I.T.O WD - 7(3),KOLKATA., KOLKATA vs. M/S SHALINI PROPERTIES & DEVELOPERS PRIVATE LIMITED., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA [Before Hon’ble Sri M.Balaganesh, AM & Shri Partha Sarathi Chaudhury, JM] I.T.A No. 171/Kol/2013 Assessment Year : 2009-10 I.T.O., Ward-7(3) -vs.- M/s. Shalini Properties & Developers Kolkata Pvt. Limited., Kolkata [PAN : AAHCS 7896 N] (Respondent) (Appellant) For the Appellant : Shri Arup Kumar Sinha, CIT For the Respondent : Shri Manoj Kataruka, Advocate

Date of Hearing : 02.02.2017. Date of Pronouncement : 28.02.2017.

ORDER Per Shri Partha Sarathi Chaudhury, JM

This appeal preferred by the Revenue emanates from the order of ld. CIT(A)- VIII, Kolkata dated 27.11.2012 on the following grounds of appeal: “1. That on the fact and circumstances of the case and in law the Ld. CIT(A)-VIII, Kolkata has erred in appreciating the fact that payment made to ICICI Bank as “Processing Fees” of Rs.13,19,24,685/- is not incurred for earning income from M/s. Ruia Sons Private Limited and as such is not coming under the ambit of section 37(1) of the I.T.Act, 1961. 2. The appellant craves leave to add, alter or abrogate any ground of appeal at the time of hearing.”

2 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 21.12.2011 determining the total income at Rs.13,17,77,340/- after making some additions and disallowances.

“5.1.8. I have carefully considered the facts of the case and the material placed on record. I have also considered, the remand report of the Assessing Officer as well as the rejoinder submitted on behalf of the appellant company. I have also gone through 2

3 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 the reported decisions cited for support both by the Assessing Officer and on behalf of the appellant company. Now. to recapitulate, in the profit and loss account, an amount of Rs.11,74,12,500/- was debited under the Bank Charges/Guarantee commission which included payment of rR.11,74,12,500/- to M/s. Shalini Properties and Developers Pvt. Ltd. On account of Standby Letter of Credit Charges. However from the notes contained in the tax audit report, the Assessing Officer observed that (i) “The company has not taken any loans, secured or unsecured, from Companies, firms or other parties covered in the register maintained under section 301 of the Act and as such clauses (iii)(e) to (iii) (g) are not applicable to it; and (ii) “The Company has not given guarantee for loans taken by others from bank or financial institutions. “ From the details submitted it is noted that the appellant company had given guarantee commission to M/s. Shalini Properties and Developers Pvt. Ltd. Thus, it is noted that the report of the Auditor does not commensurate with the accounts and the same was pointed out to the assessee company. The case of the Assessing Officer for making the impugned addition has been that – (i)the transactions entered into by the assessee company were with group companies having the same management and controlling authority, decisions were taken on behalf of all the companies by only a few; (ii) The Directors and the principal persons of the assessee company were only aware of the major decisions taken in the entire group. (iii) opportunity was provided to the assessee to come out clean with a clear picture of the exact disclosure of facts and not fictions. As all the information was within the control and specific knowledge of the assessee, therefore, it was the duty of the assessee to prove and establish the same, which they did not. This brings out a clear picture that the total group companies are engaged in colorable transactions amongst themselves. Similar view had been taken in the case of Logitronics Pvt. Ltd. ITA 4716/DEL of 2009 dated 30.04.2010, ITAT, New Delhi and in the case of Kaycee Electricals v DCIT (2003) 87 ITD 35 (Delhi). 3

