TMI Blog2012 (10) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... rne out from the materials on record - against assessee. Disallowance of commission paid to M/s. Telecom Ancillaries Pvt. Ltd. - Held that:- The tribunal held that the nature of such expertise in preparation of tender documents and follow up action for obtaining such tender has not been clearly spelt out. When the commission payments had been made in for purposes which are prima facie impermissible in law the question of permitting such expenses on the anvil of commercial expediency does not arise at all. The issue of payment of 12 lakh for ensuring non-participation of M/s. Telecom Ancillaries Pvt. Ltd. in the tender and also for follow up action to procure such tender in favour of the opposite party also smacks of creating a cartel in the matter of public tender which equally impermissible in law. Also that such agreement does not shut out other companies from contesting the tender also a justifiable ground for such disallowance - against assessee. Disallowance of short term capital loss - Held that:- The condition precedent for attracting provision of Section 73 is that a part of the business of the company must relate to purchase and sale of shares. Merely indulging in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s. Telecom Ancillaries Pvt. Ltd. and whether its findings on the aforesaid issue are vitiated in law having been recorded by it without any material and/or in disregard of the undisputed material facts including the relevant and vital evidences on record and whether such findings are wholly unreasonable and/or otherwise perverse. III. Whether on the facts and in the circumstances of the case the and on a correct interpretation of Section 73 of the Income Tax Act, 1961 the tribunal misdirected itself in law and it adopted a wholly erroneous approach in confirming the disallowances of short term capital loss in the aggregate sum of Rs. 4,17,550/- suffered by the appellant/assessee company in purchase and sale of shares of M/s. Reliance Industries Ltd. and M/s. JCT Ltd. the two quoted Public Limited Companies and whether its findings on the aforesaid issues are vitiated in law having been recorded by it without any material and/or in disregard of the undisputed material facts including the relevant and vital evidences on record and whether such findings are wholly unreasonable and/or otherwise perverse. I.T.A. No. 99 of 2003 was admitted in respect of assessment year 1993-94 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong with his guarantor Ms. Gnan N. Swarup, would execute a surety bond for a sum of Rs. 2,00,000/- plus all costs and charges that shall/may be incurred by the company in that regard. Pursuant to such understanding it appears that a surety bond was got to be duly executed by the Saumya Meattle and Ms. Gnan Swarup as his guarantor. On attaining majority, the said Saumya Meattle by a further undertaking dated 21.08.1991 ratified his liabilities under the contract and the said bond. It is apposite to mention that even prior to his appointment the said Saumya Meattle made an application on 23.04.1990 to the banker for release of foreign exchange for studies abroad which was granted by the banker on 22.06.1990. Saumya Meattle completed his studies in the University of South California, USA and obtained a bachelor degree in the field of Computer Science in May, 1995. In the meantime, the company in its Board meeting held on 16.05.1994 took another resolution to sponsor the said Saumya Meattle for pursuing his Master Degree in Accounting at the self-same University, inter alia, on the condition that the said Saumya Meattle along with his guarantor Ms. Gnan Swarup shall execute fresh s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 30.03.1999 under Section 143(3) of the Income Tax Act by disallowing the overseas educational and training expenses to Saumya Meattle to the tune of Rs. 2,44,991/- and his overseas travel expenses to the tune of Rs. 98,600/- for the said assessment year. Such order was also appealed before the Commissioner of Income Tax X, (Appeals) Calcutta who dismissed the same by his order dated 09.03.2000 inter alia on the ground that on similar ground such disallowance had been confirmed in the earlier assessment year 1991-92, as aforesaid. The appellant company thereafter approached the tribunal against the said order of C.I.T. (Appeals). The tribunal dismissed the said appeal being I.T.A. No. 1177 (Cal) of 2000 by impugned order dated 10th June, 2003 in view of its earlier order dated 28th November, 2002 passed in respect of the assessment year 1991-92 in I.T.A. No. 698 (Cal) 1999, as aforesaid. The present appeal being I.T.A. No. 265 of 2003 has been filed challenging the said order of the tribunal in respect of assessment year 1996-97. Hence in both these appeals the self-same issue falls for decision as to whether the confirmation of disallowance of overseas educational expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mr. Khaitan relied on a unreported decision of this Court in I.T.A. No. 249 of 2005 (M/s. Gour Nitya Tea Industries Limited Vs. Commissioner of Income Tax) delivered on 24th June, 2010 in support of his contention that since there are materials on record that the appellant had served the company after returning from abroad it cannot be said that the expenditure undertaken by the company was colourable and not wholly and exclusively for the purpose of its business. Mr. Khaitan also submitted certain additional documents to bolster his contention that the appellant had in fact been in the service of