Premier Breweries Ltd. v. Commissioner of Income-tax
[Citation -2015-LL-0310-1]

Citation 2015-LL-0310-1
Appellant Name Premier Breweries Ltd.
Respondent Name Commissioner of Income-tax
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 10/03/2015
Judgment View Judgment
Keyword Tags managing director • business purpose • burden of proof • liaisoning
Bot Summary: JUDGMENT The judgment of the court was delivered by Prafulla C. Pant J.-Civil Appeal No. 1569 of 2007 is directed against the judgment and order dated March 31, 2005, of the High Court of Kerala by which in exercise of the jurisdiction under section 256(2) of the Incometax Act, 1961 the questions reframed by the High Court have been answered against the appellant-assessee and in favour of the Revenue. Following the aforesaid judgment of the Kerala High Court, the Karnataka High Court had decided a similar question arising in Income Tax Appeal No. 12 of 1999 and Income Tax Appeal Nos. In view of the fact that the decision of the Karnataka High Court in I. T. A. No. 12 of 1999 had followed the decision of the Kerala High Court impugned in Civil Appeal No. 1569 of 2007 and the decision of the Karnataka High Court in the subsequent appeals before it (impugned in Civil Appeal No. 3214 of 2011 and Special Leave Petition No. 10080 of 2014) essentially follows the decision rendered in I. T. A. No. 12 of 1999, it will be necessary first to deal with the issues arising in Civil Appeal No. 1569 of 2007 and depending on the decision therein the remaining appeals will have to be accordingly answered. Page 56 of 279 ITR. Though one item of claim for deduction pertained to the corporate management charges paid by the assessee to U. B. Ltd. and an issue pertaining to the said claim was one of the twelve questions initially framed in the Reference, in the questions reframed by the High Court, the said question does not find any mention. Reading the ultimate paragraph of the order of the High Court we find that the error is one of form and not of substance inasmuch as the question arising in the reference has been specifically answered in the following manner: We set aside the order of the Tribunal and uphold that of the Commissioner and answer the questions in favour of 2008 12 SCC 458; 2008 300 ITR 205, 213. Some of the questions discarded by the High Court were actually more proximate to the question of perversity of the findings of fact recorded by the learned Tribunal, than the questions retained. From a reading of the order of the High Court it is clear that the High Court examined the entitlement of the appellant-assessee to deduction/disallowance by accepting the agreements executed by the assessee with the commission agents; the affidavits filed by C. Janakiraman and Shri A. N. Ramachandra Nayar, husbands of the two lady partners of RJ Associates and also the payments made by the assessee to RJ Associates as well as to Golden Enterprises.


JUDGMENT judgment of court was delivered by Prafulla C. Pant J.-Civil Appeal No. 1569 of 2007 is directed against judgment and order dated March 31, 2005, of High Court of Kerala by which in exercise of jurisdiction under section 256(2) of Incometax Act, 1961 (as it then existed) (hereinafter for short "the Act") questions reframed by High Court have been answered against appellant-assessee and in favour of Revenue. question decided by High Court and relevant to present appeal relates to entitlement of assessee to benefit of disallowance of commission purportedly paid by assessee to its commission agents for procurement of order for supply of liquor. Following aforesaid judgment of Kerala High Court, Karnataka High Court had decided similar question arising in Income Tax Appeal No. 12 of 1999 and Income Tax Appeal Nos. 42, 44, 46 and 47 of 2001, in like manner, i.e., against assessee and in favour of Revenue. Aggrieved by aforesaid orders of High Court of Karnataka which pertains to different assessment years, Civil Appeal No. 3214 of 2011 and Special Leave Petition (C) No. 10080 of 2014 have been filed by assessee. In view of fact that decision of Karnataka High Court in I. T. A. No. 12 of 1999 had followed decision of Kerala High Court impugned in Civil Appeal No. 1569 of 2007 and decision of Karnataka High Court in subsequent appeals before it (impugned in Civil Appeal No. 3214 of 2011 and Special Leave Petition (C) No. 10080 of 2014) essentially follows decision rendered in I. T. A. No. 12 of 1999, it will be necessary first to deal with issues arising in Civil Appeal No. 1569 of 2007 and depending on decision therein remaining appeals will have to be accordingly answered. CIT v. Premier Breweries Ltd. [2005] 279 ITR 51 (Ker). Deputy CIT v. McDowell and Co. Ltd. [2007] 291 ITR 107 (Karn). Succinctly, appellants are engaged in manufacture and sale of beer and other alcoholic