Service Tax - GTA - How to prove CENVAT Credit was not taken?
THE following is an extract from DDT 1893 - 04 07 2012
| ONE of the most litigated services was the service of goods transport agency in relation to transport of goods. The tax was and is required to be paid in most cases by the service recipient. There is and was an abatement of 75%. But things are not that simple. There was a condition that the abatement is subject to the condition that no CENVAT Credit was taken. There was a lot of litigation on who should not take the credit - the GTA or the service recipient who pays the tax? Finally, by Notification No. 13/2008, Government had granted an unconditional abatement for GTA. Now under the negative regime, it is back with the condition that CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (See Notification No. 26/2012-ST dated 20.06.2012) Now, what are the inputs, capital goods and input services on which a transporter can take credit, especially when he pays no Service Tax at all? Trucks, Diesel, Tyres, phones? But how does a recipient prove that the provider had not availed CENVAT credit? In the earlier regime, it was instructed that the recipient should take a declaration from the GTA that he has not availed CENVAT Credit. Maybe we should get back to that system again. Whenever you pay Service Tax on goods transport, be sure to take a certificate from the truck operator that he has not availed CENVAT Credit - otherwise you will be asked to pay Service Tax on the total freight instead of on 25% of the value. Is this intentional or a copy and paste mistake? If it is the latter, Board should not stand on false prestige and delete this unwanted condition which is bound to produce litigation in abundance. The past litigation on this issue should be an education guide to the Board. Further to add a little confusion, as per Notification No. 30/2012- S.T dated 20.06.2012, (Sl. No.2 of the Table), Percentage of Service Tax payable by the person receiving the service, in case of services by a GTA in respect of transportation of goods by road, is 100% . Already a few Departmental officers asked DDT whether abatement was not available and 100% tax had to be paid by the recipient. This is exactly the confusion that the DGST created in 2005 by issuing a circular that 25% tax is only applicable if the GTA pays the tax and not when the consignee or consignor pays it. That issue snowballed into a major crisis with hundreds of Show Cause Notices and Audit objections flying around and consultants made tons of money! (Please see DDT 571 - 13 03 2007) |
Now, we are informed that litigation has started exactly as we predicted. An Audit Objection was raised in a Commissionerate - "Short payment of service tax under noti.26/2012-ST". Audit says that in the absence of proof of non-availment of credit, the recipient has to pay 100 percent tax and not 25 percent and in any case, by virtue of Notification No. 30/2012, the recipient is required to pay 100 percent.
Board should step in before this spreads like a wild fire across the country and consultants are showered with hundreds of cases. Maybe they should issue another notification identical to 13/2008-ST.Alternate Minimum Tax – Section 115JC
Background and Provisions
The Alternate Minimum Tax (AMT) is income tax imposed by the United States federalgovernment on individuals, corporations, estates and trusts. The AMT was enacted in 1982.
This concept was taken by India in the Finance Act, 2011. Finance Act, 2011 introduced a new "Chapter XIIBA" to provide payment of Alternate Minimum Tax (AMT) by LLPs and after that it has been amended by Finance Act, 2012 in which it is covered all non-corporate assesses. However, AMT is not payable by Individual, HUF, Association of Persons/ Body of Individuals and Artificial judicial person if adjusted total income of such person does not exceed Rs 20 Lac.
The AMT is required to be paid at the rate of eighteen and half percentage as increased by education cess and higher secondary education cess i.e. 19.055%. The AMT is payable only if the tax payable under the normal provision is lesser than AMT.
AMT will also apply to the assesses claiming profit linked deductions Part C of Chapter VI-A i.e. under section 80-IA to 80RRB and under section 10AA. However, deduction under section 80P shall not be added back. Also Deduction under section 80C to 80GGC, 80U and 80TTA shall not be added back.
Further we have to say that if a person claims deduction under section 35AD, then he is not eligible to claim deduction under section 80-IA/ 80-IB/ 80-IC/ 80-ID. So, a person claims deduction under section 35AD is not liable to pay AMT. Therefore, it is beneficial to the assessee to claim deduction under section 35AD rather than to claim deduction under section 80-IA/ 80-IB / 80-IC/80-ID.
The assessee has profits and gains of business or profession on presumptive basis under section 44AD, 44AE, 44B, 44BB, 44BBA and 44BBB. Section 44AD does not apply to taxpayers claiming profit linked tax holiday. Therefore, total income is computed taken into account profits and gains of business or profession on presumptive basis. If the assessee is eligible to take deduction under section 1 0AA or deduction under Chapter VI-A, then such deductions shall be added back to thetotal income for computation of adjusted total income.
Calculation of Adjusted Total Income
Total income as per normal provision of Income Tax Act xx
Add: Deduction under Part C of Chapter VI-A (Except Section 80P) xx
Add: Deduction under section 1 0AA (Profits of SEZ units) xx
AMT Credit
Section 11 5JD of the Act provides for tax credit of AMT. The Tax credit is allowed for that assessment year in which AMT is excess than tax payable under normal provisions. The tax creditis allowed for next 10 assessment year in which tax payable under normal provisions is more than AMT.
Illustration-
Ques:- If a LLP has net profit as per profit and loss account relating to the year ended on 31/03/2013 R 248 Lac and paid R 2 Lac as advertisement published in the souvenir released by BJP. Deduction of R 200 Lac is also available to the LLP. Compute the tax liability.
Ans:- Computation of Total Income
| Particulars | (Rs In Lac) |
| Gross Total Income | 248.00 |
| Less: Deduction U/S 80GGC | 2.00 |
| Less: Deduction U/S 80-IE | 200.00 |
| Total Income | 46.00 |
| Tax Liability @ 30.9% | 14.214 |
Computation of Adjusted Total Income
| Particulars | (Rs In Lac) |
| Total Income | 46.00 |
| Add: Deduction U/S 80-IE | 200.00 |
| Adjusted Total Income | 246.00 |
| Tax Liability @ 19.055% | 46.8753 |
| Tax Payable (Higher of Tax on Adjusted Total Incomeand Total Income) | 46.8753 |
| AMT Credit | 32.6613 |
| AMT can be carried forward upto Assessment Year 2023-24. | |
Report
As per section 115JC of the Income Tax Act, 1961, an assessee is liable to AMT should obtain a report in Form No- 29C prescribed under Rule 40BA from CA certifying the adjusted total incomeand the alternate minimum tax duly computed and furnish the report on or before the due date of filing the return u/s 139(1).
ICAI Guidance Note
ICAI through a Guidance Note clarified the following points to be included in CA reports-
The report consists of three paragraphs-
1- The First paragraph contains the declaration about the examination of accounts and records of non- corporate assessee in order to arrive at adjusted total income and the alternate minimum tax.
2- The Second paragraph involves certification of computation of adjusted total income and thealternate minimum tax and also the tax payable under section 115JC.
3- The Last paragraph requires expression of the opinion that the particulars given in Annexure A are true and correct.
Further ICAI clarified that Annexure A consists following points-
1- Name of the Assessee
2- Address of the Assessee
3- Permanent account Number
4- Assessment Year
5- Total Income of the Assessee as per manner laid down in Income Tax Act.
6- Income Tax Payable on total income referred in column 5 above.
7- The amount of deduction claimed under Part C of Chapter VI-A (except section 80P)
8- The amount of deduction claimed under section 1 0AA
9- Adjusted total income of the assessee (5+7+8)
10- Alternate Minimum Tax (19.055% of column 9 above)
Conclusion
- It can be concluded that the ICAI has imposed the higher responsibility on the CA to examine the records and certifying the correct Alternate Minimum Tax through his report.
- It is a good concept to collect the minimum tax revenue from higher income earning assesses and restricts the tax evasion.
- The Government is able to plan the future programmes for the further development.
- Now a day, devaluation of rupees is a main problem for the India. So imposition of this tax will reduce the luxury good's demand like gold etc. and save the rupees value.
IT: Where superior forum decides an issue in one way, it was not permissible for lower authorities to sit in judgment over decision of a superior forum by interpreting same in other manner
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[2013] 36 taxmann.com 397 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Sushee Infra (P.) Ltd.
v.
