DCIT, Bangalore v. M/s. Best Trading & Agencies Ltd, Bangalore

ITA 1216/BANG/2010 | 2006-2007
Pronouncement Date: 27-09-2011 | Result: Allowed

Appeal Details

RSA Number 121621114 RSA 2010
Assessee PAN AAACB7971N
Bench Bangalore
Appeal Number ITA 1216/BANG/2010
Duration Of Justice 10 month(s) 17 day(s)
Appellant DCIT, Bangalore
Respondent M/s. Best Trading & Agencies Ltd, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 27-09-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted B
Tribunal Order Date 27-09-2011
Date Of Final Hearing 27-09-2011
Next Hearing Date 27-09-2011
Assessment Year 2006-2007
Appeal Filed On 09-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI JUDICIAL MEMBER ITA NO. 1216/BANG/2010 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11(2) BANGALORE. PAN : AAACB7971N VS. M/S. BEST TRADING & AGENCIES LTD. P.B. NO.5555 MALLESWARAM WEST POST OFFICE BANGALORE -560 066. APPELLANT RESPONDENT APPELLANT BY : SMT. SUSAN THOMAS JOSE JT.CIT RESPONDENT BY : SHRI SACHIN NEHTA C.A. DATE OF HEARING : 27.09.2011 DATE OF PRONOUNCEMENT : 27.09.2011 O R D E R PER N.K. SAINI ACCOUNTANT MEMBER THIS APPEAL BY THE DEPARTMENT IS AGAINST THE ORDE R DATED 31.12.2008 OF THE CIT(APPEALS)-I BANGALORE FOR THE ASSESSMENT YEAR 2006-07. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL: 1. THE ORDER OF THE LEARNED CIT(APPEALS) IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE IS OPPOSED TO LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.1216/BANG/10 PAGE 2 OF 6 2. THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST OF RS.49 84 256/- WITHOUT CONSIDERING THE FACT THAT THE INTEREST EXPENDITURE CLAIMED WAS NOT LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING INTEREST INCOME AS PER THE SUB CLAUSE (III) OF SECTION 57 OF THE I T ACT 1961. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN ARRIVING AT HIS FINDING WITHOUT APPRECIATING THE FA CT THAT THERE WAS NO DIRECT NEXUS BETWEEN THE EARNING OF IN TEREST INCOME AND THE INTEREST EXPENDITURE CLAIMED WHICH W AS NEITHER A PRE-CONDITION NOR A PRE-REQUISITE TO EARN THE INTEREST INCOME. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT(A) MAY BE REVERSED IN SO FAR AS THE ABOVEMENTIO NED ISSUE IS CONCERNED AND THAT OF THE ASSESSING OFFICE R BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER TO AME ND OR TO DELETE ANY OF THE GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 3. FROM THE ABOVE GROUNDS IT APPEARS THAT THE ONLY GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF R S.49 84 256 MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST. 4. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSEE FILED RETURN OF INCOME ON 29.11.2006 DECLARING A TOTAL IN COME OF RS.10 38 360 WHICH WAS PROCESSED U/S. 143(1) OF THE I.T. ACT 19 61 [HEREINAFTER REFERRED TO AS THE ACT] ON 19.09.2007. