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TMI Blog2014 (2) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... an arrangement which is perfectly permissible and which may have the effect of reduction of tax burden need not be seen with tainted disfavor – Decided against Revenue. Nature of Expenses - Whether the expenditure is to be allowed as a deduction from business income as it is incurred in connection with lease of property, income from which is assessed under the head 'Income from house property and the legal expenses incurred in connection with obtaining a security deposit from a client can be treated as business expenditure merely because such deposit amount was utilised for business purposes – Held that:- There was a direct and proximate nexus between the legal expenses incurred and the business carried on by the assessee – The decision Orient Beverages Ltd. v. Asst. CIT [1993 (9) TMI 151 - ITAT CALCUTTA-E ] followed - the legal charges and other expenses incurred by the assessees for their property division was allowable as a deduction in computing the profits and gains of business as the expenses resulted in substantial savings in business expenses of the assessee. The assessee has derived income under various heads of income and one of the income was on account of dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /89 and 1167/C/91, allowed the case in favour of the assessee. Aggrieved by the said order, the Revenue filed an appeal in I. T. A. No. 580/Mds/2007 before the Income-tax Appellate Tribunal and the Tribunal dismissed the said appeal, vide order dated March 28, 2008. Challenging the same, the Revenue has come forward to prefer this appeal. At the time of admitting this appeal, the following substantial questions of law were framed by this court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the licence fee paid to M/s. RPG Enterprises Ltd. can be deducted as a business expenditure ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred towards legal expenses, retainer fee and consultancy charges is to be allowed as a deduction from business income, when such expenditure was incurred in connection with lease of property, income from which is assessed under the head 'Income from house property' ? 3. Whether, on the facts and in the circumstances of the case, legal expenses incurred in connection with obtaining a security deposit from a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on the assessee, it being common ground that the commission was due and had become payable and was, therefore, the business income of the assessee-company liable to be taxed in the assessment year. The jurisdiction of the High Court in the matter of income-tax references is an advisory jurisdiction and under the Act the decision of the Tribunal on fats is final, unless it can be successfully assailed on the ground that there was no evidence for the conclusions on facts recorded by the Tribunal." (b) Amritlal and Co. Pvt. Ltd. v. CIT [1977] 108 ITR 719 (Bom), wherein it was held as follows (page 736) : "In the first place, the payment of commission is disproportionately high as compared to their salaries and, secondly, no trade practice had been pointed out by the assessee-company in support of the commission paid. In other words, the expenditure incurred cannot be said to have satisfied the requirements of the proviso to clause (x) of sub-section (2) of section 10. In this view of the matter, it is clear that the assessee-company could not be allowed the deduction claimed in respect of these payments made to Shri Kamat and Shri Shah." (c) In Andrew Yule and Co Ltd v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e improper of oblique purpose outside the course of business management', it could not be treated as a permissible deduction." (e) In Pondicherry Railway Co. Ltd. v. CIT, AIR 1931 PC 165, it has been held as follows : "Question (d) relates to the quantum of the assessment. The statute permits the assessee in computing the profits or gains of any business carried on by him to deduct : 'any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains'." On the other hand, learned senior counsel for the respondent-assessee submitted that the respondent-assessee belong to the RPG group of companies and that in case of large group of companies like that of the respondent-assessee, the business overheads is shared by establishing a common organisational service platform to provide common services to all the group companies. It is an established practice in many large business groups to establish a common administrative or service platform to cater the need of the companies in the group. Learned senior counsel cited the examples of M/s. Duncon Industries Ltd. under the Duncan group of companies and M/s. Eveready Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his arguments. The decisions cited on behalf of the respondent-assessee are : (a) Britannia Industries Ltd. v. State of Tamil Nadu [2012] 48 VST 241 (Mad). It was held in this decision as follows (page 244) : "Given the fact herein that edible oil sold to the assessee had enjoyed the exemption under the Government order by reason of the sellers' turnover being below Rs. 300 crores limit and that the goods sold to the assessee was consumed in the manufacture of biscuits thus the edible oil is no longer available for further tax treatment as per proviso to section 3(2), rightly the assessment was brought to tax under section 7A of the Act. Given the object of introduction of section 7A, to plug the leakage and to prevent evasion of tax, even though there is no 'evasion of tax' as such in the sense in which 'evasion' is understood, applying the decision reported in State of Tamil Nadu v. M. K. Kandaswami [1975] 36 STC 191 (SC), we reject the submission of the assessee that the exemption granted is a circumstance which ought to have been taken note of as excluding the charge under section 7A of the Act." (b) In Municipal Corporation of City of Thane v. Vidyut Metallics Ltd. [2007] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the view that it may be true and not disputed that M/s. RPG