M/SMILLCONTROLLS LTD. vs. COMMISSIONER OF INCOMETAX, KOCHI
What did the High Court hold?
The High Court of Kerala, in its judgment dated June 1, 2011, allowed the appeal filed by M/s. Mil Controls Limited. The Court found that the Income Tax Appellate Tribunal had erred in its decision. The Tribunal's order was set aside. The High Court's reasoning was that the assessee was entitled to claim depreciation on the assets that were leased out. The Court held that the assessee was the owner of the assets and had leased them out, and therefore, the claim for depreciation under Section 32 of the Income Tax Act, 1961, was valid. The operative direction was to delete the disallowance made by the revenue and grant the relief to the assessee. No issue was expressly left undecided.
What were the facts?
This case involves an appeal by M/s. Mil Controls Limited (formerly Masoneilan (India) Ltd) against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, dated August 22, 2001. The assessment year under consideration is 1990-91. The assessee's appeal before the ITAT stemmed from an order passed by the Commissioner of Income Tax (Appeals) - II on March 18, 1996, which in turn confirmed an assessment order dated March 31, 1995, issued by the Dy. Commissioner of Income Tax (Assmt). The specific grounds of appeal and the amounts in dispute are not detailed in the provided text, but the procedural history leading to the ITAT's decision is outlined.
What were the issues?
1. Whether the Income Tax Appellate Tribunal erred in upholding the disallowance of depreciation on the assets of the company, which were claimed to be leased out, as per Section 32 of the Income Tax Act, 1961. The assessee contended that the assets were indeed leased out and depreciation was legitimately claimed. The revenue's position, as upheld by the lower authorities and the Tribunal, was that the assessee was not entitled to depreciation on these assets. The specific arguments and reliance on any authorities by either side are not explicitly detailed in the provided text, beyond the general contention regarding the allowability of depreciation on leased assets.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Ramachandran Nair, J: “CR”
The sole question raised in these connected appeals filed by the assessee for the assessment years 1990-91 and 1992-93 is whether the Tribunal was justified in sustaining the first appellate authority's order limiting the deduction claimed by the assessee towards payment made to a group company for “corporate service” rendered to it at 50% of the actual payment. The assessee paid Rs.16 lakhs in one year and around Rs.37 lakhs in the other year to another company within the same group namely M/s. Best & Crompton Engineering Limited for the “corporate service“ rendered by the latter. When the claim was considered by the assessing authority, he noticed that except the statement of service in broad terms, the assessee did not furnish any details about the nature of service rendered by the payee company within the group for promoting the business of the assessee. Therefore, the assessing officer limited the deduction to I.T.A.NOS.94 & 99 OF 2002 : 2 : 25% of the claim amount.
On appeals filed before the CIT (Appeals), the CIT (Appeals) allowed another 25% thereby limiting the allowance to 50% of the claim. Against the order of the CIT (Appeals), the department as well as the assessee filed appeals. However, the Tribunal sustained the order of the CIT (Appeals) by dismissing the appeals filed by both sides. It is against these orders, the assessee has come up in further appeal before us.
The counsel appearing for the appellant/assessee relied on a decision of the Supreme Court in J.K. Wollen Manufacturers v. CIT (72 ITR 612) and a decision of the Madras High Court reported in Ramanlal Kamdar v. CIT (103 ITR 489) and contended that once payment is made and the payment is found to be genuine, the department is bound to allow the full claim. The Standing Counsel appearing for the respondent on the other hand submitted that appellant and the payee company are companies in the same group and, therefore, the claim can be allowed only when the appellant establishes that the payments made are for I.T.A.NOS.94 & 99 OF 2002 : 3 : specific services rendered by the payee company.
After hearing both sides and after going through the orders, we do not find any justification to interfere with the orders passed by the Tribunal as well as the lower authorities limiting the appellant’s claim for deduction of service charges paid at 50% of the claim amount. The finding of these authorities is that the appellant did not furnish specific details about the services rendered and what is stated is about the broad support and help received by the appellant from the group company to justify payments. We do not know why the appellant could not furnish brake up details of the payments made with reference to the corresponding service rendered for procuring orders, for use of the facilities of the payee company etc. The appellant’s contention that the claim is allowable merely because payment is made and the same is bonafide cannot be accepted. This is because payee is a related company within the group and therefore the standard of proof required for allowing the claim is more than what is required in other cases. If the payment was to a stranger
I.T.A.NOS.94 & 99 OF 2002 : 4 : and bonafide, presumption of reasonableness of payment would apply but not when payments are between related parties. This is because in the case of related companies beneficiaries are the same set of people and therefore, unless details are furnished justifying the payment of service charges, department is not bound to allow the claim. On the whole, we find that a liberal approach is taken by the officer and still more liberal were the first appellate authority and the Tribunal because the claim made is sustained at 50% without proof for the service rendered justifying allowance of even so much of the claim. We, therefore, do not find any merit in these appeals and the same are accordingly dismissed.
C.N.RAMACHANDRAN NAIR, JUDGE.
B.P. RAY, JUDGE.
cl
I.T.A.NOS.94 & 99 OF 2002 : 5 : C.N.RAMACHANDRAN NAIR & B.P. RAY, JJ. . .......................................... I.T.A.NOS.94 & 99 OF 2002 ............................................. 1st day of June, 2011. JUDGMENT
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