THE COMMISSIONER OF INCOME TAX V. M/S.APPOLLO TYRES LTD.

ITA/99/2010

AI Insights

The case involves two income tax appeals by the Commissioner of Income Tax, Cochin, against Apollo Tyres Ltd., concerning the assessment year 1997-98. The primary issues were the classification of a loss on the sale of IRFC bonds and the deductibility of contributions made to an Employees' Welfare Trust. The Income Tax Appellate Tribunal had previously ruled in favor of Apollo Tyres, classifying the bond sale loss as a business loss and allowing the deduction for the trust contributions. The Commissioner of Income Tax challenged these rulings in the High Court, which upheld the Tribunal's decisions.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 728433 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 13-03-2019
• Assessment Year: misc
• Other Referred Cases: Appolo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi [255 ITR 273]
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JOSEPH MARKOS; BINU MATHEW; B J J JOHN PRAKASH; JOSEPH KODIANDTHARA; MATHEWS UTHUPPACHAN; TERRY JAMES; TOM THOMAS; V ABRAHAM MARKOS
• Assessee Lawyers: CHRISTOPHER ABRAHAM; K M V PANDALAI
• Keywords: Business loss; Capital loss; Diversion of income; Eligible Business; Income tax appeal; Revenue expenditure; Transportation Cost; Employees' Welfare Trust
• Section: 143(3); 32; 36(1)(v); 43A; 36(1)(iv); 40A(9)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 60 of 2010 AGAINST THE ORDER IN ITA 22/2005 of I.T.A.TRIBUNAL, COCHIN BENCH DATED 18.08.2009 APPELLANT: THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADVS.SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX SRI.K.M.V.PANDALAI, SC, INCOME TAX RESPONDENT: M/S.APPOLLO TYRES LTD. CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD, KOCHI - 31. BY ADV. SRI. JOSEPH MARKOSE, SC SRI.BINU MATHEW SRI.B.J.JOHN PRAKASH SRI.JOSEPH KODIANTHARA (SR.) SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.02.2019, ALONG WITH ITA.NO. 99/2010, THE COURT ON 13.03.2019 DELIVERED THE FOLLOWING: I.T.A. Nos. 60 and 99 of 2010 : 2 : IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR WEDNESDAY,THE 13TH DAY OF MARCH 2019 / 22ND PHALGUNA, 1940 ITA.No. 99 of 2010 AGAINST THE ORDER IN ITA 24/2005 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 18.08.2009 APPELLANTS: THE COMMISSIONER OF INCOME TAX, COCHIN BY ADVS.SRI.CHRISTOPHER ABRAHAM, SC, INCOME TAX SRI.K.M.V.PANDALAI, SC,INCOME TAX RESPONDENT: M/S.APPOLLO TYRES LTD., 6TH FLOOR, CHERUPUSHPAM BUILDINGS, SHANMUGHAM ROAD, KOCHI-31. BY ADVS. SRI. JOSEPH MARKOS (SR.) SRI.BINU MATHEW SRI.B.J.JOHN PRAKASH SRI.JOSEPH KODIANTHARA (SR.) SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.02.2019, ALONG WITH ITA.60/2010, THE COURT ON 13.03.2019 DAY DELIVERED THE FOLLOWING: I.T.A. Nos. 60 and 99 of 2010 : 3 : JUDGMENT Ramachandra Menon , J. These appeals arise from the verdict passed by the Income Tax Appellate Tribunal, Kochi Bench in I.T.A. Nos. 22 of 2005 and 24 of 2005 in respect of the assessment year 1997 - '98. 2. The Commissioner of Income Tax, Cochin is the appellant. The matter is still to be admitted, though it was pending for more than 9 years. 3. Heard Sri. Christopher Abraham, the learned standing counsel appearing for the appellant and Sri. Joseph Markos, the learned counsel appearing for the respondent assessee. 4. The respondent assessee is engaged in the business of manufacture and sale of automotive tyres, tubes etc., who filed return in respect of the assessment year 1997 - '98 on 28.11.1998, which was followed by the revised return dated 29.09.1999. The assessment was finalized by the assessing officer I.T.A. Nos. 60 and 99 of 2010 : 4 : under section 143 (3) of the Income Tax Act, as per Annexure A order dated 30.03.2000, assessing a total income of Rs. 14,21,00,850/-. This was sought to be challenged by the assessee by filing an appeal before the Commissioner of Income Tax (Appeals), who granted some reliefs. This was the subject matter of challenge before the Income Tax Appellate Tribunal. The assessee had claimed liability of sale of IRFC bond of Rs.48,06,898/- as revenue expenditure in the revised return of income, which was considered by the assessing officer as 'capital loss' and this came to be confirmed by the