IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY WEDNESDAY, THE 1ST JUNE 2011 / 11TH JYAISHTA 1933 ITA.No. 94 of 2002() -------------------- ITA.369/1996 of INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH .................... APPELLANT/APPELLANT IN ITA. -------------------------------------------------- M/S.MIL CONTROLS LIMITED, (FORMERLY MASONEILAN (INDIA) LTD), ALWAYE. BY ADVS.SRI.A.K.JAYASANKAR NAMBIAR SRI.ANIL D. NAIR RESPONDENT/RESPONDENT IN ITA ---------------------------------------------------- COMMISSIONER OF INCOME TAX,COCHIN. BY ADV. SRI.GEORGE K. GEORGE, SC THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01/06/2011, ALONG WITH ITA NO. 99 OF 2002 , THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.No. 94 of 2002() ------------------------------ PETITIONER'S ANNEXURES --------------------------------------- ANNEXURE 'A' . COPY OF THE ASSESSMENT ORDER FOR 1990-91 ISSUED BY THE DY. COMMISSIONER OF INCOME TAX (ASSMT) DT. 31.3.1995. ANNEXURE 'B'. COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - II ISSUED TO THE APPELLANT DATED 18.3.1996. ANNEXURE 'C'. COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL ISSUED T THE APPELLANT DATED 22.8.2001. RESPONDENT'S EXHIBITS : NIL -------------------------------------- / TRUE COPY / P.A. TO JUDGE VK C.N.RAMACHANDRAN NAIR & B.P. RAY, JJ. ........................................... I.T.A.NOS.94 & 99 OF 2002 ............................................. Dated this the 1st day of June, 2011. JUDGMENT Ramachandran Nair, J: “CR” 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% 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 & Crompton Engineering Limited 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 I.T.A.NOS.94 & 99 OF 2002 : 2 : 25% of the claim amount. 2. On appeals filed before the CIT (Appeals), the CIT (Appeals) allowed another 25% thereby limiting the allowance to 50% of the claim. Against the order of the CIT (Appeals), the department as well as the assessee filed appeals. However, the Tribunal sustained the order of the CIT (Appeals) by dismissing the appeals filed by both sides. It is against these orders, the assessee has come up in further appeal before us. 3. The counsel appearing for the appellant/assessee relied on a decision of the Supreme Court in J.K. Wollen Manufacturers v. CIT (72 ITR 612) and a decision of the Madras High Court reported in Ramanlal Kamdar v. CIT (103 ITR 489) 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 I.T.A.NOS.94 & 99 OF 2002 : 3 : specific services rendered by the payee company. 4. 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% 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 payment is made and the same is bonafide cannot be accepted. This is because 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 I.T.A.NOS.94 & 99 OF 2002 : 4 : and bonafide, 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 service charges, 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% 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. C.N.RAMACHANDRAN NAIR, JUDGE. B.P. RAY, JUDGE. cl I.T.A.NOS.94 & 99 OF 2002 : 5 : C.N.RAMACHANDRAN NAIR & B.P. RAY, JJ. . .......................................... I.T.A.NOS.94 & 99 OF 2002 ............................................. 1st day of June, 2011. JUDGMENT