TMI Blog2009 (9) TMI 949X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or Central Government. In fact, many public sector companies are not formed just to make profit alone but are supposed to achieve larger objectives for the Society and the State. Section 37(1) is the residuary provision provided under the Income-tax Act enabling assessee engaged in business to claim all expenditure laid out or expended wholly and exclusively for the purposes of the business. By making payment of service charge, the respondent company has discharged only the obligation under Government Orders. It cannot carry on business by violating Government Orders and remain as a defaulter to the Government. Therefore, on the face of it, payment of service charge to the Government is a business expenditure and it is paid every year and the payment is mandatory for carrying on business. The expenditure so incurred by the company is not hit by the negative clauses in section 37 which are in the nature of capital or personal expenditure of assessee. Besides this, the payment is also not prohibited by law and so much so it is not hit by the Explanation contained in section 37(1). Therefore the payment is a bonafide expenditure incurred by the company for carrying on business w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification for disallowing the amount in computation of the income. However, it will be open to the Central Board to take up the matter with the State Government so that service charges can be fixed by the Government on a rational basis. We dismiss the appeals but with the above observation. - <!--[if gte mso 9]> Normal 0 false false false EN-US X-NONE MicrosoftInternetExplorer4 <![endif]--> C.N. RAMACHANDRAN NAIR AND V.K. MOHANAN, JJ. For the Appeleant : P.K.R. Menon and Jose Joseph JUDGMENT C.N. Ramachandran Nair, J These appeals are filed by the revenue against common order of the Tribunal pertaining to the income-tax assessments of the respondent company for the years 1991-92 to 1997-98 and 1999-2000 to 2002-03. The respondent is a State Government undertaking with 80 per cent of the shares held by the Kerala Government. The respondent company located in Trivandrum is engaged in manufacture and sale of Titanium Dioxide. Being a Government company, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the first appellate authority who allowed the claim. On second appeals filed by the department, the Tribunal confirmed the orders of the first appellate authority and dismissed the appeals. It is against these orders the revenue has filed these eleven appeals. 2. We have heard Senior Counsel Sri P.K.R. Menon appearing for the appellant and have gone through the orders of the Tribunal and that of the lower authorities. 3. The first contention raised by the appellant is that the Tribunal has not strictly followed the observations of the Division Bench in the judgment referred above whereby the matter was remanded to the Assessing Officer. According to the counsel, based on the earlier judgment of this Court, the claim could be allowed only if the respondent proves the exact service rendered by the Government which justifies the payment of service charges by it to the Government. The High Court, no doubt, referred to a Full Bench decision of this Court in Ram Bahadur Thakur Ltd. v. CIT [2003] 261 ITR 3901 (Ker.) and directed the Assessing Officer to follow the guidelines laid down therein while considering the respondent s claim for deduction under section 37(1) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier Division Bench of this Court while remanding the case. The court has forgotten the fact that respondent company is a fully owned Government company under the Government of Kerala with 80 per cent shares held by the Government. Being a company under the control of the Government, it is bound to comply with all the Government Orders and the Board of Directors itself is constituted with the Government Secretaries and other nominees as members. The Department does not raise a dispute that the claim of the company is not bona fide or that the company has not made payment of service charges to the Government in terms of the Government Order. Therefore, the claim of deduction has to be considered with reference to the peculiar circumstances of the company which has no discretion in regard to the payment of the service charges to the Government as it is bound to comply with the Government Orders. So much so, we are of the view that the parameters applicable in the case of a private company that too with respect to the claim for business expenditure, are exactly not applicable in the case of public sector company whether it is under the control of the State Government or Central Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the Government Order. All liabilities are settled at Ministry level and the company s problems are sorted out through the Government intervention. Government appointed a Special Officer for ensuring raw materials supply to the Government company from another company at moderate cost. The Board of Directors of the respondent company is constituted with Secretaries to the Government and Government servants and they are not entitled to additional remuneration which is a saving for the company. Above all, the company is located in about 51 acres of land very close to Trivandrum town and, under the Government norms, lease rent payable is 10 per cent of the market value. However, in this case, Government has charged only paltry sum of ₹ 20,547 per year. In the affidavit filed by the Managing Director, the new lease rental payable at normal rate to the State Government during the years 1992-93 to 2001-02 by taking the land value at moderate rate of ₹ 12,000 per year would have been ₹ 30,49,230 per year. There can be no doubt that the Government has made major sacrifices by retaining the lease rental on a paltry sum of ₹ 20,547 per year. In fact, if lease renta ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
