ourt
--
Regards,
tilak
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Rs.15,57,000/. The Assessing Officer completed the assessment under
section 158BC(c) of the Income Tax Act by order dated 29
th
April 2003.
He determined the total undisclosed income of Rs.7,81,85,884/ by
making the addition of Rs.7,66,28,884/. The assessee, aggrieved by
this assessment order carried the matter to the Commissioner of Income
Tax (Appeals) who allowed the Appeal of the assessee, quashed the
order of the Assessing Officer. The Revenue approached the Tribunal
and by the impugned order, the Tribunal also dismissed the Appeal.
3
It is urged that there are substantial questions of law and
specifically those enumerated at para 5, page 5 of the paper book,
arising for determination and consideration in this Appeal.
4
We find after perusing this memo of Appeal and the order of
the Tribunal that the attempt of the Revenue is to have a reappreciation
and reappraisal of the factual materials. The only two papers which the
Assessing officer relied upon, namely page 17 of bundle no.2 and paper
no.55 of bundle no.2 have been referred to in details. After the seizure,
the Managing Director of the Company was required to explain the
contents of the paper. The two statements were recorded. The matter
has been discussed in detail by the Commissioner of Income Tax
(Appeals) and the Tribunal. Upon perusal of the explanation given by
the Managing Director and the assessee, the Tribunal concluded that the
matter has been elaborately and properly discussed by CIT (A). Once
the version of the assessee and in details deserves acceptance, then, we
do not find that any substantial question of law arises from the exercise
undertaken by the Commissioner and the ITAT. The Assessing Officer
had a statement of the accountant before him, but he did not examine
the said accountant. The author of the document/paper also was not
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Bombay High Court
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examined during the assessment proceedings. She however, appeared
before the Commissioner of Income Tax (Appeals). The Commissioner
not only examined her, but allowed the Assessing Officer to cross
examine the said deponent. The statement made in Chief and the Cross
examination, both have been referred by the Tribunal in adequate
details. We do not find any perversity or error of law apparent on the
face of record in the order passed by the CIT(A) and which has been
affirmed by the Tribunal.
5
Mr.Singh appearing on behalf of the Revenue in support of
this Appeal has taken us through the orders by the Tribunal and CIT(A).
He could not persuade us to hold that any substantial question of law
arises for determination and consideration in this Appeal. The finding of
fact and particularly with regard to the seizure and the relevant
documents itself, ought to have been given finality by the Revenue.
After the Appeal was argued and we showed our disinclination to
entertain it, as it does not raise any substantial question of law, we gave
Mr.Singh an opportunity to seek instructions as to whether the Revenue
desires to withdraw this Appeal or pursue it.
6
We could have immediately passed the final orders by
dictating the same in open Court after the arguments were concluded.
However, we gave Mr.Singh an opportunity to take instructions from the
concerned official. Mr.Singh submits that the concerned official has
addressed a communication to him informing that the Appeal was filed
with the approval/consultation with the Chief Commissioner of Income
Tax Pune/DGIT(Investment) Pune. The letter does not indicate that the
said Chief Commissioner was unavailable. The letter further states that
discussions would have to be held with all authorities.
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Bombay High Court
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7
We do not find how Officers lower down in the hierarchy
can take decisions to file Appeals and that too against the decision of the
Tribunal. The tendency not to accept any adverse verdict on facts results
in frivolous Appeals being filed in this Court. That causes huge loss to
the public exchequer and results in wastage of precious judicial time of
this Court. All this ought to have been discouraged long time back. The
High Court has not adopted a strict approach and that has possibly
encouraged the Revenue in filing Appeals to challenge essentially
findings of fact and with regard to matters which should stand
concluded at the level of the authorities. The officials should realize that
the authorities like Commissioner of Income Tax (Appeals) and the ITAT
are envisaged as appellate and possibly final fact finding authorities and
atleast the Tribunal is last in that hierarchy. The fact finding therefore if
demonstrably perverse or palpably erroneous and as would amount to
unsettling the settled position in law alone should be questioned by
filing Appeals to this Court. However, a routine exercise and by people
who do not wish to take any responsibility, results in number of Appeals
being filed and pending. This benefits no one and rather defeats larger
public interest. The Revenue collection and equally the participation of
the assessee in the exercise undertaken by the authorities to assess their
income, therefore is affected adversely. None takes a position or
decision because of pendency of matters and for a long time. In these
circumstances, while dismissing this Appeal, we impose costs quantified
at Rs.50,000/. The costs be paid to the assessee within four weeks from
today. We atleast now expect the authorities to take cognizance and
initiate proceedings for recovery of this amount personally from such of
the Officers who do not take decisions or postpone them unendlessly.
