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2016 (6) TMI 417

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..... iew is fortified by the decision rendered in the case of Sri Laxmi Satyanarayan Oil Mill Vs. CIT (2014 (8) TMI 486 - ANDHRA PRADESH HIGH COURT ) no disallowance can be made u/s.40A(3) where genuineness of payment is not doubted. The provisions of Rule 6DD (b) provide exception to Section 40A(3) where cash payments are made to Government. The aforesaid exception will operate in the case of the assessee. Thus, the CIT(A) has erred in holding that disallowance u/s.40A(3) is to be made in respect of cash payments made by assessees to MSRTC. - Decided in favour of assessee. - ITA Nos.1267 to 1269/PN/2014, ITA Nos.1270 to 1272/PN/2014, ITA Nos.1273 to 1275/PN/2014, ITA Nos.1270 to 1272PN/2014 & ITA Nos.1276 to 1278/PN/2014 - - - Dated:- 29-2-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For the Petitioner : Shri Sunil Pathak For the Respondent : Shri Aseem Sharma ORDER PER VIKAS AWASTHY, JM : These bunch of 11 appeals are filed by the assessees. Since common issues arising from same set of facts are involved in these appeals, these appeals are taken up together for adjudication. 2. In the present set of appeals, the assesses have raised nine .....

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..... e present case, the assessees have made cash payments on account of purchase of scrap from MSRTC, Maharashtra State Electricity Board (in short MSEB) and other Government organizations. Mainly the purchase of scrap is from MSRTC. All these State Corporations fall within the meaning of State under Article 12 of the Constitution of India. MSRTC was established by the State Government, as per the provisions of section 3 of the Road Transport Act, 1950. It is a State owned Transport Corporation. The entire share capital of MSRTC is funded by the State Government and Central Government. There is no public participation. The State Government has full control over the policy decisions and the management of MSRTC. As per the definition of State given in the Constitution, it is clear that any authority which is under the control of the Government can also be considered as part of the State. The words and phrases are to be interpreted in the manner which are widely accepted. Since MSRTC is a State owned Transport Corporation, for intents and purposes it is considered an inseparable limb of the State Government and is a State as per Article 12 of the Constitution of India. In support of .....

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..... ck to the file of CIT(A) for deciding it afresh in the light of the observations made. The relevant extract of the observations made by the Tribunal are as under : 10. We are unable to accept the argument canvassed by the Ld. DR. The Article 12 of the Constitution reads as under: the state includes the Government and Parliament of India and Government and the Legislature of the states and all local or other authorities within the territory of India or under the control of the Government of India. 11. The definition of the State under Article 12 has come for the consideration on number of occasions before the Hon ble Supreme Court. The State consists of three departments, the Legislature, the Executive and the Judiciary. We need not go into all the limbs of the State as only the limited issue before us is whether the term Government used in clause (b) to Rule 6DD includes even the autonomous bodies which partakes the character of instrumentalities of the Government. The core test to be applied whether a particular Corporation which is autonomous body is a part of Government, to be seen in the context of degree of control over management and policy decisions. We fi .....

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..... the Government and the Legislature of each of the States; (c) all local and other authorities within the territory of India; and (d) all local and other authorities under the control of the Government of India. 11. The expression other authorities used in Article 12 is neither defined in the Constitution of India nor in any other statute. Therefore, the Hon ble Supreme Court of India and the Hon ble High Court have interpreted this expression in various judgements. The Hon ble Supreme Court of India while interpreting the expression other authorities in the case of Som Prakash Rekhi Vs. Union of India reported as AIR 1981 SC 212 have culled out certain tests to determine as to when a Corporation should be said to be an instrumentality or Agency of the Government. The tests laid down by the Hon ble Apex Court are summarized as under : 1. If the entire share capital of the corporation is held by the Government, it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government. 2. Existence of deep and pervasive State control may afford an indication that the corporation is a State agency or instrumentality .....

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..... sions of section 40A(3) of the Act. 15. In so far as genuineness of the payments to MSRTC by the assessees, they are not disputed by the department. Once it has been held that MSRTC is a State within the meaning of Article 12 of the Constitution of India, the payments cannot be disallowed u/s.40A(3). The provisions of Rule 6DD would protect the assessee from such disallowance. The assessees have explained that cash payments have been made to MSRTC on successful bid of scrap auction. The payments are made in cash immediately to guard against the pilferage of scrap. Thus, cash payments are also made out of business expediency. Therefore, in our considered view, no disallowance can be made u/s.40A(3) in the facts of the present case. 16. Our view is fortified by the decision rendered in the case of Sri Laxmi Satyanarayan Oil Mill Vs. CIT (Supra). The Hon ble High Court has held that no disallowance can be made u/s.40A(3) where genuineness of payment is not doubted. The relevant extract of the observation of the Hon ble Court are as under : 18. . . . . . . . . . . Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along w .....

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