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2006 (9) TMI 147 - HC - Income TaxDisallowance of Interest on advance for purchase of tea estate - agricultural in nature ? - Commission paid to agents - rendered services - HELD THAT - From the material on record it is seen that agreements that were provided were of the year 1990 and at the relevant point of time there was a direct sale available in terms of the laws governing at that point of time. It was only thereafter the Government corporations had the monopoly on purchase of liquor at the manufacturing units. In so far as commission paid to agents is concerned they were paid commission for the services rendered in the matter of sale of liquor to the Canteen Stores Department of the Indian military. We are firmly of the view that the allowance by the Tribunal in the case on hand requires our interference by way of answering the said question against the assessee and in favour of the Revenue. Devolution of corporate guarantee - The Supreme Court in CIT v. Amalgamations P. Ltd. 1997 (4) TMI 8 - SUPREME COURT has chosen to consider this issue and the said judgment supports the assessee. In fact this court in the case of this very assessee has chosen to hold in favour of the assessee in ITRC CIT v. McDowell and Co. Ltd. 2006 (6) TMI 83 - KARNATAKA HIGH COURT in somewhat identical circumstances. The said judgment to a certain extent holds good on this issue also. Thus we deem it proper to answer this question in favour of the assessee and against the Revenue. Non-competition fee - The Tribunal after noticing the rival contentions came to the conclusion that the expenditure incurred is revenue in nature. If the Department is satisfied that Rs. 20 lakhs spent by the company amounts to expenditure then how can they question the remaining Rs. 80 lakhs in terms of the proceedings. The law is the same whether it is Rs. 20 lakhs or RS 80 lakhs. In these circumstances and in the light of the acceptance of RS 20 lakhs as expenditure we deem it proper to answer this question of law in favour of the assessee. Aircraft maintenance - We have seen the findings of the Tribunal. The Assessing Officer and the Commissioner have chosen not to consider the entire expenses. The Tribunal without discussing the material already available on record has chosen to allow the entire claim by holding that the list of passengers in various trips is unnecessary. The Tribunal in our view has not chosen to bestow its attention to the material facts in granting relief to the assessee. In these circumstances we are of the view that a further fact finding is necessary for answering this question of law. Thus we deem it proper to set aside the finding on this issue and remit the matter for redecision to the Tribunal and in the light of the material already available on record. The Revenue has also raised the question with regard to disposal of the appeal for the assessment year 1994-95 during the pendency of identical issues for the earlier years before the Tribunal. We are not inclined to answer this question of law in the light of the subsequent passing of orders for earlier years and in the light of those proceedings also pending before us. In the result the following order is passed. Questions A(I) (II) C and E are answered in favour of the assessee. Question B(I) is answered in favour of the Revenue.
Issues Involved:
1. Disallowance of interest on advances for the purchase of a coffee estate. 2. Disallowance of commission paid to agents. 3. Allowance of corporate guarantee devolution payments. 4. Disallowance of expenditure on aircraft maintenance. 5. Allowance of non-competition fee paid to UB Engineering Ltd. 6. Disposal of appeal for the assessment year 1994-95 during the pendency of identical issues for earlier years. Issue-wise Detailed Analysis: 1. Disallowance of Interest on Advances for the Purchase of a Coffee Estate: The first question was whether the interest on an advance for purchasing a coffee estate was allowable. The Revenue argued that the business of the estate was not aligned with the assessee's liquor business, and thus, the interest should not be deductible. However, the Tribunal upheld the assessee's claim, noting that the board resolution and articles of association supported the investment. The High Court agreed, stating that section 36 of the Income-tax Act allows such deductions and that the Tribunal rightly accepted the assessee's case. 2. Disallowance of Commission Paid to Agents: The second issue was about the commission paid to M/s D. C. Johar and Sons, Cochin, and M/s Brindco Sales (P) Ltd. The Assessing Officer disallowed these payments, claiming they were not incurred wholly and exclusively for business purposes. The Tribunal accepted the assessee's argument that the payments were made for services rendered. However, the High Court referred to the Kerala High Court judgment in CIT v. Premier Breweries Ltd. and concluded that the mere existence of an agreement does not justify the deduction of commission payments. The court ruled this issue in favor of the Revenue. 3. Allowance of Corporate Guarantee Devolution Payments: The third issue concerned the allowance of corporate guarantee devolution payments. The Assessing Officer and the appellate authority initially denied this benefit, but the Tribunal allowed it. The High Court referred to the Supreme Court judgment in CIT v. Amalgamations P. Ltd. and a previous decision involving the same assessee, concluding that the Tribunal's decision was correct. This issue was ruled in favor of the assessee. 4. Disallowance of Expenditure on Aircraft Maintenance: The fourth issue was about the disallowance of aircraft maintenance expenses. The Assessing Officer allowed only 75% of the claimed expenditure due to a lack of supporting evidence. The Tribunal allowed the entire claim without detailed consideration. The High Court found that the Tribunal did not adequately address the material facts and remitted the matter back to the Tribunal for reconsideration, emphasizing the need for further fact-finding. 5. Allowance of Non-Competition Fee Paid to UB Engineering Ltd.: The fifth issue was regarding the non-competition fee paid to UB Engineering Ltd. The Assessing Officer allowed only Rs. 20 lakhs of the claimed Rs. 1 crore, considering the rest as deferred revenue expenditure. The Tribunal allowed the entire claim, and the High Court agreed, noting that if Rs. 20 lakhs was accepted as expenditure, the same principle should apply to the remaining amount. This issue was ruled in favor of the assessee. 6. Disposal of Appeal for the Assessment Year 1994-95 During the Pendency of Identical Issues for Earlier Years: The final issue was whether the Tribunal was right in disposing of the appeal for the assessment year 1994-95 while identical issues for earlier years were still pending. The High Court chose not to answer this question, citing the subsequent passing of orders for earlier years and the ongoing proceedings. Conclusion: - Questions A(I), (II), C, and E were answered in favor of the assessee. - Question B(I) was answered in favor of the Revenue. - Question D was not answered; the matter was remitted back to the Tribunal for reconsideration. - The Tribunal was directed to complete the proceedings within six months from the date of receipt of the High Court's order.
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