2019 (4) TMI 79 - HC - Income Tax

Entitlement to claim deduction of the club expenses - HELD THAT - Admittedly, the said amount incurred by the Assessee is towards the 'membership fees', only to provide entry to the club and never to meet any expense in respect of the comforts or consumption of food or beverages by the individuals. This issue has already been dealt with in detail by this Court and the position has been answered in favour of the Assessee and against the Revenue. Entitled to make provision for loyalty payable to M/s.General Tyres International Company of U.S.A. for a period prior to 13.10.1993, as the agreement executed by the parties was approved by the Government of India only on 13.10.1993 - HELD THAT - Referring to the actual facts and circumstances including that the approval was given with reference to the continuation of the agreement from the date of expiry of the previous agreement, this question has been answered by this Court in favour of the assessee and against the revenue, as per our verdict 2019 (4) TMI 78 - KERALA HIGH COURT . In the said circumstance, it stands answered against the Revenue in the instant case as well, in respect of the assessment year in question. Dis-allowance on account of the lower of 4% charge on inter-corporate deposit than interest paid by the assessee on the ground of business expediency - HELD THAT - This is sought to be rebutted by the learned Sr.Counsel for the assessee, pointing out that the payment of interest in respect of the deposits procured or made among different companies, on different dates, depend upon the facts and circumstances prevailing on the given date and the business expediency as on that date, which may vary from time to time. There cannot be any 'universal rate' or rule in this regard and further, the Department, at no point of time, was having any case that the interest satisfied by the Assessee at a higher rate to the Companies concerned, in connection with the inter-corporate deposits procured by the Assessee, was actually not incurred by the Assessee. In the said circumstance, the verdict passed by the Tribunal does not call for any interference, submits the learned Senior Counsel. After hearing both the sides, this Court is of the view that the finding and reasoning given by the Tribunal is quite in order; more so, since it is only a 'question of fact' and no substantial question of law is involved Commission paid by the suppliers of the assessee to the different investment companies amounts to diversion of funds - HELD THAT - AO found that the commission paid by the suppliers to the investment companies was not accounted in the accounts of the assessee and hence addition was made in this regard. This was deleted by the Commissioner (Appeals) in the appeal filed by the Assessee, holding that the same is not correct or sustainable and that the said commission receipts were to be assessed at the hands of the investment companies and not at the hands of the Assessee. This was affirmed by the Tribunal in Annexure-C order, holding that the aforesaid commissions have already been substantively assessed at the hands of the investment companies. This being the position, it could not have been assessed at the hands of the assessee under any circumstance. The said finding on fact is not assailable under any circumstance and we hold it against the Revenue. Addition on account of the sale of good tyres as defective or second quality tyres - Held that - AO restricted the quantum to 1%, as reckoned in respect of the Gujarat unit and made addition to the requisite extent. In the appeal filed by the Assessee, the Commissioner (Appeals) found that there cannot be any addition on the basis of surmises or conjectures and that the accounts were accepted and not rejected; adding that such reduction in the value was because of the defects with reference to the consumer complaints. The said finding was affirmed by the Tribunal. We are of the view that this is purely a 'question of fact' answered with reference to the materials on record and no interference is warranted at our hands, as no substantial question of law is involved. Question is answered against the Revenue. Dis-allowance from the general expenses for lack of vouchers - HELD THAT - As per Annexure-C order under challenge, the Tribunal held that there was no valid ground to call for interference with the order passed by the Commissioner. The said 'finding on fact' is not liable to be interdicted by this Court, for want of any substantial question of law. Question stands answered against the Revenue. Entitlement to claim being the rent paid for the Allahabad Bank building and is not the rent payment, 'personal' in nature - Commissioner (Appeals), restricting the dis-allowance only to an extent of the remaining 50% - HELD THAT - The Tribunal declined interference in both the appeals, holding that there was no tenable ground. In fact, it is borne out from the materials on record, that the Chairman and Managing Director of the Assessee Company was also the Chairman and Managing Director of some other Companies as well, who are housed in the building in question and as such, the dis-allowance/restriction to an extent of 50% came to be sustained. We do not find any reason to interdict the said finding and reasoning and no substantial question of law (but for a question of fact) is brought to our notice. It stands answered against the Revenue.

Summary

Issues involved:
1. Club expenses deduction
2. Provision for royalty payment
3. Interference with disallowance on inter-corporate deposit interest rate
4. Commission payment diversion of funds
5. Addition on sale of defective tyres
6. Restriction of general expenses disallowance
7. Rent payment for non-business purpose

Detailed Analysis:
1. Club expenses deduction:
The court upheld the deduction of club expenses by the assessee, ruling in favor of the assessee against the revenue. The expenses were deemed to be for membership fees only and not for personal consumption, as clarified in a previous judgment by the court.

2. Provision for royalty payment:
The court ruled in favor of the assessee, allowing the provision for loyalty payable to M/s. General Tyres International Company of U.S.A. for a period prior to the official approval date by the Government of India. The approval was considered in the context of the continuation of the agreement from the previous expiry date.

3. Interference with disallowance on inter-corporate deposit interest rate:
The court upheld the Tribunal's decision to interfere with the disallowance of a lower interest rate on inter-corporate deposits, citing business expediency and lack of substantial evidence to support the revenue's claim.

4. Commission payment diversion of funds:
The court ruled that the commission paid by suppliers to investment companies did not amount to diversion of funds by the assessee. The commissions were deemed to be assessed at the hands of the investment companies and not the assessee, as affirmed by the Tribunal.

5. Addition on sale of defective tyres:
The court upheld the Tribunal's decision to interfere with the Assessing Officer's addition on the sale of defective tyres, considering it a question of fact based on the materials on record. No substantial question of law was found to warrant interference.

6. Restriction of general expenses disallowance:
The court upheld the Tribunal's decision to restrict the disallowance of general expenses, finding no valid grounds for interference. The decision was considered a finding of fact and not involving any substantial question of law.

7. Rent payment for non-business purpose:
The court upheld the decision to restrict the disallowance of rent paid for the Allahabad Bank building, considering the Chairman and Managing Director's association with other companies housed in the building. The disallowance was sustained based on factual grounds without any substantial question of law.

In conclusion, the court dismissed the appeal filed by the Revenue, stating that it lacked substantial questions of law to warrant interference under the Income Tax Act.