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Non-compete fee received by assessee from divestment of its insignificant business activity was a revenue receipt
IT-I : Where assessee engaged in various manufacturing activities, sold only one of its activities to another concern and said activity was not a part of it core activities, non-compete fee received in order to refrain from carrying on said activity for a limited period of five years resulted in revenue receipt liable to tax
IT-II : Where assessee sold one of its manufacturing business as a going concern and there was no sale of itemised assets, this being a case of slump sale, capital gain arising therefrom was not liable to tax
MUMBAI, JUNE 18, 2014: THE issues before the Bench are - Whether production of steam can be construed as generation of power and Sec 80IA benefits cannot be denied even if such steam is utilised for internal manufacturing process and Whether market value of the goods transferred in cases, where provisions of section 80-IA(8) are applicable, has to be determined having regard to the price charged in uncontrolled transaction. And the verdict goes in favour of the assessee.
Facts of the case
The assessee is a public Ltd Company. It is engaged in the business of manufacturing of paper boards and optic cables etc, it is also engaged in operation of wind mills at Tamil Nadu and generating powers. Assessee claimed deduction under section 80IA in respect of its power generating plant no 1-5 and also claimed deduction of 80-IA in respect of plant number 6 where the assessee was generating electricity with the help of steam. The AO denied the claim of the assessee vis-à-vis all the units mainly on the grounds that the power generated by the assessee was not sold to outsider and the units were captive power consumption based. Secondly, the generation of steam was not generation of power within the meaning of section 80-IA of the Act. Besides this the AO also estimated the market value of electricity transferred by the power unit to other units and took the view that the assessee ought to have reduced the value of excise and other duties, which were embodied in the state electricity charges, from the notional charges received from the other units. The CIT (A) partly allowed the appeal of the assessee, however sustained the order of the AO qua the deduction of section 80-IA and estimation of market value of electricity.
On appeal, the ITAT held that,
++ in this year, the claim for deduction is mainly with regard to unit no.3, 4 and 5 which has already been considered by the Tribunal on similar set of facts and similar reasons given by the Assessing Officer and the Commissioner (Appeals) in the earlier years;
++ there being no deviation of facts and material on record we, therefore, respectfully following the earlier year's precedence, hold that the claim for deduction under section 80IA with respect to power units no.2, 3, 4 and 5 will continue to be allowable as deduction. Thus, ground no.1 raised by the assessee is allowed;
++ the statute contemplates "generation of power" or "generation and distribution of power". The moot question before us is, whether the steam generated by the assessee, which rotates the turbine for running of machines used for its manufacturing process and also steam alone, is a form of power or not. The case of the learned Commissioner (Appeals) is that the meaning of power as contemplated in the statute is generation of electricity alone, whereas the case of the counsel before us is that the power is a form of energy which can be electrical, mechanical, thermal or any other form of energy. The Income Tax Act, 1961, does not define the word "power". The new Oxford Dictionary of English defines the word "power" as "energy" that is produced by mechanical, electrical or other means which is used for operating device. Otherwise also, generation of steam is a kind of energy which can be converted into mechanical or electrical energy from which power is generated. To say that the generation of power is only restricted to generation of electricity alone, is too narrow a view. The term "power" encompasses a whole range of energy generated in various forms to run machines, devices, etc. This precise issue had also come up for consideration before the Tribunal in several cases cited supra. The Tribunal in Sial SBEC Bio Energy Ltd, while deciding the issue whether generation of steam amounts to generation of power or not for the purpose of deduction under section 80IA, has referred catena of decisions;
