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TMI Blog2022 (2) TMI 1492X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Beverages Corporation Ltd., are State Government Companies wherein 100% share holding is held by the State Government; there is an existence of deep and pervasive control of the State Government on the said undertakings, and the full control of their working, policy and framework is vested with the State Government, therefore, they can safely be brought within the meaning of State . As regards the requirements contemplated in Rule 6DD(b) that the payment is required to be made in legal tender, we find that the term legal tender has not been defined in the Income-Tax Act. The dictionary meaning of legal tender as mentioned in Aiyer s Law Terms and Phrases , is the coinage of a country in which debts may be paid and which the creditor is bound to accept . The dictionary meaning of the coin is; metal used for the time being as money and stamped and issued by the authorities of the state in order to be used. Therefore, it can be said that legal tender means the currency of a state which is to be used as money. Backed up our aforesaid observations, we are of the considered view, that as in the case of the assessee before us the payments in question to the aforementioned State Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the statute and render section 40A(3) of the Income Tax Act a nullity. 4. The Ld. CIT(A) has erred in holding that no disallowance u/s 40 A(3) could be made as genuineness of the payment was not in doubt thereby ignoring that any expenditure not covered under the exceptions provided under clause(a) to (1) of Rule 6DD had to be disallowed under section 40 A(3) of the Act and that genuineness of such payments was not provided as an exception under the exhaustive list of Rule 6DD. 5. The Ld. CIT(A) has erred in ignoring the findings of the Hon'ble ITAT, Amritsar in the case of Gurdas Garg in IT A No. 456(ASR)/2013 wherein it was held that Section 40A(3) of the Act and Rule 6DD had be read together and not separately as suited the assessee and that the rules prescribed were Rule 6DD of the Income Tax Rules, 1962 and nothing beyond that." 2. Succinctly stated, the assessee who is engaged in the business of purchase/sale of wine on retail basis had filed his return of income for AY 2014-15 on 30.11.2014, declaring an income of ₹ 23,55,830/- a/w agriculture income of ₹ 3.50 lacs. Return of income filed by the assessee was thereafter processed as such u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal tender, i.e., in Indian currency, the CIT(A) concluded that by virtue of the exception carved out in Rule 6DD(b) of the Income Tax Rules, 1962, the said respective amounts were not liable to be disallowed u/s 40A(3) of the Act. Backed by his aforesaid conviction the CIT(A) vacated the disallowance that was made by the A.O u/s 40A(3) of ₹ 2,07,24,418/- [1,37,31,676/- + ₹ 69,92,742/-]. 5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the Ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. Admittedly, the assessee who is engaged in the business of purchase/sale of wine on a retail basis had made cash payments in excess of amount of ₹ 20,000/- for purchase of wine to, viz. M/s Rajasthan State Beverages Corporation Ltd.; and Rajasthan State Ganganagar Sugar Mills Ltd. As observed by us hereinabove, the AO holding a conviction that the aforementioned payments made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies in a narrow compass, i.e., as to whether or not the CIT(A) is right in law and the facts of case, in concluding, that the cash payments made by the assessee towards purchase of wine to the aforementioned undertakings of the Government, viz. (i) M/s Rajasthan State Ganganagar Sugar Mills Ltd; and (ii) M/s Rajasthan State Beverages Corporation Ltd., which as per him were to be considered as an arm of the State Government that had received the payment in legal tender, i.e., in Indian currency, would by virtue of the exception carved out in Rule 6DD(b) of the Income Tax Rules, 1962 be saved from the disallowance contemplated in Sec. 40A(3) of the Act ? Before proceeding any further, we deem it fit to cull out the provisions of sub-section (3) of section 40A of the Act, which reads as under: "(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure." However, the legislature in all its wisdom had carved out certain exceptions in Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Tribunal that if a body was found to be an instrumentality or the agency of the Government, then, it would be an authority included in the term "State" under Article 12 of the Constitution of India. After referring to Article 12 of the Constitution of India, it was observed by the Tribunal that the definition of "the State" therein provided, though inclusive and not exclusive, included, viz. (a). the Government and Parliament of India; (b). the Government and the Legislature of each of the States; (c). all local and other authorities within the territory of India; and (d). all local and other authorities under the control of the Government of India. Observing, that the term "other authorities" used in Article 12 was neither defined in the Constitution of India nor in any other statute, the Tribunal had drawn support from the interpretation of the said term by the Hon'ble Supreme Court in the case of Som Prakash Rekhi Vs Union of India, AIR 181 SC 212, wherein the Hon'ble Apex Court had culled out certain tests for determining as to when a corporation should be said to be an instrumentality or agency of the Government, which read as under : "1. If the entire share capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked up our aforesaid observations, we are of the considered view, that as in the case of the assessee before us the payments in question to the aforementioned State Government undertakings have been made by the assessee in Indian currency, therefore, it can safely, or in fact inescapably be concluded that the same have been made in legal tender. In the backdrop of our aforesaid deliberations, we are of the considered view that the payments made by the assessee to the aforementioned Government undertakings, viz. (i) M/s Rajasthan State Ganganagar Sugar Mills Ltd; and (ii) M/s Rajasthan State Beverages Corporation Ltd., which could safely be held as a part of the Government would fall within the realm of the exception carved out in Clause (b) of Rule 6DD of the Income- Tax Rues, 1962, qua, the applicability of the provisions of Sec. 40A(3) of the Act. We, thus, in terms of our aforesaid observations finding no infirmity in the view taken by the CIT(A), who had rightly concluded that as the payments in question made by the assessee to the State Government entities in legal tender were covered by the exception contemplated in Rule 6DD(b) of the Income Tax Rules, 1962, therefore, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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