CIT vs. M/S SOUTHERN BOTTLERS

ITR/96/1996HC Punjab & HaryanaPHHC01035073199629 April 2013Author: MR. JUSTICE HEMANT GUPTA,MS. JUSTICE RITU BAHRI3 pages
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What were the facts?

This case involves a reference to the High Court of Punjab & Haryana at Chandigarh concerning Assessment Years 1986-87 and 1987-88. The reference arises from an order passed by the Income Tax Appellate Tribunal (ITAT) on April 24, 1995, which referred two substantial questions of law for the Court's opinion. The appellant is the Commissioner of Income Tax, Patiala, and the respondent is M/s Mohan Bottling Co (P) Ltd, New Delhi. The procedural history indicates that the ITAT's order led to this reference to the High Court.

What did the High Court hold?

The High Court answered both questions of law against the Revenue and in favour of the assessee. For the first issue concerning Section 40(c), the Court noted that the matter was covered against the Revenue by its own previous judgment in 'The Commissioner of Income Tax Vs. M/s Mohan Bottling Co. Pvt. Ltd.' (decided on 01.10.2010). This judgment, in turn, followed the Supreme Court's decision in V.M. Salgaocar & Bros. (P) Ltd. etc. Vs. CIT, holding that giving an interest-free loan to an employee is not covered by the provisions of disallowance under Section 40A(5) or Section 40(c). For the second issue concerning Section 43B and sales-tax liability, the Court found the issue to be covered against the Revenue and in favour of the assessee by the Supreme Court's judgment in Allied Motors (P) Limited vs. Commissioner of Income Tax. The Court had previously decided this issue against the Revenue in another case, 'The Commissioner of Income Tax (C), Ludhiana Vs. M/s Avery Cycle Inds. Pvt. Limited, Ludhiana'. Consequently, both referred questions were answered in favour of the assessee.

What were the issues?

The Tribunal had to decide two substantial questions of law: 1. Whether, for the purpose of disallowance under Section 40(c) of the Income Tax Act, 1961, the value of perquisite arising to a Director on account of interest attributable to an interest-free amount advanced to him should be determined by allocating the said interest in proportion to the borrowed funds of the assessee company to its total funds? 2. Whether, regarding disallowance made under Section 43B of the Income Tax Act, 1961, pertaining to sales-tax liability, the ITAT was right in upholding the order of the first appellate authority? The Revenue's contentions, as reflected in the Court's decision, were that disallowances under Section 40(c) or 40A(5) were applicable to interest-free loans to employees, and that sales-tax liability was subject to disallowance under Section 43B. The Assessee's contentions, inferred from the Court's favorable ruling, were that Section 40(c) and 40A(5) did not cover interest-free loans to directors and that the sales-tax liability was not disallowable under Section 43B in the manner contended by the Revenue. The Assessee relied on Supreme Court judgments.

Which sections of the Income-tax Act were involved?

Section 40(c),Section 40A(5),Section 43B,Section 256(1)

AI-generated summary — verify with the full judgment below

ITR No. 96 to 96A of 1996 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITR No. 96 to 96A of 1996 Date of decision: 29.04.2013 The Commissioner of Income Tax, Patiala

...Appellant versus M/s Mohan Bottling Co (P) Ltd, New Delhi ...Respondent CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MS. JUSTICE RITU BAHRI Present: Ms. Savita Saxena, Advocate for the appellant. Mr. Akshay Bhan, Advocate and Mr. Alok Mittal, Advocate, for the respondent. HEMANT GUPTA, J. (Oral) The present reference under Section 256(1) of the Income Tax Act, 1961 arises out of an order passed by the Income Tax Appellate Tribunal (for short 'the Tribunal') on 24.04.1995 referring following substantial questions of law for the opinion of this Court in relation to Assessment years 1986-87 and 1987-88: “1.Whether on the facts and in the circumstances of the case, the ITAT was right in law in confirming the order of the first appellate authority that for the purpose of disallowance u/s 40(c) the value of perquisite arising to the Director on account of Interest attributable to interest free amount advanced to him should be determined by allocating the said interest in the proport

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