T/ILT: An option is available to the resident-assessee to file return of income either under the Indian tax laws or under the treaty - If assessee files the return of global income in India, the Revenue is bound to give effect to such return - Therefore, losses from house property located abroad was to be included in the income of resident-assessee
Facts:
| (a) | The assessee filed his return of income after including losses from house property located abroad. He purchased this property in Australia which was already on rent. He obtained a loan from ANZ Bank, Australia ('ANZ') to purchase the property. | |
| (b) | The loss was computed under the head house property due to payment of interest to ANZ. | |
| (c) | During appellate proceedings, the CIT(A) referred to the decision of Apex Court in case of CIT v. PVAL Kulandagan Chettiar [2004] 137 Taxman 460 (SC) and held that as far as rent income from Australia was concerned, the assessee was required to file the return in Australia and such income could not be included in Indian income. Therefore, negative income could not be assessed in India. |
The Tribunal held in favour of assessee as under:
| (1) | In view of Section 5 of the Income-tax Act ('the Act') in case of a resident, income accruing or arising outside India had to be assessed in India. The Sec 90(2) of the Act clearly provides that wherever DTAA is applicable to assessee he has an option to apply either Indian Tax Laws or provisions of DTAA, whichever are more beneficial to him. | |
| (2) | Therefore, the assessee had an option to file return of income under the Indian tax laws where DTAA was applicable. | |
| (3) | In the instant case, the assessee had exercised the option of filing return under Indian laws, thus, the same could not have been refused simply because DTAA was applicable. | |
| (4) | The decision in case of PVAL Kulandagan Chettiar (supra) was distinguishable because in that case the assessee was a resident of India and Malaysia. It was due to financial connection of the assessee with Malaysian property it was held that income from Malaysian rubber plantation was taxable only in Malaysia. | |
| (5) | The assessee had right to file the return of global income in India and the Revenue was bound to give effect to such return. The CIT(A) was not correct in holding that income from house property in Australia was not assessable in India. Accordingly, the order of the CIT(A) was to be set aside and the Assessing officer was to be directed to include the loss from such house property in the hands of the assessee. |
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[2014] 45 taxmann.com 345 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'A'
Sumit Aggarwal
v.
Deputy Commissioner of Income-tax, Circle - VII, Ludhiana
T.R. SOOD, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
IT APPEAL NO. 212 (CHD.) OF 2014
MAY 20, 2014
Manish Kumar for the Appellant. Smt. Jyoti Kumari for the Respondent.
ORDER
T.R. Sood, Accountant Member - This appeal has been filed by the assessee against the order dated 3.1.2014 of CIT(A)-II, Ludhiana.
2. In this appeal assessee has raised the following grounds:
| 1. | That on the facts and circumstances and in law, the Hon'ble Commissioner of Income Tax-Appeals II, Ludhiana [CIT(A)] erred in concluding that the appellant, a resident individual assessee, is not liable to offer the overseas rental income of Rs. 7,32,731/- to tax in India, thereby disallowing (Rs. 5,52,490) computed under the head Income from House Property in accordance with the relevant provisions of the Income Tax Act, 1961 (or "Act). | |
| 2. | That on the facts and circumstances and in law, the Hon'ble CIT(A) erred in placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar to hold that the income/(loss) arising to the appellant from property situated in Australia is taxable/(allowable) only in Australia without appreciating the provisions of sections 4 and 5 of the Act as applicable to a resident assessee. | |
| 3. | That on the facts and circumstances, the Hon'ble CIT(A) erred in no appreciating that the rental income of Rs. 7,32,731/- is the gross amount of rent received and thus erroneously directing the Assessing Officer to determine the correct gross rent received. |
3. After hearing both the parties we find that in this case the assessee has filed a return declaring income of Rs. 24250550/. This included loss from house property was computed. The loss in house property was computed because the payment of interest to ANZ Bank, Australia amounting to Rs. 1043207/-. The assessee has purchased the property in Australia which was already on rent and obtained a loan from ANZ Bank Australia. The Assessing officer observed that in view of Sec 25 which prescribed that interest will not be allowed if interest is payable outside India which is chargeable to tax in India and tax has not been deducted. Since the assessee had not deducted the tax, therefore possible income from the property was assessed to tax after ignoring claim of the interest.
4. On appeal it was mainly submitted that property purchased in India was already on residential tenancy agreement vide agreement dated 13.1.2004. A loan was sanctioned by ANZ Bank Australia as home loan. It was further pointed out that reference to Sec 5 & 9 (1)(v)(b), the interest would not accrue or arise in India.
5. The Ld. CIT(A) examined this issue and after detailed discussion, concluded this issue vide para 4.6 which is as under:
"4.6 From the submissions of the appellant it is apparent that the immovable property purchased by the appellant was already on rent and the appellant continued to receive the rent thereafter. It is an undisputed fact that this property was never occupied by the appellant for his personal use but was given on rent from the date it was purchased. The appellant had received the rent from this property since the purchase of the property. In these circumstances it is apparent that the interest payment to ANZ Bank, Australia is on account of money borrowed by the appellant for the purpose of purchasing property from which the appellant had earned income in all these years. In these facts and circumstances of the case and keeping in view the provisions of Section 9 of the IT Act I hold that the interest received by the ANZ Bank, Australia from the appellant shall not be deemed to accrue or arise in India and therefore not chargeable to tax in India. As such the appellant was not liable to deduct any TDS on the payment of interest made to the Bank. The assessing officer was therefore not justified in disallowing the interest expenditure u/s 25 of the IT Act."
Therefore it is clearly held that the Assessing officer was not justified in disallowing the interest. The Revenue has not filed any appeal against this finding and therefore we are not required to discuss this issue further. However, during appellate proceedings the Ld. CIT(A) referred to the decision of CIT v. PVAL Kulandagan Chettiar, 267 ITR 645. In view of this decision according to the Ld. CIT(A) as far as rent income from Australia is concerned, the assessee was required to file the return in Australia and such income could not be included in Indian income. Therefore negative income can not be assessed in India. The detail findings are as per para 4.7 and 4.8 which are as under:
"4.7 However, the appellant is liable to file his return of income in Australia with regard to his rental income. During the course of appellate proceedings, the AR of the appellant was specifically asked whether any TDS was deducted on the rent received by him from property in Australia and whether any return had been filed by him pertaining to this income in Australia. The AR of the appellant submitted that he was not sure if any TDS was deducted on the rent received by him from property situated in Australia and if any return was filed by him in Australia. The AR of the appellant submitted that in case any TDS had been deducted on the rent, the same was not taken into account while computing the house property income in India implying thereby that only the net rent received and not the gross rent received had been shown in the return of income in India. The appellant also explained that the expenses paid the agent who was collecting the rent and was managing the other matters relating to property had also been reduced while adopting the figure of rent received for computing income from house property in the return filed in India. This accounting treatment is not correct. Appellant is required to declare the total rent received from property situated in Australia while computing the income from house property in the return filed in India. Appellant can claim credit for any tax paid in Australia against any income declared from house property in India. As the appellant has declared only loss under the head income from House Property, the appellant is not eligible for claiming credit for tax paid in Australia against his income from other head in India. The AO is directed to ascertain the correct amount of (Gross) rent received by the appellant from house property in Australia and take the same amount for computing income under the head House Property in the return filed in India.
4.8 Without prejudice to the above, there is another aspect of the case. As referred above during the course of appellate proceedings the case of CIT v. P.V.A.L Kulandagan.Chettiar (SC) 267 ITR 654 was discussed with the appellant. In this case the Hon'ble Supreme Court has held that the income arising form immovable property from property situated in another contracting state is taxable only in that other contracting state. The facts of the appellant's case are similar to the facts of the case referred to above. Therefore, the income (or loss) arising to the appellant from property situated in Australia is taxable (allowable) only in Australia. Therefore, the loss arising to the appellant and claimed by the appellant in the computation of income on account of immovable property situated in Australia is allowable only in Australia and is therefore not allowable in India. Keeping in view the aforesaid factual and legal position the appellant's claim of loss of Rs. 5,52,490/- is not allowable. The loss of Rs. 5,52,490/- claimed by the appellant of house property is accordingly disallowed. "
6. Before us. the Ld. Counsel for the assessee submitted that as per Sec 90(2) the assessee had option to declare its global income or to obtain benefit of Double Tax Avoidance Agreement (in short (DTAA) the assessee opted to declare his Global income under the Indian laws. It was further contended that the Ld. CIT(A) by referring to the decision of Hon'ble Supreme Court in case of CIT v. PVAL Kulandagan Chettiar (supra) held that the assessee was bound to show rental income from Australian property in Australia only. It was pointed out that this decision was not applicable to the case of the assessee because the facts are different. In that case the assessee was resident of Malaysia as well as India and income had been derived from Rubber plantations in Malaysia and the Hon'ble Court observed that the assessee's fiscal connection was more with Malaysian territory. In the case of the assessee, the assessee is admittedly resident of India only. In any case sub-sec (3) to Sec 90 was introduced by Finance Act, 2003 w.e.f. 1.4.2004 where the power was given to Central Govt to clarify the meaning of a particular expression through a notification wherever the provision was inconsistent with the provision of the Act vis-à-vis the DTAA. In this regard Govt of India issued a notification No. 91/2008 dated 28.8.2008 and the relevant clause of this notification reads as under:
"The Mumbai Bench of the Tribunal held in the matter of Essar Oil Ltd. v. Department of Income Tax that:
63 In our opinion, as a result of the amendment w.e.f. 1 April 2004, by which sub-sec (3) to sec 90m has been brought in the statute from the Assessment year 2004-05, there would be a clear departure from the earlier position, wherein various Courts have interpreted the expression 'may be taxed".
He pointed out that as per this clause even expression "may be taxed" has been used even then such income was taxable in India, therefore income of the assessee is in any case taxable in India. In this regard he referred to the decision of Mumbai Bench of the Tribunal in case of Essar Oil Ltd. v. Addl CIT, ITA No. 2428/Mum/2007 (copy of the order has been filed in the paper book as page 94 to 200). According to this decision after the notification, there was a departure from earlier decision and income which was earlier, "may be taxed" in a contracting states, would be taxable in India. While concluding his argument it was pointed out that in the earlier years, the Revenue has already accepted the loss from Australian house property owned by the assessee even in scrutiny assessment and in this regard copy of assessment order for Assessment year 2006-07 was filed.
7. On the other hand, the Ld. D.R. for the Revenue relied on the order of the Ld. CIT(A).
8. After considering the rival submissions we find force in the contentions of the Ld. Counsel for the assessee. First of all as per Section 5 in case of a resident, income accruing or arising outside India has to be assessed in India. Further Sec 90(2) & (3) read as under:
"Sec 90(2) - Where the Central Govt has entered into an agreement with the Govt of any country outside India or specified territory outside India, as the case may be, under sub-sec (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.
90(3) - Any term used but not defined in this Act or in the agreement referred to in sub-sec (1) shall unless the context other wise requires , and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued bite Central Govt in the official gazette in this behalf."
Plain reading of Sec 90(2) shows that wherever DTAA is applicable in case of an assessee then the assessee has an option to apply either Indian Tax Laws or provisions of DTAA if same are more beneficial to the assessee. Therefore it is clear that it is an option of the assessee whether to return income under the Indian tax laws where DTAA is applicable. In case before us, if the assessee has exercised the option of filing return under Indian law, the same could not have been refused simply because DTAA was applicable because it was option of the assessee. In any case the decision in case of CIT v. PVAL Kulandagan Chettiar (supra) is distinguishable because in that case the assessee was a resident of India and Malaysia and it was a financial connection of the assessee that Malaysian property which weighed with the Hon'ble Court it was held that income from Malaysian rubber plantation was taxable in Malaysia. Therefore in our opinion, the assessee had right to file the return of global income in India and the Revenue is bound to give effect to such return. Therefore the Ld. CIT(A) is not correct in holding that income from house property from Australian property was not assessable in India. Accordingly we set aside the order of the Ld. CIT(A) and direct the Assessing officer to assess the income of house property that is loss from such house property in the hands of the assessee.
9. In the result , appeal of the assessee is allowed.
Applicability of PAN requirement for Foreign Nationals at the time of filing application for incorporation
General Circular No. 12/2014, Dated: 22nd May, 2014
Sub: Applicability of PAN requirement for Foreign Nationals.
Attention of Ministry has been drawn to difficulties being faced by Foreign Nationals while filing Incorporation form (INC-7) due to mandatory requirement of submission of PAN details of intending Directors at the time of filing the application for incorporation.
2. It is hereby clarified that PAN details are mandatory only for those foreign nationals who are required to possess "PAN" in terms of provisions of the Income Tax Act, 1961 on the date of application for incorporation. Where the intending Director who is a Foreign National is not required to compulsorily possess PAN, it will be sufficient for such a person to furnish his/her passport number, alongwith undertaking stating that provisions of mandatory applicability of PAN are not applicable to the person concerned. The form of Declaration is required to be made in the proforma enclosed.
3. This issues with the approval of Competent Authority.
F.No.1/12/2013 CL-V
Yours faithfully,
K.M.S. Narayanan
Assistant Director
Tel: 23387263
Encl. As above.
Undertaking
I…………(name)……………,son of………..(father's name)…………, citizen of ………..(nationality)………….having passport No,…………..(passport Number)……….declare as under:
(i) That I am not required under the provisions of Income Tax Act, 1961 to obtain Income Tax Permanent Account Number (PAN);
(ii) That in view of the above I have not been issued any PAN; and
(iii) That I undertake to furnish to the Registrar of Companies (mention jurisdiction) details of my PAN as soon as a Permanent Account Number is issued to me.
Date:
(Signature)
IT: Where AOP did not file its return of loss on time and, thus, loss got forfeited, no member of said AOP could claim his share of loss against his individual income
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[2014] 45 taxmann.com 95 (Madras)
HIGH COURT OF MADRAS
N. Jagadeesan
v.
Assistant Commissioner of Income-tax, Company Circle -II, Madurai*
MRS. CHITRA VENKATARAMAN AND T.S. SIVAGNANAM, JJ.
TAX CASE (APPEAL) NO. 90 OF 2007†
MARCH 3, 2014
Section 67A, read with section 80, of the Income-tax Act, 1961 - Association of Person - Computation of a share of a member of (Loss of AOP) - Assessment year 1995-96 - Whether determination of loss or income at hands of association or body of individuals leads to determination of same at hands of member in his assessment - Held, yes - Whether where AOP did not file its return of loss on time and, thus, loss got forfeited, no member of said AOP could claim his share of loss against his individual income - Held, yes [Paras 9 and 10] [In favour of revenue]
FACTS
| ■ | The assessee was a member of the Association of Persons (AOP) which entered into a joint venture to put up a wind energy generator. The AOP filed its return beyond the prescribed time-limit. | |
| ■ | The assessee claimed his share of depreciation loss in the association of person, to be set off against his individual income and supported it under section 67A(2). | |
| ■ | The Assessing Officer rejected the same on ground that on a harmonious reading of sections 80A and 67A, when the share income of AOP was to be included for aggregation purposes alone, the loss, which had not been determined by the department, could not be taken advantage of section 67A(2). | |
| ■ | On appeal, the Commissioner (Appeals) and the Tribunal upheld the decision of the Assessing Officer on ground that the AOP had an obligation to file return within the time allowed claiming loss; thus, when the loss itself was not determined at the hands of the AOP, same was forfeited. Thus, the claim of the assessee was rejected. | |
| ■ | In instant appeal, the assessee pointed out that section 80 of the Income-tax Act makes reference to provisions of sections 72(1), 73(2) and 74(3) and 74A(3) alone, whereby, the loss not determined, could not be carried forward and set off. Thus, when there is no specific reference to section 67A therein, the question of rejecting the claim of the assessee in respect of the depreciation loss referable to AOP does not arise. In other words, the relief at the hands of the member of the AOP is not dependent on the loss that the AOP may claimed or determined at the hands of the AOP. |
HELD
| ■ | The line of submission of the assessee is to be rejected straightaway. Section 67A no doubt uses the phrase 'computation' of total income of the association having relevance to the computation of a particular share of income of persons in body of individuals. Sub-section (2) of section 67A is the relevant section, which speaks about the grant of relief in respect of the income or loss of an association computed under sub-section (1). [Para 8] | |
| ■ | As is evident from the reading of section 67A(2), the apportioning of the share of a member in the income or loss of the association or body under the various heads of income has to be in the same manner in which the income or loss of the association or body has been determined under each head of income. Thus, determination of loss or income at the hands of association or body of individuals leads to the determination of the same at the hands of the member in his assessment and such determination of the share of the income of a member in the association is not left to the computation by the individual member in his return showing his share of income. Hence, the grant of relief under section 67A is thus, dependent on the determination of the income at the hands of the association, so that the computation of the share of income of the member in the association could be given effect to in the manner in which it has been determined at the hands of the association or body of individuals. [Para 9] | |
| ■ | On facts herein, it clear that the AOP in which the assessee was a member, for the reasons best known, had not chosen to declare the loss within the time prescribed under the provisions of the Act by filing a return. The assessee was entrusted with the task of availing the loan and organising the affairs of the AOP. When the AOP was under the legal obligation to file its return declaring loss or income, as the case may be, and had defaulted in filing the return within the time prescribed, the assessee cannot take advantage of the absence of reference of section 67A in section 80 of the Income-tax Act. The relief that has to be considered for the purpose of section 67A is not dependent on section 80 and for that matter, section 80 has nothing to do with the computation to be done under section 67A by the assessee. In other words, the computation on section 67A has to be done in the manner prescribed therein and the provisions of section 67A is not dependent on what has been given under section 80 of the Income-tax Act. [Para 10] | |
| ■ | In the circumstances, the assessee's contention is to be rejected. [Para 11] |
Dr. Anita Sumanth for the Appellant. M. Swaminathan for the Respondent.
JUDGMENT
Mrs. Chitra Venkataraman, J. - This Tax Case (Appeal), filed at the instance of the assessee as against the order of the Income Tax Appellate Tribunal relating to the assessment year 1995-96, was admitted by this Court on the following substantial questions of law:
| "1. | Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the depreciation loss from the WEG arises to an AOP and the portion of the said loss attributable to the appellant cannot be allowed as a set off against appellant's income, on the ground that no return has been filed by the AOP and the appellant's loss determined? | |
| 2. | Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the depreciation loss or share thereof cannot be set off against the income of the appellant?" |
2. The assessee, a member of association of persons (AOP) with six other parties, entered into a joint venture on 01.08.1994 to put up a wind energy generator in the name of M/s. Renuga Wind Energy Farm in areas specified by the Tamil Nadu Government and approved by the Tamil Nadu Electricity Board. The parties agreed to share income/loss of the joint venture along with their asset and liabilities in the following ratio:
| 1. Sri. N. Jagadeesan | HUF | 20% |
| 2. Sri. N. Jagadeesan | Indl. | 40% |
| 3. Sri. K. Kaliraj | Indl. | 10% |
| 4. Sri. N.R. Manivannan | HUF | 10% |
| 5. Sri. L. Kamalakannan | HUF | 10% |
| 6. Smt. R. Vijaya | Indl. | 5% |
| 7. Smt. K. Bama | Indl. | 5% |
3. It is evident from the agreement, which is narrated in the order of the Commissioner of Income Tax (Appeals), that the parties to the agreement agreed to arrange for finance to the project by obtaining loans from banks and other institutions and the parties had authorised the assessee to approach any government or institution for that purpose on their behalf and thus executed necessary power of attorney in favour of the assessee for that purpose. In terms of the agreement thus reached, wind mill was commissioned on 30.09.1994. All the members mentioned above availed loan of Rs.45 lakhs from the Tamilnad Mercantile Bank, Theni for the project. The assessee had utilized Rs.50 lakhs for this project out of Rs.1 Crore loan availed by him from ICICI Bank.
