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TMI Blog2017 (3) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... scientiously incur with an eye on promoting his business prospects, subject to the expenditure being genuine and within reasonable limits. Therefore, more than one of the positive tests have been proved. Therefore, more than one of the positive tests have been proved. Coming to the negative tests, it may be mentioned again that the Assessing Officer has not brought any material evidence on record that it is a bogus fictitious or sham transaction; it is unreasonable and out of proportion; and that it is an expenditure merely with a view to avoid tax liability without any genuine purpose or reason in good faith. Therefore, none of the conditions of the negative tests has been satisfied in this case. In Sasson J.David & Co.(P)Ltd. Vs. CIT [1979 (5) TMI 3 - SUPREME Court] has been held that the assessee can claim deduction under section 37(1) even though there is no compelling necessity to incur such expenditure. In Goodyear India ltd. Vs. ITO[2000] 73 ITD 189/68TTJ(Delhi)TM 330, it has been held that expenditure incurred to get right to use licence for limited period (where the assessee company, manufacturing tyres, entered into an agreement with a foreign company for technical kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not incurred for earning income from M/s. Ruia Sons Pvt. Ltd and as such is not coming under the ambit of section 37(1) of the Act. The fact giving rise to the said addition is that the assessee is a substantial share holder of M/s. Dunlop India Ltd and stood as a guarantor for loan taken from ICICI bank by Wealthsea Ptel Limited, Singapore based company and as a guarantor the assessee was required to take a stand by a letter of credit charges of ₹ 13,19,24,685/- (including Service Tax and Cess) 5. The Assessing Officer in coming to the conclusion to disallow a sum of ₹ 131924685/- has largely relied upon the decision of the order passed by the Assessing Officer Ward 8(3), Kolkata m the case of M/s Ruia Sons Pvt. Ltd.. The appeal filed against the order of the AO in the case of M/s Ruia Sons Pvt. L.td for the relevant AY 2009-10 has been disposed of by the undersigned vide Appeal No.213/CIT(A)-VlII/KoI/1l-12 dated 26.11.2012 wherein this issue has been dealt with in detail an decided the issue in favour of M/s Ruia Sons Pvt. Lid by observing in paragraphs Nos. 5.1.8 to 5.1.16 of that order as under:- 5.1.8. I have carefully considered the facts of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) the contentions expressed in the copies of the extracts of the board resolution, as claimed by the appellant, has already been duly considered in the assessment stage and strongly refuted in the assessment order itself with logic as well as relevant case laws. (v) It is also pertinent to mention here that it is incumbent on the Assessing Officer to explore the total gamut of the affairs of the assessee company. The transactions entered into by the assessee company are often not indicative of what meets the naked eye. The intention and actual purpose of the assessee company, along with its ramifications on its past, present and future incomes, as well as the effect it is going to case on other affected parties and beneficiaries have to be considered. The Assessing Officer has to lift the corporate veil and bring out the actual purpose of the actions of the assessee company to light. This has also been upheld in the case of CIT vs Indian Express Newspapers Madurai Pvt. Ltd. 238 ITR 70 (Mad). Thus, the case of the Assessing Officer is that the group companies were managed by a few, who could manage the affairs to reduce the tax burden through colourable devices. 6. On the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ICICI Bank where M/s Shalini Properties Developers P Ltd., was guarantor, another Board resolution was passed dated 28th of June 2008 for reimbursement of the SBLC charges to M/s Shalini Properties Developers P Ltd. 8. The A/R further argued that during the year, on use 0 he 'Dunlop brand. name and logo by way of royalty and SBLC charges the appellant had income of ₹ 123643645/-. Not only this; the income earning apparatus of the appellant company being the brand name and logo 'Dunlop' has resulted in much higher income in the subsequent years. Only in respect of royalty income from the use of Dunlop brand name and logo the jump in the royalty income is as under :- Financial Year Falcon Tyres India Tyre Rubber Dunlop Goodyear Tyre Total Rs. 2008-09 33903897 1050305 0 34954202 2009-10 91472539 827016 0 92299555 2010-11 165818393 875089 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the transaction was a colourful device. While holding, the Assessing Officer has considered the agreement and the fact of the case. The Assessing Officer has also gone on to point out the utilization of such loan taken by Wealthsea Pte Ltd. 11. In the remand report the Assessing Officer has not mentioned anything new than what has already been stated in the assessment order and in fact