the company till 31st March, 2009 and salaries had been duly paid to him. Mr. Som, learned senior advocate appearing for the revenue in I.T.A. No. 265 of 2003 hotly contested the submissions of Mr. Khaitan. He submitted that the letter of appointment of Saumya Meattle on 28.05.1990 was void inasmuch as he was a minor at that time. In support of his contention he relied on decisions reported in AIR 1941, Bom 215, 32 ITR 550, AIR 1952 Cal 306 and AIR 1983 Cal 76. He further submitted that the action of the company to sponsor the aforesaid trainee was clearly a colourable one and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsoring such a minor trainee within a couple of days of his appointment for pursuing the studies in Computer Science, without assessing his competence and capability, can be construed to be a bonafide act on its part or a colourable devise for ulterior purposes. The Tax Authorities below have rightly come to conclusion on facts that the appellant company without assessing the competence of the trainee and within a couple of days from his joining sponsored him for pursuing study in software development an area which was unconnected with the business activity of the company at the time when such decision was taken. It is an admitted position that the principal business of the company was manufacturing and supplying of packets/pouches to oil manufactures for filling and packaging their products. It was only in the assessment year 1992-93 the company made necessary amendments in its memorandum to enable it to enter the business of computer operation and data processing while the decision to send the trainee abroad for computer education was in 04.06.1990. Therefore, it cannot be said that the sponsoring of the trainee for overseas computer education was for the business of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar practice of the company, inasmuch, as no one before or thereafter had been selected by the company for such preferential treatment in the matter of obtaining overseas education. For the aforesaid reasons, we find that the findings of the tribunal in this regard are wholly justified and do not require interference. The question No. I in I.T.A. No. 98 OF 2003 and I.T.A. No. 265 OF 2003 is therefore answered in the negative in favour of the revenue and against the appellant. The question No. II in I.T.A. No. 98 of 2003 and the sole question of I.T.A. No. 99 of 2003 are taken up for consideration simultaneously. The issue involved herein is whether the confirmation of disallowance with regard to commission paid by the company to M/s. Telecom Ancillaries Pvt. Ltd. to the tune of Rs. 1,66,6660 in assessment year 1991-92 (in I.T.A. No. 98 of 2003) for providing expertise to apply for tender and follow up action for acceptance of tender and a sum of Rs. 12,00,000/- to the said M/s. Telecom Ancillaries for the assessment year 1992-93 (in I.T.A. No. 99 of 2003) for restraining the latter from participating in the tender and for taking follow up action for acceptance of the tender in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in for purposes which are prima facie impermissible in law the question of permitting such expenses on the anvil of commercial expediency does not arise at all. The decision in 288 I.T.R. 1 (SC) is not of any assistance to the appellant as it did not relate to legally impermissible expenditure as in the instant case. The issue of payment of 12 lakh inter alia, for ensuring non-participation of M/s. Telecom Ancillaries Pvt. Ltd. in the tender and also for follow up action to procure such tender in favour of the opposite party also smacks of creating a cartel in the matter of public tender which equally impermissible in law. Furthermore, the finding of the tribunal that such agreement does not shut out other companies from contesting the tender also a justifiable ground for such disallowance. We, therefore, hold that the findings of the tribunal are clearly justified and the confirmation of the aforesaid disallowance is justly warranted in law. The question no. II in I.T.A. No. 98 of 2003 and the sole question in I.T.A. NO. 99 OF 2003 is accordingly answered in the negative in favour of the revenue and against the appellant. Question no. III in I.T.A. No. 98 of 2003 relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sale of shares. Indisputably CIT (Appeals) as well as the tribunal had come factually to a conclusion that the appellant company was not involved in the business of sale and purchase of shares. Merely indulging in purchase and sale of shares for investment is not business activity in sale and purchase of share of other companies for the purpose of this section. In view of such fact, precondition necessary for attracting the explanation to Section 73 is absent in the instant case and the disallowance of this loss treating the same being speculation one is wholly unwarranted. Furthermore, the conduct of the company in selling the shares in questions soon after taking delivery of the shares when it is found that the value of such shares were rapidly decreasing cannot be said to be unjustified or imprudent. The reasoning of CIT (Appeals) that there was no pressing need for the appellant company to sell the shares on 18.12.1990 within a short span of time of its acquisition was clearly perverse in the admitted facts of the instant case. The confirmation of the disallowance of such short term capital loss suffered by the company in the assessment year 1991-92 as speculation lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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