4 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 (iv) the contentions expressed in the copies of the extracts of the board resolution, as claimed by the appellant, has already been duly considered in the assessment stage and strongly refuted in the assessment order itself with logic as well as relevant case laws. (v) It is also pertinent to mention here that it is incumbent on the Assessing Officer to explore the total gamut of the affairs of the assessee company. The transactions entered into by the assessee company are often not indicative of what meets the naked eye. The intention and actual purpose of the assessee company, along with its ramifications on its past, present and future incomes, as well as the effect it is going to case on other affected parties and beneficiaries have to be considered. The Assessing Officer has to lift the corporate veil and bring out the actual purpose of the actions of the assessee company to light. This has also been upheld in the case of CIT vs Indian Express Newspapers Madurai Pvt. Ltd. 238 ITR 70 (Mad).” Thus, the case of the Assessing Officer is that the group companies were managed by a few, who could manage the affairs to reduce the tax burden through colourable devices. 6. On the other hand, to support its claim, it was explained that the appellant company is the flagship company of the Ruia Group and during the financial year 2008-2009, relevant to Asst.Year 2009-2010, it had entered into an agreement with Dunlop India Limited with the help and support of M/s. Shalini Properties & Developers P. Ltd. This agreement with Dunlop India Ltd was for the appellant company to use the ‘Dunlop ‘brand name logo for a period of ten years commencing from 01.04.2008 to 31.03.2018. The manner and influence of M/s. Shalini Properties & Developers P. Ltd in obtaining such brand name by the appellant company and the payment of SBLC charges to Shalini Properties & Developers P. Ltd is the entire issue for this addition made by the Assessing Officer. The fact is that prior to Asst. year 2009-10 i.e. in A/Y 2008-09, the appellant was not having any business activity nor deriving any income and this was also the case in many more previous years.

5 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 7. In sum and substance, it is submitted that the appellant was not having source of income prior to A/Y 2009-2010. It was looking for avenues to earn income and steps were being taken by the appellant which is the matter of resolution of the Board of the appellant company as on 20th Feb 2008 placed at page 53 of the paper book. M/s. Shalini Properties & Developers P. Ltd are substantial share holders of Dunlop India Limited and the appellant came to an understanding with M/s Shalini Properties & Developers P Ltd. that the latter would help and make all efforts to obtain the 'Dunlop' brand name in favour of the appellant from Dunlop India Ltd and the appellant would be obliged to bear the SBLC charges to be paid to M/s Shalini Properties & Developers P Ltd. who, in turn, shall pay such charges to ICICI Bank. To this effect, Board of the appellant company passed resolution dated 12th March 2008. Board resolution dated 28th March 2008 was passed by the Board of the appellant which incorporated the agreement entered into by the appellant with Dunlop India Ltd for use or 'Dunlop’ Brand and Logo. The Board's resolution also incorporated and thanked M/s Shalini Properties & Developers P td for their efforts in obtaining the brand name from Dunlop India Ltd. and payment of SBLC charges as soon as M/s.Shalini Properties & Developers P Ltd. requires the sum. Subsequently, when the loan was sanctioned by the ICICI Bank where M/s Shalini Properties & Developers P Ltd., was guarantor, another Board resolution was passed dated 28th of June 2008 for reimbursement of the SBLC charges to M/s Shalini Properties & Developers P Ltd.

6 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 Financial Year Falcon Tyres India Tyre & Dunlop Total Rubber Goodyear Tyre Rs. 2008-09 33903897 1050305 0 34954202 2009-10 91472539 827016 0 92299555 2010-11 165818393 875089 0 166693482 2011-12 155880408 611723 6314287 162806418 Total Rs. 447075237 3364133 6314287 456753657

The processing fees paid by the company are as under : Financial Year Amount Rs. 2008-09 117412500 2009-10 87668527 2010-11 29062500 2011-12 27906250 Total Rs. 262049777

