PRINCIPAL COMMISSIONER OF vs. CRI PUMPS PVT LTD

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TCA/406/2017HC Madras23 October 2024Bench: Honourable Mr Justice R. SURESH KUMAR4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court did not adjudicate on the substantial questions of law. The Revenue's learned Standing Counsel brought to the court's notice CBDT's Circular No.9 of 2024 dated 17.09.2024, stating that the tax effect in this case was below the monetary limit imposed. Consequently, the Revenue submitted that the appeal could be disposed of without deciding the substantial questions of law, keeping them open for future adjudication. The High Court recorded this submission and dismissed the appeal on the grounds of low tax effect, expressly keeping the substantial questions of law open for adjudication at an appropriate stage. No costs were awarded.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax, filed a Tax Case Appeal before the High Court of Judicature at Madras, challenging an order of the Income Tax Appellate Tribunal (ITAT). The appeal pertains to Assessment Year(s) not specified in the judgment. The core of the dispute involves the ITAT's decision to allow royalty payments made by the assessee, CRI Pumps Pvt Ltd, to a related entity. The Revenue argued that the transfer of the 'CRI' trademark was questionable, having been transferred for a nominal amount of Rs. 1000/- through a family arrangement, and that the royalty payments were excessive and unreasonable, potentially violating Section 40A(2)(a) and (b) of the Income Tax Act, 1961. The ITAT's order being challenged is dated 30/11/2016 in ITA.No.1012/Mds/2015.

What were the issues?

The Tribunal had to decide three substantial questions of law: 1. Whether, on the facts and circumstances, the ITAT was justified in allowing royalty payments when the transfer of the 'CRI' trademark was not permitted during merger proceedings and was subsequently transferred for a meager amount of Rs. 1000/- through a family arrangement. 2. Whether, on the facts and circumstances, the ITAT was justified in allowing royalty payments when the trademark's value was fixed low by the transferor company's directors, and the royalty paid to the holding company was excessive and unreasonable compared to its fair market value. 3. Whether, on the facts and circumstances, the ITAT was justified in not considering Section 40A(2)(a) and the violation of Section 40A(2)(b) of the Income Tax Act, irrespective of the receipt offering the amount to tax. The Revenue contended that the trademark transfer and subsequent royalty payments were not at arm's length and potentially violated Section 40A(2) of the Income Tax Act. The judgment does not record specific arguments from the assessee's side regarding these issues.

Which sections of the Income-tax Act were involved?

Section 260A,Section 40A(2)(a),Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

T.C.A.No.406 of 2017 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.10.2024 CORAM THE HON'BLE MR.JUSTICE R.SURESH KUMAR AND THE HON'BLE MR.JUSTICE C.SARAVANAN Tax Case Appeal No.406 of 2017 Principal Commissioner of Income Tax No.63, Race Course Road, Coimbatore. .... Appellant Vs. CRI Pumps Pvt Ltd 7/46-1 Keeranatham Road Saravanamatti, Coimbatore -35. PAN AAA CC 9497 N .... Respondent ----- Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, 'D' Bench Chennai, dated 30/11/2016 in ITA.No.1012/Mds/2015. For Appellant : Mr.Karthik Ranganathan Senior Standing Counsel For Respondent : Mr.A.S.Sriraman J U D G M E N T (Delivered by R.SURESH KUMAR, J.) This Tax Case Appeal has been filed by the Revenue calling in question the correctness of the order passed by the Income Tax Appellate Tribunal, Chennai by raising the following substantial questions of law: 1 of 4 https://www.mhc.tn.gov.in/judis T.C.A.No.406 of 2017 1. Whether on the facts and circumstances of the case, the ITAT is justified in allowing the royalty payment when the transfer of trade mark "CRI" was not allowed during the merger proceedings before the Hon'ble High Court and which was subsequently transferred from CRI Industries P Ltd., to CRI Amalgamations P Ltd through a family arrangement for a meager amount of Rs.1000/-? 2. Whether on the facts and circumstances of the case, the ITAT is justified in allowing the royalty payment, when the value of the CRI Trade Mark as fixed by the directors of the transferor company was low and the payment made to the holding company as royalty for using the trade mark was excessive and unreasonable having regard to the fair market value of the trade mark itself? 3. Whether on the facts and circumstances of the case, the Hon'ble ITAT is justified in not considering the Section 40A(2)(a) and that there is a violation of Section 40A(2)(b) of the Income Tax Act irrespective of the fact that the receipt has offered the same to tax? 2. It is brought to our notice by the learned Standing Counsel for the appellant Revenue that in the instant case, as per the CBDT's Circular No.9 of 2024 dated 17.09.2024 the tax effect is said to be less than the monetary limit 2 of 4 https://www.mhc.tn.gov.in/judis T.C.A.No.406 of 2017 imposed and therefore, the appeal can be disposed of, keeping the substantial questions of law raised in this appeal open for adjudication at a later point of time. 3. Recording the aforesaid submission made by the learned Standing Counsel for the appellant Revenue, this Tax Case Appeal is dismissed for low tax effect, keeping open the substantial questions of law for adjudication at appropriate stage. No costs. (R.S.K.,J.) (C.S.N.,J.) 23.10.2024 NCS : Yes/No

KST To The Income Tax Appellate Tribunal 'D' Bench, Chennai. 3 of 4 https://www.mhc.tn.gov.in/judis T.C.A.No.406 of 2017 R.SURESH KUMAR, J. AND C.SARAVANAN, J. KST T.C.A.No.406 of 2017 23.10.2024 4 of 4 https://www.mhc.tn.gov.in/judis

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