PR COMMISSIONER OF vs KARNATAKA STATE INDUSTRIAL INFRASTRUCTURE

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 17TH DAY OF MARCH 2021

PRESENT

THE HON’BLE MR.JUSTICE ALOK ARADHE AND THE HON’BLE MR.JUSTICE H.T.NARENDRA PRASAD ITA NO.460 OF 2017 C/W ITA Nos.458 OF 2017, 459 OF 2017 & 461 OF 2017

IN ITA 460/2017 BETWEEN:

PR. COMMISSIONER OF INCOME TAX-4 BMTC COMPLEX KORAMANGALA BANGALORE.

DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -11(5), BANGALORE. ...APPELLANTS

(BY SRI. E.I.SANMATHI, ADV.)

AND KARNATAKA STATE INDUSTRIAL

2 INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., KHANIJA BHAVAN, 4TH FLOOR EAST WING NO.49, RACE COURSE ROAD BENGALURU-560001 PAN - AAACK 5531H. …RESPONDENT (BY SRI. A. SHANKAR, SENIOR COUNSEL FOR SRI. M.LAVA, ADV.)

THIS ITA IS FILED UNDER SECTION 260-A. INCOME TAX ACT 1961, PRAYING TO 1) DECIDE THE FOREGOING QUESTION OF LAW AND OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THAT HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED:09.12.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH BENGALURU AS SOUGHT FOR IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN ITA NO.1861/BANG/2013 FOR A.Y. 2008-2009 & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.

IN ITA 458/2017 BETWEEN:

PR. COMMISSIONER OF INCOME TAX-4 BMTC COMPLEX KORAMANGALA BANGALORE.

DEPUTY COMMISSIONER

3 OF INCOME TAX, CIRCLE -11(5) BANGALORE. ...APPELLANTS

(BY SRI. E.I.SANMATHI, ADV.)

AND KARNATAKA STATE INDUSTRIAL INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., KHANIJA BHAVAN, 4TH FLOOR EAST WING NO.49, RACE COURSE ROAD, BENGALURU-560001 PAN - AAACK 5531H. …RESPONDENT (BY SRI. A. SHANKAR, SENIOR COUNSEL FOR SRI. M.LAVA, ADV.)

THIS ITA IS FILED UNDER SECTION 260-A. INCOME TAX ACT 1961, PRAYING TO 1) DECIDE THE FOREGOING QUESTION OF LAW AND OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THAT HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED:09.12.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH BENGALURU AS SOUGHT FOR IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN ITA NO.1659/BANG/2013 FOR A.Y. 2008-2009 & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.

IN ITA 459/2017 BETWEEN:

PR. COMMISSIONER OF INCOME TAX-4, BMTC COMPLEX, KORAMANGALA BANGALORE.

DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -11(5) BANGALORE. ...APPELLANTS

(BY SRI. E.I.SANMATHI, ADV.)

THIS ITA IS FILED UNDER SECTION 260-A. INCOME TAX ACT 1961, PRAYING TO 1) DECIDE THE FOREGOING QUESTION OF LAW AND OR SUCH OTHER

5 QUESTIONS OF LAW AS MAY BE FORMULATED BY THAT HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED:09.12.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH BENGALURU AS SOUGHT FOR IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN ITA NO.1660/BANG/2013 FOR A.Y. 2010-2011 & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.

IN ITA 461/2017 BETWEEN:

PR. COMMISSIONER OF INCOME TAX-4, BMTC COMPLEX, KORAMANGALA BANGALORE.

DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -11(5) BANGALORE. ...APPELLANTS

(BY SRI. E.I.SANMATHI, ADV.)

AND KARNATAKA STATE INDUSTRIAL INFRASTRUCTURE DEVELOPMENT CORPORATION LTD., KHANIJA BHAVAN, 4TH FLOOR

6 EAST WING NO.49, RACE COURSE ROAD, BENGALURU-560001 PAN - AAACK 5531H. …RESPONDENT (BY SRI. A. SHANKAR, SENIOR COUNSEL FOR SRI. M.LAVA, ADV.)

THIS ITA IS FILED UNDER SECTION 260-A. INCOME TAX ACT 1961, PRAYING TO 1) DECIDE THE FOREGOING QUESTION OF LAW AND OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THAT HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED:09.12.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH BENGALURU AS SOUGHT FOR IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN ITA NO.1862/BANG/2013 FOR A.Y. 2010-2011 & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.

THESE ITA’S COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

7 JUDGMENT

Mr.E.I.Sanmathi, learned counsel for the Revenue. Mr.A.Shankar, learned senior counsel for the assessee.

These appeals under Section 260A of the Income Tax Act, 1961 have been filed by the Revenue against the order dated 9.12.2016 passed by the Income Tax Appellate Tribunal pertaining to the Assessment years 2008-09 and 2010-11.

