IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 27TH DAY OF MARCH 2019 / 6TH CHAITHRA, 1941 ITR.No. 4 of 2001 ARISING OUT OF ITA NOS.1073/COCH/86-ASSESSMENT YEARS 1984-85 & 1985-86 PETITIONER/S: COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) RESPONDENT/S: M/S MALABAR INDUSTRIES CO.LTD., SHERTHALAI BY ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX REFERENCE HAVING BEEN FINALLY HEARD ON 27.03.2019, ALONG WITH ITR.5/2001, ITR.6/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ITR Nos.4 & 5 of 2001 ITR No.6 of 2008 -2- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 27TH DAY OF MARCH 2019 / 6TH CHAITHRA, 1941 ITR.No. 5 of 2001 ARISING OUT OF ITA NOS.1074/COCH/86-ASSESSMENT YEARS 1984-85 & 1985-86 PETITIONER/S: COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) RESPONDENT/S: M/S MALABAR INDUSTRIES CO.LTD., SHERTHALAI BY ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX REFERENCE HAVING BEEN FINALLY HEARD ON 27.03.2019, ALONG WITH ITR.4/2001, ITR.6/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ITR Nos.4 & 5 of 2001 ITR No.6 of 2008 -3- IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY,THE 27TH DAY OF MARCH 2019 / 6TH CHAITHRA, 1941 ITR.No. 6 of 2008 ORDER IN ITA 1074/1986 of I.T.A.TRIBUNAL, COCHIN BENCH PETITIONER/S: THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.MALABAR INDUSTRIAL CO.LTD., SHERTALLAI. BY ADV. SRI.RAMESH CHERIAN JOHN OTHER PRESENT: SRI JOSEPH KODIANTHARA SR COUNSEL, SRI RAMESH CHERIAN JOHN, SMT RUPA THARAYIL THIS INCOME TAX REFERENCE HAVING BEEN FINALLY HEARD ON 27.03.2019, ALONG WITH ITR.4/2001, ITR.6/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: ITR Nos.4 & 5 of 2001 ITR No.6 of 2008 -4- JUDGMENT K.Vinod Chandran, J. The question referred at the instance of this Court are as follows:- "1. Whether, on the facts and in the circumstances of the case, the preliminary expenses for setting up the new company is revenue expenditure and is eligible for deduction under the Income-tax Act? 2. Whether, on the facts and in the circumstances of the case and also in view of the fact that setting up of the company was not the 'business' of the assessee, the decision reported in 193 ITR has application? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in equating the assessee who had set up a new company with an assessee whose business is setting up of companies and is not the order one without noticing such fine distinction and hence vitiated?” 2. The brief facts to be noticed are that the assessee, a Public Limited Company having its registered office at Cherthallai and engaged in plantation business, found the ITR Nos.4 & 5 of 2001 ITR No.6 of 2008 -5- existing business to be not profitable and hence, amended its objects clause in the Memorandum of Association by a special resolution, which speaks of rendering financial assistance to Industrial Enterprises within the Private Sector. The assessee is said to have assisted the setting up of an industry called 'MIC Auto Ancillaries Ltd' in Bangalore. The assessee also invested considerable amount by way of subscription of equity shares of the said enterprise, totalling Rs.45,10,000/-. The assessee claimed business expenditure of Rs.7,81,650/- under the head “sponsoring and assisting expenses of Industrial Enterprise”. Of the total amount, the assessee claimed Rs.3,27,148/- in the assessment year 1984- 85 and Rs.4,55,000/- in the assessment year 1985-86. The Tribunal found in favour of the assessee. 3. The questions referred are with respect to the ITR Nos.4 & 5 of 2001 ITR No.6 of 2008 -6- setting up of the other company not being a 'business' of the assessee and hence the Assessing Officer declined the claim of revenue expenditure. Reliance is placed on CIT v. J.K.Synthetics Ltd [193 ITR 524], in which the assessee had been specifically engaged in the business of setting up of other establishments. 4. The assessee, in the very next year, had shifted their business to Bangalore and in the year 1991-92, the industrial enterprise set up by the assessee called 'MIC Auto Ancillaries Ltd' folded up, not being profitable. In the said year, the loss was claimed as a revenue loss, which the Assessing Officer at Bangalore treated as a capital loss. The appellate authority, however, allowed the claim of the assessee and treated it as revenue expenditure. The Karnataka High Court is said to have affirmed the said view ITR Nos.4 & 5 of 2001 ITR No.6 of 2008 -7- based on the decision of the Tribunal, from which the reference is placed before us. 5. The order of the Karnataka High Court is produced as Ann: L. We are of the opinion that the Revenue having not taken up an appeal from the decision of the Karnataka High Court, it would not be proper to upset the findings of the Tribunal at this stage. We also notice that the tax effect insofar as both the appeals are concerned would be less than that provided in the litigation policy as framed by the Central Government. Considering the above circumstances, we are of the opinion that the question need not be answered in the present case and we affirm the order of the Tribunal. However, leaving open the question to be considered in an appropriate proceeding. We reject the appeals further relying on the ITR Nos.4 & 5 of 2001 ITR No.6 of 2008 -8- litigation policy, finding the quantum in dispute to be below the monetary limit provided for in the policy to continue an appeal before the High Court. Sd/- K.VINOD CHANDRAN JUDGE Sd/- V.G.ARUN JUDGE scl/27.3