Mil Controls Ltd. (formerly Masoneilan (India) Ltd.) vs Commissioner of Income Tax

C. N. Ramachandran Nair, J.—The sole question raised in these connected appeals filed by the assessee for the assessment years 1990-91 and 1992-93 is whether the Tribunal was justified in sustaining the first appellate authority''s order limiting the deduction claimed by the assessee towards payment made to a group company for "corporate service" rendered to it at 50 per cent, of the actual payment. The assessee paid Rs. 16 lakhs in one year and around Rs. 37 lakhs in the other year to another company within the same group, namely, M/s. Best and Crompton Engineering Ltd. for the "corporate service" rendered by the latter. When the claim was considered by the assessing authority, he noticed that except the statement of service in broad terms, the assessee did not furnish any details about the nature of service rendered by the payee company within the group for promoting the business of the assessee. Therefore, the. Assessing Officer limited the deduction to 25 per cent, of the claim amount.

On appeal filed before the Commissioner of income tax (Appeals), the Commissioner of income tax (Appeals) allowed another 25 per cent, thereby limiting the allowance to 50 per cent, of the claim. Against the order of the Commissioner of income tax (Appeals), the Department as well as the assessee filed appeals. However, the Tribunal sustained the order of the Commissioner of income tax (Appeals) by dismissing the appeals filed by both sides. It is against these orders, the assessee has come up in further appeal before us.

The counsel appearing for the appellant/assessee relied on a decision of the Supreme Court in /. J.K. woolen Manufacturers Vs. Commissioner of Income Tax, U.P., and a decision of the Madras High Court reported in Ramanlal Kamdar Vs. Commissioner of Income Tax, and contended that once payment is made and the payment is found to be genuine, the Department is bound to allow the full claim. The standing counsel appearing for the respondent on the other hand submitted that appellant and the payee company are companies in the same group and, therefore, the claim can be allowed only when the appellant establishes that the payments made are for specific services rendered by the payee company.

After hearing both sides and after going through the orders, we do not find any justification to interfere with the orders passed by the Tribunal as well as the lower authorities limiting the appellant''s claim for deduction of service charges paid at 50 per cent, of the claim amount. The finding of these authorities is that the appellant did not furnish specific details about the services rendered and what is stated is about the broad support and help received by the appellant from the group company to justify payments. We do not know why the appellant could not furnish brake up details of the payments made with reference to the corresponding service rendered for procuring orders, for use of the facilities of the payee company, etc. The appellant''s contention that the claim is allowable merely because the payment is made and the same is bona fide cannot be accepted. This is because the payee is a related company within the group and, therefore, the standard of proof required for allowing the claim is more than what is required in other cases. If the payment was to a stranger and bona fide, presumption of reasonableness of payment would apply but not when payments are between related parties. This is because in the case of related companies beneficiaries are the same set of people and, therefore, unless details are furnished justifying the payment of services charges, the Department is not bound to allow the claim. On the whole, we find that a liberal approach is taken by the officer and still more liberal were the first appellate authority and the Tribunal because the claim made is sustained at 50 per cent, without proof for the service rendered justifying allowance of even so much of the claim.

We, therefore, do not find any merit in these appeals and the same are accordingly dismissed.