M/S. CHENNAI PETROLEUM CORPO vs. THE DEPUTY COMMISISONER OF I

T.C.A.No.108 of 2020 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 14.10.2020 CORAM THE HON'BLE MR.JUSTICE T.S.SIVAGNANAM AND THE HON'BLE MRS.JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.108 of 2020 and C.M.P.No.3838 of 2020 M/s.Chennai Petroleum Corporation Limited, 536, Anna Salai, Teynampet, Chennai-600 018. PAN : AAACM4392C ... Appellant -vs- The Deputy Commissioner of Income-tax, Larger Tax Payer Unit - Appeals, Chennai-600 101.

... Respondent Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order dated 20.03.2019 made in I.T.A.No.854/Chny/2013 on the file of the Income Tax Appellate Tribunal 'B' Bench, Chennai for the assessment year 2009-10. For Appellant : Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyar Padmanabhan For Respondent : Mr.T.Ravikumar Senior Standing counsel 1/11 http://www.judis.nic.in T.C.A.No.108 of 2020 JUDGMENT (Judgment of the Court was delivered by T.S.Sivagnanam, J.) This appeal has been filed by the assessee under Section 260 A of the Income Tax Act, 1961 ('the Act' for brevity), is directed against the order dated 20.03.2019 made in I.T.A.No.854/Chny/2013 on the file of the Income Tax Appellate Tribunal 'B' Bench, Chennai ('the Tribunal' for brevity) for the assessment year 2009-10. 2.This appeal has been filed by raising the following substantial questions of law:- Social and Community Welfare Expenses 1.Whether the Tribunal was right in law in remitting the issue to the assessing officer to adjudicate the issue of allowability of the expenditure applying the test of the commercial expediency with reference to the evidence on record ignoring the finding of CIT(Appeals) in paragraph 8.2 of his order that the assessee has furnished the particulars of the expenditure incurred towards community welfare? 2.Whether the expenses incurred by the assessee with an intention of securing the support of the public near the area of operation of the undertaking to avoid 2/11 http://www.judis.nic.in T.C.A.No.108 of 2020 potential losses due to any interruption to the organization and to promote awareness and goodwill among the public is out of commercial expediency and hence an allowable deduction. 3.Whether the order of the Tribunal in not allowing the social and community welfare expenses incurred for winning the goodwill of the people of the locality u/s.37(1) of the Act is perverse? and 4.Whether the Tribunal was right in law in remitting the issue to the assessing officer to adjudicate the issue of allowability of the expenditure applying the test of the commercial expediency with reference to the evidence on record when the same has been considered by the CIT(Appeals)? Expenses incurred for conducting Chennai Open Tennis Tournament 5.Whether the Tribunal was right in law in confirming the disallowance of the amount of Rs.50 lakhs paid towards sponsorship of Chennai Open Tennis Tournament? 6.Whether the Tribunal was right in law in ignoring the facts that the amount paid as per request of the Government of TN for setting up an international Tennis Tournament in Chennai? 7.Whether the Tribunal was right in law in not appreciating the advertisement value in sponsoring such an 3/11 http://www.judis.nic.in T.C.A.No.108 of 2020 international tournament and hence the expenditure is an allowable business expenditure? 3.We have heard Mr.R.Vijayaraghavan, learned counsel appearing for the appellant and Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the respondent. 4.The first set of substantial questions of law pertain to social and community welfare expenses. We have perused the finding recorded by the Tribunal in paragraph 44.1, which reads as follows: “44.1.Ground of appeal No.2 challenges the confirmation by the ld. CIT(A), the disallowance of social community welfare expenses. This issue was dealt by us in the Revenue's appeal for AY 2007-08 in ITA No.884/Chny/2013, wherein we remitted this issue to the file of AO for fresh adjudication on the touch stone of commercial expediency. Similarly, this issue for the year under consideration also, we remit this issue to the file of AO for fresh adjudication on the similar directions.” 5.On perusal of the above, we find that thee Tribunal on appreciation of the factual position rightly came to the above conclusion. Therefore, we 4/11 http://www.judis.nic.in T.C.A.No.108 of 2020 find that no substantial questions of law arises for consideration with regard to the community welfare expenses. 6.The next we move on to consider the other set of substantial questions of law which relate to expenses incurred by the assessee by contributing to Chennai Open Tennis Tournament. According to the assessee they are entitled to claim it as reduction because it amount to commercial expediency as the assessee would get visibility by contributing towards the programme. The assessee also referred to the letter by the Government of Tamil Nadu directing them to sponsor expenditure of Rs.50 lakhs. The assessee placed reliance on the decision in the case of Commissioner of Income Tax vs. Cheran Transport Corporation Ltd. [(1996) 219 ITR 203 (Mad)]. The Tribunal rejected the said contention with the following reasons: “13.5 We heard the rival submissions and perused the material on record. The short issue involved in the present appeal is whether the sponsorship expenditure of Rs.50 lakhs towards tennis tournament