Income Tax Appeal Dismissal: Hyderabad Distilleries vs ACIT for AY 2017-18

Income Tax Appeal Case Analysis: Hyderabad Distilleries vs ACIT for Assessment Year 2017-18

Case Number: ITA 1289/DEL/2022

Presented before the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘B’, New Delhi, the case between ACIT, Circle-10(1), New Delhi, as the appellant, and Hyderabad Distilleries & Wineries P.Ltd, as the respondent, showcases a pivotal dispute regarding income classification under the Income Tax Act, 1961. The appeal pertains to the assessment year 2017-18, underlining significant aspects of business income versus income from other sources within the context of the Indian Made Foreign Liquor (IMFL) manufacturing industry.

Background and Proceedings

The appellant, ACIT, filed against the respondent, Hyderabad Distilleries & Wineries Pvt. Ltd., challenging the Commissioner of Income Tax (Appeals)-23, New Delhi’s order. This appeal follows the disallowance of certain expenses and classification of lease rent and packaging charges as income from other sources by the Assessing Officer (AO). Represented by Sh. M.K.Madaan (CA for the assessee) and Sh. Javed Akhtar (CIT-DR for the revenue), the case was heard on 25.05.2023, with a pronouncement date of 14.06.2023.

Facts of the Case

Hyderabad Distilleries, engaged in the manufacturing of IMFL since 1977, found itself at a crucial juncture with its business model under scrutiny. Operating under a licensed capacity and engaged in a sub-licensing agreement with M/s Jagatjit Industries Limited (JIL), the company was assessed for income from sub-lease and contract manufacturing services as income from other sources, rather than business income.

Arguments and Tribunal’s Analysis

The core of the dispute revolved around whether the income derived from lease rent and packaging charges under agreements with JIL should be considered as business income. The Assessing Officer’s stance led to a consequential disallowance of expenses, which was rectified by the CIT(A) by deleting the additions, prompting the Revenue’s appeal to the ITAT. The tribunal meticulously examined precedents, particularly focussing on identical issues adjudicated in the assessee’s own case for AY 2008-09, alongside contemporaneous assessments.

Conclusion and Implications

The ITAT’s decision to dismiss the Revenue’s appeal adhered to judicial precedence and the principle of consistency. By upholding the CIT(A)’s order that favored the assessee, the tribunal not only reaffirmed the income classification as business income but also highlighted the importance of recognizing the factual matrix of contractual arrangements in the IMFL industry. This case sets a significant precedent for similar disputes, emphasizing the nuanced understanding required in tax assessments of complex business models.

Order pronounced in the open court on 14th June, 2023, bringing to conclusion a landmark case that significantly contributes to the jurisprudence on income classification and taxability within the realm of liquor manufacturing and distribution. The ITAT’s decision underscores a judicious approach to tax appeals, ensuring fairness and consistency in legal interpretations.

Income Tax Appeal Dismissal: Hyderabad Distilleries vs ACIT for AY 2017-18