4. In the original return filed, the assessee claimed 100% depreciation at Rs.36,21,438/-. The assessee claimed his share of depreciation loss at Rs.15,19,888/-. Thus he sought to set off his share of depreciation loss as against the individual income under various heads. He also claimed carried forward loss at Rs.8,91,204/-. In the revised return filed on 27.02.1997, the assessee claimed loss from windmill under the head "income from other sources" and the share of loss was to the tune of Rs.16,12,752/-. After set off of this loss against other incomes, he carried forward an unabsorbed depreciation to the tune of Rs.13,51,643/-. The assessee supported his claim as per Section 67A(2) of the Income Tax Act. In the course of hearing, the assessee submitted that AOP had filed separate return for the assessment year 1995-96 in the status of AOP on 27.11.1997, which, however, was well beyond the prescribed time limit under Section 139(4) of the Income Tax Act.
5. The Assessing Officer rejected the claim of the assessee on the ground that on a harmonious reading of Sections 80 and 67A of the Income Tax, when the share income of AOP was to be included for aggregation purposes alone, the loss, which had not been determined by the Department, could not be taken advantage of Section 67A(2) of the Income Tax Act. Thus the assessee's claim was rejected. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who confirmed the order of assessment. He pointed out that the joint venture entered into between the parties to generate and earn income by way of sale of energy to TNEB would not, in any way, be treated as analogous to income earned from house property. Thus, when the members of AOP had raised funds with the objective of earning income by sale of energy to TNEB, the venture was a business activity. The AOP had an obligation to file return within the time allowed claiming loss. Thus when the loss itself was not determined at the hands of the AOP, the said claim at the hands of AOP ought to be treated having been forfeited; consequently, the Commissioner of Income Tax (Appeals) held that no relief could be granted to the assessee. Aggrieved by this, further appeal was preferred before the Income Tax Appellate Tribunal at the instance of the assessee.
6. The Tribunal pointed out that the AOP had admittedly not filed the return of income within the time to claim loss. In the absence of any determination of the loss at the hands of the AOP, rightly, the claim of the assessee was rejected. Thus the appeal filed by the assessee was dismissed. Aggrieved by this, the present Tax Case (Appeal) has been filed.
7. Learned counsel appearing for the assessee took us through Section 67A(2) of the Income Tax Act and pointed out that in the absence of any reference to Section 67A in Section 80, the question of rejecting the claim of the assessee for carry forward and set off of loss does not arise. She pointed out that Section 80 of the Income Tax Act makes reference to provisions of Sections 72(1), 73(2) and 74(3) and 74A(3) alone, whereby, the loss not determined, could not be carried forward and set off. Thus, when there is no specific reference to Section 67A therein, the question of rejecting the claim of the assessee in respect of the depreciation loss referrable to AOP does not arise. In otherwords, the relief at the hands of the member of the AOP is not dependent on the loss that the AOP may claimed or determined at the hands of the AOP. Learned counsel further submitted that the relief has to be automatic irrespective of whether the loss had been determined at the hands of the AOP or claimed by AOP in its return under the provisions of the Act. She laid emphasis on Section 67A(1) to the computation spoken thereto and submitted that the share of the member in the income or loss of the association or the body, as computed in the Section, has to have relevance and reference to the working done by the assessee in its return, is not dependent on the determination by the Assessing Officer at the hands of the AOP. Thus, according to the counsel, the reasoning is opposed to Section 67A(2) of the Income Tax Act.
8. We reject this line of submission straightaway. Section 67A of the Income Tax Act no doubt uses the phrase 'computation' of total income of the association having relevance to the computation of a particular share of income of persons in body of individuals. Sub-section (2) of Section 67A is the relevant section, which speaks about the grant of relief in respect of the income or loss of an association computed under Sub-section (1). The said provision reads as under:
"Method of computing a member's share in income of association of persons or body of individuals.
67(A) (2) The share of a member in the income or loss of the association or body, as computed under sub-section (1), shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the association or body has been determined under each head of income."
9. As is evident from the reading of Sub-Section, the apportioning of the share of a member in the income or loss of the association or body under the various heads of income has to be in the same manner in which the income or loss of the association or body has been determined under each head of income. Thus, determination of loss or income at the hands of association or body of individuals leads to the determination of the same at the hands of the member in his assessment and such determination of the share of the income of a member in the association is not left to the computation by the individual member in his return showing his share of income. Hence, the grant of relief under Section 67A of the Income Tax Act is thus dependent on the determination of the income at the hands of the association, so that the computation of the share of income of the member in the association could be given effect to in the manner in which it has been determined at the hands of the association or body of individuals.
10. On facts herein, it is clear that the AOP in which the assessee was a member, for the reasons best known, had not chosen to declare the loss within the time prescribed under the provisions of the Act by filing a return. The assessee was entrusted with the task of availing the loan and organising the affairs of the AOP. When the AOP was under the legal obligation to file its return declaring loss or income, as the case may be, and had defaulted in filing the return within the time prescribed, the assessee cannot take advantage of the absence of reference of Section 67A in Section 80 of the Income Tax Act. The relief that has to be considered for the purpose of Section 67A is not dependent on Section 80 and for that matter, Section 80 has nothing to do with the computation to be done under Section 67A by the assessee. In other words, the computation on Section 67A has to be done in the manner prescribed therein and the provisions of Section 67A is not dependent on what has been given under Section 80 of the Income Tax Act.
11. In the circumstances, we reject the assessee's contention and dismiss this Tax Case (Appeal). No costs.
SB †Arising out of order of Tribunal in IT Appeal No. 697 (Mad.) of 2000, dated 23-9-2005.
2014-TIOL-227-ITAT-AHM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' AHMEDABAD
BENCH 'A' AHMEDABAD
ITA No.3190/Ahd/2010
Assessment Year: 2006-07
Assessment Year: 2006-07
AMBUJA INTERMEDIATES PVT LTD
901/A, NARNARAYAN COMPLEX
SWASTIK CROSS ROAD, NAVRANGPURA
AHMEDABAD
PAN NO:AACCA1236B
901/A, NARNARAYAN COMPLEX
SWASTIK CROSS ROAD, NAVRANGPURA
AHMEDABAD
PAN NO:AACCA1236B
Vs
DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-1, AHMEDABAD
CIRCLE-1, AHMEDABAD
G C Gupta, VP And T R Meena, AM
Date of Hearing: March 21, 2014
Date of Decision: March 27, 2014
Date of Decision: March 27, 2014
Appellant Rep by: Shri N C Amin, AR
Respondent Rep by: Shri O P Batheja, Sr. DR
Respondent Rep by: Shri O P Batheja, Sr. DR
Income Tax - Sections 28, 36(1)(vii), 36(2) & 37 - Whether capital loss can be claimed either u/s. 37 or as bad debt u/s.36(1)(vii).
The assessee has claimed bad debts of Rs.25.5 lacs . The assessee had dues from Urmi Chemicals for Rs.180 lacs. During A.Y. 05-06, the assessee, after receiving order of City Civil Court, took over possession of two immovable properties of Urmi Chemicals., worth of Rs.100 lacs. The balance of Rs.80 lacs was claimed as bad debts in A.Y. 2005-06. The then A.O. disallowed the claim of the assessee. During the year under consideration, the assessee sold the residential house for a sum of Rs.25 lacs worth of which was considered by the assessee Rs.50 lacs. In this way, the assessee further claimed a deduction of Rs.25 lacs as bad debts. This claim of the assessee was not accepted by the A.O. by holding that loss was derived from selling of capital assets. The assessee claimed before the A.O. that loss on account of immovable property is business loss not capital loss, which was not found tenable to the A.O. on the ground that residential house became the part of the block of assets as soon as the assessee took possession over the property of the debtor. Further, the company had made booking advance of Rs.50,000/- for a car. However, the assessee company neither received the car nor recovered advance money as the said company became bankrupt. In this way, the assessee claimed bad debts written off Rs.50,000/- which was also not acceptable to the A.O. The CIT(A) confirmed the addition.
On Appeal before the Tribunal the A.R submitted that identical bad debts of Rs.80.20 lacs were allowed by the Tribunal. It was also submitted that the assessee is entitled to deduction u/s. 36(1)(vii). The D.R. submitted that the loss claimed by the assessee has direct nexus with sale of the capital assets i.e. residential house and booking of car. The assessee did not disclose any income against the amount written off in the p&l account. The assets were become part of the block of assets. Therefore, he argued that it is a capital loss which cannot be claimed either u/s. 37 as business loss or as bad debt u/s.36(1)(vii).
Having heard the parties, the Tribunal held that,
++ the assessee had shown these assets in the balance sheet as capital assets. As held by the various Courts that loss incurred on sale of capital assets is not allowable u/s. 36 (1)(vii) as bad debt written off as well as business loss u/s. 37 because it is a capital loss. Similarly, the assessee made deposit for booking car and paid Rs. 50,000/-, which was not recovered from it and deposit was for capital assets. No income against this debt had been disclosed by the assessee in past. Therefore, on identical findings, no reason to intervene in the order of the CIT(A).
The assessee has claimed bad debts of Rs.25.5 lacs . The assessee had dues from Urmi Chemicals for Rs.180 lacs. During A.Y. 05-06, the assessee, after receiving order of City Civil Court, took over possession of two immovable properties of Urmi Chemicals., worth of Rs.100 lacs. The balance of Rs.80 lacs was claimed as bad debts in A.Y. 2005-06. The then A.O. disallowed the claim of the assessee. During the year under consideration, the assessee sold the residential house for a sum of Rs.25 lacs worth of which was considered by the assessee Rs.50 lacs. In this way, the assessee further claimed a deduction of Rs.25 lacs as bad debts. This claim of the assessee was not accepted by the A.O. by holding that loss was derived from selling of capital assets. The assessee claimed before the A.O. that loss on account of immovable property is business loss not capital loss, which was not found tenable to the A.O. on the ground that residential house became the part of the block of assets as soon as the assessee took possession over the property of the debtor. Further, the company had made booking advance of Rs.50,000/- for a car. However, the assessee company neither received the car nor recovered advance money as the said company became bankrupt. In this way, the assessee claimed bad debts written off Rs.50,000/- which was also not acceptable to the A.O. The CIT(A) confirmed the addition.
On Appeal before the Tribunal the A.R submitted that identical bad debts of Rs.80.20 lacs were allowed by the Tribunal. It was also submitted that the assessee is entitled to deduction u/s. 36(1)(vii). The D.R. submitted that the loss claimed by the assessee has direct nexus with sale of the capital assets i.e. residential house and booking of car. The assessee did not disclose any income against the amount written off in the p&l account. The assets were become part of the block of assets. Therefore, he argued that it is a capital loss which cannot be claimed either u/s. 37 as business loss or as bad debt u/s.36(1)(vii).
Having heard the parties, the Tribunal held that,
++ the assessee had shown these assets in the balance sheet as capital assets. As held by the various Courts that loss incurred on sale of capital assets is not allowable u/s. 36 (1)(vii) as bad debt written off as well as business loss u/s. 37 because it is a capital loss. Similarly, the assessee made deposit for booking car and paid Rs. 50,000/-, which was not recovered from it and deposit was for capital assets. No income against this debt had been disclosed by the assessee in past. Therefore, on identical findings, no reason to intervene in the order of the CIT(A).
Assessee's appeal dismissed
ORDER
Per: T R Meena:
This appeal is filed by the assessee against the order of the CIT(A)-VI, Ahmedabad, order dated December 03.11.2010 for A.Y. 2006-07. The effective grounds of appeal are as under:
"1. That the learned CIT(A) has erred both in law and on the facts of the case in confirming disallowance of bad debts claim of Rs.25,00,000/-.2. That the appellant has written-off bad debts in audited profit and loss account and passed relevant entries in the books of accounts during the year under consideration and therefore bad debts claim disallowed by A.O. and confirmed by CIT(A) be allowed.3. On peculiar facts and circumstances of the case of the appellant, whatever amount realized and collected by the appellant is credited against the account of the debtor and whatever amount not realized has been written-off which may please be allowed.4. That the appellant has submitted paper book running into pages 1 to 101 along with audited balance-sheet, profit and loss account etc. wherein also bad debt is debited. However, without considering this factual aspect in proper perspective the disallowance of Rs.25,00,000/- made by learned A.O. and confirmed by CIT(A) deserves to be deleted.5. That the learned CIT(A) has further erred both in law and on the facts of the case in disallowing the claim of the appellant for writing off non -receipt of deposit of Rs.50,000/- from PAL Peugeot Ltd.6. that the deposit amount was paid during the course of appellant's business and non-receipt of the same from the debtor the same is to be allowed U/s 28 or 37 of the I.T. Act 161.7. On the facts and circumstances of the case of the appellant, both the deductions claimed amounting to Rs.25,00,000/- and Rs.50,000/- be allowed holding it as business expenditure U/s 28 to 43 of the I.T. Act 1961."
All the seven grounds are against not allowing the bad debts of Rs.25 lacs on account of sale of the immovable property and Rs.50,000/- written off non receipt of deposit from PAL Peugeot Ltd.
2. The A.O. observed that the assessee has claimed bad debts of Rs.25.5 lacs on which he gave reasonable opportunities of being heard which was replied by the assessee vide letter dated 02.12.2008. The assessee had dues from Urmi Chemicals Industries Pvt. Ltd. for Rs.180 lacs. During A.Y. 05-06, the assessee, after receiving order of City Civil Court, took over possession of two immovable properties of Urmi Chemicals Industries Pvt. Ltd., one factory building and one residential house worth of Rs.100 lacs. The balance of Rs.80 lacs was claimed as bad debts in A.Y. 2005-06. The then A.O. after considering the facts of the case disallowed the claim of the assessee. Now, during the year under consideration, the assessee sold the residential house for a sum of Rs.25 lacs worth of which was considered by the assessee Rs.50 lacs. In this way, the assessee further claimed a deduction of Rs.25 lacs as bad debts. This claim of the assessee was not accepted by the A.O. by holding that loss was derived from selling of capital assets. The another opportunity was given by the A.O. to the assessee. The assessee claimed before the A.O. that loss on account of immovable property is business loss not capital loss, which was not found tenable to the A.O. on the ground that residential house became the part of the block of assets as soon as the assessee took possession over the property of the debtor. Therefore, he did not allow the loss claimed by the assessee as business loss. Further, the company had made booking advance of Rs.50,000/- for a car to M/s. Pal Peugot Ltd. However, the assessee company neither received the car nor recovered advance money as the said company became bankrupt. In this way, the assessee claimed bad debts written off Rs.50,000/- during the year under consideration, which was also not acceptable to the A.O. on the ground that the assessee never shown advances in the p&l account as income of the assessee and it had not been fulfilling condition as prescribed in Section 36(2) of the I.T. Act. He further held that the assessee simply has written off the amount without any reasonable cause or any efforts made for recovery as held by the Hon'ble Gujarat High Court in case of Dhall Enterprises and Engineers (P) Ltd. Further, the value of the residential bungalow at Rs.50 lacs was not based on any valuation report or evidence. The notes on account attached with balance sheet and p&l account for A.Y. 05-06 clearly state that the amount of Rs.1 crore is fully realizable. In view of the above reasons, the ld. A.O. disallowed bad debts of Rs.25.5 lacs.
3. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who had confirmed the addition by observing as under:
"3.3 I have considered the facts of the case; assessment order and appellant's submission. It is not in dispute that appellant received immovable assets on settlement of dues from debtor. The value of movable assets was considered to be one crore rupees. Accordingly the difference was written off in the accounts of debtor last year as bad debts. Since account of the debtor was already closed last year by recovery of immovable assets, no new amount could have been written off and therefore the same cannot be considered as bad debts. Since immovable assets were taken against outstanding dues and difference in value was already written off as bad debts,there is no question of writing off of loss on sale of immovable property as bad debts. The provisions relating to bad debts are clear. The amount has to be written off in the account of the debtor and the same should have been taken as income in earlier years. In the case of appellant, As regards claim of loss of rupees 25 lakhs, the debtor's account was already written off last year and new immovable asset has come in balance sheet. This year appellant sold the house and realized less value which was claimed as bad debts. The claim of the appellant is patently incorrect because there is no debtor existing during the year which could be written off. When immovable asset is sold, the loss on account of the same is in nature and not revenue allowable under section 37/36 of IT act. Appellant submitted its argument against Gujarat High Court decision in the case of Dhall enterprises however the disallowance made by the assessing officer is on facts and not just by following the decision. When there was no debt a where is the question of claiming bad debts. The loss on sale of immovable property cannot be claimed as bad debts even if the property was taken by way of settlement from debtor. Once the debtor ceases to exist, there is no question of claiming bad debts. Accordingly the claim of loss on sale of immovable property as bad debts is Incorrect and accordingly the addition made by the assessing officer is confirmed. The loss on sale of immovable asset is capital in nature which cannot be allowed as revenue.As regards claim of bad debts of RS 50,000 on account of booking advance to Pal Peugeot Ltd, the same was advance and not taken as income in earlier years. In view of this conditions of section 36 (2) was not satisfied. The same cannot be allowed as bad debts. Appellant has not proved this as loss incidental to business and therefore the same is also not allowed as business loss. In view of this the entire claim of bad debts is found to be incorrect and addition made by the assessing officer in this regard is confirmed".
4. Now the assessee is before us. Ld. Counsel for the appellant contended that Rs.25 lacs has been written off by the company as irrecoverable in the books account. He further has drawn our attention on assessee's own case for A.Y. 05-06, where identical bad debts of Rs.80.20 lacs was allowed by the Hon'ble 'A' Bench, Ahmadabad in ITA No.1829/Ahd/2009 for A.Y. 2005-06 by following Hon'ble Supreme Court decision in case of TRF Ltd. vs. CIT in Civil Appeal No. 5292 of 2003 order dated 09.02.2010 = (2010-TIOL-15-SC-IT). He further reiterated the argument made before the CIT(A) on bad debts. He further relied upon the decision of ITAT, Mumbai Bench in case of ITO vs. Reliance Engineering Associates (P) Ltd. in ITA No. 6931 (Mum) of 2008 for A.Y. 2003-04, wherein deposit made for arranging residential accommodation for employees of the assessee, which has become irrecoverable, are allowable as business loss. He argued that in case of CIT vs. SMIFS Security Ltd. [2012] 348 ITR 302 (SC) = (2012-TIOL-53-SC-IT), the Court held that concurrent findings of authorities that debt incurred in course of business and assessee satisfied conditions precedent – that amount shown in audit report as incurred on capital account in accounts – not conclusive – assessee entitled to deduction u/s. 36(1)(vii). Accordingly, he prayed to allow the same. 4(i). At the outset, ld. Sr. D.R. opposed the argument of the ld. A.R. for the assessee as the loss claimed by the assessee has direct nexus with sale of the capital assets i.e. residential house and booking of car. The assessee did not disclose any income against the amount written off in the p&l account. The assets were become part of the block of assets. He further relied upon following decisions:
i. Shree Digvijay Woollen Mills Ltd. vs. CIT [1993] 204 ITR 398 (Guj.)
