UNITED SPIRITS LTD V. THE DEPUTY COMMISSIONER

WP/57883/2017

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United Spirits Ltd. filed a writ petition under Article 226 of the Constitution of India against the Deputy Commissioner of Income Tax and the Additional Commissioner of Income Tax, challenging the interlocutory order of the Income Tax Appellate Tribunal, Bengaluru. The Tribunal had rejected United Spirits' stay application concerning a substantial tax demand of Rs.172.45 crores for the assessment year 2012-13. The main issues revolved around the disallowance of interest payments on borrowings and other tax adjustments. The High Court, referencing a previous judgment, emphasized that government departments and private entities should be treated equally under the law, thus dismissing the writ petition and upholding the Tribunal's decision.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 726919 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 09-01-2018
• Assessment Year: misc
• Other Referred Cases: S.A.Builders Ltd. vs. Commissioner of Income-tax (Appeals) (2007) 158 Taxman 74 (SC), Joint Investments (supra)
• Laws Referred To: Article 226 of the Constitution of India, Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: N VENKATARAMAN; T SURYANARAYANA
• Keywords: Commercial expediency; Disallowance of interest payment; Dividend income; Income Tax; Interest Free Advances; Stay Application; Tax demand; Writ petition
• Section: 14A; 36 (1) (iii)

