THE COMMISSIONER OF INCOME TAX-I, COCHIN vs. M/S.APOLLO TYRES LTD., SHANMUGHAM ROAD,
What did the High Court hold?
The High Court held that the two questions raised by the Revenue were closely interconnected, with the second being incidental to the first. The Court noted that the Revenue had simultaneously assessed the assessee and the company that received the commission, attempting to make an unlawful gain, which is not sustainable. The Court referred to a similar challenge previously considered by it in ITA No. 973/2009, where the decision was against the Revenue. Consequently, the Court found no separate consideration was required for the present case on that head and concluded that there was no substantial question of law. The appeal was dismissed.
What were the facts?
The Revenue is in appeal against an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 1996-97. The ITAT had dismissed the Revenue's appeal, upholding the assessee's position. Previously, the Revenue had appealed to the High Court against an earlier ITAT order, which was set aside and remanded for fresh consideration. Following the remand, the ITAT passed the impugned order, which is now under challenge by the Revenue. The core dispute revolves around a commission payment made by a supplier of raw materials to M/s. Sunrays Properties and Investment (P) Ltd., which the Assessing Officer treated as a diversion of funds and income of the assessee.
What were the issues?
1. Whether, on the facts and in the circumstances of the case, is not the commission payment of M/s Sunrays Properties and Investment (P) Ltd. a diversion of funds and hence income of the assessee, and was the Tribunal justified in interfering with the order of the Assessing Officer in treating the amount as income of the assessee? (Question of law/mixed law and fact, concerning treatment of commission payment as income). 2. Whether, on the facts and in the circumstances of the case, and for the reasons stated in the order of the Assessing Officer and in view of the fact that these investment companies are part of the assessee company, are not the income earned by them the income of the assessee as held by the Assessing Officer? (Question of law/mixed law and fact, concerning income of investment companies being income of the assessee). Assessee's Contention: The commission was paid in the course of business and hence constituted a business expense. Revenue's Contention: The commission payment was a diversion of funds and therefore income of the assessee. The investment companies are part of the assessee company, making their income the assessee's income. The Assessing Officer's order should be upheld.
AI-generated summary — verify with the full judgment below
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR THURSDAY ,THE 14TH DAY OF MARCH 2019 / 23RD PHALGUNA, 1940 ITA.No. 196 of 2011 AGAINST THE ORDER/JUDGMENT IN ITA 111/2004 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 06-07-2011 APPELLANT/S: THE COMMISSIONER OF INCOME TAX-I, COCHIN BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT/S: M/S.APOLLO TYRES LTD., 6th FLOOR, CHERUPUSHPAM BUILDING, SHANMUGHAM ROAD, KOCHI 682 031 BY ADVS. SRI.BINU MATHEW SRI.B.J.JOHN PRAKASH SRI.JOSEPH KODIANTHARA (SR.) SRI.MATHEWS K.UTHUPPACHAN SRI.TERRY V.JAMES SRI.TOM THOMAS (KAKKUZHIYIL) SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.03.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
-2- I.T.A. No. 196 of 2011 JUDGMENT P.R. Ramachandra Menon, J. The appeal is at the instance of the Revenue. Challenge is against 'Annexure F' order passed by the Income Tax Appellate Tribunal. The assessment is in respect of the assessment year 1996-97. 2. The assessment finalised as per the relevant order was challenged before the Commissioner. Since the order passed by the Commissioner was stated as detrimental to the rights of the Revenue, it was sought to be challenged by filing an appeal by the Revenue before the Income Tax Appellate Tribunal. After hearing both the sides, the matter was finalised as per Annexure D order, which came to be challenged before this Court in I.T.A.No.133/2010 preferred by the Revenue. The said appeal, along with connected appeal,
-3- I.T.A. No. 196 of 2011 was finalised by this Court setting aside the order passed by the Tribunal and remanding the matter for fresh consideration vide Annexure E dated 27.9.2010. Pursuant to the order of remand, the matter was considered afresh by the Tribunal and the appeal preferred by the Revenue came to be dismissed as per Annexure F order. This is sought to be challenged in this appeal, at the instance of the Revenue. 3. Heard Mr. Christopher Abraham, the learned Standing Counsel for the Department as well as Mr.Joseph Markose, the learned Sr.Counsel for the assessee, at length. 4. The questions suggested by the Revenue/appellant, as involving substantial question of law, are as given below: a. Whether, on the facts and in the circumstances of the case, is not the commission payment of M/s Sunrays Properties and Investment (P) Ltd.
-4- I.T.A. No. 196 of 2011 Diversion of funds and hence income of the assessee and the Tribunal is justified in interfering with the order of the assessing Officer in treating the amount as income of the assessee? b. Whether, on the facts and in the circumstances of the case, and for the reasons stated in the order of the Assessing Officer and in view of the fact that these investment companies are part of the assessee company are not the income earned by them the income of the assesee as held by the Assessing Officer? 5. Obviously, the dispute involved is with regard to the payment of commission paid by the supplier of raw materials (to M/s. Sunrays Properties and investments private Limited). This is branded as an instance of diversion of funds by the Assessing Officer and sought to be assessed by the Revenue, whereas
-5- I.T.A. No. 196 of 2011 it was contended by the assessee that the commission was paid in the course of business and hence part of the business expense. The Tribunal answered the issue in favour of the assessee and hence the challenge. 6. Eventhough two questions have been raised
separately,
they
are
closely interconnected. The second one is quite incidental to the first one. It is also evident that the Revenue has simultaneously assessed the assessee as well as the Company who received the commission from the supplier (with reference to protective assessment). As such, there is an attempt to make unlawful gain by the Revenue, which is not correct or sustainable. 7. Similar challenge raised by the Revenue has already been considered by this Court in ITA No.973/2009, answering it against the
-6- I.T.A. No. 196 of 2011 Revenue. In the said circumstance, we find that no separate consideration does require to be made in this case, under that head. There is no substantial question of law. Appeal fails and it is dismissed accordingly. Sd/- P.R.RAMACHANDRA MENON JUDGE Sd/- N.ANIL KUMAR JUDGE okb/das
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