the Board s resolution which was considered as fresh evidence has been brushed aside by the Assessing officer by treating the same to be part of the assessment record and not fresh evidence. M/s. Shalini Properties Developers P. Ltd held 100% shares in Hiland Traders Pvt. Ltd. Which, in turn, held substantial shares in Dunlop India Ltd. M/s. Shalini Properties and Developers P.Ltd also held 45% in the equity capital of Wealthsea Pte Ltd. Which held the entire share holding in DIL Rim Wheels Corpn. Ltd. Which, in turn held substantial shares in Dunlop India Ltd. Therefore, Shalini Properties Developers Ltd. Was having substantial interest in Dunlop India Ltd. Accordingly, Wealthsea Pte Ltd. Had approached ICICI Bank, Singapore which was agreeable to release funds provided a standby Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been benefited from the finances obtained by Wealthsea Pte. Ltd in terms of which the appellant company has paid processing fee, SBLC charges to M/s. Shalini Properties Developers P. Ltd. Who in turn has paid the same to ICICI Bank Ltd. 12. One of the allegations of the Assessing Officer is that it is a colourful device which resort to eat away the profit of the appellant company or diversion of the income. On the facts of the case, it seems to be unusual that at one instance the company would be earning income from utilization of resources from its group companies and on the other hand resort to a colourful device to eat away into the income. It is unusual because it is not the case of the appellant company that the income is being earned from third party or it is a fixed income being earned from previous year and in order to eat into such income a method or a resort is being adopted which is colourful in nature. Here, it is from the A.Y. 200p9-10 that the source of income has been generated and Board s resolution is absolutely clear as to the gamut of affairs of the appellant company and the involvement of M./s Shalini properties Developers Ltd. Is not in doubt. Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt of amount which is really and in truth his income eligible to tax but on which he avoids payment of tax by some artifice or device. Such artifice or device may apparently shows the income as accruing to another person at the same time making it available for use and enjoyment to the assessee as in the case falling within section 44D or mask the true character of the income by disguising it as a capital receipt as in a case falling within section 44E or assume diverse other forms. But there must be some artifice or device enabling the assessee to avoid payment of tax on which is really and in truth his income. If the assessee parts with his income producing asset, so that the right to receive income arising from the asset which therefore belongs to the assessee is transferred to and vested in some other person, there is no avoidance of tax liability, no part of the income from the asset goes into the hands of the assessee in shape of income or under any guise. 13. Reliance has been placed by the Assessing Officer in the case of Kaycee Electrical Vs DCIT 87 ITD 35 (Delhi) in which case the facts were that the entire transaction which could generate income were kept secre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt under a different nomenclature the transaction could not be called into question as a colourable device. In Birla Cotton Spinning Wvg. Mills Ltd. Vs CIT (1971) 82 ITR 166 (SC) it has been held that It must be remembered that the earning of profits and the payments of taxes are not isolated and independent activities of a business. These activities are continuous and take place from year to year during the whole period for which the business continues. If the assessee takes steps for reducing its liability to tax which results in more fund being left for the purpose of carrying on the business there is always a possibility of higher profits. The expenditure which was incurred by the assessee was, therefore, allowable Birla Cotton Spg. Wvg. Mills Ltd. Vs. CIT (1967) 64 ITR 568 (Cal) followed. On the facts and in the circumstances of the case, what is to be examined is whether the transaction is a revenue expenditure and if so, whether the said expenditure had been laid out wholly and exclusively for commercial expediency. As the Income-tax Act does not define the terms capital expenditure and revenue expenditure one has to depend upon their natural meaning as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncements should be kept in view while determining whether a particular expenditure is a capital or revenue in nature. In Empire Jut Co Ltd. V. CIT [1980] 124 ITR 1 (SC), it has been held that if the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently or profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. In the instant case, the payment has not been made for acquiring a brand name, but for facilitating for acquisition of the brand name, which in turn made substantial improvement in earning capacity of the appellant s business. The payment is in the form