Deputy Commissioner of Income-tax, Circle -3(2), Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT APPEAL NOS. 269 & 1165 (HYD.) OF 2009 AND 1171 (HYD.) OF 2010
MISC. APPLN NOS. 102 TO 104 (HYD.) OF 2013
[ASSESSMENT YEARS 2005-06 TO 2007-08]
MISC. APPLN NOS. 102 TO 104 (HYD.) OF 2013
[ASSESSMENT YEARS 2005-06 TO 2007-08]
JULY 4, 2013
Section 254, read with section 80-IA, of the Income-tax Act, 1961 - Appellate Tribunal - Order of [Binding precedent] - Assessment years 2005-06 to 2007-08 - Tribunal held that assessee was entitled for deduction under section 80-IA in respect of its infrastructure projects and remitted matter back to Assessing Officer to quantify deduction - On application, assessee submitted that inspite of clear cut finding of Tribunal, Assessing Officer passed a consequential order again declining to grant deduction - Whether once Tribunal decided an issue, it was not permissible for Assessing Officer to sit in judgment over order of Tribunal by interpreting same in other manner - Held, yes - Whether where consequential order passed by Assessing Officer de hors direction of Tribunal, remedy for assessee lies in fresh proceeding - Held, yes - Whether in instant case, since assessee had not pointed out any mistake in order of Tribunal, same did not warrant any rectification - Held, yes [Paras 22, 26 & 27] [Matter remanded]
FACTS
| ■ | The assessee came in appeal before the Tribunal, challenging the action of revenue authorities in denying the deduction claimed under section 80-IA(4). | |
| ■ | The Tribunal concluded that the assessee was a developer of infrastructure projects and was entitled for deduction under section 80-IA(4). The Tribunal considered 28 infrastructure projects carried out by the assessee for the assessment year 2005-06 and held 21 of them as project eligible for deduction under section 80-IA(4). Similarly, for the assessment year 2006-07, the Tribunal held that seven out of eighteen projects and for assessment year 2007-08, five out of twenty projects executed by the assessee are eligible for deduction under section 80-IA(4) and to quantify the deduction, the issue was remitted back to the file of the Assessing Officer. | |
| ■ | On miscellaneous application filed by assessee seeking rectification in order of Tribunal, the assessee submitted that inspite of clear cut direction of the Tribunal, the Assessing Officer proceeded to pass a orders again declining to grant deduction under section 80-IA(4), which amounts to his sitting in judgment over the order of the Tribunal. |
HELD
| ■ | The decision of the Tribunal is binding on the Assessing Officer and he cannot pick up a word or sentence from the order of the Tribunal de hors the context of the question under consideration and construe it to be complete law declared by the Tribunal. A judgment must be read as a whole. Being so, the Assessing Officer cannot sit in judgment over the order of the Tribunal, and he is required to give just effect to the order of the Tribunal. If he has any grievance, he is at liberty to appeal against that order of the Tribunal before higher forum. [Para 21] | |
| ■ | The income-tax authorities are required to exercise their powers in accordance with law, as per the power given to them in specific sections. If the powers conferred on a particular authority are exercised by another authority without mandate of law, it would create chaos in the administration of law and hierarchy of administration would mean nothing. Judgment of a higher forum cannot be substituted by the decisions of the lower authorities. Judicial discipline requires that there cannot be any amount of disregard to the superior authority in the hierarchy by the Assessing Officer. When once the Tribunal decides an issue in one way, the only course available to the Assessing Officer is to follow the order of the Tribunal in true spirits, and it is not permissible for the Assessing Officer to take a different view, or to sit in judgment over the order of the Tribunal by interpreting the same in the manner he wanted. [Para 22] | |
| ■ | When a statute requires an act to be done in a specific manner, it has to be done in that manner only. The Assessing Officer could not expect it being done in some other manner. It is also trite principle of law that if a particular authority has been designated to do particular act, just it is that authority alone would could apply his/her independent mind to discharge his duties and further, a lower authority cannot sit in judgment over the decision of a superior forum. Being so, when the Tribunal on earlier occasion in its order, has given direction to segregate projects into two classes as analysed by it, the duty of the Assessing Officer is just limited to segregate contracts into two categories and to allow deduction on the projects which are not in the nature of works contracts. It has also given a categorical finding that as the contracts involve development, operating, maintenance, financial involvement and defection correction and liability period, such contracts should be treated as eligible for deduction under section 80-IA(4). [Para 24] | |
| ■ | The Tribunal has not rejected the claim of the assessee under section 80-IA and on the other hand, it was held that the assessee is entitled for deduction under section 80-IA of the Act in respect of projects listed in pages 16 to 20 of its order, as the assessee has carried on infrastructure projects, and it is for the purpose of considering other projects, if any, and to quantify the deduction, the issue was remitted back to the file of the Assessing Officer. If the Assessing Officer fails to properly understand or appreciate the directions of the Tribunal, all that can be done at this stage is to mention that the assessee has liberty to explore and pursue the remedies available under law, as the Assessing Officer is duty bound to pass the consequential orders in conformity with the order of the Tribunal and he has no discretion or choice to overlook the order of the Tribunal. [Para 25] | |
| ■ | In these elaborate miscellaneous applications or the written submissions in support thereof, the assessee has not pointed out any mistake in the order of this Tribunal, which warrants rectification in terms of section 254(2). All that the assessee speaks of is about the grievance that it has suffered on account of the consequential orders passed by the Assessing Officer for the years under consideration, while giving effect to the order of this Tribunal. Those consequential orders passed by the Assessing Officer constitute independent proceedings, and no part of the proceedings which led to the passing of the order of the Tribunal on the second appeals of the assessee, and they, if the assessee is aggrieved, may give rise to first appellate proceedings thereagainst or further appellate proceedings by the assessee. However, the grievance of the assessee on account of alleged mistakes in such consequential orders, either on account of interpretational differences or even on account of disrespect/disregard to the directions of the Tribunal, shall not vest any power or jurisdiction back with the Tribunal, to oversee the correctness of the consequential orders passed, much less, to give directions to revise or rectify the same, even if there is any mistake in the same. If the consequential orders passed by the Assessing Officer are de hors the directions of the Tribunal, or if there is any grievance to the assessee on account of such consequential orders, as already noted above, the remedy for the assessee lies elsewhere, viz. in the fresh proceedings commencing with such consequential orders and not in the proceedings that culminated with the order of this Tribunal. [Para 26] | |
| ■ | In the absence of any specific mistake which warrants any rectification within the scope of the provisions of section 254(2), in the order of the Tribunal dated 16-3-2012, there is no reason to rectify earlier order and, accordingly, the Miscellaneous Applications of the assessee are disposed of. [Para 27] |
CASES REFERRED TO
Valliama Champaka Pillai v. Sivathanu Pillai AIR 1979 SC 1937 (para 13), East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893 (para 14), Mahadeolal Kanodia v. Administrator General of West Bengal AIR 1960 SC 936 (para 15), Baradakanta Mishra v.Bhimsen Dixit AIR 1972 SC 2466 (para 16), S.P. Gupta v. President of India AIR 1982 SC 149 (para 17), Amar Nath Om Prakash v. State of Punjab [1985] 1 SCC 345 (para 17), Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai AIR 1976 SC 1455 (para 17), Addl. District Magistrate v. Shivakant Shukla AIR 1976 SC 1207 (para 18), Privy Council in Baker v. The Queen [1975] 3 All ER 55 (para 18), CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297/64 Taxman 442 (SC) (para 18), H.H. Maharajadhiraja Madhav Rao Jiwaji Rooscindia Bahadur v. Union of India AIR 1971 SC 530 (para 19), Food Corpn. of India v. Yadav Engineer and Contractor AIR 1982 SC 1302 (para 20),Winter Misra Diamond Tools Ltd. v. Collector of Central Excise 1996 (83) ELT 670 (Tri-Delhi) (para 23), Union of India v. Kamalakshi Finance Corpn. Ltd. 1991 (55) ELT 433 (para 23), State of Andhra Pradesh v. CTO [1988] 169 ITR 564 (AP) (para 25) and K. Subramanianv. Siemens India Ltd. [1985] 156 ITR 11/[1983] 15 Taxman 594 (Bom.) (para 25).