In ITA No.458/2017 and ITA No.459/2017, the following substantial question of law arises for consideration: “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee- Company is entitled to the benefit of indexation while calculating long term

8 capital gain which are to be considered for the purpose of computing tax liability under Section 115JB of the Act by following the decision of this Court in the case of THE COMMISSIONER OF INCOME TAX AND ANR. vs. MSR AND SONS INVESTMENTS LIMITED passed in ITA No.3189/2005 dated 14.9.2011 even when the said decision has not reached finality and the computation made by the assessee in this aspect was erroneous?”

In ITA No.460/2017 and ITA No.461/2017, the following substantial question of law arises for consideration: “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance under Section 14A read with Rule 8D of the Act by following the decision of this Court in ITA No.423/2014 disposed on 20.11.2015 (COMMISSIONER OF INCOME TAX vs. KARNATAKA STATE

9 INDUSTRIAL AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD.) in the case of the assessee for the assessment year 2009-10 even when the said decision has not reached finality?”

In ITA No.459/2017, the following substantial questions of law arise for consideration: (i) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing deduction for payment under Section 37 of the Act towards donation to CM Relief Fund even when the same cannot be treated as business expenditure and not even coincidental to the business carried on by the assessee?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee-Company is entitled to the benefit of indexation while

10 calculating long term capital gain which are to be considered for the purpose of computing tax liability under Section 115JB of the Act by following the decision of this Court in the case of THE COMMISSIONER OF INCOME TAX AND ANR. vs. MSR AND SONS INVESTMENTS LIMITED passed in ITA No.3189/2005 dated 14.9.2011 even when the said decision has not reached finality and the computation made by the assessee in this aspect was erroneous?

Since the substantial questions of law involved in these batch of appeals are similar, these appeals are heard analogously and are being decided by this common judgment.

The facts giving rise to filing of these appeals briefly stated are that the assessee is a company and an undertaking of the Government of

11 Karnataka, which is engaged in financing industrial units in the State of Karnataka. The assessee filed its return of income for the assessment years 2008-09 and 2010-11 on 30.9.2008 and 2.10.2010 respectively. Subsequently, for the assessment year 2008-09, the assessee filed revised return on 9.10.2010. The returns filed by the assessee were selected for scrutiny. It is the case of the assessee that no notice under Section 143(2) of the Act was issued for the assessment year 2010-11 and an order of assessment dated 21.12.2010 was passed under Section 143(3) of the Act, by which the assessing authority has recomputed the disallowances under Section 14A of the Act for a sum of Rs.1,76,00,000/- and difference of Rs.1,57,35,410/- was disallowed and added back to income. The assessing authority also made other disallowances. Being aggrieved, the assesse filed appeal before the Commissioner of

12 Income Tax, who, by order dated 17.9.2013 has deleted the additions made by the assessing authority. The Revenue thereupon filed appeals before the Tribunal. The Tribunal by a common order dated 9.12.2016 has dismissed the appeals preferred by the Revenue. In the factual background, the revenue has filed the instant appeals.

The learned counsel for the revenue submitted that the Tribunal ought to have appreciated that there is no direct nexus between the business and contribution which was made by the assessee for the welfare fund. It is further submitted that the Tribunal erred in dismissing the appeals preferred by the Revenue.

The learned senior counsel for the assessee submitted that substantial questions of law involved in ITA No.459/2017 are covered by the decision of the

13 Hon’ble Supreme Court in the case of Sri Venkata Satyanarayana Rice mill Contractors Co. –v- Commissioner of Income-tax [(1996) 89 Taxman 92 (SC)]. It is also pointed that substantial question of law involved in ITA No.460/2017 and ITA No.461/2017 is covered by the decision of this Court in the case of CIT –v- Karnataka State Industries and Infrastructure Development Corpn. Ltd. (2016) 65 Taxman.com 296 (Kar.). Whereas the substantial question of law involved in ITA No.458/2017 and 459/2017 is covered by the decision of this Court in the case of Best Trading and Agencies Ltd. –v- DCIT (2020) 119 Taxmann.com 129 (Kar.) and decision of this Court in the case of CIT –v- MSR and Sons Investments Ltd in ITA No.3189 of 2005 (Kar.)

We have considered the submissions made on both sides.

14 8. The substantial questions of law involved in ITA No.459/2017 are covered by the decision of the Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors (supra), the substantial question of law involved in ITA No.460/2017 and ITA No.461/2017 is covered by the decision of this Court in the case of CIT –v- Karnataka State Industries and Infrastructure Development Corpn. Ltd. (supra) and substantial question of law involved in ITA No.458/2017 and 459/2017 is covered by the decision of this Court in the case of Best Trading and Agencies Ltd. (supra) and decision of this Court in the case of MSR and Sons Investments Ltd. (supra).

For the reasons assigned therein, the substantial questions of law involved in these appeals are answered against the Revenue and in favour of the assessee.

15 10. In the result, we find no merit in the instant appeals. The same fail and are hereby dismissed.

Sd/- JUDGE

PR COMMISSIONER OF vs. KARNATAKA STATE INDUSTRIAL INFRASTRUCTURE