PRINCIPAL COMMISSIONER OF IN vs. M/S.SUNDARAM BRAKE LIININGS

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TCA/212/2019HC Madras26 August 2022Bench: Hon`ble Mr Justice R. MAHADEVAN7 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court disposed of the appeals without adjudicating on the merits of the substantial questions of law. This was due to a subsequent development: the Assessee had availed the benefit of the Direct Tax Vivad Se Vishwas Act, 2020, and obtained a final settlement order on 07.12.2020. Both the Revenue and the Assessee conceded that in light of this settlement, nothing further survived for adjudication in the appeals. Therefore, the Court recorded the submissions of both sides and disposed of the Tax Case Appeals. No specific findings were made on any of the issues raised, and no operative directions were issued regarding the original disputes. The principle derived is that if parties to an appeal reach a settlement under a scheme like Vivad se Vishwas, the pending appeals become infructuous and are disposed of accordingly.

What were the facts?

These five Tax Case Appeals were filed by the Principal Commissioner of Income Tax-6, Chennai (Revenue) against M/s. Sundaram Brake Linings Ltd. (Assessee) challenging a common order of the Income Tax Appellate Tribunal (ITAT), Chennai, dated 31.05.2017. The appeals pertained to assessment years 2009-2010, 2010-2011, 2008-2009, 2011-2012, and 2012-2013. The core of the dispute involved the ITAT's decision on the allowability of set-off of speculation loss against business income, and whether losses from futures and options trading were speculative. During the pendency of these appeals before the High Court, the Assessee availed the benefit of the Direct Tax Vivad Se Vishwas Act, 2020, filed necessary declarations, and received a Form 5 order for final settlement on 07.12.2020.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Appellate Tribunal was justified in allowing set off of speculation loss against business income, contrary to Section 73(1) of the Income Tax Act? 2. Whether the Tribunal erred in holding that losses from futures and options trading were not speculative, despite the assessee admitting no underlying exposure in a letter dated 18.12.2014? 3. Whether the Tribunal's finding that forward contracts in derivatives were entered into to protect against foreign exchange fluctuation, and that employees acted unauthorizedly for this purpose, was contradictory and against the evidence? 4. Whether the Tribunal erred in deleting additions by following the ITAT Chennai bench decision in M/s. Majestic Exports Vs. JCIT, which held losses on forward transactions of derivatives to be non-speculative to the extent of underlying assets, when the assessee itself admitted to the contrary in its letter dated 13.12.2014? 5. (Only in TCA No. 219 of 2019) Whether the Tribunal was right in deleting additions made under Section 40(a)(ia) for non-deduction of TDS on payments to non-residents for technical services where income accrued in India? The Revenue contended that the Tribunal's findings on speculation loss and futures/options trading were incorrect. The Assessee's arguments are not explicitly detailed in the provided text, beyond its concession regarding the Vivad se Vishwas settlement.

Which sections of the Income-tax Act were involved?

Section 73(1),Section 40(a)(ia)

AI-generated summary — verify with the full judgment below

Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 26.08.2022 CORAM : THE HON'BLE MR. JUSTICE R. MAHADEVAN AND THE HON'BLE MR. JUSTICE MOHAMMED SHAFFIQ Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019 The Principal Commissioner of Income Tax-6, No.121, Nungambakkam High Road, Chennai - 600 034. ... Appellant in all TCAs Vs.

M/s.Sundaram Brake Linings Ltd., B-1, MTH Road, Padi, Chennai - 600 050 ... Respondent in (PAN No.AADCS 4888 E) all TCAs

Appeals preferred under Section 260A of the Income Tax Act, 1961, against the common order of the Income Tax Appellate Tribunal, “D” Bench, Chennai, dated 31.05.2017 in I.T.A.Nos.1299/Mds/2016, 1302/Mds/2016, 996/Mds/2016, 997/Mds/2016 and 1301/Mds/2016. Page 1/7 https://www.mhc.tn.gov.in/judis Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019 For Appellant in all TCAs