Business expenditure – Allowability of – Assessment year 1976-77 – Assessee incurred an expenditure in boring tube well with intention of creating a facility which would have provided water for a pretty long time, through water found was unsuitable and tubewell turned out to the useless – Whether expenditure incurred in boring tubewell was capital expenditure, notwithstanding that tubewell turned out to be useless – Held, yes.
ii. CIT vs. R.G. Scientific Enterprises (P.) Ltd. [2009] 311 ITR 401 (Delhi) = (2007-TIOL-626-HC-DEL-IT)
Bad debts – Assessment year 1995-96 – Two Directors had, on behalf of assessee-company, made down payment of Rs.9 lakhs to one company 'K' for purchase of a premises for assessee – Later, they resigned and transaction for said purchase could not be completed – since 'K' refused to return money, after waiting for three years, on advice of its auditors, assessee wrote off said amount as bad debt – Assessing Officer disallowed claim – Commissioner (Appeals) dismissed appeal filed by assessee by holding that since money was paid for purchase of a capital asset and after purchase would have been shown in balance sheet as such, said sum constituted a capital loss and not a business loss – Tribunal took view that since asset was in fact not purchased and any hope of money being recovered was lost, said sum constituted only a business loss and had to be allowed as such – Letter written by assessee to Assessing Officer revealed that amount had been advanced to 'K' for purchase of a capital asset for assessee – Whether conclusion arrived at by Tribunal that non-recovery of said sum was a business loss was contrary to assessee's letter which made position explicit that it was advanced for purchase of a capital asset – Held, yes – Whether, therefore Commissioner (Appeals) was justified – Held, yes
iii. Hon'ble ITAT, Ahmedabad 'A" Bench decision in case of Dy.CIT vs. Panchmahal Steel Ltd in ITA No.1680/Ahd/2010 for A.Y. 2004-05, wherein the assessee had written off advance made for purchase of capital goods, which was not allowed as business loss u/s.37 of the IT Act.
iv. G.P. Singhi vs. CIT [1986] 158 ITR 782 (Delhi)
Bad debt – Assessed was partner in a firm which advanced certain sum to a company against mortgage of assets – On demanding payment, assets were handed over to firm in 1953, which took no action to realize them – In 1960 firm sold assets resulting in shortfall year of Rs.37,440 which was claimed as bad debt – Whether debt had become bad in assessment year 1960-61- Held no – Whether, in view of the facts that no action was taken to realise assets and claim shortfall, debt was liquidated in 1953 on taking over assets and no debt was outstanding thereafter – Held, yes
v. Aspinwall & Co. Travancore Ltd. vs. CIT [1998] 230 ITR 587.
Bad debts – Assessment year 1981-82 – Assessee company advanced certain amount to its sister concern Loan was outstanding – Subsequently, aforesaid loan was converted into shares, which were sold by assessee at a loss – Tribunal took a view that said loss was in nature of capital loss – In view of said finding, assessee claimed deduction as loss representing notional interest on aforesaid advance which was subjected to tax in earlier years – Tribunal, however, rejected assessee' claim – Whether moment amount of debt was utilized for purpose of acquiring shares of debtor company, thereafter, there was no question of any notional interest due on amount of advance or debt as case may be – Held, yes – Whether, therefore, Tribunal was justified in rejecting assessee's claim – Held, yes
Therefore, he argued that it is a capital loss which cannot be claimed either u/s. 37 as business loss or as bad debt u/s.36(1)(vii) of the IT Act.
5. We have heard the rival contentions and perused the material on record. The assessee had taken possession on immovable property i.e. residential house in earlier years which was sold during the year and claimed loss on account of sale of the immovable property. The assessee had shown these assets in the balance sheet as capital assets. As held by the various Courts that loss incurred on sale of capital assets is not allowable u/s. 36 (1)(vii) of the IT Act as bad debt written off as well as business loss u/s. 37 of the IT Act because it is a capital loss. Similarly, the assessee made deposit for booking car to M/s. Pal Peugot Ltd. and paid Rs. 50,000/-, which was not recovered from it and deposit was for capital assets. No income against this debt had been disclosed by the assessee in past. Therefore, on identical findings, we do not found any reason to intervene in the order of the CIT(A). Accordingly, we dismiss the appeal of the assessee on these grounds.
6. In the result, assessee's appeal is dismissed.
(This Order pronounced in open Court on 27.3.2014)
2014-TIOL-678-HC-AHM-ST
IN THE HIGH COURT OF GUJARAT
Special Civil Application No.6222 of 2014
RAMILABEN BHARATBHAI PATEL
Vs
UNION OF INDIA AND 2
Akil Kureshi And Sonia Gokani, JJ
Dated: May 1, 2014
Appellants Rep by: Mr Jigar Shah And Mr Anand Nainawati, Adv.
Respondent Rep by: None
Respondent Rep by: None
ST VCES, 2013 – shortfall in depositing 50% declared tax dues by 31 st December, 2013 – declaration rightly rejected by designated authority - There is no power for waiving or relaxing the condition of depositing 50% tax dues flowing from section 107 – It would not be possible for the High Court to exercise writ jurisdiction to direct the authority, in plain terms, which the statutory provision does not permit - Petition dismissed: High Court [ para 6, 7]
Petition dismissed
JUDGEMENT
Per: Akil Kureshi:
1. The petitioner has challenged a communication dated March 19, 2014 issued by the respondent No.3 Assistant Commissioner of Service Tax.
2. Brief facts are as under:
2.1 The legislature formulated service tax voluntary compliance encouragement scheme, 2013 (hereinafter referred to as 'the Scheme') by way of Chapter VI of the Finance Act, 2013, which contains sections 104 to 114. Broadly, the scheme enables a person to make declaration of his tax dues and subject to fulfilling the conditions in the said scheme, such declarant would get immunity from interest and penalties of previously not having paid the taxes. Section 106 pertains to a person who may make declaration. Procedure for making declaration and payment of tax dues is provided in section 107. Upon such declaration being accepted as per section 108, the declarant would get immunity from penalty, interest and other proceedings. Subsection (1) of section 107 enables a person to make a declaration to the designated authority before December 31, 2013 in the prescribed format. Under subsection (3) of section 107, the declarant has to pay not less than 50% of the tax dues so declared under subsection (1) of section 107 before December 31, 2013. As per subsection (4) of section 107, the remaining part of the tax dues would have to be paid up by June 30, 2014. Proviso to subsection (4) of section 107 provides as under:"107(4) ...Provided that where the declarant fails to pay said tax dues or part thereof on or before the said date, he shall pay the same on or before the 31st day of December, 2014 along with interest thereon, at such rate as is fixed under section 75 or, as the case may be, section 73B of the Chapter for the period of delay starting from the 1st day of July, 2014."2.2 Under subsection (7) of section 107, on furnishing the details of full payment of declared tax dues and the interest, if any, payable under the proviso to subsection (4), the designated authority shall issue an acknowledgement of discharge of such dues to the declarant in the prescribed format.2.3 Section 110 provides that where the declarant fails to pay the tax dues, either fully or in part, as declared by him, such dues along with interest thereon shall be recovered under the provisions of section 87.2.4 The petitioner made a declaration under section 107 of the tax dues, declaring an unpaid tax dues of Rs.16,42,936/-, out of such tax dues the petitioner deposited a sum of Rs.8,01,120/- before December 31, 2013. Admittedly, thus, towards the first instalment there was a shortfall of Rs.20,148/. On the premise that 50% of the tax dues were not deposited before December 31, 2013, the respondent No.3 under the impugned communication dated March 19, 2014, conveyed to the petitioner as under:"Subject: Rejection of your VCES Declaration matter reg.You are hereby informed that your VCES declaration of Rs.16,42,936/- dated 26.12.2013 has been rejected by the Commissioner, Service Tax, Ahmedabad due to following reasons:(i) Less payment then the 50% of tax dues of the total declared tax dues.You are hereby informed that the declared amount under VCES is recoverable under Section 87 of Finance Act, 1994 immediately. Therefore, you are requested to pay up the said amount immediatelyalongwith interest and also submit following documents for 200809 onwards for necessary verification by the undersigned within one week of receipt of this letter:(i) Balance Sheet(ii) P/L Account(iii) ST3 Returns, if filed(iv) Bank Statements."
3. It is this communication that the petitioner has challenged in this petition. Thus, admitted facts are that there was a shortfall in depositing 50% of the tax dues by the cut off date of December 31, 2013. As we have noticed that the scheme requires a declarant to deposit 50% of the tax dues latest by December 31, 2013, the remaining 50% would have to be paid latest by June 30, 2014. The proviso to subsection (4) of section 107 gives some flexibility for the purpose of depositing second instalment. Additional six months are granted, but to the extent of delay beyond such period, the declarant would have to bear interest as well. Indisputably, the proviso applies only to subsection (4) and not subsection (3). There are several indications in the proviso itself, which makes it inapplicable to subsection (3).
4. The scheme, thus, requires a declarant to deposit the tax dues of 50% by a certain date. It is only after the full deposit that under subsection (1) of section 107, the declaration would be accepted and the designated authority would acknowledge the discharge of dues of the declarant in the prescribed format. Under the circumstances, the petitioner not having fulfilled the essential requirement of the scheme, the authority committed no error in rejecting such declaration.
5. The learned counsel for the petitioner, however, raised two fold contentions. He firstly contended that the shortfall was due to a bona fide calculation error. The amount involved was very small. He secondly contended that under section 110, the tax short-paid could be recovered with interest, but the declaration itself cannot be rejected.
6. To our mind, neither of the two contentions can be accepted. The scheme makes no difference between tax dues which are shortpaid due to bona fide error and one which flows from deliberate inaction. There is no power for waiving or relaxing the condition of depositing 50% tax dues flowing from section 107. It would not be possible for this Court to exercise writ jurisdiction to direct the authority, in plain terms, which the statutory provision does not permit.
7. Coming to the second contention, the scheme envisages depositing tax dues in two stages. Only after the taxes are fully deposited stage-wise that the declaration under section 107 would be accepted. Section 110 only pertains to recovery of the taxes declared, but not paid. This provision has no bearing on the invalidity of declaration when the declarant fails to deposit the taxes as provided in subsections (3) and (4) of section 107. If we interpret section 110, as urged by the learned counsel for the petitioner, that it encompasses both the cases of delay in depositing the taxes at the first stage of subsection (3) of section 107 and second stage of subsection (4) of section 107, the proviso to subsection (4) would be rendered wholly redundant. If as suggested, shortfall in the taxes could be accepted after charging interest under section 110, there was no need to make special proviso for extending time for depositing the remaining of the taxes under subsection (4) of section 107. Further, section 110 pertains to compulsory recovery of taxes with interest. Subsections (3) and (4) of section 107 refer to voluntary tax deposit by a declarant in terms of the scheme. Both these operate in separate fields.
8. In the result, the petition is dismissed.
2014-TIOL-218-ITAT-DEL
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'C' NEW DELHI
BENCH 'C' NEW DELHI
ITA No.863/Del/2011
Assessment Year: 2000-01
Assessment Year: 2000-01
ASSTT COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE-2, ROOM NO 323
3rd FLOOR ARA CENTRE, NEW DELHI
CENTRAL CIRCLE-2, ROOM NO 323
3rd FLOOR ARA CENTRE, NEW DELHI
Vs
M/s HCL CORPORATION LTD
(FORMERLY SLOCUM INVESTMENT P LTD)
806, SIDDHARTHA, 96 NEHRU PLACE, NEW DELHI
PAN NO:AAACS0921R
(FORMERLY SLOCUM INVESTMENT P LTD)
806, SIDDHARTHA, 96 NEHRU PLACE, NEW DELHI
PAN NO:AAACS0921R
S V Mehrotra, AM And A D Jain, JM
Date of Decision: April 28, 2014
Appellant Rep by: Shri R S Gill, CIT-DR
Respondents Rep by: Shri Rohit Jain, Adv. & Shri Rohit Garg, CA
Respondents Rep by: Shri Rohit Jain, Adv. & Shri Rohit Garg, CA
Income Tax - Sections 3(1)(b), 14A, 143(1)(a), 143(2), 143(3), 154, 155, 156, 220, 220(2), 244A, 245D, 246, 246A, 250, 254, 260, 262, 264 - Whether interest on account of default in making payment of Income Tax would have to be calculated with reference to the date of first assessment order and not with the date of an order passed in remand proceedings.
The assessee Company filed its return declaring huge tax free income which was earned from investments made. During the course of assessment proceedings the AO disallowed proportionate expenses attributable to these investments by applying section 14A of the Act. The CIT(A) partly allowed the appeal of the assessee. However, ITAT restored the issue to the file of AO.
The assessee Company filed its return declaring huge tax free income which was earned from investments made. During the course of assessment proceedings the AO disallowed proportionate expenses attributable to these investments by applying section 14A of the Act. The CIT(A) partly allowed the appeal of the assessee. However, ITAT restored the issue to the file of AO.
Upon completion of fresh assessment proceedings the AO recomputed the income of the assessee and charged interest under section 220(1) with effect from the first date of assessment order. Aggrieved with the order of the AO assessee filed appeal before CIT(A) who allowed the appeal.
On appeal, the ITAT held that,
++ from the facts stated above of the Vikrant's case we can understand that in that case before the Supreme Court, the assessee had paid the entire tax demanded of him at the first instance itself i.e. when the original assessment was made and demand raised, at that time itself the assessee has made the payment: and even when it was restored by an order of the appellate authority, after being quashed by a lower appellate authority, since the tax demands were fully satisfied by the assessee even at the initial stage, the assessee was held not liable to pay interest. This case is distinguishable from the case before us inasmuch as the assessee before us did not pay the tax demanded of him by the assessing officer in the year 2003. He has not paid till date the tax for the assessment year 2000-01, which was assessed by the AO. Whereas he has received a refund, when the CIT(A) partially allowed his appeal. Though the question before the Hon'ble Supreme Court in Vikrant case (supra) was whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in reference by the High Court on fresh demand notices being issued to the Assessee. Here in this case though refund was made, the fact of the matter does not in any way change that the assessee did not pay tax exigible, when the tax was demanded u/s 156 of the Act, after the original assessment order of 22nd March, 2003. In Vikrant's case it may be noted that the assessee paid tax both at the time of original assessment and also when finally High Court restored the original assessment order, then also the assessee made the payment without any default, though tax was refunded due to the order of ld CIT(A). Here that is not the case. In the case before us, the assessee did not make any payment when the first demand notice in pursuance to the assessment order was passed by AO in the year 2003, and till date the assessee has not made any payment even though, the AO, in pursuance of the Tribunal order, recomputed the tax to be levied u/s 14A. Therefore this case is distinguishable from the facts and circumstances of the Vikrant's case.
++ from the facts stated above of the Vikrant's case we can understand that in that case before the Supreme Court, the assessee had paid the entire tax demanded of him at the first instance itself i.e. when the original assessment was made and demand raised, at that time itself the assessee has made the payment: and even when it was restored by an order of the appellate authority, after being quashed by a lower appellate authority, since the tax demands were fully satisfied by the assessee even at the initial stage, the assessee was held not liable to pay interest. This case is distinguishable from the case before us inasmuch as the assessee before us did not pay the tax demanded of him by the assessing officer in the year 2003. He has not paid till date the tax for the assessment year 2000-01, which was assessed by the AO. Whereas he has received a refund, when the CIT(A) partially allowed his appeal. Though the question before the Hon'ble Supreme Court in Vikrant case (supra) was whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in reference by the High Court on fresh demand notices being issued to the Assessee. Here in this case though refund was made, the fact of the matter does not in any way change that the assessee did not pay tax exigible, when the tax was demanded u/s 156 of the Act, after the original assessment order of 22nd March, 2003. In Vikrant's case it may be noted that the assessee paid tax both at the time of original assessment and also when finally High Court restored the original assessment order, then also the assessee made the payment without any default, though tax was refunded due to the order of ld CIT(A). Here that is not the case. In the case before us, the assessee did not make any payment when the first demand notice in pursuance to the assessment order was passed by AO in the year 2003, and till date the assessee has not made any payment even though, the AO, in pursuance of the Tribunal order, recomputed the tax to be levied u/s 14A. Therefore this case is distinguishable from the facts and circumstances of the Vikrant's case.
++ in our opinion this decision squarely covers, the issue, before us. In view of above discussion assessee was required to pay interest u/s 220(2) as it had not initially satisfied the demand raised in 2003. We are in agreement with ld. counsel for the assessee that interest on refund is to be charged from the date of grant of refund. The assessee has given computation at page 64 and 65 of its paper book which may be considered by AO while computing the interest leviable u/s 220(2).
Revenue's appeal allowed
ORDER
Per: S V Mehrotra:
This appeal by the Revenue is directed against the order passed by the CIT (A)-III, New Delhi, on 24.11.2010, in relation to the assessment year 2000-01.
2. The only issue in this appeal is in regard to computation of interest leviable u/s 220(2) of the Income Tax Act.
3. The brief facts of the case are that the assessee had filed its return of income on 30th November, 2000, declaring a total income of Rs.73,13,04,670/-. The assessment was completed at a total income of Rs.82,45,76,787/-, after making a disallowance of Rs.9,32,72,113/- u/s 14A vide order dated 27th March 2003. The assessment was challenged before the ld. CIT (A) who vide appellate order dated 1st September, 2008, allowed part relief. The order of ld. CIT (A) was assailed before ITAT (Delhi), both by the department and the assessee. The ITAT decided the appeals vide consolidated order dated 30th January, 2009, restoring the issue of disallowance u/s 14A of the Act to the AO with a direction to work out the disallowance in accordance with the guidelines laid down in the order of the Special Bench decision of the Tribunal in the case of Daga Capital Management Pvt. Ltd. 117 ITD 169 (Mum) (SB) = 2008-TIOL-509-ITAT-MUM-SB. The AO passed the order in consequence to Tribunal directions u/s 143(3)/254 on 31st August 2009 and determine the disallowance u/s 14A at Rs.4,44,82,525/-. In the demand note issued u/s 156 dated 31st August, 2009, the AO levied interest u/s 220(2) of Rs.1,10,08,896/- as under:
| Tax payable | Rs. 23,57,556/- |
| Amount already refunded | Rs. 1,37,42,560/- |
| Total tax payable | Rs. 1,61,00,116/- |
| Add; Interest u/s 220(2) | Rs. 1,10,08,896/- |
Total | Rs. 2,71,09,012/- |
4. The assessee preferred an appeal before ld. CIT (A) and submitted that the AO failed to appreciate that in the notice of demand dated 31st August 2009 itself the assessee was directed to pay income tax demand of Rs.1,61,00,116/- within 30 days of service of said notice. In such circumstances, there was no occasion for the AO to impose interest of Rs.1,10,08,896/- u/s 220(2) of the Act in the notice of demand itself, since the occasion to levy the said interest could arise if and only if, the assessee defaulted in payment of the income tax demand of Rs.1.16 cores within 30 days of the issuance of the said notice. The assessee had relied on the decision of Hon'ble Supreme Court in the case of Vikrant Tyres Ltd. Vs. ITO 247 ITR 821. It was further submitted that following decision of Hon'ble Supreme Court in the case of Vikrant Tyres Hon'ble, Kerala High Court in the case of Smt. B. Indira Rani vs. CIT 271 ITR 570 deleted the interest.