Commissioner of Appeals as well. But the Tribunal, placing reliance on the verdict passed by the Apex Court in assessee's own case Appolo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi [255 ITR 273] held that the business of trading shares and securities is an eligible business of the assessee company and accordingly, the assessee's claim of expenditure came to be allowed. Similarly, the assessment made by the assessing officer disallowing I.T.A. Nos. 60 and 99 of 2010 : 5 : the claim for deduction of Rs.32,80,742/- to the Employees' Welfare Trust set by the assessee company, with reference to the application of Section 40A(9), which came to be confirmed by the Commissioner of Income Tax [Appeals], was interdicted by the Tribunal allowing the claim of the assessee, holding that Section 40A(9) was not attracted to the case in hand. This made the Revenue to feel aggrieved, who is before this Court by way of these appeals. 5. Two questions have been suggested, as involving substantial questions of law in I.T.A. No. 60 of 2009, as extracted below : “1.(a) Whether on the facts an in the circumstances of the case and also for the reasons stated in the grounds of appeal is not the loss of Rs.61,30,191/- on sale of IRFC bonds a capital loss and an impermissible deduction under the I.T. Act ? (b) Is not the decision reported in 255 ITR inapplicable to the facts of the case for the reasons stated in the grounds of appeal ? 2. Whether on the facts and in the circumstances of the case and also in view of the fact that the Welfare Trust created by the assessee is in respect of transportation of the employees, I.T.A. Nos. 60 and 99 of 2010 : 6 : the assessee is entitled to claim deduction of the contribution of Rs.22,66,580/- made to the trust.” 6. At the very outset, it is to be noted that the first question itself is not factually correct, as the loss in respect of sale of IRFC bonds claim was only Rs.48,06,898/- and not Rs.61,30,191/-. The facts and figures were meticulously analysed by the Tribunal and it was accordingly, that a finding was rendered that the stand taken by the assessing officer and the Commissioner, that IRFC bonds represented investment by the assessee and hence was capital loss was not correct, as it was part of the business of trading in shares and securities; thus representing part of the eligible business of the assessee company. The ratio of the decision rendered by the Apex Court in 255 ITR 273 [cited supra] [assessee's own case] was relied on by the Tribunal in support of the finding. 6. With regard to other issue, the assessee had claimed a sum of Rs.32,80,742/- as expenses for transportation of the employees, paid to the I.T.A. Nos. 60 and 99 of 2010 : 7 : Employees' Welfare Trust. This was disallowed by the assessing officer and also by the Commissioner holding that it was diversion of income. After examining the facts and figures, the Tribunal held that there was force in the version of the assessee that it was only towards the transportation cost of the employees as arranged by the Welfare Trust. If it was not undertaken by them, the transportation would have to be arranged by the assessee company and this being the position, it was part of the actual expenses incurred by the assessee being transportation cost of the employees. It was accordingly, that the claim was allowed, which is now sought to be interdicted. 8. I.A. No. 1898 of 2010 has been filed raising an additional ground and a question in the following terms : “Ground G : The Tribunal should have confirmed the order of CIT (A) on the above issue without remanding the same to the Assessing Officer. Question No. 3 : Whether, on the facts and in the circumstances of the case and in the light of the cogent reasons given by the I.T.A. Nos. 60 and 99 of 2010 : 8 : CIT (A) the Tribunal is right in law in restricting the disallowance of interest and other expenses under section 14 of the IT Act to 0.5% of the total interest and expenditure ?” 