beverages. Certain States like Kerala and Tamil Nadu had established marketing corporations which were exclusive wholesalers of alcoholic beverages for concerned State whereby all manufacturers had to compulsorily sell their products to State Corporations which, in turn, would sell liquor so purchased, to retailers. It is pleaded by appellants that manufacturers of beverages containing alcohol have to engage services of agents who would co- ordinate with retailers and State Corporations to ensure continuous flow/supply of goods to ultimate consumers. And on that ground they sought deduction under section 37 of Act. Civil Appeal No. 1569 of 2007 claim made by assessee in facts noted above was disallowed by Assessing Officer by order dated January 29, 1993. said order of Assessing Officer was confirmed by Commissioner of Income-tax (Appeals) by order dated October 29, 1993. assessee had moved learned Income- tax Appellate Tribunal, Cochin Bench against aforesaid orders. learned Tribunal took view that assessee was entitled to claim for deduction. said view of learned Tribunal has been reversed by High Court in Reference made to it under section 256(2) of Act. We have noticed that in reference made to High Court by learned Tribunal under section 256(2) as many as 12 different questions were framed and referred. High Court reframed questions in following manner: "(i) Whether, on facts and in circumstances of case, did assessee discharge burden of proof that lay on it in support of claim for Rs. 7,75,602? (ii) Whether, on facts and in circumstances of case, did assessee discharge burden of proof that lay on it in support of claim for Rs. 22,72,192? (iii) Whether, on facts and in circumstances of case, Tribunal is right in law and fact in holding that payment to Golden Enterprises was only for business purpose or and was in business interest?" questions reframed by High Court were in respect of payments made to M/s. R. J. Associates and one Golden Enterprises who, assessee claimed, had rendered services as commission agents. Page 56 of 279 ITR. Though one item of claim for deduction pertained to corporate management charges paid by assessee to U. B. Ltd. and issue pertaining to said claim was one of twelve questions initially framed in Reference, in questions reframed by High Court, said question does not find any mention. Be that as it may, High Court on reasons recorded in its order dated March 31, 2005 thought it proper to reverse findings and conclusions recorded by learned Tribunal. Eventually, in ultimate paragraph of its order High Court after recording conclusion that "Tribunal has committed grave error in not properly understanding transaction entered into between assessee and others" set aside order of Tribunal and upheld order of Commissioner (Appeals) and answered questions in favour of Revenue by holding that assessee had not discharged burden so as to entitle it to deduction under section 37 of Act. Aggrieved, this appeal has been filed by assessee. Three propositions have been advanced before us on behalf of contesting parties. first is whether High Court could have reframed questions after conclusion of arguments and that too without giving opportunity to assessee. answer to above question, according to appellant, is to be found in M. Janardhana Rao v. Joint CIT wherein this court has held that questions of law arising in appeal under section 260A of Act must be framed at time of admission and should not be formulated after conclusion of arguments. Though decision in M. Janardhana Rao (supra) is in context of section 260A of Act, it is urged that same principles would apply to exercise of jurisdiction under section 256 of Act (as it then existed) particularly as jurisdiction under section 256 is more constricted than under section 260A of Act. second issue raised is jurisdiction of High Court to set aside order of Tribunal in exercise of its reference jurisdiction. point is no longer res integra having been settled in C. P. Sarathy Mudaliar v. CIT wherein this court has taken view that setting aside order of Tribunal in exercise of reference jurisdiction of High Court is inappropriate. This court had observed that while hearing reference under Income-tax Act, High Court exercises advisory jurisdiction and does not sit in appeal over judgment of Tribunal. It has been further held that High Court has no power to set aside order of Tribunal even if it is of view that conclusion recorded by Tribunal is not correct. [2005] 2 SCC 324; [2005] 273 ITR 50 (SC). [1966] 62 ITR 576 (SC). third question that has been posed for answer before us is with regard to correctness of manner of exercise of jurisdiction by High Court in present case. Learned counsel for assessee has elaborately taken us through judgment of High Court to contend that evidence on record has been re-appreciated with