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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 ..... entative of the assessee-company, the Assessing Officer completed the assessment on March 30, 2004, by disallowing a sum of Rs. 1,37,21,673 paid by the assessee towards licence fee to M/s. RPG Enterprises Ltd. and also disallowed legal expenses, retainer fee and consultancy charges on the ground that the said expenditure pertained to earning of rental income assessed under the head "House property" and, therefore, not permissible in computing the business income. As against the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), who, vide order dated November 27, 2006, allowed the claim regarding payment of licence fee to M/s. RPG Enterprises Ltd., following the assessee's own case for the assessment year 2003-04 and with regard to the disallowance of legal charges, following the decision of the Income-tax Appellate Tribunal, Calcutta Bench in I. T. A. Nos. 1002/C/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 sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proving that the licence fee paid was wholly and exclusively for the purpose of their business and that the authorities below committed a gross error in overlooking these findings of the assessing authority. Learned standing counsel for the Revenue also submitted that the payment of licence fee to M/s. RPG Enterprises Ltd. was a mere reimbursement of expenditure incurred by M/s. RPG Enterprises Ltd. for their own activities and not for the purpose of the assessee's business activities. Learned standing counsel for the Revenue relied on a few decisions to substantiate his arguments. The cases cited are as follows : (a) CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC) wherein the honourable Supreme Court held as follows (page 196) : "Now, it is clear that this being a claim for exemption of an amount, contended to be an expenditure falling under section 10(2)(xv), the burden of proving the necessary facts in that connection was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy agreement the affairs of the company were administered by Lala Ram Rattan Gupta and Lala Ram Prasad Gupta, that even after the termination of the managing agency Lala Ram Rattan Gupta and Lala Ram Prasad Gupta continued to administrator the affairs of the company, and that on the materials on record it was not proved that the managing agents were performing any service to the company. The Tribunal, therefore, held that the payment of the managing agency commission to the managing agents was not expenditure wholly and exclusively incurred for the purpose of the company's business. The Tribunal also observed that the disputed between the two groups could in no way harm or cause hindrance to the 'normal day-to-day working of the company . . . After a detailed consideration the High Court held that the expenditure in question was not made wholly and exclusively for the purpose of the company's business, and was by way of distribution of profits, and being wholly gratuitous or 'for some 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee would have incurred higher financial costs. The payment of licence fee paid to M/s. RPG Enterprises Ltd. was undoubtedly, as has been held by the Commissioner of Income-tax (Appeals) and the Tribunal, a business expenditure wholly and exclusively for the purpose of the respondents business. Learned senior counsel for the respondent-assessee, referring to the agreement dated May 3, 1999, entered into with M/s. RPG Enterprises Ltd. submitted that in terms of the said agreement, the licensee (respondent) has to reimburse the licensor (M/s. RPG Enterprises Ltd.) their share of costs incurred for availing of the benefits of the expertise developed by M/s. RPG Enterprises Ltd. It was on the basis of the said agreement, for availing of the benefit of business expertise from M/s. RPG Enterprises Ltd., the respondent-companies had paid the licence fee on the basis of the debit notes raised by RPG Enterprises. Learned senior counsel relied on certain decisions to buttress 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed as such." (d) Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), wherein it has been held (page 755) : "In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether a provision should be construed literally or liberally, nor whether the transaction is not unreal, and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it." Having heard the learned standing counsel for the Revenue and the learned counsel for the respondent-assessee, we have also carefully gone through the material available on record and the order passed by the authorities below and that of the Tribunal. The assessing authority held that the respondent-assessee and M/s. RPG Enterprises Ltd. are two different legal entities under the Income-tax Act and, therefore, the sharing of expenditure of some other entity by the assessee was not an allowable expenditure. The assessing authority was of the view that it may be true and not disputed that M/s. RPG En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n's case, where the Calcutta High Court had dismissed the appeal filed by the Revenue on the licence fee holding that no substantial question of law was involved. It is pertinent here to note that the said decision was not rendered on the merits of such expenditure which was allowed as business expenditure but the High Court was of the view that no substantial question of law was involved. In such circumstances, the said decision of the Calcutta High Court may not be of any assistance to the respondent-assessee to substantiate their claim. It was also pointed out on behalf of the respondent-assessee that the Bombay Tribunal in the case of RPG Life Science has allowed the deductions towards the licence fee paid to RPG Enterprises Ltd. and that the said decision of the Bombay Tribunal was confirmed by the Bombay High Court. We note from the order of the Bombay High Court that the appeals were dismissed at the stage of admission as the High Court was of the view that no substantial question of law was involved for a decision by the High Court. We have carefully perused the order passed by the Bombay Tribunal, which was taken up in appeal before the Bombay High Court. We find that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y case. It is settled law in so far as the scope, power and ambit of the High Court in exercise of jurisdiction under section 260A of the Income-tax Act and the sum and substance of the decisions relied upon by the learned counsel on either side is that once the Tribunal and the appellate authority has decided the case with reference to the explanation offered by the assessee in detail then the court cannot interfere on the case. Further, if the findings of fact arrived at by the authorities below are based on proper appreciation of the facts and the material available on record and surrounding circumstances then that will not involve any substantive question of law. In our judgment in the tax appeals in T. C. (A.) Nos. 310 to 312 of 2007 and T. C. (A.) Nos. 1388 to 1390 of 2007 (CIT v. RPG Transmissions Ltd. [2013] 359 ITR 673 (Mad) (infra), which was heard along with this appeal and disposed of today, we have held that a transaction or an arrangement which is perfectly permissible and which may have the effect of reduction of tax burden need not be seen with tainted disfavour. In this appeal also we do not find any reason on the facts and circumstances of the matter to take a dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so relied on the decision in CIT v. Ideal Garden Complex P. Ltd. [2012] 340 ITR 609 (Mad). The question which came up for consideration in this case was whether income from letting out of property was to be assessed as "business income" or "income from house property", and ultimately, it has been held in the said judgment as follows (page 622) : "It is seen from the order of assessment that the assessee took on lease the land and building owned by Mr. Sethu, director of the company. The assessee constructed the commercial complex and received rental income therefrom. The Assessing Officer pointed out that it was the only activity carried out during the year 1991-92 ; there were no other activity thereafter carried on ever since 1991-92. Under such circumstances, the Assessing Officer concluded that there was no such thing as exploitation of business assets. There are no materials placed before us by the assessee to contradict the abovesaid facts . . . . We have already referred to the decision of the apex court in East India Housing and Land Development Trust Ltd. v. CIT reported in [1961] 42 ITR 49 (SC), which was also considered in the case of (1) Universal Plast Ltd., (2) Gunt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me decisions which we have quoted in the earlier part of this judgment for this purpose. We have carefully gone through the orders passed by the authorities below and that of the Tribunal. The assessing authority was of the view that since the legal expenses and other expenses incurred are not covered by section 24 of the Income-tax Act, no deduction was permissible. The appellate authority set aside the assessment and deleted the disallowance by observing that there was a direct and proximate nexus between the legal expenses incurred and the business carried on by the assessee. The Tribunal, following the decision of the Calcutta Bench of the Tribunal in a similar case of Orient Beverages Ltd. v. Asst. CIT (I. T. A. T. Nos. 1002/Cal/ 89 and 1167/Cal/91), confirmed the order of the appellate authority, the Commissioner of Income-tax (Appeals) and held that 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 order passed by the Tribunal, in our considered view, does not suffer any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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