9. The additional ground and question raised by the Department relate to dis-allowance of the interest worked out by the Commissioner of Income Tax [Appeals] on the basis of the loan taken and for the period in which it was held. It was after referring to the facts and figures, that a definite finding was rendered by the Tribunal, interdicting disallowance of interest on other expenses to an extent of 0.5% of the total interest and the expenditure. The said aspect is more a question of fact, than any question of law and as such, even if the additional ground and the question of law mooted by the Department are permitted to be raised by allowing the I.A., it will not tilt the balance in any manner projecting any substantial question of law. 10. The version of the Department, with reference to the loss sustained on IRFC bonds is that it is a I.T.A. Nos. 60 and 99 of 2010 : 9 : 'capital loss' and not a business loss. It is contended that the verdict of the Apex Court in 255 ITR 273 [cited supra] = (2002) 9 SCC 1 [assessee's own case] is not applicable to support the assessee. The Department contends that the issue considered by the Apex Court there [in relation to buying and selling of the units of the Unit Trust of India by the assessee] was whether it was 'speculative' in nature or not; whereas in the present case the issue is whether it is 'capital loss' or 'business loss'. We find it difficult to agree. The issue whether it was speculative in nature or not was the point considered by the Apex Court in paragraph 12 of the decision in Appolo Tyres Ltd. Vs. Commissioner of Income Tax, Kochi [(2002) 9 SCC 1]. Whether it is an eligible business of the assessee or not was separately considered in 'paragraph 11', which is reproduced below : “11. The dispute in the present case is in regard to the question whether the assessees investment in the UTI I.T.A. Nos. 60 and 99 of 2010 : 10 : is business, and if so, is it a business which qualifies to be an eligible business under S.32AB? In regard to the first aspect, we must note that the tribunal as a question of fact based on material on record has come to the conclusion that the investment in the UTI by the assessee company is in the course of its business and its business of manufacture and sale of tyres and sale and purchase of units of the UTI are common in nature and both the businesses are intertwined and interlaced. This finding is accepted by the High Court also. We also find that this business of the assessee company of buying and selling of units is a business as contemplated under S.32 AB of the Act. The question the is: is it an eligible business under the said section? The term eligible business is defined under sub-s. (2) of S.32AB. As per that definition, all business of an assessee company will be an eligible business unless it falls under the type of business enumerated in sub clauses (a) and (b) of S.32AB(2). It is nobodys case that this business of the assessee Company is one of those businesses which fall under businesses enumerated in clauses (a) and (b) of sub-s. (2) of S.32AB. Therefore, there is no doubt that the business of the assessee company is an eligible business. The fact that is shown under a different head of income would not deprive the company of its benefit under S.32AB so long as it is held that the investment in the units of the UTI by the I.T.A. Nos. 60 and 99 of 2010 : 11 : assessee company is in the course of its eligible business. Therefore, in our opinion, the dividend incomes earned by the assessee company from its investment in the UTI should be included in computing the profits of eligible business under S.32AB of the Act.\" From the above, it is quite clear that the verdict passed by the Tribunal, in favour of the assessee under this head is perfectly within the four walls of law and does not warrant any interference, as no substantial question of law is involved. 11. With regard to the contribution to the Employees' Welfare Trust, the contention raised by the Department is that the assessing officer was right in disallowing the claim under Section 40A(9). It is pointed out that Section 40A(9) permits deduction only in respect of contributions like provident fund, approved superannuation fund and approved gratuity fund [as envisaged under the relevant clauses of Section 36]. The 'Employees Welfare Trust' is contended as not an approved one and it does not come I.T.A. Nos. 60 and 99 of 2010 : 12 : within the purview of the statutory prescriptions. In fact, in respect of the transportation of the employees, the Tribunal verified the facts and figures and held that the contribution effected was to an 'approved fund' and further that, the Transportation of the employees would otherwise have had to be undertaken by the assessee company, in terms of the service conditions. This finding also is a question of fact and no substantial question of law is involved. 