S. Rama Rao for the Appellant. Rajiv Benjwal for the Respondent.
ORDER
Chandra Poojari, Accountant Member - These three Miscellaneous Applications have been filed by the assessee seeking rectification in the common order of the Tribunal dated 16.3.2012 in ITA Nos.269/Hyd/2009, 1165/Hyd/2009 and 1171/Hyd/2010, on the ground that certain mistakes apparent from record have crept into the same.
2. The learned counsel for the assessee reiterating the averments made in the present applications submitted that the assessee came on appeal before the Tribunal on the issue relating to allowability of deduction under S.80IA(4) of the Income-tax Act. The Tribunal after considering the entire facts and circumstances of the case observed that the assessee is a developer of infrastructure projects and is entitled for deduction under S.80IA(4) of the Act. While giving such findings, the Tribunal considered 28 infrastructure projects carried out by the assessee for the assessment year 2005-06, and held 21 of them as projects eligible for deduction under S.80IA(4). Further, learned counsel submitted that the Tribunal has given a clear factual finding that the deduction under S.80IA(4) would be allowable proportionately based on the total turnover of the projects. Thus, for assessment year 2005-06, since as against 28 projects, 21 only are eligible for deduction under S.80 IA(4), and deduction is not allowable on seven projects, it was held that allowable deduction should be computed in proportionate manner. For the assessment year 2006-07, the Tribunal noted that there are 18 projects, out of which seven are eligible for deduction, and similarly, for assessment year 2007-08, the Tribunal held that five out of twenty projects executed by the assessee are eligible for deduction under S.80IA(4).
3. The learned Authorised Representative submitted that in spite of the clear-cut direction of the Tribunal in para 35 of its order, the Assessing Officer issued fresh show-cause notice to make further enquiries and proceeded to pass a consequential orders thereafter again declining to grant deduction under S.80IA(4) of the Act, which action of the Assessing Officer amounts to his sitting in judgment over the order of the Tribunal.
4. The Learned Departmental Representative relied on the order of the Tribunal and submitted that the Tribunal has remitted the issue back to the file of the Assessing Officer for fresh consideration. Being so, the Assessing Officer correctly proceeded to enquire about each project, so as to determine the projects which are entitled for deduction under S.80IA(4) of the Act, while giving effect to the order of the Tribunal.
5. We heard both the parties and perused the material available on record. For the assessment years under appeal, the assessee came in appeal before the Tribunal, challenging the action of the Revenue authorities in denying the deduction under S.80IA(4) of the Act. The Tribunal after considering the submissions of the learned counsel in the light of the grounds raised before the Tribunal, and appraising the various data furnished before the Tribunal in the paper-book, came to the conclusion that the assessee is a developer and is entitled for deduction under S.80IA(4) of the Act. For clarity, we reproduce the relevant paragraphs of the order of the Tribunal—
'31. Findings: We have considered the elaborate submissions made by both the parties and also perused the materials available on record. We have also gone through all the case laws cited by both the parties. We find that the provisions of Section 80IA (4) of the Act when introduced afresh by the Finance Act, 1999, the provisions under section 80IA (4A) of the Act were deleted from the Act. The deduction available for any enterprise earlier under section 80IA (4A) are also made available under Section 80IA (4) itself. Further, the very fact that the legislature mentioned the words (i) "developing" or (ii) "operating and maintaining" or (iii) "developing, operating and maintaining" clearly indicates that any enterprise which carried on any of these three activities would become eligible for deduction. Therefore, there is no ambiguity in the Income-Tax Act. We find that where an assessee incurred expenditure for purchase of materials himself and executes the development work i.e., carries out the civil construction work, he will be eligible for tax benefit under section 80 IA of the Act. In contrast to this, a assessee, who enters into a contract with another person including Government or an undertaking or enterprise referred to in Section 80 IA of the Act, for executing works contract, will not be eligible for the tax benefit under section 80 IA of the Act. We find that the word "owned" in sub-clause (a) of clause (1) of sub section (4) of Section 80IA of the Act refer to the enterprise. By reading of the section, it is clears that the enterprises carrying on development of infrastructure development should be owned by the company and not that the infrastructure facility should be owned by a company. The provisions are made applicable to the person to whom such enterprise belongs to is explained in sub-clause (a). Therefore, the word "ownership" is attributable only to the enterprise carrying on the business which would mean that only companies are eligible for deduction under section 80IA (4) and not any other person like individual, HUF, Firm etc.
32. We also find that according to sub-clause (a), clause (i) of sub section (4) of Section 80-IA the word "it" denotes the enterprise carrying on the business. The word "it" cannot be related to the infrastructure facility, particularly in view of the fact that infrastructure facility includes Rail system, Highway project, Water treatment system, Irrigation project, a Port, an Airport or an Inland port which cannot be owned by any one. Even otherwise, the word "it" is used to denote an enterprise. Therefore, there is no requirement that the assessee should have been the owner of the infrastructure facility.
33. The next question is to be answered is whether the assessee is a developer or mere works contractor. The Revenue relied on the amendments brought in by the Finance Act 2007 and 2009 to mention that the activity undertaken by the assessee is akin to works contract and he is not eligible for deduction under section 80IA (4) of the Act. Whether the assessee is a developer or works contractor is purely depends on the nature of the work undertaken by the assessee. Each of the work undertaken has to be analyzed and a conclusion has to be drawn about the nature of the work undertaken by the assessee. The agreement entered into with the Government or the Government body may be a mere works contract or for development of infrastructure. It is to be seen from the agreements entered into by the assessee with the Government. We find that the Government handed over the possession of the premises of projects to the assessee for the development of infrastructure facility. It is the assessee's responsibility to do all acts till the possession of property is handed over to the Government. The first phase is to take over the existing premises of the projects and thereafter developing the same into infrastructure facility. Secondly, the assessee shall facilitate the people to use the available existing facility even while the process of development is in progress. Any loss to the public caused in the process would be the responsibility of the assessee. The assessee has to develop the infrastructure facility. In the process, all the works are to be executed by the assessee. It may be laying of a drainage system; may be construction of a project; provision of way for the cattle and bullock carts in the village; provision for traffic without any hindrance, the assessee's duty is to develop infrastructure whether it involves construction of a particular item as agreed to in the agreement or not. The agreement is not for a specific work, it is for development of facility as a whole. The assessee is not entrusted with any specific work to be done by the assessee. The material required is to be brought in by the assessee by sticking to the quality and quantity irrespective of the cost of such material. The Government does not provide any material to the assessee. It provides the works in packages and not as a works contract. The assessee utilizes its funds, its expertise, its employees and takes the responsibility of developing the infrastructure facility. The losses suffered either by the Govt. or the people in the process of such development would be that of the assessee. The assessee hands over the developed infrastructure facility to the Government on completion of the development. Thereafter, the assessee has to undertake maintenance of the said infrastructure for a period of 12 to 24 months. During this period, if any damages are occurred it shall be the responsibility of the assessee. Further, during this period, the entire infrastructure shall have to be maintained by the assessee alone without hindrance to the regular traffic. Therefore, it is clear that from an un-developed area, infrastructure is developed and handed over to the Government and as explained by the CBDT vide its Circular dated 18-05-2010, such activity is eligible for deduction under section 80IA (4) of the Act. This cannot be considered as a mere works contract but has to be considered as a development of infrastructure facility. Therefore, the assessee is a developer and not a works contractor as presumed by the Revenue. The circular issued by the Board, relied on by learned counsel for the assessee, clearly indicate that the assessee is eligible for deduction under section 80IA (4) of the Act. The department is not correct in holding that the assessee is a mere contractor of the work and not a developer.
34. We also find that as per the provisions of the section 80IA of the Act, a person being a company has to enter into an agreement with the Government or Government undertakings. Such an agreement is a contract and for the purpose of the agreement a person may be called as a contractor as he entered into a contract. But the word "contractor" is used to denote a person entering into an agreement for undertaking the development of infrastructure facility. Every agreement entered into is a contract. The word "contractor" is used to denote the person who enters into such contract. Even a person who enters into a contract for development of infrastructure facility is a contractor. Therefore, the contractor and the developer cannot be viewed differently. Every contractor may not be a developer but every developer developing infrastructure facility on behalf of the Government is a contractor.
