COMMISSIONER OF INCOME TAX vs. SHRIRAM CHITS TAMILNADU PVT

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TCA/888/2017HC Madras18 July 2022Bench: THE HONOURABLE MR. JUSTICE R. MAHADEVAN5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court decided the appeals based on a submission made by the Revenue concerning CBDT Circular No. 17/2019. The Revenue brought to the court's notice that appeals should not be filed or pursued if the tax effect does not exceed Rs. 1,00,00,000/-. The Revenue further submitted that the tax effect in the present appeals was less than this stipulated threshold limit. In light of this submission, the High Court found that the appeals, where the tax effect was below the monetary limit, were to be dismissed as withdrawn. The court explicitly stated that the substantial questions of law were kept open for determination in appropriate cases. Consequently, the connected miscellaneous petitions were also closed. No costs were awarded.

What were the facts?

The Commissioner of Income Tax, Chennai (appellant/revenue) filed four Tax Case Appeals (TCA.Nos. 888, 889, 890 & 891 of 2017) against the orders of the Income Tax Appellate Tribunal (ITAT), Madras 'B' Bench, Chennai, dated 29.01.2016. The appeals challenged the ITAT's decisions in ITA.Nos. 716, 717, 866 & 867/Mds/2015 concerning Shriram Chits Tamilnadu Pvt. Ltd. (respondent/assessee). The appeals raised substantial questions of law regarding the disallowance of expenditure under Section 14A, the applicability of Section 40A(ia), and the treatment of royalty payments as revenue or capital expenditure. During the hearing, the revenue brought to the court's notice CBDT Circular No. 17/2019, which stipulates that appeals should not be filed or pursued if the tax effect does not exceed Rs. 1,00,00,000/-. The revenue submitted that the tax effect in these appeals was below this threshold.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. (TCA.Nos. 888 & 889 of 2017) Whether the Tribunal was correct in holding that Section 14A read with Rule 8D cannot be invoked to compute indirect expenditure of Rs. 13.77 crore for earning exempt income, on the ground that the Assessing Officer had not recorded specific satisfaction that the expenses were incurred to earn exempt income? 2. (TCA.Nos. 888 & 889 of 2017) Whether the Tribunal was correct in holding that Section 40A(ia) can only be invoked for expenditure payable as of the last day of the financial year, and not for expenditure paid during the financial year? 3. (TCA.Nos. 890 & 891 of 2017) Whether the Tribunal was correct in holding that royalty paid by the assessee for the use of the Shriram Chits and Investments P Ltd logo is to be treated as revenue expenditure, despite Section 32 treating royalty as an intangible asset of capital nature from 01.04.1999, making the payment capital expenditure eligible for depreciation? Assessee's contentions were not recorded in the judgment. The Revenue's contention was that the tax effect in these appeals was less than the threshold limit specified in CBDT Circular No. 17/2019, and therefore, the appeals should be dismissed as withdrawn.

Which sections of the Income-tax Act were involved?

Section 14A,Section 40A(ia),Section 32,Section 260A

AI-generated summary — verify with the full judgment below

TCA.Nos..888, 889, 890 & 891 of 2017 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED :18.07.2022 CORAM

THE HONOURABLE MR. JUSTICE R. MAHADEVAN and THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ T.C.A.Nos.888, 889, 890 and 891 of 2017 & CMP.Nos.22505, 22506, 22507, 22508 of 2021 The Commissioner of Income Tax, Chennai

.. Appellant in all appeals Versus Shriram Chits Tamilnadu Pvt. Ltd., Mookambika Complex, No.4, Lady Desika Road, Mylapoe, Chennai 600 004.

.. Respondent in all appeals Tax Case Appeals filed under Section 260 A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal Madras “B” Bench, Chennai, dated 29.1.2016 passed in respective ITA.Nos.716, 717, 866 & 867 /Mds/2015. For Appellant in all appeals : Mr.J. Narayanasamy Standing Counsel 1/5 https://www.mhc.tn.gov.in/judis TCA.Nos..888, 889, 890 & 891 of 2017 For Respondent in all appeals: Mr.R. Sivaraman COMMON JUDGMENT (Judgment of the Court was delivered by R. MAHADEVAN, J.) These Tax Case Appeals have been filed by the appellant / revenue, questioning the correctness of the order dated 29.01.2016 passed by the Income Tax Appellate Tribunal Madras “B” Bench, Chennai in respective I.T.A.Nos.716, 717, 866 & 867/Mds/2015 raising the following substantial questions of law; TCA.Nos.888 & 889 of 2017 ' 1.Whether on the facts and in the circumstances of the case the tribunal was right in holding that provisions of sec.14A r/w.Rr 8D cannot be invoked to compute the indirect expenditure of Rs.13.77 Cr for earning the exempt income, for the purpose of disallowance u/s.14A on the ground that the assessing officer had not expressively recorded a specific satisfaction that the said expenses were incurred to earn exempt income. 2. Whether on the facts and in the circumstances of the case the tribunal was right in holding that section 40a(ia) can be invoked only to the amounts of expenditure which are payable as on last day of the 2/5 https://www.mhc.tn.gov.in/judis TCA.Nos..888, 889, 890 & 891 of 2017 financial year and not the expenditure paid during the financial year. ”' TCA.Nos.890 & 891 of 2017 ' 1.Whether on the facts and in the circumstances of the case the tribunal was right in holding that the royalty paid by the assessee towards the use of logo of Shriram Chits and Investments P Ltd is to be treated as revenue expenditure without appreciating that as per the section 32 w.e.f. 1.4.99 the royalty is to be treated as intangible asset of capital nature and consequently the royalty payment is a capital expenditure and the assessee is entitled for depreciation only.'

2.

When the matters were taken up for consideration, the learned counsel for the appellant / Revenue brought to the notice of this court the Circular No.17/2019 dated 08.08.2019 issued by the Central Board Direct Taxes, wherein, it is stipulated that appeals shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). It is also submitted that the tax effect in these appeals are less than the threshold limit. 3/5 https://www.mhc.tn.gov.in/judis TCA.Nos..888, 889, 890 & 891 of 2017 3. In the light of the aforesaid submissions made by the learned counsel for the appellant / Revenue, the present appeals, wherein, the tax effect is said to be less than the monetary limit imposed, are dismissed as withdrawn, keeping open the substantial questions of law for determination in appropriate cases. No costs. Consequently, the connected miscellaneous petitions are closed. [R.M.D,J.] [M.S.Q., J.] 18.07.2022 msr

Index : Yes / No To The Income Tax Appellate Tribunal Madras “B” Bench, Chennai, 4/5 https://www.mhc.tn.gov.in/judis TCA.Nos..888, 889, 890 & 891 of 2017 R. MAHADEVAN, J. and MOHAMMED SHAFFIQ, J. msr T.C.A.Nos.888, 889, 890 and 891 of 2017 & CMP.Nos.22505, 22506, 22507 & 22508 of 2021 18.07.2022 5/5 https://www.mhc.tn.gov.in/judis

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