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2015 (8) TMI 470 - KERALA HIGH COURT

2015 (8) TMI 470 - KERALA HIGH COURT - [2015] 379 ITR 56 (Ker) - Disallowance the commission paid to the agents - agents were appointed for selling Indian Made Foreign Liquor manufactured by it to the Kerala State Beverages Corporation, a wholly owned Kerala Government Company - Tribunal deleted disallowance - Held that:- Division Bench judgment of this Court reported in Commissioner of Income Tax v. Premier Breweries Ltd. [2005 (3) TMI 83 - KERALA High Court] wherein held that the Tribunal shou .....

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Government company or its employees would amount to a corrupt practice. There is prohibition against advertisements of liquor for sales promotion. Therefore, it is essentially a matter of selection of manufacturers and brands which should not involve any payment of commission because the sole purchaser in Kerala happens to be a Government company. The Tribunal allowed the appeals following the orders of earlier years, which, though was challenged in this Court was not considered on merits for th .....

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penses incurred are claimed as commission, the details thereof. We, therefore, allow the appeals by setting aside the orders of the Tribunal and that of the 1st appellate authority and remand the matter to the assessing officer to decide the matter afresh after giving opportunity to the assessee - Decided in favour of revenue for statistical purposes. - I.T.A.Nos.153 & 171 of 2001, 50 of 2002, 30 of 2007, 172 of 2008 & 5 of 2009 - Dated:- 30-7-2015 - ANTONY DOMINIC AND SHAJI P.CHALY, JJ. FOR THE .....

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actured by it to the Kerala State Beverages Corporation, a wholly owned Kerala Government Company. The assessment years which are relevant are 1991-1992, 1992-1993, 1994-1995, 1995-1996, 1996-1997 and 2002-2003. 2. When these appeals were taken up for consideration, learned Senior Counsel appearing for the Revenue brought to our notice the judgment dated 11th January 2011 rendered by this Court in ITA Nos.95 and 168 of 2010 passed in the case of the respondent assessee itself on the very same is .....

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on No.5/2014 dated 10th July, 2014, issued by the Central Board of Direct Taxes fixing ₹ 10,00,000/- as the monetary limit for maintaining an appeal under Section 260A. According to him, in the light of the said Instruction and in view of the fact that the tax effect involved in these appeals is less than the limit prescribed in Instruction No.5/2014, they are not maintainable and therefore should be dismissed. In support of this plea, the learned Senior Counsel placed reliance on the judg .....

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araja Rao and Others (2009) 318 ITR 422 (Mad). Counsel also brought to our notice the judgment of the Apex Court in State of Kerala and others v. Kurian Abraham Private Limited and Others (2008) 303 ITR 284 (SC) to contend that the Instructions are binding on all authorities of the Department. 4. On the other hand, learned Senior Counsel appearing for the Revenue contended that as is evident from the Instruction itself the applicability thereof should be judged with reference to the Instruction .....

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applicability of   the Instruction has to be judged with reference to the date of filing of the appeal, ITA 50/02 filed on 9.10.2001 relating the assessment year 1992-1993 cannot be maintained as according to him, the tax effect is much less than ₹ 2,00,000/- which was the then prevailing monetary limit prescribed in Instruction No.1979 dated 27th March 2000 for filing appeals under Section 260A of the Income Tax Act. This contention was resisted by the counsel for the Revenue by ref .....

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Instruction No.5/2014 dated 10th July 2014, the appeals cannot be maintained. 7. Instruction No.5/2014, a copy of which was made available to us, was issued in supercession of Instruction No.3/2011 issued on   9.2.2011. Paragraphs 3 and 11 of the Instruction No.5/2014, being relevant for the purpose of this judgment, reads thus: "3. Henceforth appeals shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder: Sl. No. Appeals in Income Tax mat .....

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July, 2014. However, the cases where appeals have been filed before 10th July, 2014 will be governed by the instructions on this subject, operative at the time when such appeal was filed." 8. Reading of paragraph 3 makes it explicitly clear that the direction of the Board is that "henceforth" appeal shall not be filed in cases where the tax effect does not exceed the monetary limits prescribed in the Instruction. Evidently, therefore, the operation of the   Instruction is onl .....

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courts are bound to literally interpret the same. We see no reason why that principle should not be imported for the interpretation of this Instruction as well. Thus seen, the language used by the Board in paragraphs 3 and 11 which are extracted above makes it clear that the Instruction cannot have any impact in respect of appeals which were filed before 10th July 2014 and in respect of appeals filed before 10.7.2014, the maintainability thereof will have to be judged in the light of the Instruc .....

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out circular, the Revenue has chosen to file present appeal knowing fully well that the corridors of the Courts are flooded with pending litigations. The presentation of this appeal is quite contrary to the instruction issued in the circular which is binding on the Revenue." 11. Reading of this paragraph would show that the Revenue had filed the appeal ignoring the Instruction and it was, therefore, that the Bombay High Court decided the issue in favour of the assessee. This view taken by t .....

