21 August 2010
if any purchaser of goods deposit the cash directly into bank account of seller, what will be the income tax provisions applicable. Whether it will be taken as cash payment exceeding Rs. 20000 U/s 40A(3)(a) or not. Is it an inadmissible expenditure under income tax act.
21 August 2010
No it is not admissible. COMMISSIONER OF INCOME TAX vs. K. ABDU & CO. HIGH COURT OF KERALA C.N. Ramachandran Nair, J. Original Petition No. 7697 of 2001 19th November, 2007 (2008) 170 TAXMAN 297 (Ker) Legislation referred to Section 40A(7), RULE 6DD(a)(i)/(ii), Case pertains to Asst. Year 1996-97 Decision in favour of Revenue Business expenditure—Disallowance under s. 40A(3)—Exception under r. 6DD(a)—Rule 6DD(a) applies only for payments to institutions referred to therein and not for payment made to any party’s account maintained in the institutions referred to therein—Payments made in cash to the account of the suppliers maintained with banks did not quality for exemption under r. 6DD(a)(ii)—Further, the truck drivers who brought the goods could not be treated as agents of the assessee, who are required to make payment in cash to suppliers of goods, hence cl. (i) of r. 6DD(a) in also not attracted
Held :
The contention of the petitioner is that payments were made to the account of the suppliers maintained with State Bank of Mysore & Hassan District Co-op. Central Bank Ltd. Counsel for the petitioner contended that all these banks come under cl. (ii) of sub-r. (a) of r. 6DD and, therefore these two payments are eligible for exemption from disallowance under s. 40A(3). The protection under cl. (a) of r. 6DD is available only if the payments are made to any of the institutions referred to thereunder. Obviously in order to qualify for the benefit of r. 6DD(a) the beneficiary of the payee should be an institution referred to therein. Even though counsel for the petitioner contended that payments to any beneficiary in the account maintained in the banks referred to in r. 6DD(a) is also covered by the exception, the same cannot be accepted because, some of the institutions referred to in the rule, namely, Reserve Bank of India, State Financial Corporations, Industrial Development Corporation and other financial institutions are not engaged in banking operations. Therefore, r. 6DD(a) applies only for payments to institutions referred to therein and not for payment made to any party’s account maintained in the institutions referred to therein. The next contention raised by the petitioner is that cash remittances in the account of the suppliers were made by entrusting the cash to the truck drivers and, therefore, the same is covered by cl. (i) of r. 6DD. This contention is seen not pressed before the CIT. In any case, the truck drivers who brought the goods cannot be treated as petitioner’s agent who is required to make payment in cash for the goods to the suppliers. In the circumstances, this contention is also rejected. (Paras 2 & 3)
Conclusion : Payments made in cash to the account of the suppliers maintained with banks did not quality for exemption under r. 6DD(a)(ii); further the truck drivers who brought the goods could not be treated as agents of the assessee, who are required to make payment in cash to suppliers of goods, hence cl. (i) of r. 6DD(a) in also not attracted
In favour of : Revenue Case referred to Gurmukh vs. CIT (1991) 2 KLT 350
Counsel appeared : Rajesh Nambiar, for the Petitioner : George K. George, for the Respondent
JUDGMENT
By the Court :
Petitioner is challenging Ext. P6 order issued by the CIT under s. 264 of the IT Act confirming disallowance of addition made under s. 40A(3) for the payments made in cash in excess of Rs. 10,000. During the previous year, relevant to the asst. yr. 1996-97, petitioner made payments of Rs. 19,05,964 in cash against requirement of payment through account payee cheque or DD which attracts addition of 20 per cent under s. 40A(3) of the IT Act. Out of this amount, petitioner claimed that an amount of Rs. 3,52,943 and Rs. 4,74,971 were paid by the petitioner to the bank account of the suppliers who supplied goods to the petitioner who is a grocery merchant. Even though initially the claim was allowed by the AO, he rectified it under s. 154 and made addition under s. 40A(3) for the payments made in cash in excess of Rs. 10,000. Against this, petitioner filed revision before the CIT, who rejected the same vide Ext. P6 order, which is under challenge in this O.P.