7 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 profit of the appellant company. The Assessing Officer also relied upon the decision in relation to colourful device to hold that the expenses of rs.117412500/- could not be said to be laid out or expended wholly and exclusively for the purposes of the business of the appellant company and that the transaction was a colourful device. While holding, the Assessing Officer has considered the agreement and the fact of the case. The Assessing Officer has also gone on to point out the utilization of such loan taken by Wealthsea Pte Ltd. 11. In the remand report the Assessing Officer has not mentioned anything new than what has already been stated in the assessment order and in fact the Board’s resolution which was considered as fresh evidence has been brushed aside by the Assessing officer by treating the same to be part of the assessment record and not fresh evidence. M/s. Shalini Properties & Developers P. Ltd held 100% shares in Hiland Traders Pvt. Ltd. Which, in turn, held substantial shares in Dunlop India Ltd. M/s. Shalini Properties and Developers P.Ltd also held 45% in the equity capital of Wealthsea Pte Ltd. Which held the entire share holding in DIL Rim & Wheels Corpn. Ltd. Which, in turn held substantial shares in Dunlop India Ltd. Therefore, Shalini Properties & Developers Ltd. Was having substantial interest in Dunlop India Ltd. Accordingly, Wealthsea Pte Ltd. Had approached ICICI Bank, Singapore which was agreeable to release funds provided a standby Letter of Credit was given by Shalini Properties & Developers P.Ltd being the substantial share holder of Wealthsea Pte Ltd. M/s. Shalini Properties & Developers P. Ltd were not having any income and in order to provide such finance charges it approached the appellant company. The resolutions passed by the Board throw light to the affair of the appellant company and the method adopted for source of earning by the appellant company. The fact that the appellant was looking for a source of income and in previous Asst. years not having any income cannot be denied. It is also true that M/s. Shalini Properties & Developers P. Ltd. Being substantial shareholders of Dunlop India Ltd. Had mutual understanding prior to the agreement made by the appellant company with Dunlop India Ltd. It was in the influence and effort of M/s. Shalini Properties & 7

8 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 Developers P. Ltd that the ‘Dunlop’ brand name was obtained on lease for a period of ten years by the appellant. It is also a fact that from the use of the ‘Dunlop’ brand name, the appellant company has earned substantial income on account of royalty, service charges in the impugned Asst. Year and increasing in subsequent years. It is also illustrated in the chart given above that purely on royalty income form use of the ‘Dunlop ‘brand name in comparison to reimbursement of SBLC charges in three years, the income has outshown the expenses substantially putting the appellant company in a guided seat and showing the actual picture of the understanding with M/s. Shalini Properties & Developers P. Ltd. Dunlop India Ltd. Is doing business of manufacturing of tyres and tubes and has been constantly in the news and for steps taken for revival of the same. Prior to the acquisition of Dunlop India Ltd. By the Ruia Group the same was a sick unit and subsequently it revived and came out from being a sick unit. The transaction of payments made by the appellant company of the SBLC charges, processing fees/finance charges by whatever name it may be called are a larger picture to the revival of the group company and mainly Dunlop India Ltd. Which was to be starting production, up and in running. The arrangement made between the group companies, shareholder company has resulted in business in these companies and giving rise to capital generation for benefit of Dunlop India Ltd, as a whole. So, it is incorrect to say that Dunlop India Limited has not been benefited from the finances obtained by Wealthsea Pte. Ltd in terms of which the appellant company has paid processing fee, SBLC charges to M/s. Shalini Properties & Developers P. Ltd. Who in turn has paid the same to ICICI Bank Ltd.

