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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF APRIL, 2015
PRESENT
THE HON'BLE MR. JUSTICE VINEET SARAN
AND
THE HON’BLE MRS. JUSTICE S.SUJATHA
ITA NO.457/2014
BETWEEN
THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD, BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(5) RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V.ARAVIND, ADV.)
AND
M/S. KHODAY INDIA PVT. LTD. NO.54, KANNAYAKANA AGRAHARA ANJANAPURA POST, BANGALORE-560 062.
...RESPONDENT
THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED: 13.06.2014 PASSED IN ITA NO.1187/BANG/2012, FOR THE ASSESSMENT YEAR 2007-08 PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW;
II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.1187/BANG/2012 DATED 13.06.2014 AND CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(5), BANGALORE.
THIS ITA COMING ON FOR ADMISSION THIS DAY, VINEET SARAN J. DELIVERED THE FOLLOWING:
JUDGMENT
Challenging the order of the Tribunal dated 13.06.2014 the revenue has filed this appeal raising the following substantial questions of law:
“i. Whether the Tribunal was correct in deleting the disallowance of compensation of Rs.3 Crores made by the AO without appreciating that the termination of the agreement by the assessee was due to non fulfillment of the conditions of the agreement by BML and as such the payment of compensation of Rs.3 Crores was for extraneous consideration and not for the business purpose?
ii. Whether the Tribunal was correct in allowing the claim of the assessee for deduction of Rs.48,45,201/- being disallowance made on account of payment of employees contribution to ESI and PF made by the assessee company beyond the due date?
iii. Whether the Tribunal was correct in giving relief to the assessee without appreciating that the amounts are income in the hands of the assessee in terms of Section 2(24)(x) read with Section 36(1)(va) of the Act and Section 43B is not applicable to employee’s contribution?”
It is not disputed that questions-2 and 3 are covered by the judgment of this Court rendered in the case of Commissioner of Income Tax –vs- Spectrum Consultants India (P) Ltd. reported in (2014) 266 ctr 241(Kar). As such, the same does not require any further consideration by this Court.
Insofar as question No.1 is concerned, it may be stated that while terminating the agreement with the BML, which was a dealer of the assessee, a compensation amount of Rs.3.00 Crores had to be paid. The Tribunal has found that the said compensation was paid after Clause(17) was invoked in terms of the agreement between the parties and as such, the Tribunal has given finding of fact that the compensation amount of Rs.3.00 Crores fixed as per the tripartite agreement was within the legal framework and is incurred by the assessee wholly and
exclusively in the course of and for its business and as such, we agree with the view taken by the Tribunal that when the expenditure was wholly and exclusively for the purpose of the business of the assessee, it would be allowable under Section 37 of the Income Tax Act, 1961. As such, we find that there is no substantial question of law with regard to question No.1 also which requires determination by this Court. The appeal is accordingly, dismissed.
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JUDGE
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JUDGE TL