C.I.T. PATIALA vs. M/S MORINDA COOP.SUGAR MILLS

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ITR/348/1995HC Punjab & HaryanaPHHC01032423199508 August 2007Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE M.M. KUMAR2 pages
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What did the High Court hold?

The High Court answered the question of law against the Revenue and in favour of the assessee. The Court relied on its own previous decision in ITR No.15 of 1994 (Commissioner of Income Tax (Central), Ludhiana v. Punjab Concast Steels Ltd., Ludhiana), which was decided on 29.11.2006. This decision had accepted the views of the Delhi High Court in Commissioner of Income Tax v. Autopins (India) (1991) 192 ITR 161, Madras High Court in Commissioner of Income Tax v. Bhawani Mills Ltd. (1999) 237 ITR 855, and Orissa High Court in Commissioner of Income Tax v. Orissa Industries Ltd. (1993) 203 ITR 449. The principle established was that Section 36(1)(ii) of the Income Tax Act, 1961, is not applicable to payments not covered by the Bonus Act. Instead, the allowability of such deductions must be examined under Section 37 of the Act. Consequently, the ex-gratia payment was held to be an allowable business expenditure. Both references were disposed of.

What were the facts?

The Commissioner of Income Tax, Patiala (Revenue) has challenged an order dated 7.7.1993 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh. The Tribunal's order was in ITA No.27/Chandi/89 for the assessment year 1982-83. The Revenue, at whose instance the Tribunal referred the matter, is seeking determination of a question of law by the High Court under Section 256(1) of the Income Tax Act, 1961. The dispute concerns the allowability of an ex-gratia payment made by the assessee, M/s Morinda Coop. Sugar Mills, as a business expense.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding the view of the CIT(A) that ex-gratia payment @ 11.67% should be allowed as the payment was made in the interest of business? (Question of law, turning on Section 37 of the Income Tax Act, 1961). Assessee's contention: The assessee argued that the question raised in this reference was decided by a Division Bench of the High Court in ITR No.15 of 1994 (Commissioner of Income Tax (Central), Ludhiana v. Punjab Concast Steels Ltd., Ludhiana), which ruled against the Revenue on 29.11.2006. The assessee further submitted that this Court had accepted the views of the Delhi High Court in Commissioner of Income Tax v. Autopins (India) (1991) 192 ITR 161, Madras High Court in Commissioner of Income Tax v. Bhawani Mills Ltd. (1999) 237 ITR 855, and Orissa High Court in Commissioner of Income Tax v. Orissa Industries Ltd. (1993) 203 ITR 449. These decisions concluded that Section 36(1)(ii) of the Act is not applicable to payments to which the Bonus Act does not apply, and such deductions should be considered under Section 37 of the Act. Therefore, the question should be answered against the Revenue. Revenue's contention: The judgment records no specific contention for the Revenue.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 36(1)(ii),Section 37

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITR No. 348 of 1995 Date of decision 8 .8 .2007 The Commissioner of Income Tax, Patiala .. Appellant Versus M/s Morinda Coop. Sugar Mills .. Respondent CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE AJAY KUMAR MITTAL PRESENT: Mr. Yogesh Putney, Advocate for the revenue Mr. M.R.Sharma, Advocate for the assessee. M.M.Kumar, J. This order would dispose of ITR Nos. 335 and 348 of 1995. The revenue has challenged order dated 7.7.1993 passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for brevity 'the Tribunal') in ITA No.27/Chandi/89 for the assessment year 1982-83. At the instance of the Revenue, the Tribunal in exercise of powers under Section 256 (1) of the Income Tax Act,1961 (for brevity 'the Act') has referred the following question of law for the determination of this Court: “ Whether on the facts and in the circumstances of the case the ITAT was right in law in holding the view of the CIT(A) that ex-gratia payment @ 11.67% should be allowed as the payment was made in the interest of business ?” Learned counsel for the assessee has submitted that the questions raised in this reference was subject matter of consideration of a Division Bench of this Court in ITR No.15 of 1994 (Commissioner of Income Tax (Central),Ludhiana v. Punjab Concast Steels Ltd., Ludhiana) which answered the question against the Revenue vide its order dated 29.11.2006. This Court has accepted the view taken by Delhi High Court in the case of Commissioner of Income Tax v. Autopins (India) (1991) 192 ITR 161, Madras High Court in the case of Commissioner of Income Tax v. Bhawani Mills Ltd. (1999) 237 ITR 855 and Orissa High Court in the case of Commissioner of Income Tax v. Orissa Industries Ltd. (1993) 203 ITR 449. It was concluded that Section 36((1)(ii) of the Act is not applicable to payments to which Bonus Act does not apply and allowability of such deductions has to be considered with reference to Section 37 of the Act. Therefore, the question raised has to be answered against the Revenue. In view of the above, the question is answered against the Revenue and in favour of the assessee. Both the references stands disposed of. Photo copy of this order be placed on the file of connected case. (M.M.Kumar) Judge (Ajay Kumar Mittal) 8 .8.2007 Judge okg

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