incurred by the assessee is allowable as a deduction. The AO had not assigned any reasons for disallowances except stating that 5/11 http://www.judis.nic.in T.C.A.No.108 of 2020 in the earlier years similar disallowance was made. However, the ld. CIT(A) had allowed by placing reliance on the orders of his predecessor in the earlier years. The submission of the ld. Counsel that the expenditure was incurred only on the direction of the Government of Tamil Nadu cannot be accepted for the reasons that from the perusal of the letter of the Chief Secretary of Government of Tamil Nadu dated 27.01.2004 vide DO letter No.1044/Secy./2004-5, it is clear that the Government of Tamil Nadu had only extended an invitation to participate on the occasion of the sponsorship of the tennis tournament. This invitation cannot be construed as a mandatory direction of the Government of Tamil Nadu. The ratio of the decision of Hon'ble Jurisdictional High Court in the case of Cheran Transport Corporation Ltd. (supra) is not applicable to the facts of the present case. The facts of the case are that the assessee, a Govt. of Tamil Nadu undertaking made a contribution to Flag Day Fund and Chief Minister Rehabilitation Funds both under the direction of the Government and the assessee being a Government undertaking is obliged to obey the direction of the Government, whereas in the present case there is no mandatory direction from the Government to make a contribution towards the tennis tournament nor the assessee is a State Government undertaking. In the 6/11 http://www.judis.nic.in T.C.A.No.108 of 2020 present case, there is nothing to show that the assessee established the nexus between the contribution to the tennis tournament and the benefit which the assessee's business received by virtue of such contribution. In the absence of these nexus, the expenditure cannot be allowed as a deduction and is nothing but application of income and reliance in this regard can be placed on the decision of the Full Bench of Hon'ble Madhya Pradesh High Court in the case of Addl. CIT vs. Kuber Singh Bhagwandas [1979] 118 ITR 379 (MP-FB). Therefore, we reverse the findings of the ld. CIT(A) on this issue. Thus, the grounds of appeal filed by the Revenue are allowed.” 7.The learned counsel appearing for the appellant/assessee would contend that based on the directive issued by the Government, the amount was expended and the assessee was also permitted to advertise during the programme. Therefore, they should be permitted to claim the same as deduction. 8.This contention is opposed by Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the respondent. It is submitted that the letter issued by the Government of Tamil Nadu has been held to be only 7/11 http://www.judis.nic.in T.C.A.No.108 of 2020 intimation/invitation and that cannot be the sole reason for the appellant to claim the same as an expenditure under Section 37 of the Act. In support of his contention, the learned Senior Standing Counsel referred to the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Malayalam Plantations Ltd. [(1964) 53 ITR 0140], wherein the Hon'ble Supreme Court held as follows: “8.The aforesaid discussion leads to the following result. The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits". Its range is wide: it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measure for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile titles; it may also comprehend payment of statutory dues and taxes imposed as a pre- condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The 8/11 http://www.judis.nic.in T.C.A.No.108 of 2020 purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business. In the present case, the company, as a statutory agent of the deceased owners of the shares, paid the sums payable by the legal representatives of the deceased shareholders. The payments have nothing to do with the conduct of the business. The fact that on his default, if any, in the payment of the dues the Revenue may realise the amounts from the business assets is a consequence of the default of the assessee in not discharging his statutory obligation, but it does not make the expenditure any the more expenditure incurred in the conduct of the business. It is manifest that the amounts in question were paid by the assessee as a statutory agent to discharge a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India. We, therefore, hold that the estate duty paid by the 9/11 http://www.judis.nic.in T.C.A.No.108 of 2020 respondent was not an allowable deduction under s. 10(2)(xv) of the Act. We answer the question in the negative. The order of the High Court is wrong and is set aside.” 9.On going through the impugned findings recorded by the Tribunal in paragraph 13.5 of the impugned order which we have referred above, we find that the Tribunal on appreciation of the factual position came to the correct conclusion. Thus, for the above reasons, we find that no substantial questions of law arising for consideration in this appeal. Accordingly, the appeal is dismissed. No costs. Consequently, connected miscellaneous petition is closed. (T.S.S., J.) (V.B.S., J.) 14.10.2020 [2/5] Index : Yes/No Speaking Order/Non-speaking Order cse 10/11 http://www.judis.nic.in T.C.A.No.108 of 2020 T.S.Sivagnanam, J. and V.Bhavani Subbaroyan, J. cse T.C.A.No.108 of 2020 and C.M.P.No.3838 of 2020 14.10.2020 [2/5] 11/11 http://www.judis.nic.in