++ similarly, in the decision of DCIT v/s Maharaja Shri Umed Mills Ltd., the Tribunal held that like electricity, steam is also a form of power which is eligible for relief under section 80IA(4);
++ from the aforesaid decisions, it can be inferred that the generation / production of steam is also a form of power and the Unit-6 which is an undertaking set-up for generation of steam for its manufacturing process can be said to be for generation of power. The basis on which the Commissioner (Appeals) has tried to distinguish the decision of Sial SBEC Bio Energy Ltd. is very superficial. What needs to be seen is, whether generation of steam can be said to be generation of power or not, then, the finding and the conclusion drawn by the Tribunal in the aforesaid decision after referring to the catena of decisions and various other provisions clearly clinches the point;
++ in the Explanation to section 80IA(8), the "market value" has been defined as a price that such goods or services would ordinarily fetch in the open market. Fetching of the price in the open market has to be seen from the factors which are determined through negotiation between the parties and mutual agreement as arrived at a price which is acceptable between the buyer and the seller in the open market conditions i.e., in an unrelated and uncontrolled transactions. Open market conditions refers to the conditions and price available for the public at large. In the present case, the market value of supply of electricity by power unit of the assessee to the paper division of the assessee has to be seen from the angle, if the paper unit has to purchase the electricity directly from the Karnataka Electricity Board (as both the power units as well as the paper units are situated in Karnataka), then what is the price which would be paid by the paper unit to the Karnataka Electricity Board. The transfer of the price as contemplated in section 80IA(8) has to be seen having regard to the arm's length condition i.e., what would be the price under uncontrolled transactions in the open market. If the paper division has been purchasing the electricity form the Karnataka Electricity Board at an average cost of Rs. 5.80, which fact is not in dispute, then the same price should be considered as market value for bench marking the price at which power units are supplying the electricity to the paper division. If the taxes and duties are part of the price at which the power / electricity is supplied by the Karnataka Electricity Board to the paper division, then the same price is the indicator of the market value which is fetchable in the open market. We do not find any reason for excluding the element of tax and duty while determining the "market value" of the electricity price per unit supplied by the power unit to the assessee as contemplated in sub-section (8) of section 80IA.
The assessee is a public Ltd Company. It is engaged in the business of manufacturing of paper boards and optic cables etc, it is also engaged in operation of wind mills at Tamil Nadu and generating powers. Assessee claimed deduction under section 80IA in respect of its power generating plant no 1-5 and also claimed deduction of 80-IA in respect of plant number 6 where the assessee was generating electricity with the help of steam. The AO denied the claim of the assessee vis-à-vis all the units mainly on the grounds that the power generated by the assessee was not sold to outsider and the units were captive power consumption based. Secondly, the generation of steam was not generation of power within the meaning of section 80-IA of the Act. Besides this the AO also estimated the market value of electricity transferred by the power unit to other units and took the view that the assessee ought to have reduced the value of excise and other duties, which were embodied in the state electricity charges, from the notional charges received from the other units. The CIT (A) partly allowed the appeal of the assessee, however sustained the order of the AO qua the deduction of section 80-IA and estimation of market value of electricity.
