2015 (5) TMI 6 - HC - Income Tax

Disallowance of interest u/s 36(1)(III) - interest under charged by the respondent/assessee to the extent of 5% on borrowed capital given on loan to its associate concerns - ITAT allowed the claim - Held that - The question do not really arise for consideration because the view taken by the learned Tribunal is evidently based on a judgement of the Delhi High Court in the case of CIT v. Sahani Silk Mills P. Ltd. reported in (2001 (4) TMI 27 - DELHI High Court ). Disallowance of expenditures incurred in sponsoring the races held by Royal Calcutta Turf club as the flagship company purported to promote the corporate image of the group companies - ITAT allowed the claim - Held that - View taken by the learned Tribunal on the basis of a judgement of Delhi High Court in the case of Addl. Commissioner of Income-Tax v. Delhi Cloth and General Mills Co. Ltd. (1979 (8) TMI 5 - DELHI High Court )wherein it was held that the expenditure incurred by the assessee in organising tournaments was an allowable deduction. Disallowance of legal fee paid and legal charges - ITAT allowed the claim - Held that - It is not in dispute that the expenditure was, in fact, incurred. The only point was that the payment was in connection with services rendered and billed for on 28th February, 1997 and therefore, the expenditure could not be allowed in a subsequent year but that question has not been given much importance by the learned Tribunal for the simple reason that an appeal relating to the year to which the expenditure pertained was also pending and therefore there was, in substance, no reason why the expenditure should not have been allowed. Therefore, the question are of no substance altogether. Disallowance of entrance fees paid to the clubs - ITAT allowed the claim - Held that - Tribunal in allowing entrance fees paid to the clubs relied on the judgement of Gujrat High Court in the case of Gujrat State Export Corporation Ltd. v. CIT reported in (1993 (9) TMI 52 - GUJARAT High Court) Disallowance of sum paid to employees under Voluntary Retirement Scheme - ITAT allowed the claim - Held that - The question does not really arise for consideration because the money spent by the assessee in meeting the liability of voluntary retirement was recovered from the subsidiaries. The money so recovered has been offered for taxation and has been taxed as income arising from other sources whereas the expenditure incurred on account of voluntary retirement was disallowed. The obvious incongruity was removed by the learned Tribunal. Therefore, this question is really based on non-application of mind. Disallowance of proportionate interest with reference to Section 36(1)(III) on borrowed capital for the purpose of determining the tax free dividend income - ITAT allowed the claim - Held that - Tribunal has deleted the disallowance following its judgement for the earlier years. But no finding was arrived at by the learned Tribunal indicating that the borrowed capital was not utilized for the purpose of earning exempt income. In the absence of such a finding the disallowance could not have been deleted. Therefore, to that extent, the judgement of the learned Tribunal is set aside and the matter is remanded to the assessing officer. Addition of Mesne Profit - ITAT deleted addition - Held that - The question is again an outcome of non-application of mind because the order for payment of mesne profits attained finality on 30th July, 1999. Therefore, the same can only be assessable in the year 2000-2001. The learned Tribunal did the correct thing. But the appellant has framed the question without applying any mind. Disallowance of Building Repairs & Maintenance expenditure - - ITAT deleted addition Held that - The question is equally an outcome of non-application of mind. The immovable property has partly been let out and there were other properties rented by the assessee for the purpose of its business. The view taken by the learned Tribunal is evidently a possible view and no reason is forthcoming why is the same perverse.

Issues:
1. Appeal presentation and subsequent proceedings
2. Disallowance of interest under Section 36(1)(III) of the Income Tax Act
3. Expenditure on promoting corporate image
4. Legal fee disallowance
5. Legal charges for amalgamation disallowance
6. Club entrance fees disallowance
7. Voluntary Retirement Scheme disallowance
8. Disallowance of proportionate interest on borrowed capital
9. Mesne Profit addition
10. Building Repairs & Maintenance expenditure disallowance

Analysis:
1. The appeal was presented in 2004 but faced delays and non-appearance by the appellant. The Court refused adjournment requests and noted the appeal's origin from a judgment by the Income Tax Appellate Tribunal for assessment years 1998-99 and 1999-2000.

2. The appellant questioned the disallowance of interest on borrowed capital. The Court noted the basis for deletion of disallowance and the relevance of previous judgments in similar cases. Questions (a) and (b) were deemed irrelevant due to established precedents.

3. The expenditure incurred for promoting the corporate image was disputed. The Tribunal's decision was based on a judgment regarding allowable deductions for organizing tournaments, aligning with the Delhi High Court's view.

4. Legal fee disallowance and legal charges for amalgamation were considered factual questions. The Tribunal allowed certain legal expenses while disallowing others, emphasizing the timing of expenditure and pending appeals.

5. Club entrance fees disallowance was based on a Gujarat High Court judgment. The Court upheld the Tribunal's decision regarding the entrance fees paid to clubs.

6. Voluntary Retirement Scheme disallowance was addressed. The Court clarified the recovery of expenses from subsidiaries and the consequent taxation, leading to the deletion of disallowance by the Tribunal.

7. Disallowance of proportionate interest on borrowed capital was scrutinized. The Court found a lack of evidence regarding the capital's use for earning exempt income, leading to a remand for further assessment.

8. Mesne Profit addition was discussed, highlighting the finality of the order and its assessability in subsequent years according to the Tribunal's decision.

9. Building Repairs & Maintenance expenditure disallowance was reviewed. The Court examined the Tribunal's reasoning and found it to be a possible view, dismissing claims of perversity.

10. The judgment was delivered with the assistance of the respondent's advocates, partially admitting and allowing the appeal while emphasizing the need for expedited proceedings due to the case's age.

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