9 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 because it is not the case of the appellant company that the income is being earned from third party or it is a fixed income being earned from previous year and in order to eat into such income a method or a resort is being adopted which is colourful in nature. Here, it is from the A.Y. 200p9-10 that the source of income has been generated and Board’s resolution is absolutely clear as to the gamut of affairs of the appellant company and the involvement of M./s Shalini properties & Developers Ltd. Is not in doubt. Even before the agreement was made between Dunlop India Ltd. And the appellant company for use of the ‘ Dunlop ‘ brand name and logo, M/s. Shalini Properties & Developers P. Ltd. Had made an understanding with the appellant for providing of SBLC charges and once this fact is undisputed by the Assess8ing Officer, then there can be no question raised as to the colourful device or a method adopted to eat into the profit. A Board’s resolution is no doubt an important piece of evidence and even though it is made by the Board of Directors, it has to be considered and taken cognizance of and cannot be brushed aside. The Supreme Court in the case of Union of India Vs Azadi Bacho Andolen 263 ITR 706 (SC) after considering the decision of the Supreme Court in the case of McDowell 154 ITR 148 made a distinction between tax avoidance and tax planning it was held :- “ having anxiously scanned MacDowerll’s case, we find no reference therein to having dissented from or overruled the decision of the Privy Council in the Bank of Chettinand case 8 ITR 522 (PC). In any of the principles appears to have been reiterated with approval by the Constitution Bench of this court in Mathuram’s case 8 SCC 667 para 12. We are therefore unable to accept the contention of the respondent that there has been a very drastic change in the final jurisprudence in India, as would entail a departure. In our judgment from Westmister’s case to Bank of Chettinands case to Mathurams case despite the hiccups of MacDowell;s case, the law has remained the same. We are unable to agree with the submission that an Act which is otherwise valid on law can be treated non-est merely on the base of some underlying motive supposedly

10 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 resulting in some economic detriment or prejudice to the national interest as perceived by the respondents. “ In the case of IRC vs Fisher Executor 1926 AC 395 it was held – “ My Lords the highest authorities have always recognized that the subject is entitles to arrange his affairs as not to attract tax imposed by the crown, so far as he can do so within the law, and that he may legitimately claim the advantage of any expressed terms or of any omission that he can find in his favour in taxing Act. In so doing he neither comes under liability nor incurs blame. In the case of Sankarlal Balabhai 69 ITR 186 (Guj) it was held “ Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income eligible to tax but on which he avoids payment of tax by some artifice or device. Such artifice or device may apparently shows the income as accruing to another person at the same time making it available for use and enjoyment to the assessee as in the case falling within section 44D or mask the true character of the income by disguising it as a capital receipt as in a case falling within section 44E or assume diverse other forms. But there must be some artifice or device enabling the assessee to avoid payment of tax on which is really and in truth his income. If the assessee parts with his income producing asset, so that the right to receive income arising from the asset which therefore belongs to the assessee is transferred to and vested in some other person, there is no avoidance of tax liability, no part of the income from the asset goes into the hands of the assessee in shape of income or under any guise.” 13. Reliance has been placed by the Assessing Officer in the case of Kaycee Electrical Vs DCIT 87 ITD 35 (Delhi) in which case the facts were that the entire transaction which could generate income were kept secret and not entered into the regular books of account it was held to be undisclosed income. The principle laid down in the said decision was where any assets is found in the possession and control of the assessee it is not recorded in the regular books of accounts maintained by him then the onus shift upon the assessee to prove the same and on such transactions it was held to 10

11 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 be colourful device. Further, in the case of CIT vs Indian Express Newspapers (Madurai) P.Ltd. 238 ITR 70(Mad.) as relied upon by the Assessing Officer, in the said case, it was decided that where the borrowers borrowing money was diverted to the associate concern the interest payment on such borrowers was not deductible u/s 36(1)(iii) and it was held to be a colourful device. The facts of the case are distinguishable and not similar to the facts of the case of the appellant. In the case of Atherton Vs British Insulator and Helsby Cables Ltd. 10 Tax cases 155, It was held – “ a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade.” 14. Moreover the facts and material brought on record show that the group of the appellant company are engaged in the manufacture of tyres and it had obtained the benefit of use brand name of “ Dunlop India Ltd.” And it had increased its revenue by way service charges received from such companies. Information and material evidence brought on record also show that the company, M/s. Shalini Properties and Developers Ltd., had been controlling the shares of Dunlop India Ltd. The appellant company had furnished copies of resolution to show that the said company, M/s Shalini Properties & Developers had been instrumental in arranging the transaction of obtaining the rights over the brand name of “ Dunlop “ to the appellant company. On the other hand, the Assessing Officer has not brought any material on record to show that the transaction is a sham or that the group of companies have adopted a colourful device to defraud the revenue. Merely because the appellant company had no guarantor or that the appellant had not taken any loan or merely because the expenditure had been debited in the profit and loss account under a different nomenclature the transaction could not be called into question as a colourable device. In Birla Cotton Spinning & Wvg. Mills Ltd. Vs CIT (1971) 82 ITR 166 (SC) it has been held that “It must be remembered that the earning of profits and the payments of taxes are not isolated and independent activities of a 11