12. Coming to ITA No. 99 of 2010, the challenge is against Annexure C order passed by the Tribunal on 18.08.2009, interdicting Anexure B order passed by the Commissioner of Income Tax [Appeals], granting relief to some extent to the assessee. The said appeal is also pending before this Court for nine years, just ordering 'notice on admission' on 27.09.2010. The questions suggested by the Revenue, as involving the substantial questions of law, are as given below : 1. (a) Whether, on the facts and in the I.T.A. Nos. 60 and 99 of 2010 : 13 : circumstances of the case and also for the reasons stated in the grounds of appeal is not the loss of Rs.61,30,191/- on sale of IRFC bonds a capital loss and an impermissible deduction under the I.T. Act ? (b) Is not the decision reported in 255 ITR inapplicable to the facts of the case for the reasons stated in the grounds of appeal ? 2 (a) Whether on the facts and in the circumstances of the case and also in view of the fact that the Welfare Trust created by the assessee is in respect of transportation of the employees, the assessee is entitled to claim deduction of the contribution of Rs.22,65,580/- made to the trust ? (b) Whether, on the facts and in the circumstances of the case and in the light of Section 40A (9) read with Section 36 (1) (iv) (v) read with ground (F) the assessee is entitled to claim the deduction of Rs.11,31,385/- due to foreign exchange fluctuation ? 3. Whether, on the facts and in the circumstances of the case and when Section 43A of the I.T. Act provides for adjustment of actual cost of capital asset only on settlement of the liability, that is, on actual payment, the assessee is entitled to claim the deduction of I.T.A. Nos. 60 and 99 of 2010 : 14 : Rs.11,31,385/- due to foreign exchange fluctuation ? 4. Whether, on the facts and in the circumstances of the case and also in view of the omission of first proviso to clause (ii) of Sub section (1) to Section 32 with effect from 1/4/1996 by finance Act which provided for 100 % depreciation - (i) the ITAT is right in remitting of the issue to the Assessing Officer ? (ii) The assessee is entitled to claim the deduction at all ? On going through the first and second questions, it is quite evident that they are almost the same as raised by the Department in ITA No. 60 of 2010. This by itself shows that there is overlapping/repetition/ mistakes in raising the questions of law in two appeals, apart from the mistake as to the actual extent of loss [shown as Rs.6130191/-], whereas loss in respect of IRFC bonds is stated as only Rs.4806898/-. I.T.A. Nos. 60 and 99 of 2010 : 15 : 14. With regard to the 3rd question of law raised in ITA No. 99 of 2010, it has already been held that the said question is in relation to Section 43A of the I.T. Act. The Court has rendered a finding placing reliance on the verdict passed by the Apex Court on the point as per judgment dated 12.03.2019 in ITA No.534 of 2009 and connected cases, which stands answered against the Department and in favour of the assessee. 15. The last question is only in respect of the remand ordered by the Tribunal, directing the assessing officer to consider the points as mentioned therein. According to the Department, the first proviso to Clause (ii) of sub section (1) of Section 32 [which provided for 100% depreciation] was omitted w.e.f. 01.04.1996 and as such, the remand is bad. This Court is of the view that this is a matter which can be considered by the assessing officer even on remand and there is no estoppal against law. As such it is not a matter for interference of this Court. I.T.A. Nos. 60 and 99 of 2010 : 16 : 16. In the above facts and circumstances, this Court is of the firm view that no substantial question of law under Section 260A of the I.T. Act is pointed out to call for interference. Appeals fail and they are dismissed accordingly. sd/- P. R. RAMACHANDRA MENON, JUDGE sd/- N. ANIL KUMAR, JUDGE kmd "