5. The assessee further referred to the decision of the Tribunal in the case of Hindalco Industries Ltd. (2005) 4 SOT 757 wherein also similar view was taken and following principles were culled out:
"30. Thus, respectfully following above decision of Hon'ble Supreme Court and also the decisions relied by ld. counsel for the assessee we hold in the case of the assessee that:(I) He will not be an assessee in default if the assessment has been set aside by the appellant authority for being made de nova. Hence no interest under section 220(2) can be charged till the period when fresh assessment is made, fresh demand notice is issued, and statutory time period for making the payment has expired. The assessee has to be in default for charging interest under section 220(2). For default there should be demand pending and not paid within the statutory period given for payment. After the assessment order is set aside there is no demand pending against the assessee. When fresh assessment is made it may relate back to the original assessment but the default cannot relate back to the original default. If the demand does not survive in the register of the department when the assessment order is set aside, the assessee cannot be compelled to make the payment and hence he will not be in default.(II) If the assessment is set aside on a limited issue/s and some issues are confirmed against the assessee then the original demand notice does not cease to exist. While giving appeal effect the demand relating to the set aside issues should be taken into minus and the assessee would continue to be in default in respect of balance of demand from the date of original default. In the fresh demand notice issued on making the fresh assessment after deciding the issues set aside the assessee will be in default for only balance of demand raised and fallen due as he is in continuous default for the demand in respect of issues confirmed in appeal.(III) Wherever the demand has been paid, the assessee will not be treated as in default and no interest for that amount thereafter will be charged. Similarly where the total income is reduced to nil or to a minus figure then again the assessee cannot be treated as in default.(IV) Thus when the assessment becomes final and so the demand after all the litigation then the default has to be analyzed. The final demand has to be divided according to the default. The period of default may vary for different portion of final demand. Interest has to be charged on the amount of tax in default for the period for which that default existed. Entire final demand cannot be subjected to interest and entire period from the date of original default cannot be considered for the charge of interest."
6. In the alternative, it was submitted that the interest had wrongly been computed inasmuch as if at all interest u/s 220(2) was to be levied, the same could only be levied from the date of refund since the said amount remained with the assessee only from that date. The ld. CIT (A) allowed assessee's appeal, directing the AO to modify the computation of interest charged u/s 220(2) of the Income tax Act in accordance with the principles laid down by Hon'ble Supreme Court of India in the case of Vikrant Tyres Ltd. Being aggrieved with the order of ld. CIT (A), the Department is in appeal before us and has taken grounds of appeal.
"1. On the facts and in the circumstances of the case, the CIT (A) has erred in law and on facts in directing the AO to recomputed the interest levied u/s 220(2) of the IT Act, 1961 in accordance with the principles laid down by the Hon'ble Supreme Court of India in the case of Vikrant Tyres Ltd. (247 ITR 821).2. On the facts and in the circumstances of the case, the CIT (A) has erred in law and on facts in relying upon the decision of the Hon'ble Supreme Court of India in the case of Vikrant Tyres Ltd without appreciating that the facts of the instant case are different from the facts in the case of Vikrant Tyres Ltd.3. The order of the Ld. CIT (A) is erroneous and is not tenable in law and on facts.4. The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal."
7. The ld. DR submitted that the facts in the case of Vikrant Tyres Ltd. were different and, therefore, the ld. CIT(A) erred in applying the ratio of the said decision to the facts of the present case. The ld. DR submitted that in consequence to the assessment order passed on 31st August 2009, the original tax demand dated 27th March 2003 got revised. He supported the order passed by the AO levying interest u/s 220(2).
8. The ld. counsel for the assessee submitted that AO had issued fresh notice of demand dated 31st August, 2009. He submitted that since the Tribunal had set aside the assessment order, therefore, the original notice of demand also could not be treated as pending. The ld. counsel vehemently relied on the decision of Hon'ble Kerala High Court in the case of Smt. B Indira Rani (Supra) and referred to following observations:
The apex Court in ITO & Anr. vs. Seghu Buchiah Setty AIR 1964 SC 1473 held that where the amount of tax was reduced as a result of the orders in appeal, a fresh notice of demand has to be served on the assessee for the recovery of tax and that although the entire demand as such was annulled, the assessment stood annulled. At para 17 Sarkar, J. on behalf of the Bench observed as follows: ""17. The order of reduction must, in my opinion, necessarily have the effect of setting aside the original order as a whole. It does not simply strike out a few of the figures appearing in the original order. That would really be a case of rectification for which provision is made ins. 35 of the Act. What an appellate order does in a case of reduction is, as in the present case, to go into all the figures and arrive afresh at the assessable income which replaces the amount of the income arrived at by the ITO. Therefore it seems to me that in all cases of an appellate order reducing the assessment the original order goes and if it goes, of course the notice of demand also falls to the ground and the default based thereupon also ceases to be default anymore....."3. To get over the above decision The Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 (in short 'Validation Act') was passed. Under s. 3(1)(b) of the above Act, if the Government dues are reduced as a result of the appeal, taxing authority need not necessarily issue a fresh notice of demand and taxing authority need give only an intimation regarding the reduction of amount. Sec. 3(1)(b) of the above Act is as follows :"(b) where such Government dues are reduced in such appeal or proceeding,(i) it shall not be necessary for the Taxing authority to serve upon the assessee a fresh notice of demand;(ii) the Taxing authority shall give intimation of the fact of such reduction to the assessee, and where a certificate has been issued to the Tax Recovery Officer for the recovery of such amount, also to that officer;(iii) any proceedings initiated on the basis of the notice or notices of demand served upon the assessee before the disposal of such appeal or proceeding may be continued in relation to the amounts reduced from the stage at which such proceedings stood immediately before such disposal;"(emphasis, italicized in print, supplied)4. In this case admittedly no intimation was sent as provided under the above section. But after the appellate order, fresh assessment was made as can be seen from Ext-P5 and fresh demand notice [Ext. P5(A)] in the prescribed form was sent. Whereas in Ext. P5(A) notice demand was made to pay the amount within 35 days. It was further stated that if the assessee failed to pay the amount within the time prescribed, he will be liable to pay interest under s. 220(2). In such circumstances, original demand is superseded and fresh demand is issued and liability to pay interest starts only from the date of new demand. First demand is nullified by the second demand. By the action of the assessing authority in making fresh assessment and demand notice, original demand notice is superseded. It is not a case where intimation is sent under Validation Act, 1964. Validation Act, also has not prohibited issuance of fresh demand notice. It only says that it is not always necessary. First demand is nullified by the second demand.
9. The ld. counsel for the assessee further pointed out that in the said judgment, the Circular No. 334 dated April 3 1982, was also discussed as under:
"2. These issues were comprehensively examined in consultation with the Ministry of Law and the Board has been advised :(i) where an assessment order is cancelled under s. 146 or cancelled/set aside by an appellate/revisional authority and the cancellation/setting aside becomes final (i.e., it is not varied as a result of further appeals/revisions), no interest under s. 220(2) can be charged pursuant to the original demand notice. The necessary corollary of this position will be that even when the assessment is reframed, interest can be charged only after the expiry of 35 days from the date of service of demand notice pursuant to such fresh assessment order."It is true that the above circular is binding on the Department, but not on the Court and assessee if it is against the statutory provisions. [See CIT vs. Malayala Manorama & Ors. (1983) 33 CTR (Ker) 277 : (1983) 143 ITR 29 (Ker)]. Even in the last sentence of the circular it is clearly stated hat if assessment is reframed, interest can be charged only after the expiry of 35 days from the date of service of demand notice pursuant to the fresh assessment order. It was argued that it was not necessary for the AO to reframe the assessment or pass a fresh assessment order as was done in this case, and mere intimation as mentioned in the Validation Act, 1964 would have been enough. But the fact is that after the Tribunal's order fresh assessment order Ext. P5 was passed detailing tax payable, calculating interest under ss. 139(8) and 217(1A) till the date of fresh assessment and proposing for penalty. If it was a mere intimation, proposal of taking penalty proceedings would not have been there. Pursuant to the reframing of assessment, a fresh demand notice was issued asking to pay the amount mentioned within 35 days and amount was paid within time. Ext. P5(A) demand notice therefore, suppressed the first demand notice. It is settled law that in a taxation statute one has to look at what is clearly stated. There is no room for any intendment. There is no enquiry or presumption about tax. Nothing is to be read in and nothing is to be implied. In view of the clear language used in s. 220(2) when a fresh demand notice is issued in pursuance of a fresh assessment order passed as a result of the appellate order, interest is payable only when the amount is not paid as per the fresh demand. Hence, Ext. P7 order is set aside with consequential reliefs. The appeal is allowed.
10. With reference to this judgment, ld. counsel submitted that since in the present case also a fresh notice of demand was raised by the AO after passing of assessment order in consequence to the Tribunal's direction, therefore, interest u/s 220 (2) could be levied only if the notice of demand was not satisfied by the assessee. Ld. counsel further referred to the decision of the Hon'ble Rajasthan High Court in 325 ITR 346 in the case of CIT Vs. Rajesh Kumar, Dinesh Kumar = 2009-TIOL-17-HC-RAJ-IT wherein also, after considering Circular No.334, dated April 3, 1982, similar view was taken. He submitted that the SLP filed by the Department against this decision has been dismissed. The ld. counsel submitted that in consequence to the Tribunal's order, original demand was also got set aside as the only issue before the Tribunal was disallowance of interest u/s 14A. The ld. counsel further referred to the decision of Hon'ble Bombay High Court in the case of CIT vs. Cheeka 247 CTR 136 wherein also similar view was taken.
11. We have considered the submissions of both the parties and have perused the record of the case. In order to appreciate controversy, we first reproduce the relevant sections on this issue:
156. When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable:"220. (1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice.(2) If the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid:Provided that, where as a result of an order under section 154, or section 155, of section 250 or section 254, or section 260, or section 262, or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded:"******"(6) Where an assessee has presented an appeal under section 246 or section 246A the Assessing Officer may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of."
12. A bare perusal of these sections makes it clear that every notice of demand u/s 156 is to be satisfied within the prescribed time limit. As per the proviso to section 220(2) if the amount on which interest was payable under the section had reduced, the interest shall also be reduced accordingly, and the excess interest paid, if any, is to be refunded. Sub section (6) to section 220 makes it clear that if an appeal has been preferred by the assessee, then the AO may, in his discretion and subject to such conditions as he may think fit to impose, in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal. Thus, unless the AO has stayed the demand or the demand has been stayed in consequence to the order passed by some other authority, the assessee will be treated as assessee in default in respect of impugned amount as long as the said amount has not been paid. In various case laws relied upon by the ld. counsel for the assessee, the view taken is that if the assessment order has been set aside then the demand will also got set aside and, therefore, only after the passing of the fresh assessment order, the default is to be reckoned if the fresh notice of demand is not satisfied.
13. Before we consider the various case laws relied upon by the ld. counsel, it would be gainful to refer to the Law lexicon, the encyclopedic legal and commercial dictionary to know the meaning of various words..
Set aside – To annul, quash, void or nugatory [s, 96, Cr.PC.] [S, 178(3) (b), income tax act.]Restore – To give back; to make return or restitution of anything previously taken a way or lost]; to put back into a former or original state.
Let us now examine the meaning of the word 'Restore' from the chambers concise dictionary
Restore - to repair; to bring, to put or give back; to make good; to reinstate; to bring back to a [supposed] former state, or to a normal state; to reconstruct mentally, by inference or conjecture.
14. The meaning of the following words are taken down from Cambridge International Dictionary of English
Adjudicate: to act as judge in (a competition or argument)Re: combining form used to add the meaning 'do again, esp. to verb.Compute: to calculate (an answer or amount) or by using a machine.
In the backdrop of above meanings of various phrases adjudicating an appeal, we will examine the findings of Tribunal which read as under:
"the solitary ground of appeal, taken by the Revenue was interconnected with the ground number one of the assessee's appeal and in that ground of appeal the issue involved was whether any amount deserved to be disallowed out of finance charges under section 14 A of the Act. If yes then how much amount is to be disallowed. Assessment officer has disallowed a sum of Rs.9,32,72,113/–. The CIT(A) have confirmed the disallowance of Rs.72,78,820/–. The revenue in its appeal is impugning the deletion of Rs.8,89,93,293/– out of the disallowance of finance charges. Whereas assessee is impugning the confirmation of disallowance that at Rs.72,78,820/–. The brief facts are the company has filed its return of income on 30th November 2000 declaring total income of Rs.73,13,04,670/–. This return was processed u/s 143(1)(a) of the Income Tax Act on 24th of July 2002. Thereafter the case was selected for scrutiny by issuance of a notice under section 143(2) of the Act which was served upon the assessee on 28th August 2002. The assessee company at the relevant time was engaged in the business of trading in shares and making investment in shares. On scrutiny of the accounts, the learned AO found that assessee has shown the following income during the year in the profit and loss account.
| Gross Profit on trading business (shares) | 1,46,31,484/- |
| Profit on sale disposal of investments | 81,55,12,383/- |
| Interest | 2,29,48,623/- |
| Dividend | 6,18,06,549/- |
| Other income | 22,90,359/- |
Total - | 91,71,89,398/- |
"The finding of the Tribunals order's operative relevant portion is reproduced below:-:"The AO has made the disallowance u/s 14A while scrutinizing the returns of assessee in normal course according to the time limit available to the AO. Therefore we do not see any good reason to interfere in the finding of Ld. CIT(A) the additional contention of the assessee is rejected.The next question for our consideration is that quantification of disallowance. We find that this issue has also been considered by the special bench in para 18.7 and 22 of the order wherein the special bench was considering retrospective applicability of section 14A of the Act. According to the mandate of Special bench for the purpose of the disallowance u/s 14A one has to see the expenditure in relation too the exempt income and not to examine whether the expenditure incurred by the assessee has resulted into exempt income or taxable income. Special bench has observed that such quantification has to be worked out in accordance with the Rule 8D of the Income Tax Rules. The ld. Revenue authorities below has not worked out the disallowance as provided in Rule 8D of the Income Tax Rules. In view of the above discussion we are of the view that both the issues i.e. disallowance u/s 14A and its quantification are covered by I bench of the Tribunal in the case of Daga Capital." the Special Bench order. Thus in principle we uphold the finding of the CIT(A) that disallowance u/s 14A has to be made and for the purpose of quantification of disallowance we restore this issue to the file of the AO for re-adjudication. The ld AO shall work out the disallowance in accordance with the guidelines laid down in the order of the special bench of the Tribunal in the case of Daga Capital."
15. In the backdrop of above discussion it is evident that in the present case Tribunal had only directed for re-computation of disallowance u/s 14A to the AO while upholding AO's finding that disallowance u/s 14A was called for. Therefore, it was not a case of set aside of the original assessment order but only for quantification purpose, the matter was restored to the file of the AO. The original disallowance of Rs.9,75,13,971/- got reduced to 4,77,25,657/-.
16. Now in the back-drop of the said facts and direction of the Tribunal let us look at the facts of the Vikrant Tyres Ltd's case. The fact of the case were that for the assessment year 1977-78, 1978-79, and 1980-81, assessment order were served on the assessee-appellant and demand notice were issued. The assessee complied with the demands by paying the tax due. The appellate authority on an appeal preferred by the appellant allowed the same and the taxes paid were refunded to the appellant. When the matter went for reference to the High Court, the same came to be allowed thereby upholding all the assessment order. Thereafter, the Revenue made fresh demands and the assessee repaid the taxes as assessed and demanded. However, the Revenue invoked section 220(2) the Act and demanded interest in respect of the tax assessed for the period commencing with refund of the tax consequent upon the first appellate order till the taxes were finally paid after disposal of the references.
17. The assessee challenged the said demand of interest in writ petitions before the High Court, inter alia, contending that its was not at all in default because it had paid the taxes in compliance with the demands, hence, the original demands did not survive so this was not a case where it had failed to comply with the demand made under section 156 of the Act. In the said facts the Hon'ble Supreme Court held that a bare reading of this section clearly indicates that if the assessee does not pay the amount demanded under a notice issued under section 156 of the Act within the time stipulated under sub-section (1), the said assessee is liable to pay simple interest at one and one-half per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid, and, therefore, the condition precedent under this section is that there should be a demand notice and there should be a default to pay the amount so demanded within the time stipulated in the said notice. The Hon'ble Supreme Court noted that when applying this section to the facts of the case, it is seen that immediately after the assessment was made for the relevant years demand notices were issued under section 156(1) of the Act and the appellant satisfied the said demands and nothing was due pursuant to the said demand notices. However, after the judgment of the appellant authority went in favour of the assessee, the Revenue refunded the amount due as per the said order of the authority. Thereafter, when the matter was taken up ultimately in reference to the High Court and the assessee lost the case, fresh demand notices were issued and it was also an admitted fact that in satisfaction of the said demand notices the appellant had paid the amount as demanded within the time stipulated therein. The question, therefore, is whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in the reference by the High Court on fresh demand notices being issued to the assessee and the Hon'ble Supreme Court held admittedly, on a literal meaning of the provisions of section 220(2) of the Act, such a demand for interest cannot be made. The High Court by a liberal interpretation of the said section and relying upon section 3 of the Validation Act has held that the Revenue is entitled to invoke section 220(2) of the Act for the purpose of demanding interest on such retention of money and in that context Hon'ble Supreme Court has observed (which is reproduced below):.
"We are not in agreement with the High Court on the interpretation placed by it on section 220(2) of the Act in regard to the right of the Revenue to demand interest in a situation where the assessee has promptly satisfied the demand made by the Revenue in regard to the tax originally assessed."
18. From the facts stated above of the Vikrant's case we can understand that in that case before the Supreme Court, the assessee had paid the entire tax demanded of him at the first instance itself i.e. when the original assessment was made and demand raised, at that time itself the assessee has made the payment: and even when it was restored by an order of the appellate authority, after being quashed by a lower appellate authority, since the tax demands were fully satisfied by the assessee even at the initial stage, the assessee was held not liable to pay interest. This case is distinguishable from the case before us inasmuch as the assessee before us did not pay the tax demanded of him by the assessing officer in the year 2003. He has not paid till date the tax for the assessment year 2000-01, which was assessed by the AO. Whereas he has received a refund, when the CIT(A) partially allowed his appeal. Though the question before the Hon'ble Supreme Court in Vikrant case (supra) was whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in reference by the High Court on fresh demand notices being issued to the Assessee. Here in this case though refund was made, the fact of the matter does not in any way change that the assessee did not pay tax exigible, when the tax was demanded u/s 156 of the Act, after the original assessment order of 22nd March, 2003. In Vikrant's case it may be noted that the assessee paid tax both at the time of original assessment and also when finally High Court restored the original assessment order, then also the assessee made the payment without any default, though tax was refunded due to the order of ld CIT(A). Here that is not the case. In the case before us, the assessee did not make any payment when the first demand notice in pursuance to the assessment order was passed by AO in the year 2003, and till date the assessee has not made any payment even though, the AO, in pursuance of the Tribunal order, recomputed the tax to be levied u/s 14A. Therefore this case is distinguishable from the facts and circumstances of the Vikrant's case.
19. In the case of Indira Rani's case, from a reading of the judgment of the Hon'ble Kerala High Court, it can discerned that the Hon'ble High Court has specifically noted that in the Tribunal order ,which was the final order in pursuance of which the AO passed the assessment order and raised demand notice u/s 156 and added addition of interest u/s 220(2)of the Act, the Tribunal ordered that, "addition as it now cannot be sustained and " in the result the appeal is treated as partly allowed", and in the back ground of the said finding of the Tribunal, the Hon'ble High Court has treated the assessment order, finally passed after the direction of Tribunal, as a fresh order of the AO. Accordingly, Hon'ble High court has held that interest under sec 220(2) of the Act can be levied after the expiry of time granted in the demand notice in that order.
20. Therefore this precedent also doesn't come to the rescue of the assessee. All other cases cited by the assessee also do not help the assessee because in those cases also the final demand notice emanated from a fresh order of the AO, which was passed in pursuance of an order from an appellate authority who had quashed or set aside or directed de novo proceeding or ordered to pass fresh assessment proceedings, which is not the case here and is therefore distinguishable to the facts of this case and does not support the case of the assessee."
