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2017 (7) TMI 1199 - HC - Income TaxDisallowance of cash refunds of tuition fee claimed - Held that - As the respondent contended that the refund amount which has been given to the students in view of the condition and it was given each of the individual pursuant to the dishouring of the catching clause after deducting the requisite basic fees which was required to be submitted and the same was part of their books of accounts. Considering the same, the view taken by the tribunal is just and proper and first issue is required to be answered in favour of the assessee. Disallowance made under Section 40(a)(ia) - TDS u/s 194C - Held that -in the case of a pharmaceutical product where the ultimate consumer is legitimately entitled to ensure that her health is not prejudiced by the consumption of a product not meeting prescribed standards. The owner of a mark, therefore, introduces specifications to ensure that the product meets the standards justifiably associated with the reputation in the mark. The specification ensures the observance of standards. Similarly, a clause relating to exclusivity is not inconsistent with a transaction of sale. Here again, much depends upon the nature of the product. Restrictive covenants of this kind are intended to protect the intellectual and other property rights of a party which markets its goods by requiring a manufacturer to observe norms of specification and exclusivity. The law is, therefore, consistent with the transaction being regarded as a transaction of sale, provided that the requirements of a contract of sale are met. They are in this case. The contract entered into by the assessee is not a contract for carrying on any work within the meaning of Section 194C. Revenue was not justified in treating the assessee, as an assessee in default. Addition on account of interest free loans to relatives - Held that - There is nothing on record that the money advanced by the appellant to its sister company had been used as a measure of commercial expediency, was not justified. The appellant furnished all the documents in this regard. The appellant expressly stated that the amounts had been utilized for commercial activity. This assertion was never denied. The appellant was not required to do anything further to establish its assertion that its sister company had utilized the amounts for the purposes of its business. The finding of the Tribunal is not based on any material. It is important to note that the Tribunal had not even suggested that such a case was put to the appellant or its authorized representative and that despite the same the appellant failed to establish the same - the question of law is answered in favour of the appellant and against the department. The order of the Tribunal is set aside. The appellant shall be entitled to the deduction under Section 36(1)(iii)
Issues Involved:
1. Whether the ITAT was justified in deleting the addition of ?3,65,249/- made by the Assessing Officer on account of disallowance of cash refunds of tuition fees claimed by the assessee. 2. Whether the ITAT was justified in law in upholding the decision of CIT(A) deleting disallowance of ?1,31,72,504/- made under Section 40(a)(ia) of the Act. 3. Whether the ITAT was justified in law in upholding the order of CIT(A) deleting the addition of ?15,13,715/- on account of interest-free loans to relatives. Detailed Analysis: 1. Deletion of Addition on Account of Disallowance of Cash Refunds of Tuition Fees: - The department challenged the Tribunal's decision to modify the order in favor of the assessee concerning the disallowance of cash refunds of tuition fees amounting to ?3,65,249/-. - The Assessing Officer (AO) had initially disallowed the amount due to the appellant's failure to provide necessary and sufficient evidence during the appeal proceedings. - The Tribunal, however, observed that the AO did not conduct an independent inquiry despite having complete details of students and refunds maintained by the assessee. The Tribunal directed the AO to delete the addition of ?3,65,249/-. - The respondent's counsel argued that the refund was given to students as per conditions and was part of the books of accounts, making the Tribunal's decision just and proper. 2. Deletion of Disallowance under Section 40(a)(ia): - The appellant contended that the Tribunal wrongly relied on the 2006-07 circular in considering the disallowance of ?1,31,72,504/- under Section 40(a)(ia). - The respondent's counsel cited several judgments to support the claim that the transaction in question was a contract of sale and not a works contract, thus falling outside the purview of Section 194C. - Key judgments cited include: - CIT v. Dabur India Ltd. (2006): Printing labels on corrugated boxes was considered a sale of goods. - CIT v. Deputy Chief Accounts Officer, Markfed Khanna Branch (2008): The predominant object of the contract was for the sale of goods. - Commissioner of Income Tax vs. Girnar Food and Beverage P. Ltd. (2008): The arrangement was deemed a contract of purchase/supply simpliciter. - The Commissioner of Income Tax-TDS vs. Glenmark Pharmaceuticals Ltd. (2010): The distinction between a contract for sale and a contract of work was elaborated. - Commissioner of Income Tax vs. Karnataka Power Transmission Corporation Ltd. (2012): Clarified the definition of "work" under Section 194C. - The Commissioner of Income Tax and The Income Tax Officer (TDS) vs. The Bangalore District Cooperative Milk Producers Societies Union Ltd. (2013): The amendment to the definition of "work" was held to be clarificatory and retrospective. - Commissioner of Income Tax vs. Spice Telecommunications (P.) Ltd. (2014): Placing orders for SIM/scratch cards was not considered a contract for carrying out works. 3. Deletion of Addition on Account of Interest-Free Loans to Relatives: - The appellant argued that the Tribunal wrongly confirmed the order of CIT(A) in deleting the addition of ?15,13,715/-. - The respondent's counsel relied on several decisions to argue that interest-free loans given as a measure of commercial expediency should be allowed: - S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals), Chandigarh and Anr. (2007): The Supreme Court held that interest-free loans given for commercial expediency should be allowed. - Hero Cycles (P) Ltd. vs. Commissioner of Income Tax (Central), Ludhiana (2015): The Court emphasized the need to view the expenditure from the perspective of a prudent businessman. - Commissioner of Income Tax vs. Jugal Kishore Dangayach (2014): The Tribunal's finding that trade transactions justified the interest-free loans was upheld. - The Commissioner of Income Tax-7 vs. Reliance Communications Infrastructure Ltd. (2012): Investments in subsidiaries for furthering business were considered commercially expedient. - Bright Enterprises Pvt. Ltd. vs. Commissioner of Income Tax- (2016): Advances to sister concerns for business purposes were justified. - Commissioner of Income Tax-2 v. Tata Chemicals Ltd. (2016): The test of commercial expediency was applied. Conclusion: - The court agreed with the Tribunal's view, based on the evidence and clarifications provided, and answered all issues in favor of the assessee. - The appeal was dismissed.
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