35. We find that the decision relied on by the learned counsel for the assessee in the case of CIT v. Laxmi Civil Engineering works (supra) squarely applicable to the issue under dispute which is in favour of the assessee wherein it was held that mere development of a infrastructure facility is an eligible activity for claiming deduction under section 80IA of the Act after considering the Judgement of the Mumbai High Court in the case of ABG Heavy Engineering [supra]. The case of ABG is not the pure developer whereas, in the present case, the assessee is the pure developer. We also find that Section 80IA of the Act, intended to cover the entities carrying out developing, operating and maintaining the infrastructure facility keeping in mind the present business models and intend to grant the incentives to such entities. The CBDT, on several occasions, clarified that pure developer should also be eligible to claim deduction under section 80IA of the Act, which ultimately culminated into Amendment under section 80IA of the Act, in the Finance Act 2001, to give effect to the aforesaid circulars issued by the CBDT. We also find that, to avoid misuse of the aforesaid amendment, an Explanation was inserted in Section 80IA of the Act, in the Finance Act-2007 and 2009, to clarify that mere works contract would not be eligible for deductions under section 80IA of the Act. But, certainly, the Explanation cannot be read to do away with the eligibility of the developer; otherwise, the parliament would have simply reversed the Amendment made in the Finance Act, 2001. Thus, the aforesaid Explanation was inserted, certainly, to deny the tax holiday to the entities who does only mere works contact or sub-contract as distinct from the developer. This is clear from the express intension of the parliament while introducing the Explanation. The explanatory memorandum to Finance Act 2007 states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure sector and not for the persons who merely execute the civil construction work. It categorically states that the deduction under section 80IA of the Act is available to developers who undertakes entrepreneurial and investment risk and not for the contractors, who undertakes only business risk. Without any doubt, the learned counsel for the assessee clearly demonstrated before us that the assessee at present has undertaken huge risks in terms of deployment of technical personnel, plant and machinery, technical know-how, expertise and financial resources. Further, the order of Tribunal in the case of B.T. Patil cited supra is prior to amendment to sec 80IA(4), after the amendment the section 80IA(4) read as (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility, prior to amendment the "or" between three activities was not there, after the amendment "or" has been inserted w.e.f. 1-4-2002 by Finance Act 2001. Therefore, in our considered view, the assessee should not be denied the deduction under section 80IA of the Act as the contracts involves, development, operating, maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain above features to be segregated and on this deduction u/s. 80-IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work are not entitle for deduction u/s 80IA of the Act. The profit from such contracts which involves development, operating, maintenance, financial involvement, and defect correction and liability period is to be computed by assessing officer on pro-rata basis of turnover. The assessing officer is directed to examine and grant deduction on eligible turnover as directed above. It is needless to say that in similar circumstances, similar view has been taken by the Chennai Bench of the Tribunal and deduction u/s. 80IA was granted in the case of M/s. Chettinad Lignite Transport Services (P) Ltd., in ITA No. 2287/Mds/06 order dated 27th July, 2007 for the assessment year 2004-05. Later in ITA No. 1179/Mds/08 vide order dated 26th February, 2010 the Tribunal has taken the same view by inter-alia holding as follows:
"7. Moreover, the reasons for introducing the Explanation were clarified as providing a tax benefit because modernisation requires a massive expansion and qualitative improvement in infrastructures like expressways, highways, airports, ports and rapid urban rail transport systems. For that purpose, private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other work contract has been encouraged by giving tax benefits. Thus the provisions of section 80IA shall not apply to a person who executes a works contract entered into with the undertaking or enterprise referred to in the section but where a person makes the investment and himself executes the development work, he carries out the civil construction work, he will be eligible for the tax benefit under section 80IA."
36. The above order was followed in subsequent assessment years 2007-2008 & 2008-09 in ITA Nos. 1312 & 1313/Mds/2011 vide order dated 18.11.2011 in the case of the same assessee. Further, in similar circumstances, this Tribunal in the case of M/s. GVPR Engineers Ltd. Hyderabad in ITA No. 347/H/08 & others vide order dated 29th February 2012 has taken similar view and granted deduction under section 80IA of the act.
37. Further, we make it clear that where the assessee has carried out the development of infrastructure work in Consortium and not as a sub-contractor, then also the assessee is entitled for deduction u/s 80IA of the Act. The same is applicable in case of work allotted by Government Corporation/Government Bodies.'
6. Once the Tribunal has set aside the orders impugned in the appeals before it on the above issue and restored the matter to the file of the Assessing Officer with the above findings, the duty of Assessing Officer is to pass orders giving effect to the order of the Tribunal. The findings of the Tribunal, extracted above, are unambiguous, clear and categorical in as much as it has specifically directed that 'the assessee should not be denied deduction under S.80IA of the Act as the contracts involves, development, operating, maintenance, financial involvement, and defect correction and liability period, then such contracts cannot be called as simple works contract. In our opinion the contracts which contain the above features to be segregated and on this deduction u/s. 80IA has to be granted and the other agreements which are pure works contracts hit by the explanation section 80IA(13), those work are not entitled for deduction u/s. 80IA of the Act."
7. According to the learned Authorised Representative, the Assessing Officer has not properly understood the order of the Tribunal and the same has been too widely interpreted and there appears to be misconceptions about the nature thereof and the binding effect of the order of the Tribunal. In this regard, it may be appropriate to point out the well settled legal position that an Assessing Officer is bound to follow the order of the Tribunal.
8. It is necessary to first decide the last submission of learned counsel that this Tribunal, while interpreting of an all-India statute like the Income-tax Act, is bound to follow the decision of any other High Court and to decide accordingly even if its own view is contrary thereto, in view of the practice followed by this court in such matters. Because, if we are to accept this submission, it will be an exercise in futility to examine the real controversy before us with a view to decide the issue.
9. At the outset, it may be appropriate to point out the well settled legal position that what is binding on the courts is the ratio of a decision. There is a clear distinction between on the courts is the ratio of the decision, obiter dicta and observations from the point of view of precedent value or their binding effect. It will be necessary in this case to explain this distinction. But before we do so, we may discuss the principle of binding precedent. This will take us to the question whose decision binds whom.
10. For deciding whose decision is binding on whom, it is necessary to know the hierarchy of the courts. In India, the Supreme Court is the highest court of the country. That being so, so far as the decisions of the Supreme Court are concerned, it has been stated in article 141 of the Constitution itself that :
"The law declared by the Supreme Court shall be binding on all courts within the territory of India."
11. In that view of the matter, all courts in India are bound to follow the decisions of the Supreme Court.
12. Though there is no provision like Article 141 which specifically lays downs the binding nature of the decisions of the High Courts, it is a well accepted legal position that a single judge of a High Court is ordinarily bound to accept as correct judgments of courts of co-ordinate jurisdiction and of the Division Benches and of the Full Benches of his court and of the Supreme Court. Equally well settled is the position that when a Division Bench of the High Court gives a decision on a question of law, it should generally be followed by a co-ordinate Bench in the subsequent case wants the earlier decision to be reconsidered, it should refer the question at issue to a larger Bench.
13. It is equally well settled that the decision of one High Court is not a binding precedent on another High Court. The Supreme Court inValliama Champaka Pillai v. Sivathanu Pillai AIR 1979 SC 1937, dealing with the controversy whether a decision of the erstwhile Travancore High Court can be made a binding precedent on the Madras High Court on the basis of the principle of stare decisis, clearly held that such a decision can at best have persuasive effect and not the force of binding precedent on the Madras High Court. Referring to the States Reorganisation Act, it was observed that there was nothing in the said Act or any other law which exalts the ratio of those decisions to the status of a binding law nor could the ratio decidendi of those decisions be perpetuated by invoking the doctrine of stare decisis. The doctrine of stare decisis cannot be stretched that far as to make the decision of one High Court a binding precedent for the other. This doctrine is applicable only to different Benches of the same High Court.