21. In this regard, we may refer to the decision of Hon'ble Delhi High Court in the case of Girnar Investment Ltd. Vs. CIT wherein it has been held as Under:
"Held, That the assessee was liable to pay interest under section 220(2) of the Act on the amount of tax due from him on the basis of the assessment order passed on October 7, 1997. The interest was payable for the entire period on the amount of tax as computed in the assessment order, from November 1997, till the date on which it was actually paid. In computing the interest, no notice shall be taken of the fact that by virtue of the order of the Commissioner (Appeals) there was a reduction of the tax liability from the date of the order till the date on which the Tribunal restored the assessment order. However, no interest shall be charged from the assessee on the interest allowed to the assessee under section 244A of the Act on the refunds granted to the assessee."
22. In our opinion this decision squarely covers, the issue, before us. In view of above discussion assessee was required to pay interest u/s 220(2) as it had not initially satisfied the demand raised in 2003. We are in agreement with ld. counsel for the assessee that interest on refund is to be charged from the date of grant of refund. The assessee has given computation at page 64 and 65 of its paper book which may be considered by AO while computing the interest leviable u/s 220(2).
23. In view of the above discussion, we set aside the order of ld. CIT(A) and allowed the appeal of Department.
24. In the result, the appeal is allowed.
(Order pronounced in the Open Court on 28.4.2014)
Regards,
Pawan Singla , LLB
M. No. 9825829075
Section 14A have no application if Assessee not made any claim for exemption
Subsection(1) of section 14A provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of Commissioner of Income Tax v Winsome Textile Industries Ltd reported in (2009) 319 ITR 204 (Punj & Har).
HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 239 of 2014
TAX APPEAL NO. 239 of 2014
COMMISSIONER OF INCOME TAX
Versus
CORRTECH ENERGY PVT LTD.
Versus
CORRTECH ENERGY PVT LTD.
Date : 24/03/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue has challenged the judgement of the Income Tax Appellate Tribunal dated 21.10.2013 raising following questions for our consideration:
"(A) Whether the Appellate Tribunal has substantially erred in deleting the addition of RS. 12.33 lacs made u/s 14A despite the fact that the assessee had made investment of Rs.2.75 crores and had also claimed interest expenses of Rs.72.08 lacs. The AO had only disallowed proportionate expenses under Rule 8D(2)(ii)(iii)?
(B) Whether the Appellate Tribunal has substantially erred in deleting the disallowance of interest of Rs.3.94 lacs despite the fact that the assessee had claimed interest expenses of Rs.72.08 lacs and had given interest free advances of Rs. .32.91 lacs to related parties. Interest expenses to that extent were therefore not deductible u/s 36(1) (iii)?
2. Counsel for the Revenue submitted that question no.2 is not pressed in this appeal since it does not arise out of the impugned judgement of the tribunal.
3. That leaves us only with one question which pertain to disallowance of expenditure of Rs. 12.33 lacs made by the Assessing Officer under section 14A of the Income Tax Act, 1961 ("the Act" for short). Such disallowance was confirmed by CIT(Appeals). The tribunal in further appeal by the assessee however, reversed the same making the following observations :
"13. We have heard the rival contentions, perused the material on record and gone through the orders of the authorities below. We find that the ld. CIT(A) has decided this issue as under:
3.2 As regards interest, appellant had borrowed funds on which interest was paid. While making investments, both borrowed funds as well as own funds were used hence one cannot say that borrowed funds were used only for business purpose and owned capital was only used for investment. Admittedly no separate accounts are maintained for business and investment activities therefore appellant's claim is not justified that borrowed funds were not used in making investment. In view of this, I do not agree with my predecessor that since appellant had sufficient interest free funds, no part of borrowed funds can be attributed to investments. Further, appellant's argument that it did not earn any exempt income during the year and therefore no disallowance of section 14A can be made is without any basis. Since appellant made investment in shares which will result only in dividends which are exempt from tax, not receiving any exempt income during the year will not entitle appellant to claim expenses relating to investments which will result only in exempt income. Therefore in the absence of clear cut details of utilisation of funds, the formula given in rule 8D which is mandatory this year is to be applied. Since assessing officer worked out interest disallowance as per rule 8D, the interest disallowance is confirmed.
The ld AR submitted that this finding of ld. CIT(A) is containing to the law settled by various judicial pronouncements. We have given our thoughtful consideration to the facts and the decision relied upon by the ld AR. The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Winsome Textile Industries Ltd. reported at (2009) 319 ITR 204(P&H) has held that in the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, section 14A could have no application. In this case also, the assessee has not claimed any exempt income in this year. Therefore, respectfully following the judgement of Hon'ble High Court of Punjab & Haryana in the case of CIT vs. Winsome Textile Industries Ltd. (supra), we hereby allow this ground and direct the AO to delete the addition. Therefore, ground Nos 1 to 1.2 raised by the assessee in its crossobjection are allowed."
4. Counsel for the Revenue submitted that the Assessing Officer as well as CIT(Appeals) had applied formula of rule 8D of the Income Tax Rules, since this case arose after the assessment year 2009-2010. Since in the present case, we are concerned with the assessment year 2009-2010, such formula was correctly applied by the Revenue. We however, notice that subsection(1) of section 14A provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of Commissioner of Income Tax v Winsome Textile Industries Ltd reported in (2009) 319 ITR 204 (Punj & Har) in which also the Court had observed as under:
"7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application."
5. We do not find any question of law arising, Tax Appeal is therefore dismissed.
(AKIL KURESHI, J.)
(MS SONIA GOKANI, J.)
Concept Of One Person Company: An Analysis
Before we start the discussion, let us see what the Companies Act, 2013 has to say about this concept called 'One person company'.
Section 2(62) 'one person company' means a company which has only one person as a member.
Section2 (40) 'Financial statement 'in relation to a company, includes:
- A balance sheet as at the end of the financial year.
- A statement of profit and loss , or in the case of a company carrying on any activity not for profit , an income and expenditure account for the financial year:
- Cash flow statement for the financial year:
- A statement of changes in equity , if applicable; and
- any explanatory notes annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause(iv):
Provided that the financial statement, with respect to One person company (opc) , small company and dormant company may not include the cash flow statement.
Section (3): Creation of One Person Company:
A company may be formed for any lawful purpose by
(a) seven or more persons , where the company to be formed is to be a public company:
(b) two or more persons ,where the company to be formed is to be a private company:
(c) one person, where the company to be formed is to be One person company that is to say; a private company.
by subscribing their names or his name to a memorandum and complying with the requirements of this Act in regard to registration.
A company formed under One person company may be either
(a) a company limited by shares or
(b) a company limited by guarantee or
(c) an unlimited company.
ANALYSIS
1. Acceptance of One person company: In the Indian business environment the joint stock forms of organization or registered organization rules the market and are given high credibility that attracts easier capital availability and high growth, in the other hand One person company will be compared on the same ground as that of Sole proprietor because of its characteristics.
2. Limited Liability: The most beautiful characteristic of the company form of organization is limited liability. In the concept of OPC, if the limited liability concept is taken seriously, it will be dangerous for investors to invest the fund because it may lead to fraudulent business practices on the other hand if the court comes in between and asks for lifting of corporate veil then it would be useless to form the one person company.
3. Compliance cost: The main advantage of OPC is limited liability; one main disadvantage would be compliance cost which is of recurring nature. The compliance cost of a company is higher than that of a proprietorship form. A proprietorship form is easy to form and easy to wind up without much compliance cost or procedure.
4. Taxation of One Person Company: A one person company would be taxed at same rates as that of all other companies. This is also a disadvantage as compared to sole proprietorship business as they enjoy the tax rates applicable to individuals. An OPC will have to sacrifice all the advantages which a sole proprietorship business enjoys over the company.
In simple, it is just a characteristic attached to sole proprietorship business by registering it in order to search for better market, economic and management opportunities in spite of many disadvantages.
( Anand Mohan,CA final Student – anandca1993@gmail.com)
Busituality – When Business Meets Spirituality and Religions
CA Rajesh Pabari
Why this Article:
The article is inspired by a famous writer 'Alain de Botton', he is a Swiss-British writer, philosopher, entrepreneur, television presenter and museum curator resident in the United Kingdom. Due credit to his idea on the topic that business and every people can benefit from spirituality and religions even if they don't believe in God. He has written a nice book called 'Atheism 2.0'. This article lists out some common aspects of religions and how they can help your business growth or your personal growth.
Let's start the discussion about what is in it for you.
| What we are talking about? | How it is done? | How it can affect your life and Business |
| Prayers | In prayers, the worshiper repeats particular stanzas a certain number of time. For example a person chants 'Om Namoh Shivay' for 108 times at a particular time. May be 6.30 or 7.00 am in the morning. | How you can apply the concept for your Business Growth: If you are leading an organization or you are an owner of any organisation, you have to repeat your vision mission purpose every day at a particular fixed time in the day. Let it be just after the lunch time At 2.30 pm or any time in the morning 9.30 Am or something. Take out that piece of paper from your pocket and repeat your organization's vision, mission and purpose.It can be in any of your mobile software. It can be on your email. It can be in a word document on your desktop. It can be pinned on your boards around your desk. It can be framed in a picture and hanged on the wall of your office. Go there at that particular time and do your prayer. |
| Prayers | -do- | How you can apply the concept for Personal Growth: Same is the case with personal goals, people have goals but they don't know how it will come to reality. But I must confess that human beings really underestimate themselves and we really don't know how much we can accomplish in one single life. We have many examples in front of us. It all starts with a dream and a goal and a purpose. Write in on a piece of paper and look at it every day. I write my purpose in Any.Do software of my android phone. It reminds me my purpose every day at 9.00 AM. And believe me, it changes my life every day. It makes me smile, it makes me happy and alive. All the inspiration to write for good cause comes from the reminders which are nothing but my prayers for improvement of my life. |
| Wish to Get Moksh (Liberation) | In mythology, it is said that if your karma are settled, you will get Moksha (Liberation) | The willingness of Freedom: The Simple thing suggests that it is a natural nature of the human beings (soul) to find liberation. A child does not like botheration from parents, a teenager does not like intervention in their life by parents or friends, a student wants to do what he loves doing, an entrepreneur will never accept job (Naukari), an employee wants freedom.This simple idea guides us as to how we should form our policies for our employees and the organization at large. Freedom should be given priority. Rest of the things will fall in place.Just imagine, if you are an entrepreneur, you must have made a decision once upon a time in your life thinking that you want independence, when you long for freedom, your brain and creativity improves multifold and productivity triples. (That's what my personal experience also says). Similarly, when you give freedom to your workforce in all possible ways, see the results. They will work for you with blood and sweat. Growth of business is assured. If you think a little more on Google's HR management policies, you will find that this is the one thing that plays 80% role in the idea generation, innovativeness, creativity and success of Google. |
| Festivals | There are many festivals in India and around the world which makes people gather at a place and greet each other. Or sometimes, just listen to some spiritual address by some spiritual master. | Ritualistic Gatherings on Fixed Day of the years: What it means for business? You have to make a ritual to make your people gather at one place at least twice in a year. Let them know each other. Connect them. Let them feel like a big family. It feels alive to feel human beings. Sitting in front of computer 8 hours a day and 20 days a month is not the life.Festival teaches us to create these rituals on organizational level and feel connected to the human side of ourselves. It says do mechanical job but be human. That's the difference between robot and human beings. They can feel, they can socialize, they can share love and sympathy, they can be compassionate to others' problems. Who knows how many of your workforce will be able to solve their personal problems while meeting many people of your own Organization, you never know what they can learn out of such simple ritual of meeting each other. You never know how many people exchanges their ideas and become smarter from the next day. You never know where these changed people can take your organization. I feel at least two to three such gathering per year is recommended. |
| Meditation (Dhyan, Yoga) | Amongst many methods, one method of meditation makes you focus on one point and think about virtues of God and positive about life. | Focus on your aims and Goals: The meditation teaches us to focus on our aim, what we want out of the organization, what purpose we are serving, where are we heading. Being focused on what we are doing and what we want to do.In personal life, when nothing is going right, meditation teaches us to remain focused on the aim of life, goal of life, a ray of hope will be seen at the end of the tunnel. Don't worry. |
| Fate (Takdeer) | It is said in religions that everything is predetermined and destined. | Do all you can and if you fail, see ahead and don't look back: This simple formula can be applied when you were trying something and it fails, rather than wandering for the culprit and blaming one another for mistakes, forget about the past and say "It was destined, now what?"This philosophy works and allows us to focus on solution for the problem at hand and we don't waste time in thinking about "Why this happened?" over and over again. This philosophy can easily save you from a heart attack.The same message was given in Shrimad Bhagvad Gita 2nd Chapter, Stanza 55 to 71 speaks about what are the Qualities of Sthitpragn (A person with Balanced mind) |
Concluding remarks:
The inspiration Behind the Article: The inspiration to write this article came in my mind when I was sitting in Satsang today morning (25th May, 2014). After the Satsang, I discussed the same with few of my professional friends who also attends Satsang every day and they said it is nice thing to write about. Which gave me confidence and I proceeded to make best use of my day. And I strongly feel, there is a signal of God in making me instrumental for sending this message to you, so that the readers can bring some changes their life by changing their attitude towards what good they can learn from each and every religion.
What is Busituality: The term 'Busituality' also hit my mind at the same time which indicated that there can be many things in spirituality which business can learn and benefit from. Hence, business should not remain just business. It should be combination of Business+Spirituality. Caring and concern for employees as human beings is also a part of spiritual side of the business. To admit, I am strong promoter for care and concern for employees' welfare in any kind of organizations. There is always synergy effect when these two aspects meet.
In case you want to add anything related to the subject or want to give your feedback for the above article please reach me on carajeshpabari@gmail.com or +919022780919.
Jai Hind.
Must have productivity tools for professionals
Must have productivity tools for professionals to keep them laser focused.
In this modern, competitive and challenging work life, one have to have monomaniacal focus on his craft to keep you in the game. In this age of massive disruption, around your work and personal life, staying focused may be a not be an easy proposition for all. One has to keep his focus at highest level to complete the tasks assigned in best possible manner and thereby saving time and keeping mind under control.
That little thing, which is your best companion all through out day and night, in your happy and sad times called a cellphone can be of great help to achieve you such focus and make your time more productive than ever. Don't ever look it as only a device for connecting people via calls or messages. That little monster has many other faces of it too. Understand and maximize its use so that it can be prove to be true value for your money. Besides cellphones various extensions and apps are available for your computers which serves the same purpose.
With the vision and Steve Jobs, for making cellphone so attractive and so easy to use and Samsung's and Micromax's pricing strategy to provide cellphones at cheaper cost, owing a smartphone can now be everyone's cup of tea. Gone are the days when only higher income people could own a smartphone or a computer.
Everyday various apps are added in the apps store for increasing productivity, keeping in mind the difficulties faced by professionals in managing their work and personal life. Give below are the few apps/extensions which can prove to be handy:
- Pocket: Throughout the day we come across many articles, videos, images which we want to check out but due to work commitment, we are unable to. Later on, we forget or that site gets flooded with many new articles that we get lazy to find articles which we wanted to study. So here's the catch, save them in pocket app and view later as per your convenience. Even internet connection is not required, once your interested thing is saved in the app. View and read them as per your convenience. (https://getpocket.com)
- Rescue time: Are you unable to check out what is your productive time all through out the day when you are surfing on the internet. Don't worry, this app will help you out knowing that. Install and evaluate your productive and un-productive time with the help of this app/extension.
- Unroll.me: Are you tired of receiving e-mails that make you millionaire everyday or those pushing you to buy credit card, house, life insurance policies and unwanted stuffs. Somebody has acknowledged this and the time wasted in removing these kind of e-mails and came up with this idea. Sign in at unroll.me and get rid off of all those mails by unsubscribing them from one central place.
- Nike+ Running app: The old saying 'Health is Wealth" will never get old. Growth should be the main criteria for any person, while doing anything. So if u wanna see your growth chart everyday in terms of kms/miles you ran and walked, calories you burned, install this app and get all the information. It provides a comprehensive programme to help you building a nice health. It works with the help of GPS and no internet connection is required too.
- Evernote: this app helps you to keep your to-do list at one place and provides you the platform to see them in an uncluttered manner. It helps you to prioritize your tasks by assigning specific time to it, so that no important task gets slipped by you and you end frustration later.
- Dictionary: As KBC says: Seekhna band to Jeetna band( stop learning and you stop winning), this line will never go out of fashion. Beside containing English words with their meaning, this app give you a-word-a-day to learn and also provides the pronunciation facility for words and meaning. It can help you to learn how words are actually pronounced.
- Flipboard: While surfing a site we come across many uninterested articles, sections, columns etc, here comes the flipboard to help you. Download this app and customize its interface according to the articles of your interested.
- CompareRaja: Planning to buy a new cellphone, tablet, laptop, camera?? Hell lot of options are available in the market and everyday new launches flood the market too. You look and compare various e-commerce sites to get the best price and in the meanwhile, without your knowing , time gets flown away. This is where this app come in action to save your time. Download and install to see the prices of your gadget at one place, offered by various leading e-commerce sites.
Install and enjoy being the new you everyday. Keep your life on track with these apps and strive for getting better.
(Pratyush Harlalka- CA FINAL Student- E-mail: capratyush2517@gmail.com)
The Income Tax Act provides that on determination of the gross total income of an assessee after considering income from all the heads, certain deductionstherefrom may be allowed. Thesedeductions detailed in chapter VIA of the Income Tax Act must bedistinguished from the exemptions provides in Section 10 of the Act. While the former are to be reduced from the gross total income, the latter do not form part of the income at all.