of a brokerage or commission or service charges. (not-withstanding its liability for TDS). Therefore on the facts and in the circumstances of the case in my view the expenditure incurred by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3es; (vii) apparently for a factor listed as a positive factor, but in reality for one of the obnoxious purposes listed as a negative factor; (ix) on a nebulous plea or pretext by way of an alibi in the name of winning profits in remote future but really for one or the other for the purpose listed as negative tests; (x) it is a bogus fictitious or sham transaction; (xi) it is unreasonable and out of proportion; (xii) it is an expenditure merely with a view to avoid tax liability without any genuine purpose or reason in good faith; and (xiii) the advantage to be secured by incurring the expenditure is of the nature of a remote possible advantage on ifs and buts and, if at all, to be secured at an uncertain future date which may be considered too remote. As pointed out earlier, one of the positive tests must be attracted and none of the negative tests should be satisfied in order to claim deduction under section 37(1) of the Act. In this case, ,the expenditure has been incurred with a view to bring profits or monetary advantage either today or tomorrow; the expenditure incurred is such as a wise, prudent, pragmatic and ethical man of the world of business would conscientio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny in making payment under the head SBLC charges of ₹ 11,74,12,500/- to Shalini Properties and Developers Pvt. Ltd. Is consideration of commercial expediency of the business of the appellant company and is allowable as deduction under section 37(1) of the IT Act :- (i) M/s. Shalini Properties Developers Pvt. Ltd has arranged for lease of Dunlop bran name, logo etc in favour of the appellant company for the period of 10 years. As stated in the Board of Director meeting proceeding dated 12.03.2008 M/s. Shalini has agreed to arrange the brand name and logo of Dunlop in favour of the appellant provided the appellant undertakes to pay SBLC charges. In the said board meeting the director decided that taking of Dunlop brand name on leave would result in substantial income to the appellant company hence payment of SBLC charges would be in the interest of the company. In the board meeting of the appellant company held on 28.03.2008 the board of director has resolved that payment made to M/s. Shalini is quid pro quo for the assignment of the Dunlop brand name etc. The board of director in their board meeting on 28.06.2008 has agreed that SBLC charges are paid to M/s. Shalini for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution was not illegal or opposed to public policy but was for the benefit of the general public Requiring payment to be made for a just cause which would entitle a businessman to obtain a license or permit cannot be regarded as being against the policy. Any contribution made by an assessee to a public welfare fund which is directly connected related with the carrying on of the assessee s business or which results in the benefit to the assessee s business has to be regarded as an allowable deduction under s.37(1)-Assessee doing business of export of rice and contributing 50 paise per quintal to District Welfare maintained by the District Collector, without which contribution he would not get permit directly connected with assessee s carrying on of business Such contribution is not against public policy, and is allowable under section 37(1) . (v) The Hon ble Supreme Court in the case of Vodafone International Holding B.V. v UOI (2012) 341 ITR 1 has considered the Mcdowell case and it s other decisions and held by majority as follows :- (i) It is the task of the court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in getting hold of the Dunlop brand name in favour of M/s. Ruia Sons P Ltd and for this M./s Ruia Sons P Ltd has made payment of SBLC charges of ₹ 131924684/- on which tax was deducted at source. Simultaneously,, similar amount of ₹ 131924684/- was paid by the appellant to ICICI Bank after deduction of tax at source as per the agreement entered into. 17. That on the basis of the aforesaid findings the ld. CIT(A) observed that the case of the assessee is entirely different from the case of M/s. Ruia Sons P.Ltd and on one hand the assessee receiving income of ₹ 13,19,24,685/- and on the other hand making payment of similar amount of ₹ 13,19,24,685/- in the income and expenditure of the assessee in the written submission as well as from the paper book it is seen that except for the receipt reflected of ₹ 13,19,24,685/- received by the assessee from M/.s. Ruia Sons Pvt.Ltd. the assessee is not having any other income and in the expenditure also the only major head of expenses is the amount of ₹ 13,19,24,685/-. On one side the assessee receiving SBLC charges from M/s Ruia Sons Pvt. Ltd and on the other hand it is making payment of such SBHC and act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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