THE COMMISSIONER OF INCOME TAX vs. APOLLO TYRES LTD,

The sequence of events shows that the assessee who is engaged in the manufacture and sale of automotive tyres and tubes filed their return on 30.11.2000, followed by a revised return; ultimately leading to the assessment finalized under Section 143(3) of the Income Tax Act vide Annexure-A order passed by the Assessing Officer on 14.3.2003. Since this was detrimental to the rights and interests of the assessee, it was taken up in appeal. The appeal was finalized by the Commissioner, Income Tax (Appeals) as per Annexure-B order dated 21.10.2003, whereby some benefits came to be granted ..3.. while some reliefs were declined. This made the assessee to file a further appeal before the Tribunal and after hearing both the sides, the Tribunal interdicted the order passed by the Appellate Authority and granted some reliefs vide Annexure-C order, which is under challenge as mentioned above.

The present appeal is still to be admitted, but for ordering 'notice on admission' on 28.9.2010. The appellant has suggested two questions as involving substantial questions of law, which are to the following effect:- “1. Whether, on the facts and in the circumstances of the case are not the disallowance of payments made to clubs and Sec.40A(9) contribution made to Apollo Tyre Employees Welfare Fund Trust by the Assessing Officer in accordance with law and the Tribunal is justified in interfering with the same?

Whether, on the facts and in the circumstances of the case and in the light of the cogent reasons given by the CIT(A) the Tribunal is right in law in restricting the disallowance of interest and other expenses under section 14A of the IT Act to 0.5% of the total interest and expenditure?”

It is pointed out that the present appeal has been preferred by the Revenue, as the benefit granted by the Tribunal is obviously by placing reliance on the earlier course ..4.. pursued under similar circumstance in respect of the previous assessment years; which are under challenge at the instance of the Revenue and that the said appeals are still pending. With regard to the 'first question', there are two limbs; viz., disallowance of 'club expenses' and disallowance of contribution made to the Employees' Welfare Trust.

With regard to the payment of amounts under the head 'club expenses' the factual position discussed by the Tribunal in paragraph 11.1 of Annexure-C discloses that the assessee had paid a sum of Rs.8,43,483/- to various clubs of which Rs.6,63,748/- was by way of subscription fee, while the remaining Rs.1,79,735/- was for club services and facilities. As a matter of fact, the assessee claims the entire expenses as deduction under Section 37(1) of the Act. According to the Assessing Officer, the expenses other than the membership fee were mainly food expenses and therefore they were in the nature of 'personal expenses' which is not admissible under Section 37(1) of the Act. It was accordingly, it was disallowed to the requisite extent, after verifying the facts and figures, ..5.. which was upheld by the Commissioner (Appeals). However, the Tribunal in paragraph 11.3 of Annexure-C order held that the issue was already considered by the Tribunal in respect of the earlier assessment years and it was decided in favour of the assessee and since there was no change in facts and circumstances, the course pursued in respect of the previous assessment years (1996-97 and 1997-98) was decided to be followed. Accordingly, the issue came to be answered in favour of the assessee, virtually sustaining the act of the assessee in claiming the entire expenses as deduction under Section 37(1) of the Act.

It is true that the expenditure incurred by the assessee for procuring the 'club membership' was a matter considered in the previous assessment years and the benefit given was sought to be restricted only in respect of such amount and the remaining part spent for availing the facilities was held as taxable. In the instant case, the total amount claimed by the assessee (Rs.8,43,483/-) included the expenses for food and such other facilities (about Rs.1.6 lakhs ..6.. as assessed by the Assessing Officer) and hence it was disallowed by the Assessing Officer. The said finding on fact, which was upheld by the Commissioner (Appeals), ought not to have been altered by the Tribunal, holding that the issue was already found in favour of the assessee. The order passed by the Assessing Officer and affirmed by the Commissioner, disallowing a sum of Rs.1.6 lakhs under the head ‘club expenses’ is liable to be sustained. It is ordered accordingly.

With regard to the contribution made by the assessee to the Employees' Welfare Fund Trust, the stand of the assessee is that it was only to facilitate transportation of the employees as per the service conditions and never amounts to any diversion of funds as alleged by the Revenue. Similar question with reference to Section 40A(9) in respect of the previous assessment years has already been considered by this Court in I.T.A.No.60/2010 and answered in favour of the assessee. This being the position, similar course will follow in the present case as well and there is no question of law to be considered.

With regard to the second question, the point stands already considered by this Court in another case I.T.A.No.16/2013 (arising from I.T.A.No.257/2010 of the Income Tax Appellate Tribunal, Cochin Bench). The said issue was considered and answered by the Bench, vide judgment dated 17.9.2018 (paragraph 17) as extracted below:- “17. The next question raised is whether the Tribunal was correct in having confirmed the order of the CIT (Appeals) deleting the addition made by the AO invoking the provisions of Sections 37 and 14A of the IT Act, being re-plantation expenses. The AO found that the expenditure was dis-allowable under Section 14A of the Act. In this context, the decision of the Hon'ble Supreme Court in Commissioner of Income Tax v. Essar Teleholdings Ltd. [(2018) 401 ITR 445], which held that the applicability of Section 14A can only be from the assessment year 2007-08 has to be noticed. We, hence, answer the question in favour of the assessee and against the Revenue, upholding the order of the Tribunal. From the above, it is quite evident that the mandate of Section 14A can be valid and effective only from the assessment year 2007-2008, in view of the law declared in categorical terms by Teleholdings Ltd. [(2018) 401 ITR 445]. It was placing ..8.. reliance on the said decision that the issue involved in I.T.A.No.16/2013 was considered and decided by this Court as per judgment dated 17.9.2018. In the said circumstance, the second question raised by the appellant also does not survive; the same having already been answered in favour of the assessee. This Court finds that no question remains to be considered as involving any substantial question of law.

In the above circumstances, we allow the appeal 'in part'. It is open for the Department to pursue further steps by passing a revised assessment order and realize the tax, to the extent as mentioned above, under question No.1, from the assessee. P.R.RAMACHANDRA MENON, JUDGE N.ANIL KUMAR, JUDGE skj ..9..