On appeal, the ITAT held that,
++ in this year, the claim for deduction is mainly with regard to unit no.3, 4 and 5 which has already been considered by the Tribunal on similar set of facts and similar reasons given by the Assessing Officer and the Commissioner (Appeals) in the earlier years;
++ there being no deviation of facts and material on record we, therefore, respectfully following the earlier year's precedence, hold that the claim for deduction under section 80IA with respect to power units no.2, 3, 4 and 5 will continue to be allowable as deduction. Thus, ground no.1 raised by the assessee is allowed;
++ the statute contemplates "generation of power" or "generation and distribution of power". The moot question before us is, whether the steam generated by the assessee, which rotates the turbine for running of machines used for its manufacturing process and also steam alone, is a form of power or not. The case of the learned Commissioner (Appeals) is that the meaning of power as contemplated in the statute is generation of electricity alone, whereas the case of the counsel before us is that the power is a form of energy which can be electrical, mechanical, thermal or any other form of energy. The Income Tax Act, 1961, does not define the word "power". The new Oxford Dictionary of English defines the word "power" as "energy" that is produced by mechanical, electrical or other means which is used for operating device. Otherwise also, generation of steam is a kind of energy which can be converted into mechanical or electrical energy from which power is generated. To say that the generation of power is only restricted to generation of electricity alone, is too narrow a view. The term "power" encompasses a whole range of energy generated in various forms to run machines, devices, etc. This precise issue had also come up for consideration before the Tribunal in several cases cited supra. The Tribunal in Sial SBEC Bio Energy Ltd, while deciding the issue whether generation of steam amounts to generation of power or not for the purpose of deduction under section 80IA, has referred catena of decisions;
++ similarly, in the decision of DCIT v/s Maharaja Shri Umed Mills Ltd., the Tribunal held that like electricity, steam is also a form of power which is eligible for relief under section 80IA(4);
++ from the aforesaid decisions, it can be inferred that the generation / production of steam is also a form of power and the Unit-6 which is an undertaking set-up for generation of steam for its manufacturing process can be said to be for generation of power. The basis on which the Commissioner (Appeals) has tried to distinguish the decision of Sial SBEC Bio Energy Ltd. is very superficial. What needs to be seen is, whether generation of steam can be said to be generation of power or not, then, the finding and the conclusion drawn by the Tribunal in the aforesaid decision after referring to the catena of decisions and various other provisions clearly clinches the point;
++ in the Explanation to section 80IA(8), the "market value" has been defined as a price that such goods or services would ordinarily fetch in the open market. Fetching of the price in the open market has to be seen from the factors which are determined through negotiation between the parties and mutual agreement as arrived at a price which is acceptable between the buyer and the seller in the open market conditions i.e., in an unrelated and uncontrolled transactions. Open market conditions refers to the conditions and price available for the public at large. In the present case, the market value of supply of electricity by power unit of the assessee to the paper division of the assessee has to be seen from the angle, if the paper unit has to purchase the electricity directly from the Karnataka Electricity Board (as both the power units as well as the paper units are situated in Karnataka), then what is the price which would be paid by the paper unit to the Karnataka Electricity Board. The transfer of the price as contemplated in section 80IA(8) has to be seen having regard to the arm's length condition i.e., what would be the price under uncontrolled transactions in the open market. If the paper division has been purchasing the electricity form the Karnataka Electricity Board at an average cost of Rs. 5.80, which fact is not in dispute, then the same price should be considered as market value for bench marking the price at which power units are supplying the electricity to the paper division. If the taxes and duties are part of the price at which the power / electricity is supplied by the Karnataka Electricity Board to the paper division, then the same price is the indicator of the market value which is fetchable in the open market. We do not find any reason for excluding the element of tax and duty while determining the "market value" of the electricity price per unit supplied by the power unit to the assessee as contemplated in sub-section (8) of section 80IA.
Treatment of a sum in hands of counterparty couldn't decide its taxability in hands of assessee
IT: Where assessee claimed deduction of interest and lease charges written off on account of non-payment of same by subsidiary company, even though amount so written off was offered by subsidiary as its income, it would not decide about taxability of said amount in hands of assessee and, thus, assessee's claim could not be allowed merely on aforesaid basis
IT : Where Assessing Officer allowed claim of depreciation raised by assessee, an amalgamating company, on WDV of assets, in view of fact that there was no intention of legislature to grant depreciation both to amalgamating company as well as amalgamated company twice in a particular assessment year, Commissioner was justified in passing revisional order directing Assessing Officer to examine depreciation claimed by assessee afresh
■■■
[2014] 45 taxmann.com 305 (Calcutta)
HIGH COURT OF CALCUTTA
Hindustan Lever Ltd.
v.