12 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 business. These activities are continuous and take place from year to year during the whole period for which the business continues. If the assessee takes steps for reducing its liability to tax which results in more fund being left for the purpose of carrying on the business there is always a possibility of higher profits. The expenditure which was incurred by the assessee was, therefore, allowable – Birla Cotton Spg. & Wvg. Mills Ltd. Vs. CIT (1967) 64 ITR 568 (Cal) followed. On the facts and in the circumstances of the case, what is to be examined is whether the transaction is a revenue expenditure and if so, whether the said expenditure had been laid out wholly and exclusively for commercial expediency. As the Income-tax Act does not define the terms “ capital expenditure “ and “ revenue expenditure “ one has to depend upon their natural meaning as well as decided cases. General principles to decide whether an expenditure is capital or revenue in nature, the following points of distinction are relevant : Capital expenditure is incurred in acquiring, extending or improving a fixed asset, whereas revenue expenditure is incurred in the normal course of business as a routine business expenditure; (a0 Capital expenditure produces benefits for several years, whereas revenue expenditure is consumed within a previous year; (b) Capital expenditure makes improvement in earning capacity of a business, Revenue expenditure, on the other hand, maintains the profit making capacity of a business. (c) Usually capital expenditure is a non-recurring outlay, whereas revenue expenditure is normally a recurring outlay. (d) In order to determine whether an expenditure is capital or revenue in nature, the fact that it is a lump sum payment or periodic payment is not important. (e) For determining whether expenditure is of capital or revenue nature, it is immaterial whether expenditure is made out of money withdrawn from capital or out of profits – Schenectady Beck India Ltd. Vs. CIT [2004] 91 ITD 23 m(Mum.) TM It is well settled that capital expenditure cannot be attributed to revenue and vice versa. Secondly, it is equally clear that a payment in lump sum does not necessarily 12

13 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 make the payment a capital one. It may still possess revenue character in the same way as a series of payments. Thirdly,, if there if a lump sum payment but there is no possibility of a recurrence, it is probably of a capital nature though this is by no means a decisive test. Further, it the payment of a lump sum closes the liability to make a repeated and periodic payments in the future, it may generally be regarded as a payment of a revenue character. Lastly, if the ownership of the money whether in point of fact or by a resulting trust is still with the taxpayer, then there is acquisition of a capital asset and not an expenditure of a revenue character as per ratio laid down in Indian Molasses Co.(P)Ltd. V. cIT [1959] 37 ITR 66 (SC), Hylam Ltd. V. CIT [1973] 87 ITR 310 (AP). Though the dividing line between a capital and revenue expenditure is real, yet sometimes it becomes difficult to draw. Therefore, a decision is to be taken in each case in the light of the facts and surrounding circumstances. However, the following judicial pronouncements should be kept in view while determining whether a particular expenditure is a capital or revenue in nature. In Empire Jut Co Ltd. V. CIT [1980] 124 ITR 1 (SC), it has been held that “ if the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more efficiently or profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case.” In the instant case, the payment has not been made for acquiring a brand name, but for facilitating for acquisition of the brand name, which in turn made substantial improvement in earning capacity of the appellant’s business. The payment is in the form of a brokerage or commission or service charges. (not-withstanding its liability for TDS). Therefore on the facts and in the circumstances of the case in my view the expenditure incurred by the appellant company for the payment made to M/s. Shalini Properties & Developers Pvt. Ltd is a revenue expenditure. 13

14 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 15. Now, the issue remaining for consideration is whether the expenditure is allowable as business expenditure under section 37(1) of the Act.