The chart given below describes the deductions allowable under chapter VIA of the I.T. Act from the gross total income of the assessees having income from salaries.
| SECTION | NATURE OF DEDUCTION | REMARKS |
| 80CCC | Payment of premium for annuity plan of LIC or any other insurer Deduction is available upto a maximum of Rs. 10,000/- | The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund. The Finance Act 2006 has enhanced the ceiling of deduction under Section 80CCC from Rs.10,000 to Rs. 1,00,000 with effect from 1.4.2007.Read more – Income Tax Deduction Under section 80CCC |
| 80CCD | Deposit made by anemployee in his pension account to the extent of 10% of his salary. | Where the Central Government makes any contribution to the pension account, deduction of such contribution to the extent of 10% of salary shall be allowed. Further, in any year where any amount is received from the pension account such amount shall be charged to tax as income of that previous year. The Finance Act, 2009 has extended benefit to any individual assesse, not being a Central Government employee.Read More –Income Tax Deduction Under section 80CCD |
| 80CCF | Subscription to long term infrastructure bonds | Subscription made by individual or HUF to the extent of Rs. 20,000 to notified long term infrastructure bonds is exempt from A.Y. 2011-12 onwards. This deduction is discontinued w.e.f. A.Y. 2013-14. |
| 80D | Payment of medical insurance premium. Deduction is available upto Rs.15,000/ for self/ family and also upto Rs. 15,000/- for insurance in respect of parent/ parents of the assessee.In case of senior citizens, a deduction upto Rs.20,000/- shall be available under this Section. Insurance premiume of senior citizen parent/ parents of the assessee also eligible for enhanced deduction of Rs. 20000/- | The premium is to be paid by any mode of paymentother than cash and the insurance scheme should be framed by the General Insurance Corporation of India & approved by the Central Govt. or Scheme framed by any other insurer and approved by the Insurance Regulatory & Development Authority. The premium should be paid in respect of health insurance of the assessee or his family members. The Finance Act 2008 has also provided deduction upto Rs. 15,000!- in respect ofhealth insurance premiumpaid by the assessee towards his parent/parents. w.e.f. 01.04.2011, contributions made to the Central Government Health Scheme is also covered under this section.Read More – Deduction U/s 80D for Mediclaim Premium to Individual, HUF, Senior Citizens |
| 80DD | Deduction of Rs.40,000/ — In respect of (a) expenditure incurred on medical treatment, (including nursing), training and rehabilitation of handicapped dependent relative. (b) Payment or deposit to specified scheme for maintenance of dependent handicapped relative. W.e.f. 01 .04.2004 the deduction under this section has been enhanced to Rs.50,000/ - Further, if the dependent is a person with severe disability a deduction of Rs.1,00,000!- shall be available under this section | The handicapped dependent should be a dependent relative suffering from a permanent disability (including blindness) or mentally retarded, as certified by a specified physician or psychiatrist.Note: A person with severe disabilitymeans a person with 80% or more of one or more disabilities as outlined in section 56(4) of the "Persons with Disabilities (Equal opportunities, Protection of Rights and Full Participation) Act.," |
| 80DDB | Deduction of Rs.40,000/- in respect of medical expenditure incurred.W.e.f. 01.04.2004, deduction under this section shall be available to the extent of Rs.40,000/- or the amount actually paid, whichever is less. In case of senior citizens, a deduction upto Rs.60,000/- shall be available under this Section. | Expenditure must be actually incurred by resident assessee on himself or dependent relative for medical treatment of specified disease or ailment. The diseases have been specified in Rule 11DD. A certificate in form 10I is to be furnished by the assessee from a specialist working in a Government hospital.Read More –Deduction under section 80DDB with FAQ |
| 80E | Deduction in respect ofpayment in the previous year of interest on loan taken from a financial institution or approved charitable institution for higher studies. | This provision has been introduced to provide relief to students taking loans for higher studies. Thepayment of the interest thereon will be allowed as deduction over a period of upto 8 years. Further, by Finance Act, 2007 deduction under this section shall be available not only in respect of loan for pursuing higher education by self but also by spouse or children of the assessee.W.e.f. 01.04.2010 higher education means any course of study pursued after passing the senior secondary examination or its equivalent from any recognized school, board or university.Read More –Section 80E – Deduction for Interest on education Loan |
| 80EE | Deduction in respect of interest on loan taken for residential house property | Vide Finance Act 2013, an individual is allowed a deduction upto a limit of Rs 1,00,000 being paid as interest on a loan taken from a Financial Institution, sanctioned during the period 01-04- 2013 to 31-03-2014 (loan not to exceed Rs 25 lakhs) foracquisition of a residentialhouse whose value does not exceed Rs 40 lakhs. However the deduction is available if the assessee does not own anyresidential house property on the date of sanction of the loan.Read More –Section 80EE Income Tax Benefit on Home Loan Interest |
| 80G | Donation to certain funds, charitable institutions etc. | The various donations specified in Sec. 80G are eligible for deduction upto either 100% or 50% with or without restriction as provided in Sec. 80GRead More –Deduction U/s. 80G of Income Tax Act, 1961 for donation |
| 80GG | Deduction available is the least of(i) Rent paid less 10% of total income ii. Rs.2000 per month iii. 25% of total income | (1) Assessee or his spouse or minor child should not own residentialaccommodation at the place of employment.(2) He should not be in receipt of house rent allowance. (3) He should not have a self-occupied residentialpremises in any other place Read More – Section 80GG Deductions – For rent paid |
| 80TTA | Deduction in respect of interest on deposits in savings account | Section 80TTA is introduced wef A.Y. 2013-14 to provide deduction to an individual or a Hindu undivided family in respect of interest received on deposits (not being time deposits) in a savings account held with banks, cooperative banks and post office. The deduction is restricted to Rs 10,000 or actual interest whichever is lower.Read More – S. 80TTA – Deduction in respect of interest on deposits in savings account |
| 80U | Deduction of Rs.50,000/- to an individual who suffers from a physical disability (including blindness) or mental retardation. Further, if the individual is a person with severe disability, deduction of Rs.75,000/- shall be available u/s 80U.W.e.f. 01.04.2010 this limit has been raised to Rs. 1 lakh. | Certificate should be obtained on prescribed format from a notified 'Medical authority'. Read More – Deduction U/s. 80U for disabled persons |
| 87A | Rebate Of Rs 2000 For Individuals Having Total Income Upto Rs 5 Lakh | Finance Act 2013 has provided relief in the form of rebate to individual taxpayers, resident in India, who are in lower income bracket, i. e. having total income not exceeding Rs 5,00,000/-. The amount of rebate is Rs 2000/- or the amount of tax payable, whichever is lower. WEF A.Y. 2014-15. Read More – Section 87A – Income Tax Rebate |
| 80RRB | Deduction in respect of any income by way of royalty in respect of a patent registered on or after 01.04.2003 under the Patents Act 1970 shall be available as :-Rs. 3 lacs or the income received, whichever is less. | The assessee who is a patentee must be an individual resident in India. The assessee must furnish a certificate in the prescribed form duly signed by the prescribed authority alongwith the return of income. |
| 80QQB | Deduction in respect of royalty or copyright income received in consideration for authoring any book of literary, artistic or scientific nature other than text book shall be available to the extent of Rs. 3 lacs or income received, whichever is less. | The assessee must be an individual resident in India who receives such income in exercise of his profession. To avail of this deduction, the assessee must furnish a certificate in the prescribed form along with the return of income. |
| 80C | This section has been introduced by the Finance Act, 2005.Broadly speaking, this section provides deduction from total income in respect of various investments/ expenditures/payments in respect of which tax rebate u/s 88 was earlier available. The total deduction under this section is limited to Rs. 1 lakh only. |
The following investments/payments are inter alia eligible for deduction u/s 80C:-
| NATURE OF INVESTMENT | REMARKS |
| Life Insurance Premium | For individual, policy must be in the name of self or spouse or any child's name. For HUF, it may be on life of any member of HUF. |
| Sum paid under contract for deferred annuity | For individual, on life of self, spouse or any child of such individual. |
| Sum deducted from salary payable to Govt. Servant for securing deferred annuity for self, spouse or child | Payment limited to 20% of salary. |
| Contribution made under Employee's Provident Fund Scheme | — |
| Contribution to PPF | For individual, can be in the name of self/spouse, any child & for HUF, it can be in the name of any member of the family. |
| Contribution by employee to a Recognised Provident Fund. | — |
| Subscription to any notified securities/notified deposits scheme. | — |
| Subscription to any notified savings certificates. | e.g. NSC VIII issue. |
| Contribution to Unit Linked Insurance Plan of LIC Mutual Fund | e.g. Dhanrakhsa 1989 |
| Contribution to notified deposit scheme/Pension fund set up by the National Housing Bank. | — |
| Certain payment made by way of instalment or part payment of loan taken for purchase! construction of residential house property. | Condition has been laid that in case the property is transferred before the expiry of 5 years from the end of the financial year in which possession of such property is obtained by him, the aggregate amount of deduction of income so allowed for various years shall be liable to tax in that year. |
| Subscription to units of a Mutual Fund notified u/s 1 0(23D) | — |
| Subscription to deposit scheme of a public sector company engaged in providing housing finance. | — |
| Subscription to equity shares! debentures forming part of any approved eligible issue of capital made by a public company or public financial institutions. | — |
| Tuition fees paid at the time of admission or otherwise to any school, college, university or other educational institution situated within India for the purpose of full time education. | Available in respect of any two children. |
| Any term deposit for a fixed period of not less than five years with the scheduled bank. | This has been included in Section 80C by the Finance Act 2006. |
| Subscription to notified bonds issued by NABARD | This has been included in Section 80C by the Finance Act 2007 and has come into effect from 1.4.2008. |
| Payment made into an account under the Senior Citizens Savings Scheme Rules, 2004 | This has been introduced by Finance Act, 2008 and shall come into effect from 1.4.2009. |
| Payment made as five year time deposit in an account under the Post Office Time Deposit Rules, 1981 | This has been introduced by Finance Act, 2008 and shall come into effect from 1.4.2009. |
It may be noted that the aggregate amount of deductions under sections 80C, 80CCC and 80CCD are subject to an overall ceiling of Rs.1 lakh
IT : In terms of sub-section (1) of section 73, assessee, a share broker is entitled to set off loss incurred in transactions of derivatives and day trading of shares against its profits and gains from purchase and sale of shares on delivery basis
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[2014] 44 taxmann.com 481 (Calcutta)
HIGH COURT OF CALCUTTA
Commissioner of Income-tax, Kol-III
v.
Baljit Securities (P.) Ltd.*
GIRISH CHANDRA GUPTA AND SUDIP AHLUWALIA, JJ.
G.A. NO. 3481 OF 2013
ITAT NO. 215 OF 2013†
ITAT NO. 215 OF 2013†
MARCH 12, 2014
Section 73 of the Income-tax Act, 1961 - Losses - In speculation business (Derivatives) - Whether in terms of sub-section (1) of section 73, assessee, a share broker was entitled to set off loss incurred in transactions of derivatives and day trading of shares against its profits and gains from purchase and sale of shares on delivery basis - Held, yes [Para 6] [In favour of assessee]
FACTS
| ■ | The assessee was a share broker. It dealt in buying and selling of shares for itself. It was also dealing in derivatives. | |
| ■ | The question arose whether the assessee was entitled to set off the loss arising out of business in derivatives against the income arising out of purchase and sale of shares. The Tribunal allowed assessee's claim. | |
| ■ | On revenue's appeal: |
HELD
| ■ | The assessee, in the instant case, principally is a share broker. The assessee is in the business of buying and selling of shares for self where actual delivery is taken and given and also in buying and selling of shares where actual delivery was not intended to be taken or given. Therefore, the entire transaction carried out by the assessee was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares. This is what the Tribunal had done. [Para 6] | |
| ■ | The appeal preferred by the revenue is without any merit and is, therefore, dismissed. |
P.K. Bhowmick for the Appellant. J.P. Khaitan, Ms. A. Banerjee, R.L. Mitra and P. Dhar for the Respondent.
ORDER
1. The Court : The appeal is directed against a judgment and order dated 19th June, 2013 by which the learned Tribunal expressed the following views:
"Under these circumstances, we are of the view that the assessee is entitled to the setting off of the loss on account of assessee's transactions in respect of derivatives and the day trading of shares against its profits and gains from the purchase and sale of shares."
2. The assessee basically is a share broker. The assessee also deals in buying and selling of shares for himself. The assessee is also dealing in derivatives. Dealing in derivatives has been excluded from the ambit of speculative transactions with effect from assessment year 2006-07. We are concerned with the assessment year 2005-06. The question arose whether the assessee was entitled to set off the loss arising out of business in derivatives against the income arising out of purchase and sale of shares. The question basically was as regards the meaning of the expression "speculative transaction". The definition of the term "speculative transaction" appearing from Section 43(5) of the Act is as follows:
'(5) "Speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips:
Provided that for the purposes of this clause —
| (a) | A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of the contracts for actual delivery of goods manufactured by him or merchandise sold by him; or | |
| (b) | a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or | |
| (c) | a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; [or] (d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange;] |
shall not be deemed to be a speculative transaction;'
3. Clause (d) of Section 43 (5) became effective with effect from 1st April, 2006. Therefore, prior to 1st April, 2006 any transaction in which a contract for the purchase or sale of any commodity including stocks and shares was periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip was a speculative transaction.
Sub-section 1 of Section 73 provides as follows:
"(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business."
4. The resultant effect was that any loss arising out of speculative transaction could only have been set off against profits arising out of speculative transaction. In the present case, the assessee, as already indicated, has been dealing in shares where delivery was in fact taken and also in shares where delivery was not ultimately taken. In other words, the assessee has been dealing in actual selling and buying of shares as also dealing in shares only for the purpose of settling the transaction otherwise than by actual delivery. The question arose whether the losses arising out of the dealings and transaction in which the assessee did not ultimately take delivery of the shares or give delivery of the shares could be set off against the income arising out of the dealings and transactions in actual buying and selling of shares. An answer to this question is to be found in the explanation appended to Section 73 which reads as follows:
'Explanation : Where any part of the business of a company ([other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources"], or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.'
5. In order to resolve the issue before us, the section has to be read in the manner as follows:
"Explanation : Where any part of the business of a company
| (** | ** | **) |
consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares."
6. It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case, principally is a share broker, as already indicated. The assessee is also in the business of buying and selling of shares for self where actual delivery is taken and given and also in buying and selling of shares where actual delivery was not intended to be taken or given. Therefore, the entire transaction carried out by the assessee, indicated above, was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares. This is what the learned Tribunal has done.
7. The appeal preferred by the revenue is without any merit and is, therefore, dismissed.
SUNIL †Arising out of order of Tribunal dated 19-6-2013.
IT: Where assessee, a manufacturer cum exporter, claimed deduction under section 80HHC on foreign exchange income received on account of cancellation of forward contract, following decision of Supreme Court rendered in case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282, orders of lower authorities were set aside and matter was sent back to Assessing Officer for decision afresh in light of said decision
IT: Where assessee incurred certain expenditure on construction of vehicle parking shed and claimed depreciation thereon at rate of 100 per cent, since assessee itself submitted that shed would last for 20 years, it was entitled to depreciation on shed at rate of 10 per cent
IT: Where assessee, a manufacturer and exporter, incurred certain expenditure on replacement of dies and moulds and claimed deduction of same under section 31 as current repairs, assessee was entitled to deduction of expenditure
IT: Where assessee during year had given in advance certain amount for research and development equipment and claimed deduction of said expenditure under section 35, assessee was entitled to deduction
IT: Payment of entry tax is an allowable deduction even if it is set off against VAT liability of assessee
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[2014] 45 taxmann.com 94 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax, Chennai
v.
TVS Motors Ltd.*
MRS. CHITRA VENKATARAMAN AND T.S. SIVAGNANAM, JJ.
TAX CASE (APPEAL) NOS. 173 & 174 OF 2009†
JANUARY 9, 2014
I. Section 80HHC of the Income-tax Act, 1961 - Deductions - Exporters (Computation of deduction) - Assessment year 2003-04 - Assessee-company was a manufacturer cum exporter - It claimed deduction under section 80HHC on foreign exchange income received on account of cancellation of forward contract - Assessing Officer held that above income could not be treated as directly derived from export activities and profit was more in nature of speculative profit - He further held that foreign exchange received on account of forward contract came within Explanation (baa) of section 80HHC, hence, 90 per cent of above receipt was to be excluded for purpose of eligible business profit of section 80HHC - Tribunal held that profit from foreign exchange fluctuation was part of export turnover, hence, could not be excluded from business profit for purposes of determination of deduction under section 80HHC - Whether in view of decision of Supreme Court rendered in case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282, matter required to be sent back to Assessing Officer to find out whether forward contract was made in course of assessee's business of export and whether profit earned from exchange fluctuation was with reference to any particular contract for export of goods and decide issue in light of said decision - Held, yes [Para 25] [Matter remanded]
II. Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of (Vehicle parking shed) - Assessment year 2003-04 - Assessee incurred certain expenditure on construction of vehicle parking shed - It claimed depreciation on cost of said shed at rate of 100 per cent - It stated that life span of vehicle parking shed would be around 20 years - Whether since assessee contended that shed itself would last for 20 years, it was entitled to depreciation on shed at rate of 10 per cent only - Held, yes [Para 27] [In favour of revenue]
III. Section 31 of the Income-tax Act, 1961 - Repairs and insurance of machinery, plant and furniture (Replacement of dies and moulds) - Assessment year 2003-04 - Assessee, a manufacturer and exporter, incurred certain expenditure on replacement of dies and moulds and claimed deduction of same under section 31 - It submitted that dies and moulds were not plant and machinery, but were attachments made to plant and machinery to make plant and machinery function as per requirements of business - Whether in view of decisions of Madras High Court rendered in cases of Super Spinning Mills Ltd. v. Asstt. CIT [2013] 357 ITR 720/218 Taxman 128/37 taxmann.com 290 and CIT v. Machado Sons Tax Case (Appeal) No. 1011 of 2005, dated 27-4-2012, assessee was entitled to deduction of expenditure in question under section 31 as current repairs expenditure - Held, yes [Para 31] [In favour of assessee]
IV. Section 35 of the Income-tax Act, 1961 - Scientific research expenditure (Research and development) - Assessment year 2003-04 - During previous year assessee had given in advance certain amount for research and development equipment and claimed deduction of said expenditure under section 35 - Assessing Officer disallowed claim of deduction on plea that assets had not come into existence - Tribunal following decision of Madras High Court rendered in case of CIT v. Rane Brake Linings Ltd. [2002] 255 ITR 395/[2003] 126 Taxman 231 allowed expenditure in question - Whether Tribunal was justified in its view - Held, yes [Para 28] [In favour of assessee]
V. Section 43B of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed only on actual payment (Entry tax) - Assessment year 2003-04 - During year assessee paid entry tax under provisions of Entry Tax Act and claimed deduction of same - Assessing Officer disallowed claim of deduction on plea that as per Tamil Nadu General Sales Tax Act entry tax paid would be set off as against sales tax paid by assessee and since set off under Sales Tax enactment was automatic, entry tax payment could not be claimed as deduction - Whether payment made by assessee on entry tax demand and its adjustment against sale tax assessment had nothing to do with deduction provision under Income-tax Act - Held, yes - Whether in peculiar facts of case entry tax actually paid by assessee during year under consideration was allowable as deduction under section 43B - Held, yes [Para 34] [In favour of assessee]
FACTS-I
| ■ | The assessee-company was a manufacturer cum exporter. In the return of income filed for the assessment year 2003-04, it claimed deduction under section 80HHC on the foreign exchange income received on account of cancellation of forward contract. It submitted that (i) the forward contract was booked for import of materials and export of goods, (ii) when the exchange rate moved favourably to it, the forward contract was cancelled and gain was realized and was kept in the separate account of the general ledger, and (iii) therefore, the gain was business related and deserved to be treated as business income. | |
| ■ | The Assessing Officer held that the said income could not be treated as directly derived from the export activities and the profit was more in the nature of speculative profit. He further held that the foreign exchange received on account of cancellation of forward contract came within theExplanation (baa) of section 80HHC. Hence 90 per cent of the above receipt was to be excluded for the purpose of eligible business profit of section 80HHC. | |
| ■ | On appeal, the Commissioner (Appeals) held that the income earned from forward contract would not be treated as derived from export of goods or merchandise. There could be no nexus between the said income and the export business and the said income did not qualify straight away for deduction under section 80HHC. | |
| ■ | On second appeal, the Tribunal referring to the decision of the Supreme Court rendered in the case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282 held that as far as profit from foreign exchange fluctuation was concerned, the same was part of the export turnover. Hence it could not be excluded from the business profits for the purposes of determination of deduction under section 80HHC. | |
| ■ | On appeal to High Court: |
HELD-I
| ■ | The assessee does not deny the fact that the forward contract was entered into in the regular course of business. It, however, contended that in respect of the export and import made by it, based on the anticipated movement of the dollar and rupee it maintained the forward cover with the bank and later on it withdrew the contract and in this process it made gain of certain amount which was credited to a separate account in the general ledger of the company. As far as the claim on this amount as eligible profit for deduction under section 80HHC is concerned, the assessee placed heavy reliance on the Tribunal's order as well as the Commissioner (Appeals)'s order only to submit that in respect of export house, it was entitled to deduction fully. [Para 21] | |
| ■ | Section 80HHC is more concerned about the deduction on the profits derived by the assessee engaged in the business of export out of India of any goods or merchandise. Unless the assessee is in a position to point out that the income earned is derived by it from export of such goods and merchandise, such income would not qualify for deduction under section 80HHC. In the decision in the case of K. Ravindranathan Nair (supra), the Apex Court considered the question as regards the extent of deduction available to the assessee particularly as regards the income falling under Explanation (baa) to section 80HHC. The Supreme Court pointed out that in computing deduction under section 80HHC, there are four variables viz., business profits, export turnover, total turnover and 90 per cent of the sums referred to in clause (baa) to the said Explanation. The Court pointed out that every receipt is not an income and every income would not necessarily include element of export turnover. In other words, receipts constituting independent income having no nexus with exports are required to be reduced from business profit under clause (baa). | |
| ■ | On reading all the variables, the Apex Court pointed out that (i) every receipt cannot constitute sale proceeds from exports, (ii) every receipt is not income under the Income-tax Act, and (iii) every income may not be attributable to the business of export. Applying the said decision to the facts of the instant case, it is clear that even though the assessee is an exporter, there is no material on record to point out as to whether the assessee's forward contract was with reference to any particular contract or not or generally kept as an export house and not by way of speculative business. [Para 23] | |
| ■ | The assessee submitted that such forward contract was done on account of its export business and not in speculative manner and hence would qualify for deduction under section 80HHC. [Para 24] | |
| ■ | Since the material facts are lacking in the instant case, the matter requires further consideration as to the extent of deduction that the assessee would be entitled to. Accordingly, the order of the Tribunal was liable to be set aside. The matter required to be sent back to the Assessing Officer to find out whether forward contract was made in the course of assessee's business of export and whether the profit earned from exchange fluctuation was with reference to any particular contract for export of goods and decide the issue in the light of the decision in the case of K. Ravindranathan Nair (supra). [Para 25] |
FACTS-II
| ■ | The assessee incurred certain expenditure on the construction of the vehicle parking shed. It claimed depreciation on the cost of the said vehicle parking shed at the rate of 100 per cent. It stated that the life span of the vehicle parking shed would be around 20 years. | |
| ■ | The Assessing Officer allowed depreciation only at the rate of 10 per cent on the cost of the said vehicle parking shed. | |
| ■ | On appeal, the Commissioner (Appeals) held that the expenditure had resulted in the creation of a new asset, which had given the assessee a benefit of enduring nature and the claim of the assessee for deduction at 100 per cent of the entire structure was not in order. He, therefore, confirmed the order of the Assessing Officer. | |
| ■ | On second appeal, the Tribunal held that the Assessing Officer had not brought any material on record to show that the construction was not temporary. On going through the nature of the expenditure incurred on putting up the vehicle shed, it directed 100 per cent depreciation and set aside the order of the Commissioner (Appeals). | |
| ■ | On appeal to High Court: |
HELD-II
| ■ | Going by the nature of expenditure incurred by the assessee on other temporary shed for keeping spares and other expenditure incurred on storage facilities, there is no justifiable ground to accept the plea of the assessee that the parking shed put up by it should be treated as temporary one for the purpose of granting depreciation at 100 per cent. The shed itself would last for 20 years. Taking note of both these aspects, the depreciation on the expenditure incurred on putting up of temporary shed for parking vehicle would be at 10 per cent only. [Para 27] |
FACTS-III
| ■ | During the year, the assessee incurred certain expenditure on replacement of dies and moulds and claimed deduction of same under section 31 as current repairs expenditure. It submitted that dies and moulds were not plant and machinery, but were attachments made to plant and machinery to make plant and machinery function as per the requirements of the business. Within a period of one year of installation, the life of the dies and moulds would become obsolete and this was due to high production involved. Thus replacement of the new dye in the place of old dye would qualify for current repairs under section 31. | |
| ■ | The Assessing Officer rejected the claim taking the view that the assessee itself claimed depreciation at 25 per cent on dies and moulds upto the assessment year 1999-2000. It changed the system of claiming depreciation and started claiming 100 per cent relief under section 31 instead of 25 per cent applicable under section 32. Further on items below Rs. 5,000 depreciation at 100 per cent was allowed. Since the provision was deleted, the assessee was not entitled to any relief. | |
| ■ | On appeal, the Commissioner (Appeals) following the decision of the Madras High Court rendered in the case of CIT v. Janakiram Mills Ltd. [2005] 275 ITR 403/146 Taxman 40 allowed the assessee's claim. | |
| ■ | On second appeal, the Tribunal held that the dies and moulds were not plant and machinery. The replacement of dies and moulds were not in the nature of installation of machinery in the factory. Such moulds and dies were normally attached to the machines to suit the individual requirement of particular product. So the expenditure incurred on replacement of dies and moulds was revenue in nature. | |
| ■ | On appeal to High Court: |
HELD-III
| ■ | Applying the ratio of the decision of the Madras High Court rendered in the case of Super Spinning Mills Ltd. v. Asstt. CIT [2013] 357 ITR 720/218 Taxman 125/37 taxmann.com 290 to the instant case, it is evident that moulds and dies attached to the machinery like press designs specification are not independent of the plant and machinery, but are parts of the machinery. Once the dies are worn out, the machine cannot turn out the product to the business specifications and this has to be obtained only on a replacement of the dies and moulds, a fact which is not refuted by the revenue. | |
| ■ | It is no doubt true that the assessee claimed depreciation on dies and moulds. Yet in the decision in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), the Apex Court pointed out that all questions whether of law or of fact, which relate to the assessment year of the assessee, could be raised in any year under consideration before the Officer as well as before the Tribunal too and if, for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, the grant of relief to an assessee is justified on another ground, the revenue is bound to consider such claim of granting the relief. The Apex Court pointed out that the right of the assessee to the relief is not restricted to the plea raised by him. | |
| ■ | In the instant case, when the dies and moulds were attached to the machine to manufacture the designed product, the plea of the assessee that the claim would fall for consideration only under section 31 deserved to be accepted. [Para 31] | |
| ■ | The expenditure being considered as current repairs, the same would fall under section 31 as current repairs. To that extent, the order of the Tribunal was liable to be modified. [Para 32] |
CASE REVIEW-I
CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282 (SC) (para 25) followed.