Commissioner of Income-tax, Kolkata- II*
GIRISH CHANDRA GUPTA AND SUDIP AHLUWALIA, JJ.
IT APPEAL NO. 371 OF 2004
FEBRUARY 26, 2014
Section 32, read with section 263, of the Income-tax Act, 1961 - Depreciation - Allowance/rate of (Amalgamation) - Assessment year 1994-95 - In course of assessment, Assessing Officer allowed claim of depreciation of assessee, an amalgamating company on W.D.V. of assets - Commissioner passed a revisional order directing Assessing Officer to examine assessee's claim for depreciation afresh - Tribunal confirmed revisional order holding that there was no provision in statute from which it would appear that intention of Legislature was to grant depreciation both to amalgamating company as well as amalgamated company twice in a particular assessment year - Whether on facts, impugned order passed by Tribunal did not require any interference - Held, yes [In favour of revenue]
CASES REFERRED TO
Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) (para 5),Baleshwar Bagarti v. Bhagirathi Dass [1908] ILR 35 (Cal.) (para 5) and K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) (para 6).
J.P. Khaintan and S. Basu for the Appellant. Md. Nizumuddin for the Respondent.
JUDGMENT
1. The assessee preferred an appeal against an order passed by the Commissioner in exercise of power under Section 263 of the Income Tax Act, hereinafter referred to as the said Act. The learned Tribunal dismissed the appeal holding as follows:
'We find that Section 43(6) expressed the meaning of "written down value". It has been provided inExplanation 2 that where in any previous year, any block of assets is transferred by the amalgamating company to the amalgamated company in a scheme of amalgamation and the amalgamated company is an Indian company, the actual cost of the block of assets in the case of transferee company or the amalgamated company, as the case may be, shall be written down value of the block of assets as in the case of the transferor company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. Thus, according to us, the W.D.V. at the end of the previous year should be the W.D.V. in the hands of the amalgamating as well as amalgamated company as per Explanation 2(b) to Section 43(6). We have also considered the reference to Section 32(1)(ii). We find that this section provides that in respect of depreciation of assets owned, wholly or partly, by the assessee and used for the purposes of the business, certain percentage of W.D.V. has to be allowed. We have had no occasion to find any where in the Statute from which it would appear that the intention of the Legislature is to grant depreciation both to the amalgamating company as well as amalgamated company twice in a particular assessment year. Therefore, it is abundantly clear that the CIT, acting under Section 263, was absolutely justified in setting aside the order of the Assessing Officer for examination into this aspect of the matter and to consider the claim of depreciation of Rs.3,05,85,692/-.'
2. Aggrieved by the order of the learned Tribunal, the assessee has come up in appeal.
3. Mr. Khaitan, learned Senior Advocate appearing for the appellant-assessee, contended that depreciation has been claimed by the amalgamating company under Section 32 of the Act. According to him, Section 32 does not create any bar as held either by the CIT (A) or by the Learned Tribunal. The bar, if any, was introduced for the first time by amendment to Section 32 by which the third proviso was added with effect from 1st April, 1997. We are concerned with the assessment for the year 1994-95. Even by the third proviso the period during which claim for depreciation may be made by the amalgamating company has been restricted. Since the aforesaid proviso was not there at the relevant period of time, the same could not have any application. He also drew our attention to a copy of the Bill presented to the Parliament proposing the amendment before the third proviso was introduced to the statute. He drew our attention to paragraph (b) with the title "depreciation in case of succession and amalgamation", which reads as follows:
"The existing provisions provide for depreciation allowance on assets acquired by an assessee during the previous year and which are put to use for the purposes of business or profession for a period of less than one hundred and eighty days in a previous year. It is provided that the depreciation allowance in such cases will be restricted to fifty per cent. of the amount calculated at the prescribed rates. In the cases of succession in business and amalgamation of companies, the predecessor in business and the successor or amalgamating company and amalgamated company, as the case may be, are entitled to depreciation allowance on the same assets, which in aggregate exceeds the depreciation allowance admissible for a previous year at the prescribed rates. It is proposed to restrict the aggregate deduction for this allowance in a year to the deduction computed at the prescribed rates and apportion the allowance in the ratio of the number of days for which the assets were used by them."