In CIT vs, Navasri Cotton & Silk Mills Ltd. (135 ITR 546 (Guj.) the Hon’ble Gujrat High Court have evolved the following tests (which can be divided into two categories – positive tests and negative tests) for deciding whether a particular expenditure can be termed as revenue or capital expenditure. One (at least one) of the positive tests must nod its head and none (not even one) of the negative tests must do so in order to affirmatively hold that the expenditure is deductible under section 37(1). The positive tests are : If the expenditure is incurred : (i) with a view to bring profits or monetary advantage either today or tomorrow; (ii) to render the assessee immune from impending or reasonably apprehended litigation; (iii) in order to save losses in foreseeable future; (iv) for effecting economy in working which may pay dividends today or tomorrow; (v) for increasing efficiency in working; (vi) for removing inefficiency in the working; (vii) where the expenditure incurred is such as a wise, prudent, pragmatic and ethical man of the world of business would conscientiously incur with an eye on promoting his business prospects, subject to the expenditure being genuine and within reasonable limits; (viii) where it is incurred solely by way of a civil duty owned by the assessee to the society having regard to the nature of his business which brings him profits but results in some detriment to the public at large either by way of health hazard or ecological pollution or serious inconvenience to the citizens with a view to mitigate the aforesaid evil consequences and consequences of a like nature, subject to its being genuine and within reasonable limits. The negative tests are : If the expenditure incurred : (i) for a mere altruistic consideration ; (ii) (ii) mainly in order to satisfy his philanthropic urges; (iii) mainly in order to win applause or public appreciation; (iv) for illegal, immoral or corrupt purpose or by any such means or for any such reasons ; (v) mainly in order to oblige a 14

15 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 relative or an official; (vii) mainly to show off or impress others with his affluence or for ostentatious purpos3es; (vii) apparently for a factor listed as a positive factor, but in reality for one of the obnoxious purposes listed as a negative factor; (ix) on a nebulous plea or pretext by way of an alibi in the name of winning profits in remote future but really for one or the other for the purpose listed as negative tests; (x) it is a bogus fictitious or sham transaction; (xi) it is unreasonable and out of proportion; (xii) it is an expenditure merely with a view to avoid tax liability without any genuine purpose or reason in good faith; and (xiii) the advantage to be secured by incurring the expenditure is of the nature of a remote possible advantage on “ ifs “ and “ buts “ and, if at all, to be secured at an uncertain future date which may be considered too remote. As pointed out earlier, one of the positive tests must be attracted and none of the negative tests should be satisfied in order to claim deduction under section 37(1) of the Act. In this case, ,the expenditure has been incurred with a view to bring profits or monetary advantage either today or tomorrow; the expenditure incurred is such as a wise, prudent, pragmatic and ethical man of the world of business would conscientiously incur with an eye on promoting his business prospects, subject to the expenditure being genuine and within reasonable limits. Therefore, more than one of the positive tests have been proved. Therefore, more than one of the positive tests have been proved. Coming to the negative tests, it may be mentioned again that the Assessing Officer has not brought any material evidence on record that it is a bogus fictitious or sham transaction; it is unreasonable and out of proportion; and that it is an expenditure merely with a view to avoid tax liability without any genuine purpose or reason in good faith. Therefore, none of the conditions of the negative tests has been satisfied in this case. In CIT vs Chandanlal Keshavlal & Co, [1960] 38 ITR 601 (SC), the ratio laid down by the Hon’ble Supreme Court is that if a payment or expenditure is incurred for the purpose of the trade of the assessee, it is deductible even if it is may bring a benefit to a third party. Further, in applying the test of commercial expediency for determining 15

