Madras High Court
M/S.Talent Pro India Hr Private ... vs Commissioner Of Income Tax – 3 on 10 August, 2021
T.C.A.No.201 of 2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 10.08.2021
CORAM
The Honourable Mr.Justice T.S.SIVAGNANAM
and
The Honourable Mr.Justice SATHI KUMAR SUKUMARA KURUP
T.C.A.No.201 of 2016
M/s.Talent Pro India HR Private Ltd.,
New No.64, Old No.30,
'Briley One' III Floor, Ethiraj Salai,
(Next to kanchi Hotel), Egmore,
Chennai-600 008. .. Appellant
-vs-
Commissioner of Income Tax – 3,
Chennai. .. Respondent
Appeal under Section 260A of the Income Tax Act, 1961 against the
order dated 28.08.2015 made in I.T.A.No.1191/Mds/2015 on the file of the
Income Tax Appellate Tribunal 'SMC' Bench, Chennai for the assessment
year 2009-10.
For Appellant : Mr.N.V.Balaji
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T.C.A.No.201 of 2016
For Respondent : Ms.V.Pushpa,
Junior Standing Counsel
*******
JUDGMENT
(Delivered by T.S.Sivagnanam, J.)
This appeal, by the appellant/assessee, filed under Section 260A of
the Income Tax Act, 1961 (hereinafter referred to as “the Act”), is directed
against the order dated 28.08.2015, made in I.T.A.No.1191/Mds/2015 on
the file of the Income Tax Appellate Tribunal 'SMC' Bench, Chennai (for
brevity “the Tribunal”) for the assessment year 2009-10.
2.The appeal was admitted on 22.03.2016, on the following
substantial questions of law:-
“(i) Whether under the facts and circumstances of
the case, the Income Tax Appellate Tribunal was right in
upholding the order of the Lower Authorities, which
brought to tax the notional income on the advances made
by the appellant to its subsidiary? and
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T.C.A.No.201 of 2016
(ii) Whether under the facts and circumstances of
the case, the Income Tax Appellate Tribunal was right in
holding that 12.5% of the advances made by the appellant
to its subsidiary is to be assessed as income of the
appellant, though the advance was an interest free
advance?”
3.We have heard Mr.N.V.Balaji, learned counsel for the
appellant/assessee and Ms.V.Pushpa, learned Junior Standing Counsel for
the respondent/Revenue.
4.The assessee is a company engaged in the business of providing
service like man power planning, recruitment of personnel etc. It filed its
return of income for the assessment year under consideration AY 2009-10
returning a loss. The Assessing Officer completed the assessment under
Section 143(3) of the Act and assessed the income of the assessee at
Rs.5,86,860/-. The Assessing Officer disallowed a sum of Rs.1,21,88,735/-
as loans and advances by observing that the assessee had advanced a sum of
Rs.6,77,15,194/- to M/s.Interpro Global Pvt. Ltd., a subsidiary company of
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T.C.A.No.201 of 2016
the assessee and that the said subsidiary company is making profits.
Further, the Assessing Officer held that the assessee could not have
prudently invested and advanced funds to its own benefits and that the
assessee has not chosen to recover the same. Therefore, the Assessing
Officer assessed a sum of Rs.1,21,88,735/- being 18% of the amount
outstanding as on the last date of the previous year relevant to the
assessment year 2009-10. Aggrieved by such order, the assessee preferred
appeal before the Commissioner of Income Tax (Appeals)-11, Chennai (for
brevity “the CIT(A)”). The appeal was dismissed by order dated
30.01.2015. Aggrieved by the same, the assessee preferred appeal to the
Tribunal, which has been rejected and the same is challenged in this tax case
appeal.
5.The question involved is whether the Assessing Officer, the CIT(A)
and the Tribunal had dealt with the issue raised by the assessee in a proper
perspective. The assessee had contended that there is no specific agreement
for charging any interest on the loans and advances to the subsidiary
company and therefore, notional income cannot be considered and assessed
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T.C.A.No.201 of 2016
on the loans and advances to a wholly owned subsidiary. It is further
contended that the assessee had not incurred any expenses by way of
interest and no addition could have been made, as interest income purported
to have been earned. Though such was the contention, both the authorities
and the Tribunal were of the view that the subsidiary company, to which the
loans and advances were extended by the assessee, is generating sufficient
profits and therefore, by no stretch of imagination, it could be considered by
the assessee as if the loan extended by them is not recoverable. Further, the
Assessing Officer had commented upon the prudence of the assessee as a
business man and accordingly, computed the interest at 18%.
6.We find, in the assessment order, the assessee had taken a specific
stand that they have not received any interest from the subsidiary company.
However, the Assessing Officer proceeded on presumption and completed
the assessment. The correctness of such order was tested by the CIT(A),
who also concurred with the Assessing Officer by noting that the loan was
advanced five years back and no interest was charged and the two sister
concerns are profit making companies and also claiming Section 10A
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T.C.A.No.201 of 2016
exemption. The Tribunal also concurred with the authorities, but granted a
small reprieve to the assessee by reducing the rate of interest at 12.5%.
Unfortunately, the authorities as well as the Tribunal did not consider the
specific stand of the assessee that no income had accrued to the assessee on
account of the loans and advances made to the subsidiary company. The
question of considering commercial expediency or observing that no
prudent man, who runs a loss making company, will extend loans to another
profit making subsidiary, which is also enjoying the benefit of Section 10A
of the Act. Unless and until, there is evidence available for the authority
that for certain other purposes, the loans and advances were extended by the
assessee to the subsidiary company, no such adverse presumption could
have been drawn against the assessee and no tax can be levied and collected
on a presumptive income, as tax can be levied and collected only against
real income, which has not been brought out by the authorities or the
Tribunal. Therefore, we are of the considered view that the authorities
below and the Tribunal committed an error in fixing the rate of interest.
7.For the above reasons, this tax case appeal, filed by the assessee, is
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T.C.A.No.201 of 2016
allowed and the substantial questions of law are answered in favour of the
assessee. No costs.
(T.S.S., J.) (S.S.K., J.)
10.08.2021
Index: Yes/ No
Speaking Order : Yes/ No
abr
To
1.The Commissioner of Income Tax – 3,
Chennai.
2.The Income Tax Appellate Tribunal 'SMC' Bench, Chennai.
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T.C.A.No.201 of 2016
T.S.Sivagnanam, J.
and
Sathi Kumar Sukumara Kurup, J.
(abr)
T.C.A.No.201 of 2016
10.08.2021
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