CIT (Central) v. Soorajmull Nagarmull [1981] 129 ITR 169/5 Taxman 289 (Cal.) (para 22) and CITv. Badridas Gauridu (P.) Ltd. [2003] 261 ITR 256/[2004] 134 Taxman 376 (Bom.) (para 22)distinguished.
CASE REVIEW-II
CIT v. Amrutanjan Finance Ltd. [2011] 203 Taxman 295/15 taxmann.com 392 (Mad.) (para 27)distinguished.
CASE REVIEW-III
Super Spinning Mills Ltd. v. Asstt. CIT [2013] 357 ITR 720/218 Taxman 125/37 taxmann.com 290 (Mad.) (para 32) and CIT v. Machado Sons [Tax Case (Appeal) No. 1011 of 2005, dated 27-4-2012] (para 32) followed.
CASE REVIEW-IV
CIT v. Rane Brake Linings Ltd. [2002] 255 ITR 395/[2003] 126 Taxman 231 (Mad.) (para 28)followed.
CASES REFERRED TO
CIT v. Janakiram Mills Ltd. [2005] 275 ITR 403/146 Taxman 40 (Mad.) (para 12), CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282 (SC) (para 16), CIT v. Rane Brake Linings Ltd. [2002] 255 ITR 395/[2003] 126 Taxman 231 (Mad.) (para 18), CIT v. Mysore Spun Concrete Pipe (P.) Ltd. [1992] 194 ITR 159/60 Taxman 170 (Kar.) (para 19), CIT v. Jagat Jit Industries Ltd. [2000] 241 ITR 556/108 Taxman 230 (Delhi) (para 19), CIT v. Soorajmull Nagarmull[1981] 129 ITR 169/5 Taxman 289 (Cal.) (para 22), CIT v. Badridas Gauridu (P.) Ltd. [2003] 261 ITR 256/[2004] 134 Taxman 376 (Bom.) (para 22), CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282 (SC) (para 23), CIT v. Amrutanjan Finance Ltd. [2011] 203 Taxman 295/15 taxmann.com 392 (Mad.) (para 26), Super Spg. Mills Ltd. v. Asstt. CIT [2013] 357 ITR 720/218 Taxman 125/37 taxmann.com 290 (Mad.) (para 30), CIT v. Mangayarkarasi Mills (P.) Ltd. [2009] 315 ITR 114/182 Taxman 141 (SC) (para 30), CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC) (para 30) and CIT v. Machado Sons [Tax Case (Appeal) No. 1011 of 2005, dated 27-4-2012] (para 32).
Mrs. Hema Muralikrishna for the Appellant. C.V. Rajan and R. Venkata Narayanan for the Respondent.
JUDGMENT
Mrs. Chitra Venkataraman, J. - These two Tax Case (Appeals) filed by the Revenue arising out of the common order of the Income Tax Appellate Tribunal in the assessee's appeal as well as the Revenue's appeal were relating to the assessment year 2003-04. The following substantial questions of law are raised by the Revenue in both the Tax Case (Appeals):—
| "1. | Whether on the facts and circumstances of the case, the Tribunal was right in holding that the foreign exchange gains arising from cancellation of forward contracts would form part of the export turnover for benefit of Section 80HHC ? | |
| 2. | Whether on the facts and circumstances of the case, the Tribunal was right in holding that 100% depreciation can be granted on the parking sheds when even as per the assessee it would last for 20 years ? | |
| 3. | Whether on the facts and circumstances of the case, the Tribunal was right in allowing expenditure related to advance given for R & D equipment under Section 35(1)(iv) of the Income Tax Act ? | |
| 4. | Whether on the facts and circumstances of the case, the Tribunal was right in holding that the expenditure on replacement of dies and moulds are to be allowed as a revenue expenditure contrary to its own orders in other cases, and when such expenditure was not debited in the profit and loss account, but only claimed in the Income Tax Adjustment statement ? | |
| 5. | Whether on the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to deduction of entry tax paid under Section 43B without verifying whether such entry tax had been set off against sales tax paid and the treatment given to the same in its account ?" |
2. The assessee is a company, which filed its return of income for the assessment year 2003-04 admitting total income of Rs.179,91,77,850/-. Subsequently, it filed a revised return. In the revised return, the assessee claimed expenditure under Section 31 on the dies and moulds replaced in the place of worn out dies and moulds; 100% depreciation on the temporary vehicle parking shed to the extent of Rs.1,89,72,571/-; deduction under Section 80HHC of the Income Tax Act, 1961 (hereinafter called as the "Act") in respect of foreign exchange income received on account of forward contracts of Rs.49,79,898/-. Apart from this, the assessee also claimed expenditure on Research & Development work and on the payment of Entry Tax of an amount of Rs.1,19,77,063/-.
3. As far as the claim under Section 80HHC of the Act on the foreign exchange received on account of forward contract is concerned, the assessee contended that 80HHC did not distinguish interest income as related to the business or not related to business; further, the foreign exchange income received on account of forward contract and other miscellaneous income also come within the ambit of other receipts. However, the Assessing Officer rejected such contention holding that the Foreign Exchange received on account forward contracts come within the Explanation (baa) of Sub Section (iii) of Section 80HHC of the Act, hence, 90% of the above receipts were to be excluded for the purpose of eligible business profit of Section 80HHC of the Act.
4. As far as the claim on 100% depreciation on various items which included temporary parking shed is concerned, the Assessing Officer rejected the same and held that the depreciation applicable to Buildings at 10% would be allowed on the above claim.
5. As regards the claim on expenditure under Section 31 of the Act on replacement of dies and moulds, the assessee contended that they being part of the machinery, replacement of dies and moulds would be allowed under Section 31 of the Act. The Assessing Officer rejected the said claim taking the view that the assessee itself claimed depreciation at 25% on dies and moulds upto assessment year 1999-2000. The assessee changed the system of claiming depreciation and it started claiming 100% relief under Section 31 of the Act instead of 25% applicable under Section 32 of the Act. Further on items below Rs.5,000/-, depreciation at 100% was allowed and since the provision was deleted, the assessee was not entitled to any relief.
6. On the claim of Research & Development (R&D), the Assessing Officer held that since the assets had not come into existence, expenditure claimed under Section 35D of the Act was not allowed; the expenditure would be allowed in the subsequent year if the assets had come into existence; the expenditure on R & D work in progress which was disallowed in the assessment year 2002-03 was allowed during the year under consideration as the assets had been put to use. Thus, the balance amount of Rs.1,68,85,332/- was added to the total income of the assessee.
7. On the claim of deduction on the Entry Tax paid, the Assessing Officer pointed out that as per the Tamil Nadu General Sales Tax Act, the entry tax paid would be set off as against the sales tax paid by the assessee. Since the set off under the Sales Tax enactment is automatic, the entry tax payment could not be claimed as deduction. Thus, this claim was also disallowed.
8. On the Foreign Exchange forward contracts, the assessee pointed out that foreign contracts were booked for import of materials and export of goods. When the exchange rate moved favourably to the assessee, the forward contract was cancelled and gains were realized and were kept in the separate account of the general ledger and thus, these were business related, consequently, they had to be treated as business income. The Assessing Officer however rejected this contention that the said income could not be treated as directly derived from the export activities and the profits were more in the nature of speculative profits.
9. Aggrieved by the above order of the Assessing Officer, the assessee went on appeal before the Commissioner of Income Tax (Appeals).
10. The Commissioner of Income Tax (Appeals), however, rejected the plea of the assessee, taking the view that income earned from forward contract would not be treated as derived from export of goods or merchandise; there could be no nexus between the said income and the export business and the said income did not qualify straight away for deduction under Section 80HHC of the Act.
11. On the depreciation claimed on the temporary parking shed put up, the Commissioner of Income Tax (Appeals) pointed out that the assessee constructed the vehicle parking shed at the cost of Rs.2.5 crores, the assessee claimed it as revenue expenditure. It was stated that the life span of the said vehicle parking shed would be around 20 years. However, the Commissioner of Income Tax (Appeals) rejected the said plea and took the view that expenditure had resulted in the creation of a new asset, which had given the assessee a benefit of enduring nature and the claim of the assessee for deduction at 100% of the entire structure is not in order. Thus, he confirmed the order of the Assessing Officer and held that the action of the Assessing Officer in allowing depreciation only at the rate of 10% on the cost of the said vehicle parking shed was justified.
12. On the issue pertaining to dies and moulds, the First Appellate Authority followed the decision in the case of CIT v. Janakiram Mills Ltd. [2005] 275 ITR 403/146 Taxman 40 (Mad.) and directed the Assessing Officer to delete the entire addition made under this head.
13. On the question of expenditure on Research & Development, the Commissioner of Income Tax (Appeals) allowed the appeal following the order made in the assessee's own case for the assessment year 2002-03 and 2005-06.
14. On the Entry Tax claimed as deduction, the First Appellate Authority agreed with the assessee that it was entitled to deduction on the Entry Tax paid. The Commissioner of Income Tax (Appeals) pointed out even though the General Sales Tax Act permitted the adjustment of the entry tax paid in the sales tax liability, Revenue was not concerned as to in what manner Entry Tax was adjusted with the Sales Tax liability.
15. Thus the First Appellate Authority allowed the assessee's appeal on the issue of R & D expenditure, on the expenditure of dies and moulds and on payment of Entry Tax, but rejected the assessee's appeal on receipts on forward contract claim under Section 80HHC of the Act. Aggrieved by this, both the assessee and Revenue went on appeal before the Income Tax Appellate Tribunal.
16. As far as the claim for deduction towards income earned on forward contract was concerned, the Income Tax Appellate Tribunal (hereinafter called as "Tribunal") allowed the assessee's appeal holding that the decision of the Apex Court in the case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282 was directly applicable to the facts of the case. Referring to the decision of the Apex Court in the case of K. Ravindranathan Nair (supra), the Tribunal pointed out that as far as profit from foreign exchange fluctuation was concerned, the same was part of the export turnover, hence, could not be excluded from the business profits for the purposes of determination of deduction under Section 80HHC of the Act. Thus, the Tribunal allowed the assessee's appeal in this regard.
17. As regards the depreciation claimed on temporary parking shed was concerned, the Tribunal pointed out that the Assessing Officer had not brought any material on record to show that these constructions were not temporary. On the plain reading of the expenditure incurred on putting up the car shed, the Tribunal directed 100% depreciation and set aside the order of the Commissioner of Income Tax (Appeals). Thus on the claim of 100% depreciation, the assessee's appeal was allowed.
18. As regards the expenditure on Research and Development was concerned, the Tribunal applied the decision in the case of CIT v. Rane Brake Linings Ltd. [2002] 255 ITR 395/[2003] 126 Taxman 231 (Mad.) and rejected the Revenue's appeal.
19. On the expenditure incurred towards dies and moulds, the assessee took the plea that dies and moulds were not plant and machinery, but were attachments made to plant and machinery to make plant and machinery function as per the requirements of the business. In this connection, the assessee pointed out to the decision in the case of CIT v. Mysore Spun Concrete Pipe (P.) Ltd. [1992] 194 ITR 159/60 Taxman 170 (Kar.) and contended that moulds normally undergo damage frequently and hence the same was to be allowed as revenue expenditure. It also relied on the decision of the Delhi High Court in the case of CIT v. Jagatjit Industries Ltd. [2000] 241 ITR 556/108 Taxman 230. The Tribunal further referred to the decision of this Court in the case of Janakiram Mills Ltd. (supra) and pointed out that the decision was reversed by the Supreme Court and held that the said decision would have no relevance to the facts of the case. However, the Tribunal applied the decision of the Karnataka High Court in the case of Mysore Spun Concrete Pipe (P.) Ltd. (supra) and the Tribunal held that the expenditure incurred towards dies and moulds was revenue expenditure.
20. On the aspect of deduction claimed on the entry tax paid, the Tribunal once again confirmed the view of the Commissioner of Income Tax (Appeals) and rejected the Revenue's appeal. Thus, aggrieved by the order of the Tribunal, the Revenue is on appeal before this Court.
21. The assessee is a manufacturer cum exporter. The assessee does not deny the fact that the forward contracts were entered into in the regular course of business. It however contended that in respect of the exports and imports made by the Company, based on the anticipated movement of the dollar and rupee, a forward cover is normally booked with the company's bankers; depending on the fluctuation, the assessee maintained the forward cover or withdrew the contract and that in this process, the assessee made gains which was credited to a separate account in the general ledger of the company and a sum of Rs.49,79,898/- was realised. As far as the claim on this amount as eligible profit for deduction under Section 80HHC of the Act is concerned, learned counsel appearing for the assessee placed heavy reliance on the Tribunal's order as well as the Commissioner's order only to submit that in respect of export house, it was entitled to deduction fully.
22. Learned counsel appearing for the assessee placed reliance on the decision of the Calcutta High Court in the case of CIT v. Soorajmull Nagarmull [1981] 129 ITR 169/5 Taxman 289 as well as the decision of Bombay High Court in the case of CIT v. Badridas Gauridu (P.) Ltd. [2003] 261 ITR 256/[2004] 134 Taxman 376. Those decisions were concerned about the question as to whether forward transaction on foreign exchange was speculative or incidental to export and import business. The said issues arose on the question of loss arising in forward transaction. The Bombay and Calcutta High Courts took the view that transaction not being speculative, the loss was deductible as business loss.
23. As far as the present case is concerned, we are on deduction under Section 80HHC of the Act. Section 80HHC of the Act is more concerned about the deduction on the profits derived by the assessee engaged in the business of export out of India of any goods or merchandise. Unless the assessee is in a position to point out that the income earned is derived by the assessee from export of such goods and merchandise, such income would not qualify for deduction under Section 80HHC of the Act. In the decision in the case of CIT v. K. Ravindranathan Nair [2007] 295 ITR 228/165 Taxman 282, the Apex Court considered the question as regards the extent of deduction available to the assessee particularly as regards the income falling under Explanation (baa) to Section 80HHC of the Act. The Supreme Court pointed out that in computing deduction under Section 80HHC of the Act, there are four variables viz., business profits, export turnover, total turnover and 90 per cent of the sums referred to in clause (baa) to the said Explanation. The Apex Court pointed out that every receipt is not an income and every income would not necessarily include element of export turnover. In other words, receipts constituting independent income having no nexus with exports are required to be reduced from business profit under clause (baa). On reading all the variables, the Apex Court pointed out that every receipt cannot constitute sale proceeds from exports; that every receipt is not income under the Income-tax Act and every income may not be attributable to the business of export. Applying the said decision to the facts of the case herein, we find that even though the assessee is an exporter, we do not have necessary materials to point out as to whether the assessee's forward contracts were with reference to any particular contract or not or generally kept as an export house and not by way of speculative business.
