Appeals Dismissed and Remanded for Fresh Decision by High Court on Key Taxation Questions.

The Supreme Court has granted leave and dismissed appeals arising from a judgment of the Bombay High Court for multiple assessment years. The appeals raised several questions related to income tax deductions and provisions. The court dismissed the appeals in regard to the first question, as it raised a pure question of fact and the High Court's judgment was upheld. For the second question, the court remanded the issue to the High Court to reconsider in light of a previous court ruling. The court also found that the High Court had not independently evaluated the merits of the departmental appeals for the third, fourth, and fifth questions. As a result, it directed the High Court to consider these questions afresh. The appeals were allowed for these questions, and the impugned judgment was set aside. The court also noted that appeals were pending before the High Court for two other questions and suggested the parties apply for a consolidated hearing. No costs were awarded in this matter.

Delay condoned.

Exemption from filing certified copy of the impugned

judgment granted.

Leave granted.

These appeals have arisen from the judgment of the

Bombay High Court dated 22 & 23 August,2017 for

Assessment Years 2003-04, 2004-05, 2005-06 and 2006-07.

The High Court has passed a common order for all the

Assessment Years. Learned counsel for the assessee

states that all the questions which have been framed do

not necessarily arise for each Assessment Year. A chart

has been tendered, explaining the position. The chart is

taken on the record.

The appeals by the Revenue raise the following

questions:

1. Whether the High Court is correct in holding

that interest amount being interest referable to

funds given to subsidiaries is allowable as deduction

under Section 36(1)(iii) (of Income Tax Act, 1961)

(for short ‘the Act’) when the interest would not

have been payable to banks, if funds were not

provided to subsidiaries;

2. Whether on the facts and in the circumstances of

the case and in law, the High Court is correct in

upholding the Tribunal’s view that prior to insertion

of Explanation-5 to Section 32 (of Income Tax Act, 1961), the claim

of depreciation was optional and could not be thrust

on the assessee, if it had not claimed it;

3. Whether on the facts and in the circumstances of

the case and in law, the High Court is correct in

upholding the Tribunal’s view that pre-operative

expenses incurred in connection with creation of

plant & machinery in units which have not commenced

production, are revenue in nature;

4. Whether on the facts and in the circumstances of

the case and in law, the High Court is correct in

upholding the Tribunal’s view that expenditure on

estimated basis cannot be reduced from dividends for

deduction under Section 80M (of Income Tax Act, 1961); and

5. Whether on the facts and in the circumstances of

the case and in law, the High Court is correct in

upholding the Tribunal’s view in sustaining the

deletion of the Transfer Pricing adjustment made to

consultancy charges, especially when the TPO had

adopted the same mark up in relation to its European

associate, what the assessee itself had adopted in

relation to its USA associate.

Insofar as the first question is concerned, the issue

raises a pure question of fact. The High Court has noted

the finding of the Tribunal that the interest free funds

available to the assessee were sufficient to meet its

investment. Hence, it could be presumed that the

investments were made from the interest free funds

available with the assessee. The Tribunal has also

followed its own order for Assessment Year 2002-03.

In view of the above findings, we find no reason to

interfere with the judgment of the High Court in regard

to the first question. Accordingly, the appeals are

dismissed in regard to the first question.

Insofar as the second question is concnered, the

issue, it is common ground, is governed by the decision

of this Court in Plastiblends India Limited Vs.

Additional Commissioner of Income Tax, Mumbai and

Another1.

The High Court has not had the benefit of the

decision of this Court. Hence, we are of the view that

it would be appropriate to remand the issue for fresh

decision by the High Court bearing in mind the law laid

down in the above case. We keep open all the rights and

contentions of the Revenue and the assessee in regard to

the applicability of the provision for the relevant

Assessment Years.

As regards, the third question pertaining to pre-

operative expenses; the fourth question pertaining to the

deduction under Section 80M (of Income Tax Act, 1961); and the fifth

question pertaining to transfer pricing, the High Court

has failed to independently evaluate the merits of the

departmental appeals. Hence, we consider it appropriate

that the aforesaid questions are considered afresh by the

High Court.

In order to facilitate a fresh exercise being

conducted in relation to the aforesaid four questions

(Question Nos.2,3,4 and 5), we allow the appeals and set

aside the impugned judgment of the High Court. The

appeals stand restored to the file of the High Court for

that purpose.

This Court has been apprised of the fact that appeals

are pending before the High Court against two other

questions. Hence, it would be open to the parties to

apply to the High Court for a consolidated hearing.

These appeals are accordingly disposed of. There shall

be no order as to costs.

(DR. DHANANJAYA Y. CHANDRACHUD)

(HEMANT GUPTA)

NEW DELHI

JANUARY 02, 2019

Delay condoned.

Exemption from filing certified copy of the impugned

judgment granted.

Leave granted.

The appeals are disposed of in terms of the signed

order.

Pending application, if any, stands disposed of.

(SANJAY KUMAR-I) (SAROJ KUMARI GAUR)

AR-CUM-PS COURT MASTER

(Signed order is placed on the file)