2. Heard counsel for the petitioner and standing counsel for the IT Department. The claim put forward by the petitioner is that payments fall specifically within the exception clause, r. 6DD(a) of the IT Rules, 1962. For easy reference the said rule is extracted hereunder :
"6DD. Cases and circumstances in which payment in a sum exceeding twenty thousand rupees may be made otherwise than by an account payee cheque drawn on a bank or account payee bank draft.—No disallowance under sub-s. (3) of s. 40A shall be made where any payment in a sum exceeding ten thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely : (a) where the payment is made to— (i) the Reserve Bank of India or any banking company as defined in cl. (c) of s. 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) the State Bank of India or any subsidiary bank as defined in s. 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society as defined in cl. (cii) of s. 2 of the Reserve Bank of India Act, 1934 (2 of 1934), or any primary credit society as defined in cl. (civ) of that section; (v) the Life Insurance Corporation of India established under s. 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (vi) the Industrial Finance Corporation of India established under s. 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948); (vii) the Industrial Credit and Investment Corporation of India Ltd.; (viii) the Industrial Development Bank of India established under s. 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964); (ix) the Unit Trust of India established under s. 3 of the Unit Trust of India Act, 1963 (52 of 1963); (x) the Madras Industrial Investment Corporation Ltd., Madras; (xi) the Andhra Pradesh Industrial Development Corporation Ltd., Hyderabad; (xii) the Kerala State Industrial Development Corporation Ltd., Trivandrum; (xiii) the State Industrial and Investment Corporation of Maharashtra Ltd., Bombay; (xiv) the Punjab State Industrial Development Corporation Ltd., Chandigarh; (xv) the National Industrial Development Corporation Ltd., New Delhi; (xvi) the Mysore State Industrial Investment and Development Corporation Ltd., Bangalore; (xvii) the Haryana State Industrial Development Corporation Ltd., Chandigarh; (xviii) any State Financial Corporation established under s. 3 of the State Financial Corporations Act, 1951 (63 of 1951);"
The contention of the petitioner is that payments were made to the account of the suppliers maintained with State Bank of Mysore & Hassan District Co-op. Central Bank Ltd. Counsel for the petitioner contended that all these banks come under cl. (ii) of sub-r. (a) of r. 6DD and, therefore these two payments are eligible for exemption from disallowance under s. 40A(3) of the Act. Counsel also relied on the decision of the Supreme Court in Gurmukh vs. CIT (1991) 2 KLT 350 where under the Supreme Court has held that purpose of s. 40A(3) is to verify whether payments made are genuine or not. Standing counsel for the Department on the other hand contended that petitioner is not entitled to the protection under r. 6DD(a) of the Rules because the payments made by the petitioner are not to the institutions referred to therein. I am in agreement with the contention of counsel for the respondents because the protection under cl. (a) of r. 6DD is available only if the payments are made to any of the institutions referred to thereunder. Obviously in order to qualify for the benefit of r. 6DD(a) the beneficiary of the payee should be an institution referred to therein. Even though counsel for the petitioner contended that payments to any beneficiary in the account maintained in the banks referred to in r. 6DD(a) is also covered by the exception, I do not think the same can be accepted because, some of the institutions referred to in the rule, namely, Reserve Bank of India, State Financial Corporations, Industrial Development Corporation and other financial institutions are not engaged in banking operations. Therefore, r. 6DD(a) applies only for payments to institutions referred to therein and not for payment made to any party’s account maintained in the institutions referred to therein. In the circumstances, reject the contention of the petitioner and uphold Ext. P6 order of the CIT confirming the assessment revised under s. 154 of the Act.
3. The next contention raised by the petitioner is that cash remittances in the account of the suppliers were made by entrusting the cash to the truck drivers and, therefore, the same is covered by cl. (i) of r. 6DD. This contention is seen not pressed before the CIT. In any case, the truck drivers who brought the goods cannot be treated as petitioner’s agent who is required to make payment in cash for the goods to the suppliers. In the circumstances, this contention is also rejected.
CAclubindia