14. It is also well-settled that though there is no specific provision making the law declared by the High Court binding on subordinate courts, it is implicit in the power of supervision conferred on a superior Tribunal that the Tribunals subject to its supervision would confirm to the law laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893:
"We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it "
15. This position has been very aptly summed up by the Supreme Court in Mahadeolal Kanodia v. Administrator General of West Bengal AIR 1960 SC 936:
"Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of co-ordinate jurisdiction in a High Court start overruling one another's decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision is wrong, itself gives effect to that view, the result would be utter confusion. The position would be equally bad where a judge sitting singly in the High Court is of opinion that the previous decision of another single judge on a question of law is wrong and gives effect to that view instead of referring the matter to a larger Bench."
16. The above decision was followed by the Supreme Court in Baradakanta Mishra v. Bhimsen Dixit AIR 1972 SC 2466, wherein the legal position was reiterated in the following words (at page 2469):
"It would be anomalous to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate courts can equally do so, for there is no specific provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunal subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working; otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer.
17. Having decided whose decision binds whom, we may next examine what is binding. It is well settled that it is only the ratio decidendi that has a precedent value. As observed by the Supreme Court in S.P. Gupta v. President of India AIR 1982 SC 149: "It is elementary that what is binding on the court in a subsequent case is not the conclusion arrived at in a previous decision, but the ratio of that decision, for it is the ratio which binds as a precedent and not the conclusion." A case is only an authority for what it actually decides and not what may come to follow logically from it. Judgments of courts are not to be construed as statutes (see Amar Nath Om Prakash v. State of Punjab [1985] 1 SCC 345. While following precedents, the court should keep in mind the following observations in Mumbai Kamgar Sabha v. Abdulbhai FaizullabhaiAIR 1976 SC 1455 (at p.1467-68) :
"It is trite, going by Anglophonic principles, that a ruling of a superior court is binding law. It is not of scriptural sanctity but is of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decision, exalting the doctrine of precedents into a prison-house of bigotry, regardless of varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting those matters which may lurk in the record. Whatever be the position of a subordinate court's casual observations, generalisations and subsilentio determinations must be judiciously read by courts of co-ordinate jurisdiction."
18. Decision on a point not necessary for the purpose of the decision or which does not fall to be determined in that decision becomes an obiter dictum. So also, opinions on questions which are not necessary for determining or resolving the actual controversy arising in the case partake of the character of obiter. Obiter observations, as said by Bhagwati J. (as his Lordship then was) in Addl. District Magistrate v. Shivakant ShuklaAIR 1976 SC 1207, would undoubtedly be entitled to great weight, but "an obiter cannot take the place of the ratio. Judges are not oracles." Such observations do not have any binding effect and they cannot be regarded as conclusive. As observed by the Privy Council in Baker v. The Queen[1975] 3 All ER 55, the court's authoritative opinion must be distinguished from propositions assumed by the court to be correct for the purpose of disposing of the particular case. This position has been made further clear by the Supreme Court in a recent decision in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297/64 Taxman 442, at page 320, where it was observed :
"It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the question involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasoning."
19. In the above decision, the Supreme Court, also quoted with approval, the following note of caution given by it earlier in H.H. Maharajadhiraja Madhav Rao Jiwaji Rooscindia Bahadur v. Union of India AIR 1971 SC 530:
"It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment."
It is thus clear that it is only the ratio decidendi of a case which can be binding - not obiter dictum. Obiter, at best, may have some persuasive efficacy.
20. From the foregoing discussion, the following propositions emerge:
| "(a) | The law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. What is binding is, of course, the ratio of the decision and not every expression found therein. | |
| (b) | The decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction. | |
| (c) | The position in regard to the binding nature of the decisions of a High Court on different Benches of the same court may be summed up as follows : |
| (i) | A single judge of a High Court is bound by the decision of another single judge or a Division Bench of the same High Court. It would be judicial impropriety to ignore that decision. Judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. If he does not find himself in agreement with the same, the proper procedure is to refer the binding decision and direct the papers to be placed before the Chief Justice to enable him to constitute a larger Bench to examine the question (see Food Corpn. of India v. Yadav Engineer and Contractor (AIR 1982 SC 1302). | |
| (ii) | A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should refer the case to a larger Bench. | |
| (iii) | Where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decision is to be preferred it reached after full consideration of the earlier decisions. |
| (d) | The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction. It is well settled that the decision of a High Court will have the force of binding precedent only in the State or territories on which the court has jurisdiction. In other States or outside the territorial jurisdiction of that High Court it may, at best, have only persuasive effect. By no amount of stretching of the doctrine of stare decisis, can judgments of one High Court be given the status of a binding precedent so far as other High Courts or Tribunal within their territorial jurisdiction are concerned. Any such attempt will go counter to the very doctrine of stare decisis and also the various decisions of the Supreme Court which have interpreted the scope and ambit thereof. The fact that there is only one decision of any one High Court on a particular point or that a number of different High Courts have taken identical views in that regard is not at all relevant for that purpose. Whatever may be the conclusion, the decisions cannot have the force of binding precedent on other High Courts or on any subordinate courts or Tribunals within their jurisdiction. That status is reserved only for the decisions of the Supreme Court which are binding on all courts in the country by virtue of article 141 of the Constitution." |
21. In the light of the foregoing discussion, the decision of the tribunal is binding on the Assessing Officer and he cannot pick up a word or sentence from the order of the Tribunal de hors the context of the question under consideration and construe it to be complete law declared by the Tribunal. A judgment must be read as a whole. Being so, the Assessing Officer cannot sit in judgment over the order of the Tribunal, and he is required to give just effect to the order of the Tribunal. If he has any grievance, he is at liberty to appeal against that order of the Tribunal before higher forum.
22. It is needless to say that the income-tax authorities are required to exercise their powers in accordance with law, as per the power given to them in specific sections. If the powers conferred on a particular authority are exercised by another authority without mandate of law, it would create chaos in the administration of law and hierarchy of administration would mean nothing. Judgment of a higher forum cannot be substituted by the decisions of the lower authorities. Judicial discipline requires that there cannot be any amount of disregard to the superior authority in the hierarchy by the Assessing Officer. When once the Tribunal decides an issue in one way, the only course available to the Assessing Officer is to follow the order of the Tribunal in true spirits, and it is not permissible for the Assessing Officer to take a different view, or to sit in judgment over the order of the Tribunal by interpreting the same in the manner he wanted.
23. In the case of Winter Misra Diamond Tools Ltd. v. Collector of Central Excise 1996 (83) ELT 670 (Trib. - Delhi), considering the role of a subordinate authority while implementing the orders of the superior appellate/judicial authorities, following the decision of the Apex Court in the case of Union of India v. Kamalakshi Finance Corpn. Ltd. 1991 (55) ELT 433, it was held as follows-
"45. At the same time, the appellants are correct in pointing out that once the Assistant Collector has passed an order and it is confirmed by the Collector (Appeals) and no appeal is filed against the order of the Collector (Appeals), the order attains finality. Therefore, the Department was bound to follow the Assistant Collector's order of 17/4/1989 as confirmed by the Collector (Appeals)' order dated 28-8-1991 and finalise all the pending matters in the light of these orders. These will include cases in which the assessment was made provisional as well as those in which cases demand/show cause notices had been issued but not disposed of till then as all the subordinate authorities were bound by the orders of the superior appellate/judicial authorities in view of the Hon'ble Supreme Court's decision in the case of Union of India v. Kamlakshi Finance Corporation Ltd. reported in 1991 (55) E.L.T. 433 (S.C.). However, we need not labour this point any further in view of our findings on merits recorded above."
24. It is trite that when a statute requires an act to be done in a specific manner, it has to be done in that manner only. The Assessing Officer could not expect it being done in some other manner. It is also trite principle of law that if a particular authority has been designated to do particular act, just it is that authority alone would could apply his/her independent mind to discharge his duties and further, a lower authority cannot sit in judgment over the decision of a superior forum. Being so, in our opinion, when the Tribunal on earlier occasion in its order cited supra, has given direction to segregate projects into two classes as analysed by it, the duty of the Assessing Officer is just limited to segregate contracts into two categories and to allow deduction on the projects which are not in the nature of works contracts. It has also given a categorical finding that as the contracts involve development, operating, maintenance, financial involvement and defection correction and liability period, such contracts should be treated as eligible for deduction under S.80IA(4).