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE ASSESSING OFFICER OBSERVED THAT UNDER A SCHEME OF ARRANGEMENT APPROVED BY THE HONBLE HIGH COURT OF KARNATAKA THE ASSESSEE WAS U TILIZED AS A SPECIAL PURPOSE VEHICLE FOR THE PURPOSE OF RESTRUCTURING KI RLOSKAR ELECTRIC CO. LTD. ITA NO.1216/BANG/10 PAGE 3 OF 6 WHEREBY SURPLUS NON-MANUFACTURING AND LIQUID ASSETS INCLUDING ESTATE AT BANGALORE PUNE ETC. TOGETHER WITH CERTAIN LIABIL ITIES HAD BEEN TRANSFERRED TO THE ASSESSEE. THE TERM LENDERS AND BANKS WERE S HAREHOLDERS OF THE COMPANY AND WERE HOLDING 99% OF THE EQUITY. THE AO POINTED OUT THAT THE ONLY SOURCE OF INCOME DURING THE YEAR WAS INTEREST FROM BANKS OF RS.60 22 614 AND HAD BEEN SHOWN AS INCOME FROM OTH ER SOURCES AND THAT THE ASSESSEE ALSO CLAIMED INTEREST PAID EXPENSES OF RS.49 84 256 U/S. 57 OF THE ACT. THE CONTENTION OF THE ASSESSEE FOR THE SE EXPENDITURE WAS THAT SINCE THE AMOUNT AROSE OUT OF THE MONIES KEPT IN FI XED DEPOSITS WHICH INCLUDED THE AMOUNT DUE TO LENDERS AND HENCE WAS DE DUCTIBLE AGAINST THE INTEREST INCOME EARNED. 5. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENT ION OF THE ASSESSEE BY OBSERVING THAT THERE WAS NO DIRECT NEXUS BETWEEN THE EARNING OF THE INCOME AND EXPENDITURE CLAIMED AND THAT EVEN IF THE INTEREST PAYMENT WAS NOT MADE THE INTEREST INCOME GETS ACCRUED TO THE A SSESSEE. HE WAS OF THE VIEW THAT THE PAYMENT OF INTEREST TO THE LENDERS WA S NEITHER A CONDITION NOR A PRE-REQUISITE TO EARN THE INTEREST INCOME AND THA T THE ASSESSEE HAD NOT PROVED THAT THERE WAS A NECESSITY TO PAY THE INTERE ST TO LENDERS SO AS TO EARN INTEREST INCOME. ACCORDINGLY THE CLAIM OF TH E ASSESSEE AGAINST THE INTEREST INCOME WAS DISALLOWED. 6. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A ) WHO DELETED THE ADDITION BY OBSERVING IN PARA 3 & 4 OF THE IMPUGNED ORDER AS UNDER: 3. FOLLOWING THE APPELLANTS OWN CASE FOR THE A.Y. 2005-06 IN ITA NO.207/AC-11(2)/CIT(A)-I/07-08 DATED: 5-10-2 009 THE APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT. ITA NO.1216/BANG/10 PAGE 4 OF 6 4. HOWEVER FOR CLARITY THE REASONING OF ALLOWING THE APPEAL IS REPRODUCED BELOW: A.Y. 2005-06 THE APPELLANT COMPANY WAS UTILIZED AS A SPECIAL PUR POSE VEHICLE SPV IN SHORT HENCEFORTH BY THE HIGH COURT OF KARNA TAKA FOR THE PURPOSE OF DISTRIBUTION OF SURPLUS IF ANY AFTER CLE ARANCE OF DEBTS ETC. OF KIRLOSKAR ELECTRIC COMPANY LTD. (KEC). SI NCE THE PROCESS OF SETTLEMENT WAS CONTINUING THE SURPLUS W AS DEPOSITED AS FIXED DEPOSITS IN BANKS WHICH EARNED INTEREST OF RS.12 80 461/-. THE INTEREST WAS ALSO DISTRIBUTED ALONG WITH THE PRINCIPAL. I FIND CLOSE NEXUS BETWEEN THE INTEREST EARNED AND THE FIXED DEPOSIT WHICH IS THE AMOUNT REPRESENTING THE SURPLUS OF THE RESTRUCTURING PROCESSES ADOPTED AS PER THE SCHEME O F ARRANGEMENT APPROVED AND ORDERED BY THE HIGH COURT OF KARNATAKA . I OBSERVE THAT THE SHAREHOLDERS HAVE OVERRIDING TITLE OVER SU CH INTEREST. THE OWNERSHIP OVER THE INTEREST INCOME LIED WITH THEM F ROM THE DAY THE SURPLUS MONEY WAS DEPOSITED IN BANK AS F.D. EVE N IF THE PALPABLE RECIPIENT OF THE INTEREST IS THE APPELLANT . IN VIEW OF THE ABOVE I UPHOLD THAT THE AMOUNT OF INTEREST RECEIVE D ON ACCOUNT OF FIXED DEPOSITS IS NOT TAXABLE UNDER S.57 AS INCOME FROM OTHER SOURCES ON THE PRINCIPLES OF DIVERSION BY OVERRIDI NG TITLE. HENCE THE GROUNDS ARE ALLOWED. 