16 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 whether an expenditure is wholly and exclusively laid out for the purpose of the business, reasoonablen3ess of the expenditure has to be adjudged from the point of view of businessman and not of the revenue as held in CIT vs. Walchand & Co.(P)Ltd [1967] 65 ITR 381 (SC). In Sasson J.David & Co.(P)Ltd. Vs. CIT [1979] 118 ITR 261 (SC). It has been held that the assessee can claim deduction under section 37(1) even though there is no compelling necessity to incur such expenditure. In Goodyear India ltd. Vs. ITO[2000] 73 ITD 189/68TTJ(Delhi)TM 330, it has been held that expenditure incurred to get right to use licence for limited period (where the assessee company, manufacturing tyres, entered into an agreement with a foreign company for technical know-how for manufacture of radial tyres and the assessee got the right to use the licence for a fixed period of 8 years) is deductible.

17 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 interest of the company. In the board meeting of the appellant company held on 28.03.2008 the board of director has resolved that payment made to M/s. Shalini is quid pro quo for the assignment of the Dunlop brand name etc. The board of director in their board meeting on 28.06.2008 has agreed that SBLC charges are paid to M/s. Shalini for their efforts in arranging the assignment of brand name and logo of Dunlop from Dunlop India Ltd in favour of the appellant. (ii) The ld. AR has submitted that the appellant company has paid to M/s. Shalini Properties & Developers Pvt. Ltd. And Dunlop India Ltd. Rs.26,20,49,777/- up to F.Y.2011-12 as SBLC and for use of brand name. whereas the appellant ahs earned Rs.45,67,53,657/- upto said period by sub leasing Dunlop brand. This shows that the decision of board of directors of appellant company to approach M/s Shalini Properties & Developers Pvt. Ltd. For assignment of Dunlop branch name and logo was a commercially prudent decision. (iii) The Hon’ble Supreme Court in the case of SA Builders Ltd Vs CIT (Appeals) (2007) 288 ITR 1 has confirmed the following observation of the Hon’ble Delhi High Court on page-9 of the report :- “ We agree with the view taken by the Delhi High Court in CIT v Dalmia Cement (B) Ltd (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself) the Revenue cannot justifiably claim to put it self in the arm chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The Income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their won view point but that of a prudent businessman would act. “ (emphasis supplied. ) (iv) The Hon’ble Madhya Pradesh High Court in the case of Addl. CIT vs Kuber Singh Bhagwandas (1979) 119 ITR 379 (MP) has held that voluntary donation given in Chief 17

18 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 Minister Fund for obtaining permit for export of gram is an allowable expense. This decision of Hon’ble Madhya Pradesh High Court has been approved by Hon’ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. v CIT (1997) 223 ITR 101. In that case the Hon’ble Supreme Court has held as follows :- “ Business expenditure – Contribution made to District Welfare Fund – The correct test is allowability of such expenditure is commercial expediency and not whether it was compulsory or not – Contribution was not illegal or opposed to public policy but was for the benefit of the general public – Requiring payment to be made for a just cause which would entitle a businessman to obtain a license or permit cannot be regarded as being against the policy. Any contribution made by an assessee to a public welfare fund which is directly connected related with the carrying on of the assessee’s business or which results in the benefit to the assessee’s business has to be regarded as an allowable deduction under s.37(1)-Assessee doing business of export of rice and contributing 50 paise per quintal to District Welfare maintained by the District Collector, without which contribution he would not get permit directly connected with assessee’s carrying on of business – Such contribution is not against public policy, and is allowable under section 37(1)”. (v) The Hon’ble Supreme Court in the case of Vodafone International Holding B.V. v UOI (2012) 341 ITR 1 has considered the Mcdowell case and it’s other decisions and held by majority as follows :- “ (i) It is the task of the court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not adopt a dissecting approach. (ii) All tax planning is not illegitimate or impermissible. (iii)There is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agrawal. (iv) In view of above discussed legal and factual position I am of the view that there is commercial expediency in payment of SBLC charges of Rs.11,74,12,500/- by the 18