view to ascertain if conclusions recorded by Tribunal are correct. manner of exercise of jurisdiction, in absence of any question of perversity of findings of learned Tribunal has been assailed before us. Reliance has been placed on paragraph 16 of judgment of this court in case of Sudarshan Silks and Sarees v. CIT which is in following terms: "16. In present case, question of law referred to High Court for its opinion was, as to whether Tribunal was right in upholding findings of Commissioner of Income-tax (Appeals) in cancelling penalty levied under section 271(1)(c). Question as to perversity of findings recorded by Tribunal on facts was neither raised nor referred to High Court for its opinion. Tribunal is final court of fact. decision of Tribunal on facts can be gone into by High Court in reference jurisdiction only if question has been referred to it which says that finding arrived at by Tribunal on facts is perverse, in sense that no reasonable person could have taken such view. In reference jurisdiction, High Court can answer question of law referred to it and it is only when finding of fact recorded by Tribunal is challenged on ground of perversity, in sense set out above, that question of law can be said to arise. Since frame of question was not as to whether findings recorded by Tribunal on facts were perverse, High Court was precluded from entering into any discussion regarding perversity of finding of fact recorded by Tribunal." In present case, High Court while hearing reference made under section 256(2) of Act had set aside order of Tribunal. Undoubtedly, in exercise of its reference jurisdiction High Court was not right in setting aside order of Tribunal. However, reading ultimate paragraph of order of High Court we find that error is one of form and not of substance inasmuch as question arising in reference has been specifically answered in following manner: "We, therefore, set aside order of Tribunal and uphold that of Commissioner (Appeals) and answer questions in favour of [2008] 12 SCC 458; [2008] 300 ITR 205, 213 (SC). Page 61 of 279 ITR. Revenue by holding that assessee had not discharged burden that it is entitled to deductions under section 37 of Incometax Act. Reference is answered accordingly." reliance placed on behalf of appellant-assessee on Sudarshan Silks and Sarees (supra), therefore, is of no effect. twelve questions referred to High Court under section 256(2) of Act may now be set out below: (1) Whether, on facts and in circumstances of case and also in view of prohibition of outside service by KSBC, was Tribunal right in law and fact in allowing expenditure of Rs. 7,75,602 by/and/ deleting addition of Rs. 7,75,602? (2) Whether, on facts and in circumstances of case, did Tribunal have any materials to show that above expenditure of Rs. 7,75,602 was wholly and exclusively for assessee's business? (3) Whether, on facts and in circumstances of case, did assessee discharge burden of proof that lay on it in support of claim for Rs. 7,75,602? (4) Whether, on facts and in circumstances of case, Tribunal is right in law and fact in allowing expenditure of Rs. 22,72,192 by/and/deleting addition of Rs. 22,72,192? (5) Whether, on facts and in circumstances of case, did Tribunal have any materials to show that above expenditure of Rs. 22,72,192 was wholly and exclusively for assessee's business? (6) Whether, on facts and in circumstances of case, did assessee discharge burden of proof that lay on it in support of claim for Rs. 22,72,192? (7) Whether, on facts and in circumstances of case, Tribunal is right in law and fact in holding that: "the engagement of Golden Enterprises for carrying out certain support services was in business interest" and is not above finding also based on surmised and conjectures like "that two sales officers of UB group stationed at Madras did not do or at any rate could not have done any sub-line service at unit level" wrong, unreasonable and unsupported by materials? (8) Whether, on facts and in circumstances of case, is increase in sales noted in paragraph 10 (page 18) of order of Tribunal based on increase in quantum or increases in price and if increase in sales is based on increase in price is not same irrelevant consideration and order vitiated? (9) Whether, on facts and in circumstances of case, should not Tribunal have considered contention of Revenue that "ultimately Golden Enterprises has in turn appointed one Abhinava Agencies for doing such work and, therefore, Golden Enterprises did not have necessary infrastructure to do services" in its correct prospective without side treching issue by observing "what happened between Golden Enterprises and Abhinava Agencies is not of concern of assessee..." and is not above finding wrong and lacks prospective when case behind entrustment with Golden Enterprises was for lack