24. Learned counsel appearing for the assessee submitted that such forward contracts were done on account of its export business and not in speculative manner and hence would qualify for deduction. Although we do not have material facts to decide on this issue and the contentions are general, we may point out that in the written statements before the Commissioner of Income Tax (Appeals), the assessee submitted that as an exporter of goods, forwards contracts were kept for export as well as import. But the written statement did not lead any further to know whether the receipt of the income on account of fluctuation was the income derived from any particular forward contract cancelled. Thus, question arises as to what extent the assessee would be entitled to deduction under Section 80HHC of the Act. After referring to the decision in the case of K. Ravindranathan Nair (supra), the Tribunal straightaway allowed the case, holding that the profit from foreign exchange fluctuation was part of the export turnover.
25. Since the material facts are lacking in this case, we agree with the submission of the Revenue that the matter requires further consideration as to the extent of deduction that the assessee would be entitled to. Accordingly, the right course herein would be to set aside the order of the Tribunal and we remit the matter back to the Assessing Officer to find out whether forward contract were made in the course of its business of export and whether the profit earned from exchange fluctuation were with reference to any particular contract for export of goods and decide the issue in the light of the decision in the case of K. Ravindranathan Nair (supra). The Assessing Officer may decide the issue in accordance with law and the assessee is at liberty to produce necessary material to support its contention before the Assessing Officer.
26. As regards the claim on depreciation on temporary parking shed put up by the assessee is concerned, learned counsel appearing for the Revenue submitted that going by the extent of expenditure incurred and the admission by the assessee that it could withstand for 20 years or so, it is evident that the structure is permanent and hence entitled to depreciation at the rate of 10%. However, learned counsel appearing for the assessee submitted that going by the temporary shed put up, the extent of expenditure should not be a guiding factor in the matter of grant of depreciation. He also placed reliance on the decision of this Court in the case of CIT v. Amrutanjan Finance Ltd.[2011] 203 Taxman 295/15 taxmann.com 392 (Mad.).
27. We have perused the decision cited by the assessee. We do not find any justifiable ground to apply the said decision to the facts of the above tax cases, since factually, the same is distinguishable. The facts in the said decision relates to false ceiling and wooden partition inclusive of furniture, electrical wiring and interior decoration. The present case relates to the claim on temporary parking shed put up by the assessee. The expenditure incurred was Rs.1,89,72,571/-. Apart from the extent of expenditure thus incurred, we do not know whether the parking shed is a temporary one for parking vehicle or the shed itself is temporary one. Leaving this aside, going by the nature of expenditure incurred on other temporary shed for keeping spares -ware-house and other expenditure incurred on storage facilities, we do not find any justifiable ground to accept the plea of the assessee that the parking shed put up by the assessee should be treated as temporary one for the purpose of granting depreciation at 100%. We agree with the Revenue's contention that the shed itself would last for 20 years. Taking note of both these aspects, we agree with the Revenue and set aside the order of the Tribunal and allow the Tax Case (Appeal) that the depreciation on the expenditure incurred on putting up of temporary shed for parking vehicle would be at 10% only. Hence, we restore the order of the Assessing Officer.
28. As regards the expenditure on Research & Development, after analysing the facts, the Tribunal rightly applied the decision in the case of Rane Brake Linings Ltd. (supra).Consequently, we have no hesitation in rejecting the Revenue's plea.
29. As regards the expenditure on dies & moulds, the assessee pointed out that it debited an amount of Rs.11,17,68,169/- towards dies and moulds only to replace them in the place of worn out dies and moulds. The assessee in the memorandum of income added this amount to the total income and claimed the cost of dies and moulds of Rs.22,66,52,504/- under Section 31 of the Act. The assessee stated that within a period of one year of installation, the life of the dies and moulds would become obsolete and this was due to high production involved. Thus, replacement of the new dye in the place of old dye would qualify for current repairs under Section 31 of the Act. The Assessing Officer, however, rejected the contention of the assessee and the Assessing Officer pointed out that the assessee was claiming depreciation upto 1999-2000 under Section 32 of the Act and only in the year under consideration, it started claiming deduction under Section 31 of the Act. The Tribunal pointed out that the dies and moulds were not plant and machinery, yet the replacement of dies and moulds were not in the nature of installation of machinery in the factory. Such moulds and dies were normally attached to the machines to suit the individual requirement of particular product. So holding, the Tribunal held that expenditure incurred on replacement of dies and moulds was revenue in nature. It relied on the decision of Karnataka High Court in the case of Mysore Spun Concrete Pipe (P.) Ltd.(supra).
30. As far as this issue is concerned, learned counsel appearing for the assessee placed reliance on the decision of this Court reported in the case of Super Spg. Mills Ltd. v. Asstt. CIT [2013] 357 ITR 720/218 Taxman 128/37 taxmann.com 290 (Mad.) related to the expenditure on replacement of the machinery parts. The assessee therein engaged in the business of manufacture and trading in cotton yarn and allied products and the assessee incurred expenditure in respect of replacement of certain textile machinery. On a question as to whether such replacement of parts would be current repairs of capital in nature, this Court considered the decisions in the case of Saravana Spinning Mills (P.) Ltd.(supra), Ramaraju Surgical Cotton Mills (supra) and CIT v. Mangayarkarasi Mills (P.) Ltd. [2009] 315 ITR 114/182 Taxman 141 (SC) and pointed out that the question as to whether the expenditure incurred on replacement of machinery is revenue or capital rests on the nature of capital incurred vis-a-vis the benefit derived. This Court referred to the decision in the case of Saravana Spg. Mills (P.) Ltd. (supra) and in particular to the decision in the case of Sri Mangayarkarasi Mills (P.) Ltd.(supra) and pointed out as under:—
"10. The question as to whether the expenditure incurred on replacement of machinery is revenue or capital expenditure, particularly in the nature of replacements of parts, thus rests on the nature of expenditure incurred, vis-a-vis the benefit that the assessee derives. The ratio deductible from the decisions referred to above are:
| (i) | To decide the applicability of Section 31(i), the test is not whether the expenditure is revenue or capital in nature, but whether the expenditure is "current repairs". The basic test is to find out whether expenditure is incurred to "preserve and maintain" an already existing asset and the expenditure must not be to bring a new asset into existence or to obtain a new advantage vide CIT v. Saravana Spinning Mills (P.) Ltd. [2007] 293 ITR 201 (SC). | |
| (ii) | Under Section 31(i), the deduction admissible is only for current repairs. Therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question whether such expenditure comes within the etymological meaning of the expression "current repairs". In other words, even if the expenditure is revenue in nature, it may not fall in the connotation of "current repairs" CIT v. Saravana Spinning Mills (P.) Ltd. [2007] 293 ITR 201 (SC). | |
| (iii) | A new asset or new/different advantage cannot amount to 'current repairs'. - 2009-TIOL-86-SC-II (CIT v. Sri Mangayarkarasi Mills (P.) Ltd.). | |
| (iv) | Repair implies existence of a part of the machine which has malfunctioned, thereby requiring repair to that machinery, plant etc. Replacement cannot be a current repair, for, "replacement" and "current repair" do not go hand in hand . If one is to hold otherwise, it would only make Section 31(i) wholly redundant and absurd. Thus, replacement expenditure cannot be said to be 'current repairs' vide CIT v. Saravana Spg. Mills (P.) Ltd.and 2009-TIOL-86-SC-II (CIT v. Sri Mangayarkarasi Mills (P.) Ltd. [2007] 293 ITR 201 (SC). | |
| (v) | Expenditure is deductible under section 37 only if it (a) is not deductible under sections 30-36, (b) is of a revenue nature, (c) is incurred during the current accounting year and (d) is incurred wholly and exclusively for the purpose of the business. - 2009-TIOL-86-SC-II (CIT v. Sri Mangayarkarasi Mills (P.) Ltd.); | |
| (vi) | Expenditure is of a capital nature when it amounts to an enduring advantage for the business and repair is different from bringing a new asset for the business. Further, bringing into existence a new asset or an enduring benefit for the assessee amounts to capital expenditure vide Lakshmiji Sugar Mills (P.) Co. v. CIT (AIR 1972 SC 159)2009-TIOL-86-SC-II(CIT v. Sri Mangayarkarasi Mills (P.) Ltd.). | |
| (vii) | Therefore, whether an expenditure is revenue or capital in nature would depend on the facts of each case. - CIT v. Saravana Spg. Mills (P.) Ltd. [2007] 293 ITR 201 (SC)." |
This Court also referred to the decision in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC) on the issue of current repairs and pointed out that so long as there is no change in the performance of the machinery and the parts that were replaced performing precisely the same function, expenditure could only be concerned as current repairs of the plant and machinery.
31. Applying the ratio of the decision cited above, when we look into the facts of the above cases, it is evident that with regard to the moulds and dies attached to the machinery like press designs specification, moulds and dies are not independent of the plant and machinery, but are parts of the machinery. Once the dies are worn out, the machines cannot turn out the product to the business specifications and this has to be obtained only on a replacement of the dies and moulds, a fact which is not refuted by the revenue. It is no doubt true that the assessee claimed depreciation on dies and moulds. Yet in the decision in the case of Mahalakshmi Textile Mills Ltd. (supra), the Apex Court pointed out that all questions whether of law or of fact, which relate to the assessment year of the assessee could be raised in any year under consideration before the Officer as well as before the Income Tax Appellate Tribunal too and if, for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, the grant of relief to an assessee is justified on another ground, the Revenue is bound to consider such claim of granting the relief. The Apex Court pointed out that the right of the assessee to the relief is not restricted to the plea raised by him. On the facts before us, when the dies and moulds were attached to the machine to manufacture the designed product, we have no hesitation to accept the plea of the assessee that the claim would fall for consideration only under Section 31 of the Act.
32. In the unreported decision of this Court dated 27.04.2012 in Tax Case (Appeal). No.1011 of 2005 (CIT v. Machado Sons) on the question of repair made to a ship, this Court pointed out that when the object of the expenditure was not for bringing into existence a new asset or to obtain a new advantage, the said expenditure qualifies to be considered as current repairs under Section 31 of the Act. In so holding, after referring to the decision of the Apex Court in the case of Saravana Spg. Mills (P.) Ltd. (supra), this Court further pointed out to the decision of the Apex Court where it cautioned that all repairs are not current repairs on Section 31(1) of the Act; Section 31(1) of the Act limits the scope of allowability of expenditure as deduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of "current repairs". Thus, this Court pointed out that what is allowable as revenue expenditure under Section 37 of the Act are those expenditure other than one falling for consideration under Sections 30 to 36 of the Act. The Apex Court further pointed out the example that when the picture tube in a television set is replaced, such repairs would come within the connotation of the phrase "current repairs". Thus, applying these two decisions, we have no hesitation in rejecting the Revenue's appeal. We hold that the claim being considered as current repairs, the same would fall under Section 31 of the Act as current repairs. To that extent, we modify the order of the Tribunal.
33. On the question of deduction under Entry Tax, the Tribunal rightly considered the claim of the assessee for deduction of entry tax payment made by the assessee. The Assessing Officer admitted that the deduction on account of Entry Tax is allowable if the payment is actually made and admittedly, payment of entry tax has been made by the assessee; the entry tax paid would get the adjustment as against the Sales Tax liability, consequently, any deduction would amount to total deduction.
34. We do not agree with the said line of reasoning. The payment made on the entry tax demand and its adjustment against the Sales Tax assessment has nothing to do with deduction provision under the Income Tax Act on the entry tax paid. Consequently, we reject the Revenue's plea on double deduction. The provisions of Sales Tax Act and the Income Tax Act are on the different lines. The adjustment or the treatment given under the Sales Tax Act cannot be read in to the Income Tax Act and the only question is whether the entry tax actually paid by the assessee during the year under consideration is allowable as deduction or not. The Tribunal rightly allowed the deduction claimed by the assessee on account of tax payment made under Entry Tax Act. Consequently, we reject the Revenue's appeal.
35. Insofar as T.C.(A).No.173 of 2009 is concerned, the first question on the claim of foreign exchange fluctuation of forward contract is concerned, the matter stands remitted back to the Assessing Officer for de novo consideration to the extent as indicated above. The order of the Tribunal is set aside.
36. As regards the claim of 100% depreciation by the assessee on the temporary parking shed, the Revenue's appeal stands allowed.
37. In the result, T.C(A).173 of 2009 stands partly allowed.
38. Insofar as T.C.(A).No.174 of 2009 is concerned, as regards the first question on Research and Development under Section 35(1)(iv) of the Act, the same is held against the Revenue. So too the expenditure on replacement of dies and moulds, we hold that the expenditure falls under Section 31 of the Act and not under Section 37 of the Act. To that extent, the Tribunal's order stands modified.
39. As regards the Entry Tax under Section 43B of the Act, the question is answered against the Revenue. Consequently, the Tax Case (Appeal) No.174 of 2009 stands dismissed. No costs.
SKJ †Arising out of order of Tribunal in IT Appeal Nos. 792 and 893 (Mds) of 2007, dated 22-5-2008.
Regards,
Pawan Singla , LLB
M. No. 9825829075NEW DELHI, JUNE 05, 2014: THE issues before the Bench are - Whether when the Directors of the assessee company are one of many shareholders and provide personal surety to banks for loans taken by the assessee, the guarantee commission paid to them is to be construed as dividend; Whether it is in the jurisdiction of the AO to impose his views with regard to the necessity or the quantum of the expenditure undertaken by an assessee and Whether in case of a public listed company, the Directors would be entitled to receive the amount paid to them as commission - Whether in such a case the amount so received by the directors can be considered as dividend. And the verdict goes in favour of the assessee.
Facts of the case
The assessee is a listed company and had filed its return of income for AY 2006-07 claiming deduction on account of guarantee commission paid to the Directors of the company. It was stated that the assessee required certain credit facilities from State Bank of India for its business purposes, and the said bankers had insisted on a personal guarantee of directors as a pre-condition for providing the financial assistance sought by it. It was asserted by the assessee that a sum of Rs.24,37,500/- each was paid to the Directors as commission, computed at the rate of 1.5% of the principal sum in respect of which personal guarantees had been furnished by the said Directors to the State Bank of India. The Directors were employees of the assessee and were drawing a salary from the assessee. The assessee had passed the necessary resolution and obtained the corporate authority for paying the commission in question to the Directors. The assessee had also deducted TDS at the applicable rates. The commission received by the Directors was duly reflected as income in their respective returns. During assessment, AO had disallowed the commission paid by it to its Directors in consideration of the personal guarantees furnished by them to a bank for facilitating the loan provided to the assessee. The assessee's contention that the said commission was allowable as an expenditure having been incurred wholly and exclusively for the business of the company, was rejected by the AO by holding that the commission paid by the assessee was not allowable by virtue of Section 36(1)(ii). The AO further observed that by paying commission to the Directors, the assessee was avoiding 15% dividend distribution tax under Section 115O of the Act. On appeal, CIT(A) also confirmed AO's order. On further appeal, Tribunal had rejected the contention of the assessee and confirmed the decision of CIT(A). The assessee filed an application u/s 254(2) before the Tribunal for rectification of the order bringing to the notice of the Tribunal, the decision of HC in AMD Metplast Pvt. Ltd. v. DCIT: 341 ITR 563. According to the assessee the said decision clearly settled the question involved in favour of the assessee and as the Tribunal had not considered the same, its order was liable to be rectified. The said application filed by the assessee u/s 254(2) was also rejected by the Tribunal, whereby it was held that the facts referred in the case of AMD Metplast Pvt. Ltd. were different from the facts in the present case.
Held that,
++ it is not in dispute that the requisite resolution was passed by the assessee for paying the guarantee commissions to the Directors. It is also not in dispute that the Directors provided the personal guarantee and stood as surety for the financial assistance availed of by the assessee. The contention that personal guarantees of the Directors were insisted upon by the State Bank of India and were necessary for availing of the facilities, is also not contested. In view of the aforesaid factual background we find that the issues that needs to be addressed is whether the Directors have rendered any service to the assessee and whether by virtue of Section 36(1)(ii) such payments of commission are liable to be disallowed. The Directors to whom the commission had been paid are, admittedly, employees of the assessee and are entitled to remuneration for their services as employees. The assessee has passed the requisite resolution confirming the remuneration payable to the Directors. The assessee has also passed a resolution resolving that the Directors be paid the commission on account of providing their personal guarantees for the financial assistance availed by the assessee from the State Bank of India. This act of the Directors in providing their personal guarantees and undertaking the attendant risks is clearly beyond the scope of their services as employees of the assessee. In this view, it can hardly be disputed that the transactions in consideration for which commissions were paid by the assessee to its Directors are real. Undisputedly, the Directors having provided their personal guarantee have acted beyond the call of duty as employees of the assessee. The fact that the assessee in its commercial wisdom has agreed to pay a commission for the furnishing of such guarantees cannot be flawed, as it is well settled that it is assessee's discretion as to which expenditure is necessary and to what extent. And, it is not within the jurisdiction of the Assessing Officer to impose his views with regard to the necessity or the quantum of the expenditure undertaken by an assessee. The Assessing Officer has only to determine whether the transactions are genuine and real. In the given circumstances, in our view it cannot be contended that the transactions involving payment of commissions to the Directors are unreal or not genuine;
++ it is also apparent from the reading of the aforesaid provision that bonus or commission paid to an employee is expressly allowed as deduction. The only exception is where the bonus or commission paid to the employee would otherwise be payable to him as profits or dividends, in the event the same had not been paid as commission. It is clear that the exception would be applicable only where an employee would be entitled to receive the amount paid as commission, as profits or dividends. In the present case, the Directors would not be entitled to receive the amount paid to them as commission, as dividends because even if it is assumed that nonpayment of commission would add to the kitty of distributable profits the same would have to be distributed pro-rata to all the shareholders and not selectively to the said Directors. Dividend is paid by a company as distribution of profits to its shareholders in the ratio of their shareholding in the company. In the present case, the Directors were not the only shareholders of the company and, therefore, in the event the Commission had not been paid by the assessee it could not have been distributed to them as dividends;
++ the High Court in the case of AMD Metplast also pointed out this distinction between distribution of dividends and payment for services that payment of dividend is made in terms of the Companies Act, 1956. Dividend has to be paid to all shareholders equally. This position cannot be disputed by the Revenue. Dividend is a return on investment and not salary or part thereof. Herein the consideration in the form of commission which was paid to Ashok Gupta was for services rendered by him as per terms of appointment as a managing director. Thus, in our view, the Tribunal and the Income Tax Authorities below erred in holding that the payments of commission to the Directors fell within the exclusionary limb of Section of 36(1)(ii). In view of the above, the writ petition is allowed and the impugned order dated 31.10.2013 is set aside. We direct that the order dated 20.04.2012 passed by the Tribunal in ITA No. 1642/Del/2010 be rectified to the limited extent that it upholds the disallowance of expense of Rs.48,75,000/-, paid as commission to the Directors. The said disallowance and the additions made on this count are set aside. The impugned matter is remitted to the Tribunal to pass consequential orders.
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