ being Balances with Non Financial Institutions/Cos as ‘Inter Corporate Deposit with Cos.’ The assessee’s contention is that the loans and advances given by the said MPSIDC is shown under a different shcedule-7 as ‘loans and 9 advances’. The assessee also relies upon the Schedule 10 wherein the interest on ICDs are separately shown. All these are contended to say that the nature of transaction is ‘deposits’ (being ICDs) and not loan or borrowing. Considering the above materials now furnished, it would appear that the assessee’s objections have some substance, which may kindly be considered on merits.” 4. Both the appellate authorities have concurrently found on the basis of the materials that the amount in question is an Inter corporate deposit and not a loan. In fact, there was an effective consultation of the assessing officer who after remand has gone into the factual aspects and the materials and has submitted a report that the amount in question amounts to Inter corporate deposit. In that view of the matter there does not appear to be any perversity in appreciation and coming to the conclusion by the appellate authorities in 10 question. In that view the question of law answered against the revenue. The appeals are dismissed. Sri. Sriranga, advocate is permitted to file memo for appearance within four weeks. Sd/- JUDGE Sd/- JUDGE Bsv "