Global Vectra Helicorp Ltd., New Delhi vs Department Of Income Tax

Deputy Commissioner of Vs. Global Vectra Helicorp Ltd. Income Tax, Circle-12(1), C/o- Nangia & Co., Suit-4A, New Delhi Plaza-MG, Jasola, New Delhi (PAN:AADCA9318F) (Appellant) (Respondent)

Appellant by : Sh. P. Dam Kanunjana, Sr.DR Respondent by: Sh. Amit Arora

Date of hearing: 06.05.2015 Date of pronouncement: 13.05.2015

ORDER

PER INTURI RAMA RAO, A.M.:

This is an appeal filed by the Revenue for the assessment year 2008-09

impugning the order of learned CIT(A), dated 19.08.2013, raising the following

grounds of appeal:

i. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs. 18,69,463/- made by the AO on account of the remuneration paid in excess of the limits? ii. Whether ld. CIT(A) was correct on facts and circumstances of the case and in law in holding that remuneration paid to the Directors was allowable u/s 37(1) of the Act, without considering the Explanation to that Section as per which payment to Directors in contravention to provisions of Companies Act was prohibited and not eligible for deduction? iii. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing.

2 ITA No. 5919/Del /2013 AY: 2008-09

2. The facts of the case are that the assessee is a limited company engaged in

the business flying, operations, letting on hire, lease and charter hire of

helicopters and providing aviation services in respect of helicopters. For the

assessment year 2008-09, return of income disclosing of Rs. 30,17,48,878/- was

filed on 30th September, 2008 after issuing notice under Section 143(2) of the

Income-tax Act, 1961 (for short "the Act"). The assessment was completed

under Section 143(3) of the Act vide order dated 29.12.2011 at a total loss of Rs.

29,98,79,415/-. While doing so, the Assessing Officer had made the

disallowance of Director's remuneration of Rs. 18,69,463/-. The Assessing

Officer was of the view that the said remuneration paid in excess of the limits

prescribed under the provisions of the Companies Act, 1956. Therefore, he was

of the view that such remuneration cannot be allowed as deduction since it

violates the provisions of the Companies Act, 1956. Being aggrieved by the

order of assessment, the respondent assessee filed an appeal before the learned

CIT(A) who vide order dated 19th August, 2013 allowed the claim of the

respondent assessee by placing reliance on the decisions of Hon'ble Supreme

Court in the cases of Badridas Daga Vs. CIT, 34 ITR 10 (SC), Nilgiri Finance

and Hire Purchase Pvt. Ltd. Vs. CIT, 213 ITR 384 and CIT Vs. Sree Rajendra

Mills Ltd., 93 ITR 122. The learned CIT(A) held that the Assessing Officer fell

in error by invoking the provisions of Section 198 of the Companies Act, 1956 3 ITA No. 5919/Del /2013 AY: 2008-09

which has no bearing on the allowability of the expenditure under Section 37(1)

of the Act and therefore allowed the claim of the assessee. Aggrieved by this

order, the Revenue came up with the present appeal.

3. It was argued on behalf of the Revenue that learned CIT(A) grossly erred

in allowing the appeal of the respondent assessee in the ignorance of provisions

of Explanation (I) to Section 37(1) of the Act.

4. On the other hand, learned Authorized Representative reiterated that the

issue in appeal is covered by the decisions of Hon'ble Madras High Court in the

cases of Nilgiri Finance and Hire Purchase Pvt. Ltd. Vs. CIT, 213 ITR 384,

CIT Vs. Sree Rajendra Mills Ltd., 93 ITR 122. He also filed copy of approval

granted u/s 309(5B) of the Companies Act, 1956 by the Government of India,

Ministry of Corporate Affairs, dated 11th June, 2013 for payment of such excess

remuneration of Rs. 18,69,463/-. Therefore, he submitted that the excess

remuneration paid should not be disallowed.

5. We have heard the rival submissions of the parties and have perused the

material on record. We noticed that the learned CIT(A) passed the impugned

order without considering the applicability of Explanation (I) to Section 37(1) of

the Act, which reads as under:

"37. General.- (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in 4 ITA No. 5919/Del /2013 AY: 2008-09

computing the income chargeable under the head "Profits and gains of business or profession".

Explanation.--For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure."

6. The Explanation (I) to Section 37(1) of the Act inserted by the Finance

Act no. 2 of 1998 with retrospective effect from April 1 st, 1962 which provides

that any expenditure incurred by an assessee for any purpose which is an offence

or which is prohibited by law shall not be deemed to have been incurred for the

purpose of business or profession and no deduction or allowance shall me made

in respect of such expenditure.

7. As we have been told at bar that the approval from the Ministry of

Corporate Affairs was not produced before the authorities below therefore,

the learned CIT(A) clearly fell in error in allowing this appeal in

ignorance of the provisions of Explanation (I) to Section 37(1) of the Act.

However, in view of the fact that post facto approval granted by the Ministry

of Corporate Affairs by letter dated 11th June, 2013 which is filed before us,

the expenditure can no longer said be prohibited. It is settled proposition of law

that the question whether there is an infraction of law of the expenditure

incurred for any purpose which is an offence or which is prohibited by

law is to be decided by the authorities or court empowered to do so under

the respective laws not by the Income Tax Authorities as held by ACIT 5 ITA No. 5919/Del /2013 AY: 2008-09

Vs. A.K. Menon and Ors., 215 ITR 364 (SC). In view of the approval, it

amounts that the expenditure is not hit by the Explanation (I) to Section 37(1) of

the Act. In this connection, we may also state that we have taken cognizance of

the approval granted by the Ministry of Corporate Affairs filed before us,

keeping in view that it is statutory order and does not require any verification by

lower authorities. Hence, the appeal filed by the Revenue is dismissed.

8. In the result, the appeal is dismissed.

The decision is pronounced in the open court on 13th May, 2015.

Sd/- Sd/- (DIVA SINGH) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 13th May, 2015. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi