Commissioner Of Income Tax vs Bhagwati Spherocast ... on 20 November, 2014

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Gujarat High Court

Commissioner Of Income Tax vs Bhagwati Spherocast ... on 20 November, 2014

1. Being aggrieved and dissatisfied with the impugned order dated 27.12.2001 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'A' in ITA Nos. 1419/Ahd/1995 & 1420/Ahd/1995 for the assessment years 1990-91 & 1991-92, the revenue has preferred the present tax appeals.

2. These appeals were admitted by this Court on 31.07.2003 for consideration of the following substantial question of law:

"Whether the amount of lease rent paid in respect of machinery which was given to a sister concern without charging any rent can be allowed as deduction while computing income of the assessee?"

3. The facts leading to the present tax appeals in a nutshell are set out as under:

3.1 The assessee is carrying on the business of manufacturing High Cast Iron specialized casting. The assessee installed certain equipments in the premises of M/s.

Bhagwati Autocast Ltd which is its sister concern due to lack of space. The assessee claimed lease rent expenses of Rs. 11,69,262/- for the relevant year. The Assessing Officer held that since the machinery were not used by the respondent but Page 2 of 6 2 of 8 O/TAXAP/223/2003 JUDGMENT were used by its sister concern for which no rent was charged from it, it was deemed income for avoiding tax and therefore the same was not admissible. On appeal before CIT(A), the CIT(A) upheld the order of Assessing Officer.

3.2 Being aggrieved by the order, the assessee preferred appeal before the Tribunal and the Tribunal vide impugned order allowed the appeal and and held that no tax planning was involved and that the lease rent was allowable. Being aggrieved by the said order, the present appeals are filed by the revenue.

4. Mr. Manish Bhatt, learned Senior Counsel appearing with Ms. Mauna Bhatt, learned advocate for the revenue submitted that the Tribunal has overlooked the aspect that through veil created by the assessee behind which lay nothing else but illegal tax planning for diverting profits to the sister concern which already had space to absorb the same without having to pay taxes. He submitted that the Assessing Officer has given cogent and valid reasons for passing the order. He submitted that by debiting the lease rent for the machineries used by its sister concern, the respondent has reduced its profits.

5. Mr. S.N. Soparkar, learned Senior Counsel appearing for the assessee supported the impugned order and submitted that the same having been passed in accordance with law does not call for any interference by this Court. He submitted that the Tribunal has considered that the agreement between the assessee and the sister concern was irrevocable. He has drawn the attention of this Court to the fact that the assessee Page 3 of 6 3 of 8 O/TAXAP/223/2003 JUDGMENT company also offered to tax capital gains for the assessment years 1995-96 & 1996-97 and that the Tribunal also allowed lease rent for the assessment year 1986-87. He submitted that the assessee company has also claimed expenditure on technical know how as deduction u/s 35AB of the Act being 1/6th of expenses incurred in each of the year right from assessement year 1987-88 to 1992-93. In support of his submissions, Mr. Soparkar has placed reliance on a decision of the Apex Court in the case of Commissioner of Income Tax vs. Excel Industries Ltd & Mafatlal Industries P. Ltd reported in [2013] 358 ITR 295 (SC).

6. We have heard learned Senior Advocates for both the sides and perused the orders passed by the Tribunal. Going by the records of the case and the orders passed by the authorities below we do not find that there is any instance of tax evasion. The fact remains that for the use of machinery by the sister concern, the assessee was recovering service charge of Rs. 5000/-. The assessee also paid lease rent to the lessor M/s. Growth Leasing & Finance Ltd during the assessment year 1988-89 towards the machinery and the same was held as an admissible deduction after detailed scrutiny. Moreover the lease rent was allowed in the assessemnt year 1986-87 to 1988-89 by the Tribunal. We are in complete agreement with the reasonings and finding of fact by the Tribunal.

6.1 In the case of Excel Industries, the Apex Court has observed as under:

29. In Radhasoami Satsang Saomi Bagh v.

Commissioner of Income Tax, [1992] 193 ITR 321 Page 4 of 6 4 of 8 O/TAXAP/223/2003 JUDGMENT (SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same 'fundamental aspect' permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoystead v. Commissioner of Taxation, 1926 AC 155 (PC) wherein it was said:

"Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken."

30. Reference was also made to Parashuram Pottery Works Ltd. v. Income Tax Officer, [1977] 106 ITR 1 (SC) and then it was held:

"We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but Page 5 of 6 5 of 8 O/TAXAP/223/2003 JUDGMENT where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.

On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken."

7. In view of the above, we confirm the finding of fact recorded by the Tribunal and therefore do not see any reason for interference in the same. Accordingly, we answer the question raised in the present appeals in favour of the assessee and against the revenue. Appeals are dismissed accordingly.




                                                       (K.S.JHAVERI, J.)




                                                        (K.J.THAKER, J)
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          O/TAXAP/223/2003                                       ORDER

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 223 of 2003 [On note for speaking to minutes of order dated 20/11/2014 in O/TAXAP/223/2003 ] With TAX APPEAL NO. 224 of 2003 ============================================================ ==== COMMISSIONER OF INCOME TAX....Appellant(s) Versus BHAGWATI SPHEROCAST LTD.....Opponent(s) ================================================================ Appearance:

MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 12/12/2014 ORAL ORDER (PER : HONOURABLE MR.JUSTICE KS JHAVERI)

1. It was pointed out by learned advocate for the appellant that in the cause title of the writ of the order dated 20.11.2014, inadvertently the name of the appellant is shown as Commissioner of Income Tax-VI, though it should be Commissioner of Income Tax-I. Therefore, office is directed to show the name of the Page 1 of 2

7 of 8 O/TAXAP/223/2003 ORDER appellant in the cause title of the writ of the order dated 20.11.2014 as Commissioner of Income Tax-I. Fresh writ of this order be issued.

2. The note for speaking to Minutes is allowed and disposed of accordingly.

(K.S.JHAVERI, J.) (K.J.THAKER, J) pawan Page 2 of 2 8 of 8

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