PRINCIPAL COMMISSIONER OF IN vs. M/S.SUNSTAR HOTELS AND ESTAT

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TCA/738/2019HC Madras08 July 2020Bench: Hon`ble Mr Justice T. S. SIVAGNANAM4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue on account of low tax effect, in light of CBDT Circular No. 17/2019. The Court noted the submission by the Revenue's counsel that the tax effect was less than the threshold limit of Rs. 1 Crore for pursuing appeals before the High Court. Consequently, the substantial questions of law raised by the Revenue were left open. The Court granted liberty to the Revenue to file a petition to restore the appeal if the tax effect was found to be above the threshold limit in the future. No costs were imposed.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax-6, Chennai, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 07.06.2019 passed by the Income Tax Appellate Tribunal (ITAT), Chennai 'D' Bench. The appeal pertains to the assessment year 2013-14 and concerns the respondent, M/s. Sunstar Hotel & Estates Pvt. Ltd. The ITAT's order was challenged by the Revenue on three substantial questions of law. However, the Revenue subsequently informed the High Court that it was not pursuing the appeal due to a low tax effect, as per CBDT Circular No. 17/2019, which increased the monetary limit for filing appeals before the High Court to Rs. 1 Crore. The tax effect in this case was stated to be below this threshold.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Appellate Tribunal was right in holding that expenses not attributable to the business can be allowed as business expenses under Section 37 of the Income Tax Act? 2. Whether, on the facts and circumstances and in law, the Appellate Tribunal was right in considering income earned from financial services as business income when the main object of the company was hotel business and that business had not commenced? 3. Whether the Appellate Tribunal was right in allowing expenses under Section 37 of the Act, when the assessee altered its memorandum of association to remove hotel business as a main object effective from 08.03.2016, and this alteration was not applicable to the assessment year 2013-14? The Revenue argued that the appeal was not being pursued due to low tax effect, citing CBDT Circular No. 17/2019. The assessee was represented by counsel but no specific arguments were recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 260A,Section 37

AI-generated summary — verify with the full judgment below

TCA.No.738 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 21.12.2020 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN TAX CASE APPEAL No.738 of 2019 (heard through video conferencing)

Principal Commissioner of Income Tax-6, No.121, Nungambakkam High Road, Chennai-34. ...Appellant Vs M/s.Sunstar Hotel & Estates Pvt. Ltd., Chennai-17.

...Respondent

APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 07.6.2019 made in ITA.No.3269/Chny/2018 on the file of the Income Tax Appellate Tribunal, Chennai ‘D’ Bench for the assessment year 2013-14.

For Appellant : Mr.J.Narayanasamy, SSC For Respondent : Mr.Ashokpathy for M/s.Pass Associates 1/4 https://www.mhc.tn.gov.in/judis/ TCA.No.738 of 2019 Judgment was delivered by T.S.SIVAGNANAM,J This appeal, by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, the Act), is directed against the order dated 07.6.2019 made in ITA.No.3269/Chny/2018 on the file of the Income Tax Appellate Tribunal, Chennai ‘D’ Bench for the assessment year 2013-14. 2. We have heard Mr.J.Narayanasamy, learned Senior Standing Counsel appearing for the appellant – Revenue and Mr.Ashokpathy, learned counsel appearing for the respondent – assessee. 3. The appeal has been filed by the Revenue by raising the following substantial questions of law : “1. Whether the Appellate Tribunal was right in holding that the expenses, which are not attributable to the business can be allowed as business expenses under Section 37 of the Income Tax Act ? 2. Whether, on the facts and circumstances and in law, the Appellate Tribunal was right in considering the income earned from financial services as business income when the main object of the company was hotel business and that business had not at all commenced by the assessee ? And 3. Whether the Appellate Tribunal was 2/4 https://www.mhc.tn.gov.in/judis/ TCA.No.738 of 2019 right in allowing the expenses under Section 37 of the Act, when the assessee altered the memorandum of association and removed hotel business as one of its main object with effect from 08.3.2016 and the same is not applicable to the present assessment year 2013-14 ?”

4.

The learned Senior Standing Counsel for the appellant submits that the above appeal is not pursued by the Revenue on account of the low tax effect in terms of Circular No.17/2019 dated 08.8.2019 issued by the Central Board of Direct Taxes. By the said Circular, the monetary limit for filing or pursuing an appeal before the High Court has been increased to Rs.1 Crore. It is further submitted that the tax effect in this case is less than the threshold limit. 5. In the light of the said submissions, the above tax case appeal is dismissed on account of the low tax effect. The substantial questions of law raised are left open. In the event the tax effect is above the threshold limit fixed in the said circular, liberty is granted to the Revenue to file a petition to this Court to restore the appeal to be heard and decided on merits. No costs. RS 21.12.2020 3/4 https://www.mhc.tn.gov.in/judis/ TCA.No.738 of 2019 T.S.SIVAGNANAM, J AND V.BHAVANI SUBBAROYAN, J

RS To The Income Tax Appellate Tribunal, Chennai ‘D’ Bench. T.C.A.No.738 of 2019

21.12.2020 4/4 https://www.mhc.tn.gov.in/judis/

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