: Mr.J.Narayanaswamy Senior Standing Counsel For Respondent in all TCAs

: Mr.R.Venkata Narayanan For M/s.Subbaraya Aiyar C O M M O N J U D G M E N T (Judgment was delivered by R. MAHADEVAN, J.) These tax case appeals have been filed by the appellant / Revenue, challenging the common order dated 31.05.2017 passed by the Income Tax Appellate Tribunal, Chennai, 'D' Bench, in I.T.A.Nos.1299/Mds/2016, 1302/Mds/2016, 996/Mds/2016, 997/Mds/2016 and 1301/Mds/2016, relating to the assessment years 2009-2010, 2010-2011, 2008-2009, 2011- 2012 and 2012-2013, by raising the following substantial questions of law: TCA.Nos.212,213,218 and 220 of 2019:- "1.Whether the Appellate Tribunal was justified in allowing set off of speculation loss against business income in spite of express prohibition contained in Section 73(1) of the Income Tax Act? Page 2/7 https://www.mhc.tn.gov.in/judis Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019 (ii) Whether the Tribunal was justified in holding that loss arising out of transactions in futures and options trading is not speculative even though there was no underlying exposure as admitted by assessee itself in its letter dated 18.12.2014? (iii) Whether the Appellate Tribunal that the assessee entered into such forward contracts in derivates in order to protect the assessee company from loss due to foreign exchange fluctuation, is against in view of evidence on record and its finding that employees of assessee company did such unauthorized to protect the assessee company from loss due to foreign exchange, fluctuation, is contradictory in nature? (iv) Whether the Appellate Tribunal erred in deleting the addition following the decision of ITAT Chennai bench in the case of M/s.Majestic Exports Vs. JCIT reported in 62 taxman.com 307, wherein it was held that loss arising on forward transactions of derivatives is non speculative in nature to the extent of existence of underlying assets whereas in the present case assessee itself admitted in its letter dated 13.12.2014 to the contrary? TCA.No.219 of 2019:- "1.Whether the Appellate Tribunal was justified in Page 3/7 https://www.mhc.tn.gov.in/judis Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019 allowing set off of speculation loss against business income in spite of express prohibition contained in Section 73(1) of the Income Tax Act? (ii) Whether the Tribunal was justified in holding that loss arising out of transactions in futures and options trading is not speculative even though there was no underlying exposure as admitted by assessee itself in its letter dated 18.12.2014? (iii) Whether the Appellate Tribunal that the assessee entered into such forward contracts in derivates in order to protect the assessee company from loss due to foreign exchange fluctuation, is against in view of evidence on record and its finding that employees of assessee company did such unauthorized to protect the assessee company from loss due to foreign exchange, fluctuation, is contradictory in nature? (iv) Whether the Appellate Tribunal erred in deleting the addition following the decision of ITAT Chennai bench in the case of M/s.Majestic Exports Vs. JCIT reported in 62 taxman.com 307, wherein it was held that loss arising on forward transactions of derivatives is non speculative in nature to the extent of existence of underlying assets whereas Page 4/7 https://www.mhc.tn.gov.in/judis Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019 in the present case assessee itself admitted in its letter dated 13.12.2014 to the contrary? (v) Whether on the facts and circumstances of the case and in law, the Tribunal right and justified in deleting the addition made under Section 40(a)(ia) on account of non- deduction of tax at source on payments made to non-residents even though such payment was towards fee for technical services and such income accrued in India?" 2. When these matters were taken up for consideration, the learned Senior Standing counsel appearing for the appellant / Revenue submitted that during the pendency of these tax case appeals, the assessee has availed the benefit conferred under the Direct Tax Vivad Se Vishwas Act, 2020 and filed necessary declarations, which were accepted and Form 5 / order for full and final settlement of tax arrears, was also issued by the Income tax department, on 07.12.2020. 3. The aforesaid submission made by the learned Senior Standing Counsel for the appellant/Revenue has also been fairly conceded by the learned counsel appearing for the respondent/ assessee. Page 5/7 https://www.mhc.tn.gov.in/judis Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019 4. In view of the subsequent development, this court is of the opinion that nothing survives for adjudication in these appeals. Recording the submission so made by the learned counsel on either side, the Tax Case Appeals stand disposed of. No costs. [R.M.D,J.] [M.S.Q, J.] 26.08.2022

r n s Internet : Yes.

Index : Yes / No. To 1. The Deputy Commissioner of Income Tax, Corporate Circle - 6 (2), Chennai. 2. The Commissioner of Income-Tax (Appeals)-15, Chennai. 3. The Income Tax Appellate Tribunal, “D” Bench, Chennai. Page 6/7 https://www.mhc.tn.gov.in/judis Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019 R. MAHADEVAN, J. and MOHAMMED SHAFFIQ, J. r n s Tax Case Appeal Nos.212, 213, 218, 219 and 220 of 2019

26.08.2022 Page 7/7 https://www.mhc.tn.gov.in/judis

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