THE PR. COMMISSIONER OF INCOME TAX, CIT (A) vs. M/S. MANIPAL HEALTH SYSTEMS PVT. LTD.,

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ITA/823/2018HC KarnatakaKAHC01054901201813 October 2023Bench: P.S.DINESH KUMAR,T.G. SHIVASHANKARE GOWDA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court noted that several questions of law were covered by previous judgments of the same court, which were decided in favor of the assessee. One question was deemed not to arise, and another was remanded.

What were the facts?

The Revenue appealed against an ITAT order that set aside disallowances made under Section 40A(2) and regarding the classification of certain expenditures as revenue or capital. The appeal raised multiple substantial questions of law concerning these disallowances.

What were the issues?

Whether the Tribunal was correct in setting aside disallowances made under Section 40A(2) and in classifying certain expenditures as revenue rather than capital.

Which sections of the Income-tax Act were involved?

Section 40A(2)

AI-generated summary — verify with the full judgment below

I.T.A No.823/2018

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF OCTOBER 2023 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA

INCOME TAX APPEAL NO.823 OF 2018

BETWEEN :

1.

THE PR. COMMISSIONER OF INCOME-TAX, CIT (A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095

2.

THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-2(3)(1) 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095

…APPELLANTS

(BY SHRI. E.I. SANMATHI, STANDING COUNSEL)

AND :

M/S. MANIPAL HEALTH SYSTEMS PVT. LTD., NO.14, MANIPAL TOWERS OLD AIRPORT ROAD BENGALURU-560 008 PAN:AACCM 2872M …RESPONDENT

(BY SHRI. R.V. EASWAR, SENIOR ADVOCATE FOR SHRI. S. SHARATH, ADVOCATE) . . . .

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 27.06.2018 PASSED IN ITA

I.T.A No.823/2018

NO.1209/BANG/2017, FOR THE ASSESSMENT YEAR 2011-2012, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.1209/BANG/2017 DATED 27.06.2018 FOR ASSESSMENT YEAR 2011- 2012 ANNEXURE – C, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 2(3)(1), BENGALURU AND ETC.

THIS ITA, HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 11.07.2023 COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, P.S.DINESH KUMAR J, PRONOUNCED THE FOLLOWING:-

JUDGMENT This appeal by the Revenue, directed against the order dated June 27, 2018 in ITA No. 1209/Bang/2017 passed by the ITAT1 has been admitted to consider following questions of law: 1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance made under Section 40A(2) of the Act by holding that the assessing authority has not doubted the payment nor it is held as excessive even though in terms of Section 40A(2) only “legitimate needs of the business” is allowable as expenditure and, as such, the assessing authority rightly disallowed it?

2.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee has rightly transferred the hospital as a going concern and took

1 Income Tax Appellate Tribunal

I.T.A No.823/2018

net worth as ‘nil’ and, as such, the same is not a “Slump Sale” without appreciating that assets that were necessary for effective continuation of Hospital business were transferred in one go, individual assets / liabilities were not assigned any value and agreement itself mentions it as “Slump Sale”.

3.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the amount spent on projects for establishing and operating hospitals is revenue expenditure though the same was in the nature of capital expenditure and agreement was terminated?

4.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance made under Section 40A2 of the Act in respect of service charges paid to the Company, namely, MEMG International Private Limited even though the conditions for invoking said provision are fully satisfied in the case of the assessee?

5.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of expenditure for inflow of equity to the extent of Rs.100 Crores by holding that the same is in the nature of revenue expenditure even though the assessing authority rightly held it as capital expenditure considering that the assessee had failed to provide break-up of expenditure and the assessee had failed to substantiate its claims that it pertains to issue of bonus shares / debentures?

I.T.A No.823/2018

6.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of Rs.25,34,10,284/- towards non-recoverable projects cost by holding that the expenditure is in the nature of revenue expenditure even though the expenditure on the construction / expansion of the hospital gave rise to an enduring benefit to the assessee in generating income and, as such, the same was rightly treated as ‘capital expenditure’?

7.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of legal and professional charges by holding that the same is in the nature of capital expenditure even though the assessing authority rightly treated the same as revenue expenditure since the same was related to raising of fresh equity and to study feasibility of expansion and, as such it gave enduring benefit to the assessee?

2.

Heard Shri. E.I. Sanmathi, learned Standing Counsel for the Revenue and Shri. R.V. Easwar, learned Senior Advocate for the Assessee. 3. Question Nos. 1 and 4 are covered by the judgment of this Court in ITA No. 817/2018. Question No. 2 is covered by the judgment in ITA No. 816/2018. Question Nos. 3 and 6 are covered by the judgment in ITA No.

I.T.A No.823/2018

*822/2018. Question No. 7 is covered by the judgment in ITA No. 820/2018. 4. Questions No. 1, 2, 3, 4, 6 have been answered in favour of the assessee and against the Revenue in the respective appeals referred to above. Shri. Sanmathi submitted that question No.5 does not arise for consideration. Accordingly, it is not answered. Question No. 7 is similar to the question in ITA No. 820/2018. In that case, the matter has been remanded. Hence, question No. 7 is kept open for consideration in appropriate case. 5. In the result, this appeal is dismissed. No costs.

Sd/- JUDGE

Sd/- JUDGE

SPS

*Correction carried out vide Court order dated 21.11.2023

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