25. It is needless to mention here that the Tribunal has not rejected the claim of the assessee under S.80IA and on the other hand, it was held that the assessee is entitled for deduction under S.80IA of the Act in respect of projects listed in pages 16 to 20 of its order, as the assessee has carried on infrastructure projects, and it is for the purpose of considering other projects, if any, and to quantify the deduction, the issue was remitted back to the file of the Assessing Officer. If the Assessing Officer fails to properly understand or appreciate the directions of the Tribunal, all that can be done at this stage is to mention that the assessee has liberty to explore and pursue the remedies available under law, as the Assessing Officer is duty bound to pass the consequential orders in conformity with the order of the Tribunal cited (supra) and he has no discretion or choice to overlook the order of the Tribunal. For this, we place reliance on the decision of the jurisdictional High Court in the case of State of Andhra Pradesh v. CTO [1988] 169 ITR 564 (AP), wherein it has been held as follows-
"The Tribunal's functioning within the jurisdiction of a particular High Court in respect of whom the High Court has the power of superintendence under article 227 are bound to follow the decisions of the High Court unless, on an appeal to the Supreme Court, the operation of the judgment is suspended. It is not permissible for the authorities and the Tribunals to ignore the decisions of the High Court or to refuse to follow the decisions of the High Court on the pretext that an appeal has been filed in the Supreme Court which is pending or that steps are being taken to file an appeal. If any authority or the Tribunal refuses to follow any decision of the High Court on the above grounds, it would be clearly guilty of committing contempt of the High Court and is liable to be proceeded against."
At this juncture, it is pertinent to mention the observations of the High Court, by placing reliance on the judgment of the Bombay High Court in the case of K. Subramanian v. Siemens India Ltd. [1985] 156 ITR 11/[1983] 15 Taxman 594, which are as follows-
"Reference may also be invited to the decision of the Bombay High Court in Subramanian, ITO v. Siemens India Ltd. [1985] 156 ITR 11. The question that arose for consideration in this case is whether the Income-tax Officer is bound by the decision of a single Judge or a Division Bench of the Court within whose jurisdiction he is operating even if an appeal has been preferred against such decision and is pending. The following observations of the Bombay High Court may be extracted :
So far as the legal position is concerned, the ITO would be bound by a decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is (functioning), irrespective of the pendency of any appeal or special leave application against that judgment. He would equally be bound by a decision of another High Court on the point, because not to follow that decision would be to cause grave prejudice to the assessee. Where there is a conflict between different High Courts, he must follow the decision of the High Court within whose jurisdiction he is (functioning), but if the conflict is between decisions of other High Courts, he must take the view which is in favour of the assessee and not against him. Similarly, if the Income-tax Appellate Tribunal has decided a point in favour of the assessee, he cannot ignore that decision and take a contrary view, because that would equally prejudice the assessee." (Emphasis supplied)
26. It is, however, pertinent to emphasise and mention here that having decided the appeals of the assessee, viz. ITA Nos.269 & 1165/Hyd/2009 and 1175/Hyd/2010, before it, with its common order dated 16.3.2012, the Tribunal is ceased of its jurisdiction over those appeals, except to the limited extent of rectifying any mistake therein in terms of provisions of S.254(2) of the Act. In these elaborate Miscellaneous Applications or the Written Submissions furnished before us in support thereof, the assessee has not pointed out any mistake in the order of this Tribunal dated 16.3.2012, which warrants rectification in terms S.254(2) of the Act. All that the assessee speaks of is about the grievance that it has suffered on account of the consequential orders passed by the Assessing Officer for the years under consideration, while giving effect to the order of this Tribunal dated 16.3.2012. Those consequential orders passed by the Assessing Officer constitute independent proceedings, and not part of the proceedings which led to the passing of the order of the Tribunal dated 16.3.2012 on the second appeals of the assessee, and they, if the assessee is aggrieved, may give rise to first appellate proceedings there against or further appellate proceedings by the assessee. However, the grievance of the assessee on account of alleged mistakes in such consequential orders, either on account of interpretational differences or even on account of disrespect/disregard to the directions of the Tribunal, shall not vest any power or jurisdiction back with the Tribunal, to oversee the correctness of the correctness of the consequential orders passed, much less, to give directions to revise or rectify the same, even if there is any mistake in the same. If the consequential orders passed by the Assessing Officer are de hors the directions of the Tribunal, or if there is any grievance to the assessee on account of such consequential orders, as already noted above, the remedy for the assessee lies elsewhere, viz. in the fresh proceedings commencing with such consequential orders and not in the proceedings that culminated with the order of this Tribunal dated 16.3.2012.
27. In the absence of any specific mistake which warrants any rectification within the scope of the provisions of S.254(2) of the Act, in the order of the Tribunal dated 16.3.2012, we do not find reason to rectify our earlier order and accordingly, the Miscellaneous Applications of the assessee are disposed of, with the observations as above.
28. In the result, all the three Miscellaneous Applications of the assessee are disposed of as above.
VERY USEFUL FOR THE CASES OF BANKS.
--
Regards,
IT: Amount credited by bank to reserve for bad and doubtful debts towards standard assets is not deductible under section 36(1)(viia), as it is not a provision for bad and doubtful debts
■■■
[2013] 36 taxmann.com 517 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'A'
Bharuch Dist. Central Co-op. Bank Ltd.
v.
Income-tax Officer, Ward -1, Bharuch*
G.C. GUPTA, VICE-PRESIDENT
AND A. K. GARODIA, ACCOUNTANT MEMBER
AND A. K. GARODIA, ACCOUNTANT MEMBER
IT APPEAL NO. 1252 (AHD.) OF 2012
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
JULY 26, 2013
Section 36(1)(viia) of the Income-tax Act, 1961 - Bad debts [Allowability of reserve for bad and doubtful debts by a bank] - Assessment year 2008-09 - Whether amount credited by a bank to reserve for bad and doubtful debts towards standard assets is not deductible under section 36(1)(viia), as it is not akin to provision for bad and doubtful debts, which is a liability, whereas reserve is assessee's own fund - Held, yes [Para 9] [In favour of revenue]
CASES REFERRED TO
Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270/206 Taxman 182/18 taxmann.com 282 (SC) (para 4), Bank of Tokyo Ltd. v. Jt. CIT[2010] 36 SOT 8 (Delhi) (URO) (para 4), Asstt. CIT v. Alfa Lamination [IT Appeal No. 2234 (Ahd.) of 2010, dated 11-2-2011] (para 4),Jamnagar Distt. Co-Operative Bank Ltd. v. Asstt. CIT [IT Appeal No. 481(Rjt) of 2011 & 7 (Rjt) of 2012, dated 1-8-2012] (para 4), Syndicate Bank v. Dy. CIT [2001] 78 ITD 103 (Bang.) (para 4), Rural Electrification Corpn. Ltd. Inre [2009] 312 ITR 122/180 Taxman 55 (AAR - New Delhi) (para 4) and Escorts Ltd. v. UDI [1993] 199 ITR 43/[1992] 65 Taxman 420 (SC) (para 8).
S.N. Soparkar for the Appellant. Subhash Bains for the Respondent.
ORDER
A.K. Garodia, Accountant Member - This is assessee's appeal directed against the order of the CIT(A)-V, Baroda dated 27-3-2012 for A.Y. 2008-2009.
