Income Tax Appellate Tribunal - Chennai
Coramandel Industries Pvt Ltd., ... vs Assessee on 27 November, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'D' CHENNAI
BEFORE Dr. O.K. NARAYANAN, VICE-PRESIDENT
AND SHRI HARI OM MARATHA, JUDICIAL MEMBER
I.T.A.No. 181/Mds/2010
Assessment year : 2002-03
M/s. Coramandel Industries The Assistant Commissioner
Pvt. Ltd., Vs. of Income-tax,
5, Pycrofts Garden Road, Company Circle-I(3),
Chennai - 600 006. Chennai.
PAN - AAACC 1273 C
(Appellant) (Respondent)
Appellant by : Shri R. Vijayaraghavan, Advocate
Respondent by : Shri Anirudh Rai, CIT - DR
O R D E R
PER Dr. O.K. NARAYANAN, VICE-PRESIDENT This appeal is filed by the assessee. The relevant assessment year is 2002-03. The appeal is directed against the order of the Commissioner of Income-tax (Appeals)-III, at Chennai dated 27.11.2009. The appeal arises out of the assessment completed under sec.143(3) of the Income-tax Act, 1961. :- 2 -: ITA 181/10
2. The assessee is a company engaged in the business of being a supplier of auto parts to its client, Wheels India Ltd., since 1964. The assessee company as an engineering company has been carrying on the business of developing of prototypes providing technical knowhow and also manufacturing of components from its inception. Providing of technical knowhow to develop the prototypes has been considered by the assessee as a separate business different from manufacturing of components. Later on, the assessee discontinued one of its activities namely, manufacturing, but it continued to carry on the other line of business of providing technical knowhow and supervision of manufacturing automobile components.
3. The discontinued activity had created a loss of ` 37,63,157/- mainly on account of the payments made to labourers at the time of retrenchment. This loss was set off by the assessee against its income from consultancy business. The loss was disallowed by the assessing authority treating it as a capital expenditure and denied the benefit of set off. The consultancy income was assessed independently. This was confirmed in first appeal. Therefore, the second appeal before us.
:- 3 -: ITA 181/10
4. Shri R. Vijayaraghavan, the learned counsel appearing for the assessee relied on the judgment of the Hon'ble Madras High Court in the case of Commissioner of Income-tax vs. Diesel Engineer (244 ITR 488) to show that when a number of activities are carried out by an assessee as a single business, the loss arising out of one of the units must be allowed to set off against the profits of other units even if the loss making unit has been closed down.
5. In the light of the above judicial pronouncement, he contended that the assessee was carrying on the business of providing technical knowhow as well as manufacturing automobile components as a single business and therefore, the loss arising out of the closure of the manufacturing business should be treated as the loss of the business carried on by the assessee and allowed to be set off against the income returned out of its consultancy business.
6. The learned counsel has also relied on the judgment of the Hon'ble Supreme Court in the case of K. Ravindranathan Nair vs. Commissioner of Income-tax (247 ITR 178) where the Court has held that closure of one of the units shall not be construed as closure of business under the Income-tax Act and :- 4 -: ITA 181/10 accordingly, the expenditure on closure should be set off against the income of other business units run by the assessee. He has also relied on the judgment of the Hon'ble Supreme Court in the case of Veecumsees vs. Commissioner of Income-tax (220 ITR
185).
7. Shri Anirudh Rai, the learned Commissioner of Income-tax, appearing for the Revenue relied on the judgment of the Hon'ble Madras High Court in the case of Coimbatore Premier Corporation (P) Limited v. Commissioner of Income-tax (244 ITR
445) to support his argument that the compensation paid by the assessee to its workers on closure of the business cannot be treated as revenue expenditure and therefore, cannot be set off against the income earned from other business units. The learned Commissioner has also relied on the judgment of the Hon'ble Madras High Court in the case of P. RM. S. Ramanathan Chettiar vs. Commissioner of Income-tax (72 ITR 534) and also the judgment of the Hon'ble Supreme Court in the case of Commissioner of Income-tax vs. Gemini Cashew Sales Corporation (65 ITR 643) where the Supreme Court has held that the expenses incurred on closure of business should be treated :- 5 -: ITA 181/10 as capital in nature and therefore, not allowable as deduction in computing the income of the assessee.
8. We heard both sides in detail and considered the issue. As pointed out by the learned counsel for the assessee, the Hon'ble Supreme Court has already held that if different units are carried on by the assessee as a single business, closure expenditure of one of the units should be treated as revenue expenditure eligible for deduction in computing the business income of the assessee. If that principle is applied in the present case, then the loss of the assessee should be allowed to set off against the consultancy income. Therefore, we have to see whether the assessee has carried on two units as a single business or not.
9. Since its inception in 1964, the assessee has been carrying on the business in the same line of automobile industry. The assessee had carried on two branches; one branch to provide technical knowhow and the other branch to manufacture automobile components. It is to be seen that both the above activities are of the same nature and relating to the same industry. Therefore, as a matter of fact, it is to be seen that both the activities were carried on by the assessee as a single :- 6 -: ITA 181/10 business and for all practical purposes its only customer is Wheels India Ltd. Consultancy is something different from manufacturing. Therefore, by virtue of the nature of the functions, those two activities are to be treated as two units. But at the same time, those two units are carried on by the assessee as a single business. In such circumstances, when the manufacturing unit is closed down and expenses incurred have resulted in loss, it should be set off against the income arising to the assessee from its running business of providing consultancy services. Therefore, we find that the decision of the Hon'ble Supreme Court relied on by the assessee in the case of K. Ravindranathan Nair vs. Commissioner of Income-tax (247 ITR 178) is applicable to the present case.
10. In the facts and circumstances of the case, we find that the assessee is entitled for setting off of loss of its manufacturing unit against the income of consultancy unit. The Assessing Officer is directed to modify the assessment in the above terms.
11. In result, this appeal filed by the assessee is allowed. :- 7 -: ITA 181/10
Order pronounced on Thursday, the 23rd day of June, 2011 at Chennai.
Sd/- Sd/- (HARI OM MARATHA) (Dr.O.K.NARAYANAN) Judicial Member Vice-President Chennai, Dated the 23rd June, 2011 mpo*
Copy to : Appellant/Respondent/CIT/CIT(A)/DR