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sed by the Revenue was that the Instruction was not applicable to old referred cases. This contention of the Revenue was overruled by the Bombay High Court by holding thus: "5. One fails to understand how the Revenue can contend that so far as new cases are concerned, the circular issued by the Board is binding on them and in compliance with the said instructions, they do not file references if the tax effect is less than ₹ 2 lakhs. But the same approach is not adopted with respect to .....

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of cases. In this view of the matter, the Board has rightly taken a decision not to file references if the tax effect is less than ₹ 2 lakhs. The same policy for old matters need to be adopted by the Department. In our view, the Board's circular dated 27th March, 2000 is very much applicable even to the old references which are still   undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification .....

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ferences. Therefore, that judgment cannot be any advantage to the assessee to substantiate its contentions with reference to Instruction Npo.5/2014 referred to above. 14. The third judgment of the Bombay High Court that was relied on by the learned counsel for the assessee is Commissioner of Income Tax v. Madhukar K Inamdar (HUF) (2009) 318 ITR 149 (Bom). That judgment was rendered in the context of Instruction No.5/2008 issued by the Central Board of Direct Taxes on 15th June 2008. As in the ca .....

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wever, the cases where appeals have been filed before 15th of May, 2008 will be governed by the instructions on this subject, operative at the time when such appeal was filed." 15. The language of the Instruction, as we have already held in the context of Instruction No.5/2014, is plain and clear that it applied only to appeals filed on or after 15th May 2008, when the circular was issued. Despite the clear language of the Instruction, Bombay High Court appears to have referred to Instructi .....

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appeals, even if the tax effect is less than ₹ 4 lakhs. In our view, there is no logic behind this belief entertained by the Revenue. 8. This Court can very well take judicial notice of the fact that by passage of time money value has gone down, the cost of litigation expenses has gone up, filing of cases at the instance of Revenue has increased; consequently, the burden on the Department has also increased to a tremendous extent. The corridors of the superior Courts are choked with huge p .....

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ses wherein tax effect is substantially high rather than running after the assessees wherein the tax impact is less than ₹ 4 lakhs considering the cost of litigation and other administrative cost which may be much more than the tax recovery. 10. At this juncture, it will be relevant to note that the CBDT has also issued a circular on 5th June, 2007 directing the Department to examine all appeals pending before this Court on case to case basis with further direction to withdraw cases wherei .....

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ar dt. 15th May, 2008 would be very much applicable to the pending cases requiring Department to withdraw cases wherein the tax effect is less than the prescribed monetary limits. " 16. In our view, the reliance placed by the learned counsel on the Instruction issued on 5th June 2007 which had relevance only in respect of the Instruction No.2/05 dated 24th October 2005 which held the field till 15th May 2008 when Instruction No.5/08 was issued, was erroneous. Even otherwise, the interpretat .....

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991- 1992 and Instruction No.1979 dated 27th March 2000. These judgments were rendered basically following the earlier judgments of the Bombay High Court which, as we have already held, cannot be followed. 18. Sum and substance of the above discussion is that Instruction No.5/2014 issued on 10th July 2014, cannot be pressed into service in respect of appeals filed prior to 10th July 2014 and such appeals are governed by instructions on this subject operative at the time when the appeals were fil .....

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-97 were filed on 4.9.2003. This, therefore, means that Instruction 5/2014 dated 10th July 2014, which have come into effect from the date of its issue, has no relevance in so far as these appeals are concerned. Therefore, the contentions raised by the learned counsel for the respondent assessee is only to be rejected and we do so. 20. The alternative contention raised by learned Senior Counsel for the assessee was that in ITA 50/02 concerning the assessment year 1992-1993, even if the Instructi .....

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al one. This judgment has been followed by a Division Bench of this Court in Commissioner of Income Tax v. Smt. Pushpa Vijoy and Another (2012) 247 CTR 575. 21. As we have already stated, the Senior Counsel for the Revenue relied on the orders passed by this Court in ITA 95/2010 and 168/2010, filed by the Revenue against the assessee herein concerning the assessment years 2000-2001 and 2001-2002. By the common judgment rendered on 11th January 2001, this Court set aside the order passed by the C .....

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the cases should be decided on merits. Therefore, the monetary limit prescribed in Circular No.1979 dated 27th March, 2000 cannot be applied in respect of the order passed for the assessment year   1992-1993 which is the subject matter of ITA 50/02 cannot be accepted. We, therefore, reject that contention of the learned Senior Counsel for the assessee. 22. Having thus cleared the ground, we shall now deal with the merits of the matter. It is seen that the very same issue is held in favour o .....

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Standing counsel has relied on a Division Bench judgment of this Court reported in Commissioner of Income Tax v. Premier Breweries Ltd. (Ker.) [2005] 279 ITR 51 (Ker)] wherein this Court held that the Tribunal should allow the claim only on being satisfied about the genuineness of the claim and the purpose for which commission was paid. The contention of the Revenue is that liquor distribution in the State is the monopoly of the sole marketing agency, which is the KSBC, a wholly owned Kerala Go .....

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