2. The grounds raised by the assessee are as under:
| "1. | The ld.CIT(A) erred in law and on facts in confirming action of AO in disallowing deduction of Rs.6,00,00,000/-claimed by the appellant bank u/s 36(l) (viia) of the Act. Ld. CIT (A) ought to have deleted disallowance made by AO and ought to have allowed the claim of the appellant. | |
| 2. | Ld. CIT (A) erred in law and on the facts in confirming action of AO in treating provision of Rs. 1,00,00,000/- made against standard assets of the bank credited to provision for Bad & doubtful debts not to be eligible for deduction u/s 36(1)(viia)(a) of the Act. Both the lower authorities erred in not appreciating the fact that the deduction under s. 36(l)(viia) is a statutory deduction with reference to the amount provided as laid down in said section. The conditions of s. 36(l)(viia) having been fulfilled, the entire deduction claimed ought to have been allowed. | |
| 3. | Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO of Rs.5,000,000/- of provision made for bad and doubtful debts holding the appellant not eligible for deduction u/s 36(1)(viia) of the Act. Ld. CIT (A) erred in not appreciating the fact that by transferring excess balance in 'Overdue Interest Reserve a/c' to Reserve for bad and doubtful debts a/c there was no claim of double deduction made by the appellant. The deduction under s. 36(lxviia) be held to be allowable in view of conditions of s. 36(1) (viia) being fulfilled. | |
| 4. | The ld. CIT(A) has erred in law and on facts in holding that for claiming deduction u/s 36(1)(viia) of the Act the appellant ought to make provision out of income of the current year only. Both the lower authorities failed to appreciate provisions of law in its proper perspective as well ratio of the judgment relied upon by the appellant in Rural Electrification Corporation Ltd. rendered by AAR in AAA No. 759 of 2007." |
3. The brief facts till the assessment stage are noted by the learned CIT(A) in para 3 & 4 of his order, which are reproduced below for the sake of ready reference.
"3. Briefly stated the facts of the case are that the appellant is a Co-operative bank. The return of income was filed on 30-9-2008 declaring total income at Rs.3,55,790/-. The regular assessment was finalized on 31-12-2010 and the income was determined at Rs.6,03,55,790/- wherein certain additions were made.
4. The first ground of appeal is directed against the disallowance of Rs.6,00,00,000/- under clause (visa) of sub-section(1) of section 36 of the I.T. Act, 1961. The appellant had made a provision for bad and doubtful debts amounting to Rs.7,34,77,495/- during the year, however, it had claimed deduction of Rs.7,21,42,428/- only under sub-clause (a) of clause (viia) of sub-section(1) of section 36 of the I.T. Act, 1961 because that was the amount of profit available before claiming the deduction.. Bifurcation of amount of Rs.7,34,77,495/-was as under:
| Rs.1,00,00,000/- | provided from P & L A/c and credited to Reserve for Bad and Doubtful Debts A/c. | |
| Rs.1,00,00,000/- | provided from P & L A/c and credited to Provision for Bad Debts towards standard assets A/c. | |
| Rs.5,00,00,000/- | Transferred from excess balance in Overdue Interest Reserve A/c and credited to Reserve for Bad and Doubtful Debts A/c. | |
| Rs.34,77,495/- | Appropriated from Net Profit @ 15% thereof as per by-laws | |
| Rs.7,34,77,495/- | Total amount provided and/or credited to Reserve for Bad and Doubtful Debts |
The AO disallowed deduction under sub-clause (a) of clause (viia) of sub-section(1) of section 36 in respect of the provision of Rs.1,00,00,000/- which was credited to Provision for Bad Debts towards standard assets A/c. and in respect of provision of Rs.5,00,00,000/- transferred from excess balance In Overdue Interest Reserve A/c and debited to Reserve for Bad and Doubtful Debts A/c. In respect of disallowance Rs.1,00,00,000/- the AO held that this amount was not eligible for deduction under sub-clause (a) of clause (viia) of sub-section(1) of section 36 because it was not a provision for Bad and Doubtful Debts rather it was a provision against standard assets and The State and Central Co-op. Banks Guidelines on Prudential Norms say that "provision made on standard assets may not be reckoned as erosion in value of assets". In respect of disallowance Rs.5,00,00,000/- the AO held that this amount was not eligible for deduction under sub-clause (a) of clause (viia) of subsection(1) of section 36 because it amounted to allowing deduction in respect of this amount twice."
4. Being aggrieved, the assessee carried the matter in appeal before the learned CIT(A), but without success, and now the assessee is in further appeal before us. At the very outset, it was submitted by the learned AR of the assessee that this issue is now squarely covered in favour of the assessee by the judgment of the Hon'ble Apex Court rendered in the case of Catholic Syrian Bank Ltd. v. CIT [2012] 343 ITR 270/206 Taxman 182/18 taxmann.com 282 (SC). He also placed reliance on the various other judicial pronouncements:
| (i) | Bank of Tokyo Ltd. v. Jt. CIT [2010] 36 SOT 8 (Delhi) (URO) | |
| (ii) | Asstt. CIT v. Alfa Lamination IT Appeal No. 2234/Ahd/2010, dated 11-2-2011; | |
| (iii) | Jamnagar Distt. Co-Operative Bank Ltd. v. Asstt. CIT IT Appeal Nos.7/Rjt/2011 & 481/Rjt/2012, dtd. 1-8-2012; | |
| (iv) | Syndicate Bank v. Dy. CIT [2001] 78 ITD 103 (Bang.); | |
| (v) | Rural Electrification Corpn. Ltd., In re [2009] 312 ITR 122/180 Taxman 55 (AAR - New Delhi); |
As against this, the learned DR of the Revenue supported the order of the learned CIT(A).
5. We have considered rival submissions and perused the material on record and gone through the orders of the authorities below. The relevant provisions, for the issue in dispute, in the present case are the provisions of section 36(1)(viia), which are reproduced below:
| '36(1)** | ** | ** |
(viia) in respect of any provision for bad and doubtful debts made by—
| (a) | a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank 3or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten per cent. of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner: | |
| Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent. of the amount of such assets shown in the books of account of the bank on the last day of the previous year : | ||
| Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent.", the words "ten per cent." had been substituted : | ||
| Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government : | ||
| Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession" : | ||
| Explanation.- For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000, and ending before the 1st day of April, 2005 '; | ||
| (b) | a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) ; | |
| (c) | a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) : | |
| Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent. of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year : |
Explanation.- For the purposes of this clause,—
| (i) | "non-scheduled bank" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank ; | |
| (ia) | "rural branch" means a branch of a scheduled bank [or a non-scheduled bank] situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; | |
| (ii) | "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) ; | |
| (iii) | "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956) ; | |
| (iv) | "State financial corporation" means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951) ; | |
| (v) | "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of this sub-section ; | |
| 4(vi) | "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P ;' |
6. We also find that as per proviso to section 36(1)(vii), the provision for bad and doubtful debts, which is eligible for deduction under section 36(1)(viia), has to be considered for allowing deduction under section 36(1)(vii), and actual write off of bad debts is allowable as deduction under section 36(1)(vii), only to the extent of the amount of such write off, being in excess of the credit balance in the provision for bad and doubtful debts made under that clause i.e. clause (viia) of section 36(1) of the Act. In the light of these provisions, being the proviso to section 36(1)(vii), we have to consider and decide the claim of the assessee in the present case. A finding is given by the learned CIT(A) at page no.6 of his order that for the amount of provision of Rs.1 crore made by the assessee against the standard assets of the bank, the amount is credited to the reserve for bad and doubtful debts towards standard assets, and not in the provision for bad and doubtful debts account. He has given a finding that deduction under clause (viia) of sub-section (1) of Section 36 can be allowed only in respect of those provisions, which are made for provision for bad and doubtful debts account created by the assessee, and since, the assessee has not credited any amount to this account, but has credited the amount in question to reserve for bad and doubtful debts towards standard assets, deduction is not allowable to the assessee under section 36(1)(viia) of the Act in respect of this amount of Rs.1 crore. Regarding this decision of the learned CIT(A), this was the argument of the learned AR of the assessee that mere nomenclature of book entry cannot determine the allowability of deduction. We do not find any force in this contention of the learned AR of the assessee, because as per the provision of section 36(1)(viia) reproduced above, the deduction is allowable in respect of provision for bad and doubtful debts, whereas in the present case, the assessee has made reserve for bad and doubtful debts towards standard assets, and therefore, the same cannot be said to be akin to the provision for bad and doubtful debts, and therefore, in our considered opinion, no interference is called for in the order of the learned CIT(A) regarding this issue.