Enterprises Ltd. had incurred this expenditure but the business purpose of the assessee reimbursing the said expenses to M/s. RPG Enterprises Ltd. was not established and that the payment of licence fee was more in the nature of an application of income by the assessee. The Assessing Officer disallowed the claim of the assessee towards the licence fee paid to M/s. RPG Enterprises Ltd. and added the said amounts to their income. The appellate authority, the Commissioner of Income-tax (Appeals), relying on the order passed by the Kolkatta Income-tax Appellate Tribunal in the case of M/s. Philips Carbon Black Ltd. was of the view that by taking the benefit of the common business establishment, the assessee could access the expert advice in various business fields and, therefore, the licence fee paid to M/s. RPG Enterprises Ltd. was a business expenditure incurred wholly and exclusively for the purpose of business. The appellate authority found that the facts and circumstances of the assessee's case were identical to the facts of M/s. Philips Carbon Black Ltd. and, therefore, following the order passed by the Kolkatta Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was taken up in appeal before the Bombay High Court. We find that the findings recorded by the Bombay Tribunal were essentially based on the decision of the Madras Bench of the Tribunal rendered in RPG Transmission's case, which order is impugned before this court. We, therefore, cannot solely rely on the decisions cited by the learned counsel for the respondent-assessee as at the time of rendering the abovesaid decision, the present appeal was already admitted and, therefore, this court could very well examine the correctness or otherwise of the Tribunal's order. We have carefully examined the order of the Tribunal, which is impugned before us in this appeal. We find that while concurring with the Commissioner of Income-tax (Appeals) on the issue of licence fee paid, the Tribunal had set aside the findings of the assessing authority. The essential fact which emerged from the material on record was whether the expenditure incurred by the assessee towards payment of licence fee to M/s. RPG Enterprises Ltd. was justifiable on the facts for allowance. We note from the order of the Commissioner of Income-tax (Appeals) as well as the order of the Tribunal that the respondent-assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any reason on the facts and circumstances of the matter to take a different view. Following the said decisions, we answer the substantial question of law No. 1 raised in this appeal in favour of the assessee and against the Revenue. Substantial questions of law No. 2 and 3 The respondent-assessee claimed Rs. 49,98,616 as legal charges out of which Rs. 41,54,551 was disallowed by the assessing authority. The assessing authority had also disallowed the assessee's claim of Rs. 1,21,545 towards retainer fee and Rs. 18,500 towards consultancy charges. The appellate authority Commissioner of Income-tax (Appeals) set aside the assessment and deleted the disallowance of the above amounts. The Tribunal upheld the order of the appellate authority deleting the disallowance of the said amounts. Learned standing counsel for the Revenue reiterating the submissions made before the appellate authority as well as the Tribunal wanted us to sustain the order of the assessing authority and in support thereof, he relied on the decision of the Supreme Court in East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC), wherein the honourable Supreme Court has held as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Universal Plast Ltd., (2) Guntur Merchants Cotton Press Co. Ltd. v. CIT reported in [1999] 237 ITR 454 (SC). The question involved therein was as to whether income from letting of the property was to be treated as 'business income' or not. As has been pointed out in the decision in the case of Universal Plast Ltd., Guntur Merchants Cotton Press Co. Ltd. v. CIT reported in [1999] 237 ITR 454 (SC), when the facts noted in the case before us clearly point out that the transaction was only by way of exploitation of the property by the assessee and not by way of exploitation of business assets, we do not find any ground to accept the contention of the assessee that the nature of business carried on by the assessee would be conclusive of the nature of receipts on the letting of the property. Going by the decision in East India Housing and Land Development Trust Ltd. v. CIT reported in [1961] 42 ITR 49 (SC), when the rental income falls within the specific head of income from house property, the mere fact of the assessee having business in letting out the property as stated in its memorandum, by itself, will not conclusively point out that the income is nothing but business income. Even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered view, does not suffer any infirmity, warranting our interference in this appeal. The assessing authority while disallowing the expenditure on account of legal expenses held that these expenses were incurred specifically for dealing with tenants and, therefore, could be only relatable to the properties in issue and, therefore, cannot be treated as business expenditure and consequently deduction was not permissible. The appellate authority while discussing the issue at length, at pages 22 to 32 of the order, found that it was only because of initiation of legal action that deposits to the tune of Rs. 10 crores could be collected, that too, as interest-free deposits, which in turn has benefited the assessee's business. This, in our view, would constitute a business expenditure wholly and exclusively incurred for the purpose of business and, hence, the appellate authority rightly deleted the addition. In the appeal filed by the Revenue against the said order, the Tribunal, while confirming the order of the appellate authority discussed the issue threadbare at pages 32 to 42 of the order and found that the expenditure so incurred was necessarily a business expenditure and, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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