7. NOW THE DEPARTMENT IS IN APPEAL. DURING THE COU RSE OF HEARING THE LD. DR AT THE VERY OUTSET STATED THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE REVENUE BY THE EARLIER ORDER DATED 8.2.2011 OF THE ITAT BANGALORE BENCH A IN THE ASSESSEES OWN CASE IN ITA NO.36/B ANG/2010 FOR THE A.Y. 2005-06. HE ALSO FURNISHED A COPY OF THE SAID ORDE R. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT CONTROVERT THE AFORESAID CON TENTION OF THE LD. DR. 8. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND THE MATERIAL AVAILABLE ON RECORD IT IS NOTICED THAT A SIMILAR I SSUE HAVING IDENTICAL FACTS WAS INVOLVED IN THE PRECEDING YEAR WHICH HAD BEEN ADJUDICATED BY THE ITAT BANGALORE BENCH A VIDE ORDER DATED 8.2.2011 IN ITA ITA NO.1216/BANG/10 PAGE 5 OF 6 NO.36/BANG/2010 FOR THE A.Y. 2005-06 AND THE RELEVA NT FINDINGS HAVE BEEN GIVEN IN PARAS 6 & 7 OF THE SAID ORDER WHICH READ AS UNDER: 6. WE CONSIDERED THE MATTER. EVEN IN THE PAST THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS AS SUCH. ITS BUSINESS WAS MAINLY EARNING INCOME FROM INTEREST AND DIVIDENDS. ONCE TH E ASSESSEE COMPANY WAS TREATED AS AN SPV THE ASSESSEE IS SUPP OSED TO APPROPRIATE THE SALE PROCEEDS OF ASSETS TOWARDS PAY MENT OF OUTSTANDING LIABILITIES. IN THE COURSE OF THESE ACT IVITIES IT IS NOT POSSIBLE TO TAKE A VIEW THAT THE ASSESSEE COMPANY W AS CARRYING ON ANY BUSINESS ACTIVITIES. THEREFORE IT IS NOT PO SSIBLE AGAIN TO SAY THAT THE ASSESSEE RECEIVED THE BANK INTEREST AS PART OF ITS BUSINESS ACTIVITIES. BOTH THESE TRANSACTIONS COULD NOT BE HELD TO BE CARRIED ON BY THE ASSESSEE COMPANY IN THE COURSE OF ITS BUSINESS. THEREFORE THERE CANNOT BE A NEXUS AS CONSTRUED BY THE COMMISSIONER OF INCOME-TAX(A) BETWEEN THE BANK INTE REST RECEIVED AND INTEREST PAID TO ITS CREDITORS. THE RE CEIPT OF BANK INTEREST IS UNDER AN EXTREMELY DIFFERENT HEAD WHERE AS THE PAYMENT OF INTEREST TO THE CREDITORS IS AGAIN UNDER AN EXTR EMELY DIFFERENT HEAD. THERE IS NO NEXUS BETWEEN THEM. THEREFORE TH E ASSESSING OFFICER IS JUSTIFIED IN TREATING THE INTEREST ON FD S EARNED BY THE ASSESSEE AS INCOME LIABLE FOR TAXATION UNDER THE HE AD 'INCOME FROM OTHER SOURCES'. 7. THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) O N THIS POINT IS VACATED AND THE GROUND RAISED BY THE REVENUE IS ALLOWED. 9. SINCE THE FACTS INVOLVED IN THE PRECEDING YEAR I .E. A.Y. 2005-06 AND THE YEAR UNDER CONSIDERATION ARE IDENTICAL SO RESP ECTIVELY FOLLOWING THE AFORESAID ORDER OF THE ITAT DATED 8.2.11 THIS ISSU E IS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DISALLOWANCE MADE BY THE AO I S RESTORED. 10. IN THE RESULT THE APPEAL FILED BY THE DEPARTME NT IS ALLOWED. ITA NO.1216/BANG/10 PAGE 6 OF 6 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF SEPTEMBER 2011. SD/- SD/- ( SMT. P. MADHAVI DEVI ) ( N.K. SAIN I ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 27 TH SEPTEMBER 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.