7. Now, we consider and decide the second aspect of the matter, i.e. regarding claim of deduction by the assessee in respect of Rs.5 crores transferred from excess balance in overdue interest reserve account and credited to reserve for bad and doubtful debts account. Before proceeding further, regarding second aspect, we would like to observe that from these facts, it is clear that the assessee is also maintaining an account under the head "Reserve for bad and doubtful debts", but the account in question referred to for the first aspect of Rs.1 crore was not credited to that account, but was credited to reserve for bad and doubtful debts towards standard assets accounts, and therefore, it is not a case of giving wrong nomenclature to a particular account, but this is a case of creating a separate reserve other than provision for bad and doubtful debts. For these reasons also, the first aspect of the matter deserves to be decided against the assessee.
8. Regarding second aspect of the matter, the objection of the learned CIT(A) is this that transferring the amount from one reserve to another reserve is simply renaming of an existing reserve and it does not amount to making a provision in the ordinary sense, in which the term is used in various provisions of Act. The second objection of the learned CIT(A) is that when the assessee has transferred the amount of Rs.5 crores from overdue interest account to reserve for bad and doubtful debts, the assessee is claiming deduction under clause (viia) of sub-section (1) of section 36 for the second time in respect of the income which have been given 100% deduction under section 80P of the Act in earlier year. The learned CIT(A) has placed reliance on the judgment of Hon'ble Apex Court rendered in the case of Escorts Ltd. v. UDI [1993] 199 ITR 43/[1992] 65 Taxman 420 (SC) in support of this contention that double deduction cannot be allowed in respect of an income unless the Act is specifically providing the same.
9. This is an undisputed position that as per the provisions of section 36(1)(viia) as reproduced above, deduction is allowable in respect of provision for bad and doubtful debts to the extent of specified limit. We also find that the audited accounts of the assessee (English version) is available at pages 35 to 55 of the paper book, and out of these, the balance sheet is at page No.36 of the paper book. As per the same, the share capital is Rs.854.21 lakhs, and reserve and other funds are of Rs.6083.83 lakhs. No provision is appearing in the said balance sheet, and therefore, we examine the annexures also. As per the annexure-7, available at page No.43 of the paper book, we find that this annexure includes other liabilities, and one of the items, in this annexure at Sr.No.19 is provision for rent and taxes of Rs.103.09 lakhs. In that said annexure, at Sr.No.14 is subsidy reserve fund of Rs.97.46 lakhs. At. Sr.No.4 is contingency reserve against standard assets of Rs.156.50 lakhs of which opening balance was Rs.56.50 lakhs, which means, there is an addition of Rs.100 lakhs in the present year. The AO has already allowed deduction to the assessee to the extent of Rs.100 lakhs. This is also an accepted position of the fact that the provision and reserves are two separate items. The provision is a liability, whereas the reserve is assessee's own fund. In the Income-tax Act also, at some places, for example, section 32A, it is provided as per sub-section (4) that an amount equal to 75% of the investment allowance is required to be debited to the Profit & Loss Account and credited to reserve account for investment allowance reserve account. Hence, it cannot be said that the terms "reserve" and "provision" are one and the same. The Legislature has used two different terms at different places for some purpose and not without reason and purpose, and therefore, as per whims and fancies of the assessee, reserve account cannot be considered as provision for the purpose of allowing deduction section 36(1)(viia). Since, there is no provision created by the assessee on account of provision for bad and doubtful debts, the assessee does not deserve any deduction under section 36(1)(viia) in addition to the amount of Rs.1 crores already allowed by the AO, because, to this extent, i.e. to the extent of Rs.1 crore, the assessee has included the amount in annexure 7 i.e. Other Liabilities at Sr.No.4 i.e. contingency reserve against standard assets. Here also, although the assessee has used that word "contingency reserve", but action of the assessee of including the same in annexure-7 of other liabilities shows that this is in fact a provision, and therefore, included in liability, whereas other reserves are included in annexure-2 i.e. reserves fund and other funds, and therefore, those reserves which are included in annexure-2 cannot be equated with provision, which are included in annexure-7 i.e. other liability. Our this view that reserve is part of own funds and provision is part of liability is also supported by Schedule-VI to Companies Act, 1956 where reserves are added in net worth but provision is included in liabilities. Hence, both cannot be equated. Considering these facts, we feel that the AO has rightly allowed deduction to the assessee at Rs.1 crores under section 36(1)(viia) of the Act, and the assessee is not eligible for any further deduction, in the absence of any extra provision for bad and doubtful debts, having been created by the assessee as per the audited accounts available in the paper book.
10. In view of our above discussion and findings that the assessee has not created any provision for bad and doubtful debts in excess of amount of Rs.1 crores, various decisions cited by the learned AR of the assessee are of no relevance in the present case, and therefore, we do not consider it necessary to discuss about those judgments.
11. In the result, the appeal of the assessee stands dismissed.
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
GOODS AND SERVICE TAX REPORTS (GSTR) HIGHLIGHTS
F Cream prescribed by dermatologist for treating dry skin conditions classifiable as medicament and not as cosmetic : CCE v. Ciens Laboratories . . . 161
F Where authorities empowered to issue show-cause notice in case of wrongful availment of exemption, writ of prohibition cannot be issued against such authority : Nakoda Unique Gold P. Ltd. v. Union Of India P. . . . 173
F Right of appeal sacrosanct and not be lightly taken away, court to take lenient view regarding belated compliance with the requirement of pre-deposit : Messrs Priya Dyers v. CCE p. . . . 191
F Finding by Settlement Commission that car imported not used in United Kingdom but only registered to meet transit requirement, finding of fact and not interfered with : Commissioner of Customs (Import) v. Noshire Moody p. . . . 195 ; Commissioner of Customs (Imports-Seaport) v. Customs and Central Excise Settlement Commission p. . . . 199
F Where all issues regarding validity of rule 12CC of 2002 Rules not considered by High Court in similar matter, petition challenging its validity maintainable : Hiren Aluminium Ltd. v. Union of India p. . . . 206
F Where Chief Commissioner recommending that assessee be restrained from utilising Cenvat credit for three months, decision of Board to restrain assessee from utilising credit for six months without assigning reason, arbitrary : Hiren Aluminium Ltd. v. Union of India p. . . 206
F Delegated legislation : Rules framed prior to vesting of rule-making power with Government, invalid : Aryan Ispat and Power P. Ltd. v. Union of India p. . . . 215
F Rules 12CC of the 2002 Rules and 12AA of 2004 Rules inserted in year 2006, ultra vires 1944 Act : Notification issued pursuant to such rules and orders passed based on such notification not sustainable : Aryan Ispat and Power P. Ltd. v. Union of India p. . . . 215
F Where Tribunal taking plausible view on appreciation of material on record, no substantial question of law arose and demand of duty and penalty upheld : Super Tyres P. Ltd. v. Union of India p. . . 226
F Welding electrodes used for repair and maintenance of machinery but not used in manufacture of final product, not eligible for Cenvat credit : Manikgarh Cement v. CCE p. . . . 234
F Where two different entries in notification granting exemption, assessee entitled to exemption in either of them : Mangalam Alloys Ltd. v. Commissioner of Customs p. . . 239
F C. B. E. C. Circulars :
Circular No. 28/2013-Customs, dated 1st August, 2013-Classification of products-"Cockroach traps", and "mosquito repellent" in the harmonised Customs Tariff-Regarding . . . 49
Circular No. 30/2013-Customs, dated 5th August , 2013-Provisional release of export goods detained for investigation-Regarding . . . 51
Circular No. 31/2013-Customs, dated 6th August , 2013 . . . 53
Circular No. 33/2013-Customs, dated 23rd August , 2013-Customs duty exemption for import of ash handling systems, water treatment plant and coal transportation facilities, etc., required for ultra-mega/mega power projects under Heading 9801 (Project Imports)-Clarification-Regarding . . . 54
F Notifications :
Finance Act, 1994 :
Notification under section 93(1) :
Exemption to services received by unit located in SEZ or developer of SEZ for authorised operations : Supersession . . . 56
Finance (No. 2) Act, 2004 :
Notification under section 95(3) :
Exemption to services received by unit located in SEZ or developer of SEZ for authorised operations : Supersession . . . 56
Finance Act, 2007 :
Notification under section 140(3) :
Exemption to services received by unit located in SEZ or developer of SEZ for authorised operations : Supersession . . . 56
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