2019 (11) TMI 549 - HC - Income Tax

Addition u/s 40A - Disallowance of reimbursed by the company to an institute established for running a school at Satna - Whether running of school is not a business activity of the company and that the payment is hit by the provisions of section 40A(9)? - HELD THAT - As held that the amount paid to an institute for running a school at Satna in Madhya Pradesh, was not hit by Section 40A(9) as it was in the nature of reimbursement of expenditure. This by following the decision of this Court in CIT vs. Glaxo Smithkline Pharmaceuticals Ltd. 2012 (3) TMI 565 - BOMBAY HIGH COURT and Apex Court s decision in Kennametal (I) Ltd., v/s. CIT 2013 (2) TMI 627 - SC ORDER Thus, the question (b) as proposed does not give rise to any substantial question of law. Thus, not entertained. Appeal admitted on the substantial question of law at (a) - Tribunal was justified in upholding the order of the CIT(A) in deleting disallowance reimbursed by the company to an institute established for running a school at Satna without appreciating the fact that running of school is not a business activity of the company and that the payment is hit by the provisions of section 40A(9)?

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for Assessment Year 2005-06.
2. Acceptance of 'Mine Development expenses' and 'Lease expenditure' as revenue expenses.
3. Deletion of disallowance of reimbursed amount for running a school at Satna under section 40A(9) of the Income Tax Act, 1961.

Analysis:
1. The appeal challenges the Tribunal's order dated 16th May, 2016, for Assessment Year 2005-06 under Section 260-A of the Income Tax Act, 1961. The Revenue raises questions of law regarding the acceptance of 'Mine Development expenses' and 'Lease expenditure' as revenue expenses without considering their enduring and non-recurring nature.

2. Regarding Question (b), it is noted that the issue has been previously settled in favor of the Respondent-Assessee by a decision of the Court in a similar case for Assessment Year 2003-04. The Court found no distinguishing features between the current Assessment Year and the previous one. Citing precedents, it was established that the payment made for running a school at Satna was a reimbursement of expenditure and not in violation of Section 40A(9) of the Act.

3. The Court held that the issue raised in Question (b) did not present any substantial question of law and thus was not entertained. However, the appeal was admitted on the substantial question of law raised in Question (a). The Registry was directed to provide a copy of the order to the Tribunal for necessary action. The case was scheduled to be heard along with other related appeals.

This detailed analysis of the judgment highlights the legal issues involved, the arguments presented, and the Court's conclusions on each matter, maintaining the integrity of the original text and legal nuances.