19 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 appellant M/s Shalini Properties & Developers Pvt. Lt. and hence this payment is an allowable expenses. Accordingly, ground nos. 1 to 15 of the appeal of the appellant are decided in favour of the appellant and the addition of Rs.11,74,12,500/- made by the AO by way of the disallowance of SBLC is hereby deleted. Thus, the Ground Nos. 1 to 15 of the appeal of the appellant are allowed.” In view of the above observation and decision on the issue in the case of M/s. Ruia Sons & Pvt. Ltd., the addition made by the AO in the appellant’s case is not sustainable. Even though the Assessing Officer has related the assessment and findings of M/s. Ruia Sons P. Ltd to make the disallowance in the case of the appellant, it is necessary to understand that the appellant company and M/s Ruia Sons P Ltd are separate entities as per law and it is to be assessed separately being different entities. For an argument sake and on an hypothetical situation, if it is considered that the issue or the addition which is to be made in the case of Ruia Sons Pvt. Ltd. Is the same even then this issue in the case of the appellant has to be viewed with an open mind and considering the account of the appellant, keeping in view all the facts and circumstances of the case irrespective of the treatment of the payment in the case of Ruia Sons P Ltd and the result of such treatment in its case. Similarly, even though the manner in which the issue has been decided and treated or the addition made in the case of Ruia Sons Pvt. Ltd has been deleted or sustained, then also the issue in the case of the appellant has to be considered separately with an open mind taking into view all the facts and circumstances of the case. Thus, keeping in view of the agreement and the resolution passed by the Board of the M./s. Ruia Sons P. Ltd and the understanding made between the appellant and M/s. Ruia Sons P Ltd and as per the terms of agreement entered into it is seen that the appellant was instrumental in getting hold of the Dunlop brand name in favour of M/s. Ruia Sons P Ltd and for this M./s Ruia Sons P Ltd has made payment of SBLC charges of Rs.131924684/- on which tax was deducted at source. Simultaneously,, similar amount of Rs. 131924684/- was paid by the

20 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 appellant to ICICI Bank after deduction of tax at source as per the agreement entered into. 17. That on the basis of the aforesaid findings the ld. CIT(A) observed that the case of the assessee is entirely different from the case of M/s. Ruia Sons P.Ltd and on one hand the assessee receiving income of Rs.13,19,24,685/- and on the other hand making payment of similar amount of Rs.13,19,24,685/- in the income and expenditure of the assessee in the written submission as well as from the paper book it is seen that except for the receipt reflected of Rs.13,19,24,685/- received by the assessee from M/.s. Ruia Sons Pvt.Ltd. the assessee is not having any other income and in the expenditure also the only major head of expenses is the amount of Rs.13,19,24,685/-. On one side the assessee receiving SBLC charges from M/s Ruia Sons Pvt. Ltd and on the other hand it is making payment of such SBHC and actually it is the SBLC charges which the assessee is receiving therefore the assessee company is acting as a medium and reimbursement being made by the assessee to the bank. On one hand it is the income of the assessee and on the other it is the expenditure (both as per the agreement/board resolution) nullified all the accounts and therefore the ld. CIT(A) held under the provisions of the Act disallowance was not called for. Hence the disallowance of Rs.13,19,24,685/- made by the AO be deleted and the grounds of appeal of the assessee were allowed by the ld. CIT(A).

21 ITA No..171/Kol/2013 M/s.Shalini Properties & Developers Pvt. Ltd. A.Yr.2009-10 19. In the result the appeal preferred by the revenue is dismissed.

Order pronounced in the Court on 28 .02.2017.

Sd/- Sd/- [M.Balaganesh] [ Partha Sarathi.Chaudhury ] Accountant Member Judicial Member

Dated : 28. 02.2017. [RG PS]

Copy of the order forwarded to: 1. M/s. Shalini Properties & Developers Private Limited, 228A, A.J.C.Bose Road, 5th Floor, Kolkata-700020. 2. I.T.O., Ward-7(3), Kolkata. 3. CIT(A)-VIII, Kolkata. 4. CIT-III, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.