Judgement Text

" 1/10 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF JANUARY, 2018 BEFORE THE HON’BLE Dr.JUSTICE VINEET KOTHARI W.P.No.57883/2017(T-IT) BETWEEN UNITED SPIRITS LTD. UB TOWERS, NO.24, VITTAL MALLYA ROAD, BENGALURU-560 001 REPRESENTED HEREIN BY ITS SENIOR GENERAL MANAGER-TAXATION MR.PRADEEP SIMHA ...PETITIONER (BY SRI N.VENKATARAMAN, SR. ADV. FOR SRI T.SURYANARAYANA, ADV.) AND 1. THE DEPUTY COMMISSIONER OF INCOME TAX BMTC BUILDING, 80FT ROAD 6TH BLOCK, KORAMANGALA, BENGALURU-560 009. 2. THE ADDITIONAL COMMISSIONER OF INCOME TAX, BMTC BUILDING, 80FT ROAD 6TH BLOCK, KORAMANGALA, BENGALURU-560 009. ...RESPONDENTS THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE ORDER DATED 17.11.2017 PASSED BY THE INCOME TAX Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 2/10 APPELLATE TRIBUNAL, BANGALORE (IN STAY APPLICATION NO.228/BANG/2017 (IN IT(TP) A NO.489/BANG/2017) FOR THE ASSESSMENT YEAR 2012-13 AT ANNEXURE-A AND ETC. THIS PETITION COMING ON FOR PRLY. HEARING, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER Mr. N.Venkataraman, Sr. Adv. for Mr.T.Suryanarayana, Adv. for Petitioner. The petitioner-assessee-United Spirits Ltd. has filed this writ petition under Article 226 of the Constitution of India aggrieved by the interlocutory order passed by the Income Tax Appellate Tribunal, Bengaluru Bench ‘C’, Bengaluru, on 17.11.2017 rejecting the stay application filed by the petitioner in its pending appeal against the demand of Rs.172,45,08,305/- raised by the Income Tax Department. 2. The reasons assigned by the learned Tribunal in its impugned order as contained in para Nos.2, 5 and 9 of the said order are quoted below for ready reference: Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 3/10 “2. At the outset Bench asked the Ld. AR, whether the assessee is willing to pay 51 crore in addition to Rs.70 crore already paid i.e. 50% of the total tax demand of Rs.242.45 crore. The Ld. AR declined and submitted that the application be decided on merit by the Bench. Accordingly we are proceeding to decide the stay application on Merit. 5. We have heard the rival submissions and perused the material on record. The AO has firstly raised the demand u/s.14A as the assessee was having dividend income from the investment made by the assessee. In our view, this issue of disallowance of interest income u/s.14A of the Act is required to be examined in detail and prima facie it cannot be said that the issue is covered in favour of the assessee by virtue of the Judgment of Hon’ble Delhi High Court in the matter of Joint Investments (supra), the assessee is required to establish various facts before seeking application of Judgment of Hon’ble Delhi High Court. The second addition is in respect of interest income earned on interest-free advances made to USL Holdings and application of LIBOR of 1.009 + 2. In this regard also we feel that this issue is required to be Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 4/10 deliberated in the facts and circumstances of the case and therefore this issue also cannot be said to be covered. Last addition is in relation to disallowance of interest payment on borrowings u/s.36(i)(iii) of the Act. In this regard, we may note that the DRP prima facie held in para 24, of its order as under: 24. The reasons given by the assessee are examined. The recipient of the loan ‘USL-BVI’ is located in British Virgin Islands and is just a holding company. The assessee is on record that these funds are for acquisitions of other companies. Thus the main reason for investment in this company is acquisition and expansion of assessee’s business rather than commercial expediency. It is not the case that this company (USL BVI) was supplying a critical component or raw materials to the assessee. Therefore, the test of ‘commercial expediency’ as in the case of SA Builders fails in this case. As the DRP has examined the issue of commercial expediency and held that the test of commercial expediency as laid down by the Hon’ble Supreme Court in S.A.Builders, is not Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 5/10 applicable as mentioned herein above. Therefore, once the finding of fact has concurrently been given against the assessee by the lower authorities, we do not find that the assessee was able to make out a prima facie case in its favour. 9. Thus having regard to the above legal position, the assessee company had not made out a case for stay of the demand. In the circumstances, the stay petition filed by the assessee is not maintainable and is accordingly dismissed. It is made clear that by dismissing the application we are not expressing any opinion on the merits of the case. In case the Revenue loses the matters at the time of final hearing, it shall refund to the appellants the amount deposited or recovered with interest.” 3. Mr.N.Venkataraman, learned senior counsel, urged before the Court that the learned Tribunal has erred in rejecting the stay application altogether, whereas the substantial demand of the impugned demand of Rs.172.45 crores on account of disallowance of interest payment on borrowings Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 6/10 u/s.36(1)(iii) of the Act, which issue is covered in favour of the petitioner-assessee by the decision of the Supreme Court in the case of S.A.Builders Ltd. vs. Commissioner of Income-tax (Appeals) (2007) 158 Taxman 74 (SC), whereas the learned Tribunal in the impugned order held to be not applicable in the facts of the present case and has proceeded in altogether rejecting the stay application of the petitioner. Hence, this writ petition has been filed the petitioner before this Court. 4. This Court, in a judgment rendered today in a Writ Petition No.12913/2017 filed by the petitioner- Revenue against the interlocutory order passed by the Income Tax Appellate Tribunal, wherein the learned Tribunal had given a partial stay against the recovery in favour of the Respondent-assessee, strongly deprecated, invoking the writ jurisdiction of this Court by the Government Departments in such cases and has Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 7/10 dismissed the writ petitions with costs on the officials who had sanctioned and filed such writ petitions. Though the same yardstick and parameters applicable to Government Departments to become a litigant in constitutional Courts cannot be perhaps applied with same rigour to the assessees, but at the same time the fact remains that the impugned order before this Court is nonetheless remains an interlocutory order passed by the regular Appellate Authority under the Act, which is still seized of the appeal to be heard on its own merits. Therefore, any observations made by the learned Tribunal in the interlocutory order about the coverage of the controversy by the decision of the Hon’ble Supreme Court in S.A.Builders Ltd. case (supra) or otherwise, does not finally express the view of the said Tribunal and such observations are only tentative. The Tribunal has touched the well settled parameters, while considering the interim prayers of the appellants before them namely (i) existence of a prima facie case (ii) Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 8/10 balance of convenience and (iii) irreparable injury caused to the appellant, in case such interim relief is not granted. 5. It is well settled that these parameters for consideration of the stay application even under Order 41 Rule 5 of CPC, which governs the Appellate Courts and Civil Courts apply equally to the taxing statutes also. The argument of the learned counsel for the petitioner-assessee is that a high pitch demand has been raised contrary to the decision of the Hon’ble Supreme Court also does not persuade this Court enough to cut short the process of deciding the regular appeal to be heard by the Tribunal against the tax demand of Rs.145.15 Crores and interest to the extent of Rs.98.83 Crores totaling to Rs.243.98 Crores approximately. The assessee had sought Stay of Rs.172,45,08,305/- of net demand and a sum of Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 9/10 Rs.70 Crores had already been paid by the petitioner- assessee. 6. Learned Tribunal had itself given a suggestion in para-2 quoted above of the impugned order, that if the assessee further deposits a sum of Rs.51 Crores in addition to Rs.70 Crores already deposited against the total demand of Rs.242.45 Crores, the Tribunal may consider the grant of Stay for the remaining demand, but since the learned Authorised Representative for the assessee before the learned Tribunal declined the said suggestion, the learned Tribunal proceeded to consider the stay application on its merit and passed the aforesaid order. 7. The learned counsel for the petitioner has further informed the Court that hearing of the said appeal is fixed by the learned Tribunal on 07.02.2018 and he has undertaken before the Court that the assessee would not seek any adjournment in the Date of order : 09.01.2018 in WP.No.57883/2017 United Spirits Ltd. vs. The Deputy Commissioner of Income Tax & Another 10/10 matter. However, about the hearing of the appeal itself by the Tribunal, it is left to the best discretion of the learned Tribunal only with a request to the Tribunal to hear the matter as expeditiously as possible. But, this Court is not inclined to tinker with the said impugned interlocutory order in the present writ petition because as far as entertaining of the writ petitions against such interlocutory orders under Article 226 of the Constitution of India is concerned, the scales of justice cannot be different for the Revenue and for the assesee, and for this Court, both the parties, in such circumstances, are equally placed. Consequently, this Court declines to interfere with the impugned interlocutory order. The writ petition is therefore dismissed. No costs. Sd/- JUDGE TL "