of infrastructure with assessee? (10) Whether, on facts and in circumstances of case and reason behind entrustment by assessee with Golden Enterprises being for lack of infrastructure with assessee, will such assessee entrust job to one who lacks infrastructure and to one who in turn entrust to another agency and are not order and findings, without adverting to above aspects, wrong and, hence, vitiated? (11) Whether, on facts and in circumstances of case, Tribunal is right in law and fact in holding that "considering need for such services and opportunity cost of having regular marketing force, payment to Golden Enterprises was only for business purposes and was in business interest" and are not above findings wrong, unreasonable, unsupported by materials and based on surmise and conjectures? (12) Whether, on facts and in circumstances of case, (i) assessee is entitled to claim any deduction under head corporate and management charges? (ii) Should not Tribunal have disallowed entire claim for Rs. 14,36,200? reading of questions initially framed and subsequently reframed show that what was done by High Court is to retain three out of twelve questions, as initially framed, while discarding rest. Some of questions discarded by High Court were actually more proximate to question of perversity of findings of fact recorded by learned Tribunal, than questions retained. From reading of order of High Court it is clear that High Court examined entitlement of appellant-assessee to deduction/disallowance by accepting agreements executed by assessee with commission agents; affidavits filed by C. Janakiraman and Shri A. N. Ramachandra Nayar, husbands of two lady partners of RJ Associates and also payments made by assessee to RJ Associates as well as to Golden Enterprises. question that was posed by High Court was whether acceptance of agreements, affidavits and proof of payment would debar assessing authority to go into question whether expenses claimed would still be allowable under section 37 of Act. This is question which High Court held was required to be answered in facts of each case in light of decision of this court in Swadeshi Cotton Mills Co. Ltd. v. CIT (No. 1) and Lachminarayan Madan Lal v. CIT. In fact High Court noted following observations of this court in Lachminarayan (supra): "The mere existence of agreement between assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind Income-tax Officer to hold that payment was made exclusively and wholly for purpose of assessee's business. Although there might be such agreement in existence and payments might have been made. It is still open to Income-tax Officer to consider relevant facts and determine for himself whether commission said to have been paid to selling agents or any part thereof is properly deductible under section 37 of Act." There were certain Government circulars which regulated, if not prohibited, liaisoning with government corporations by manufacturers for purpose of obtaining supply orders. true effect of Government circulars along with agreements between assessee and commission agents and details of payments made by assessee to commission agents as well as affidavits filed by husbands of partners of M/s. R. J. Associates were considered by High Court. statement of managing director of Tamil Nadu State Marketing Corporation Ltd. (TASMAC Ltd.), to whom summons were issued under section 131 of Act, to effect that M/s. Golden Enterprises had not done any liaisoning work with TASMAC Ltd. was also taken into account. basis of doubts regarding very existence of R. J. Associates, as entertained by Assessing Officer, was also weighed by High Court to determine entitlement of assessee for deduction under section 37 of Act. In performing said exercise High Court did not disturb or reverse primary facts as found by learned Tribunal. Rather, exercise performed is one of correct legal inferences that should be drawn on facts already recorded by learned Tribunal. questions reframed were to said effect. legal inference that should be drawn from primary facts, as consistently held by this court, is eminently question of law. No question of perversity was required to be framed or [1967] 63 ITR 57 (SC). [1972] 86 ITR 439, 446 (SC). gone into to answer issues arising. In fact, as already held by us, questions relatable to perversity were consciously discarded by High Court. We, therefore, cannot find any fault with questions reframed by High Court or answers provided. For aforesaid reasons, Civil Appeal No. 1569 of 2007 has to fail and it is accordingly dismissed. Civil Appeal No. 3214 of 2011 and SLP(C) No. 10080 of 2014 In light of above, Civil Appeal No. 3214 of 2011 and SLP (C) No. 10080 of 2014 are also dismissed. *** Premier Breweries Ltd. v. Commissioner of Income-tax
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