4. He also drew our attention to a Circular No.762 dated 18th February, 1998 issued by the CBDT in connection with Finance (No. 2) Act, 1996 - Explanatory Notes on provisions relating to Direct Taxes. He relied on paragraph 23.2 of the aforesaid Circular, which reads as follows:
"The third proviso to sub-section (1) of section 32 provides that the depreciation allowance will be restricted to fifty per cent. of the amount calculated at the prescribed rates in cases where assets acquired by an assessee during the previous year are put to use for the purpose of business or profession for a period of less than one hundred and eighty days in that previous year. Thus, in the cases of succession in business and amalgamation of companies, the predecessor in business and the successor or amalgamating company and amalgamated company, as the case may be, are entitled to depreciation allowance on the same assets, which in the aggregate may exceed the depreciation allowance admissible for a previous year at the rates prescribed in Appendix I of the Income-tax Rules, 1962. An amendment has, therefore, been made to restrict the aggregate deduction for this allowance in a year in such cases to the amount computed at the prescribed rates. It has also been provided that the allowance shall be apportioned in the ratio of the number of days for which the asset is put to use in such cases."
5. He submitted that both the Parliament and the CBDT appear to have proceeded on the basis that the amendment was necessary in order to restrict the aggregate deduction on account of depreciation allowance. He added that the Circular issued by the CBDT is binding upon the authorities and is also a guide. He, in this regard, drew our attention to a judgment in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) wherein a judgment of this Court in the case of Baleshwar Bagarti v.Bhagirathi Dass [1908] ILR 35 (Cal.) was quoted with approval which reads as follows:
"It is a well-settled principle of interpretation that courts in construing a statute will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it."
6. The apex Court also relied upon the judgment in the case of K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 wherein it was held that the Circulars of the Central Board of Direct Taxes issued under Section 119 are legally binding on the Revenue. The apex Court in that case further cited Crawford on Statutory Construction and quoted with approval the following passage:
"The rule of contemporanea expositio is that "administrative construction (i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive."
7. Mr. Khaitan, as such, submitted that both the CIT(A) and the Learned Tribunal were wrong in taking the views as they did and, therefore, the order under challenge should be set aside.
8. Mr. Nizumuddin, learned Advocate appearing for the Revenue, submitted that allowance on account of depreciation under Section 32 of the Act can be claimed on the written down value of the block of assets. The expression "written down value" has been defined in sub-Section 6 of Section 43 of the Act. He drew our attention to Explanation 2 below clause [c](ii) which reads as follows:
"Explanation 2. — Where in any previous year, any block of assets is transferred, —
| (a) | by a holding company to its subsidiary company or by a subsidiary company to its holding company and the conditions of clause (iv) or, as the case may be, of clause (v) of section 47 are satisfied; or | |
| (b) | by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company, |
then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in the case of the transferee-company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferor-company or the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year.
9. He contended that the provisions of Section 32 have to be read in conjunction with Section 43(6). From a conjoint reading of these two provisions it cannot be held that the so-called restriction was not there before introduction of the third proviso to Section 32 as contended by Mr. Khaitan.
10. We have considered the rival submissions advanced by the learned Advocates. In case the contention of Mr. Khaitan is to be accepted, the expression "as in the case of the transferor-company or the amalgamating company" becomes redundant. If these expressions are to be given appropriate weightage, then it is not possible to hold that the views taken by the CIT(A) and the Learned Tribunal are wrong in point of law.
11. We are, as such, in agreement with their views and are unable to accept the submissions of Mr. Khaitan.
12. The appeal is, therefore, dismissed.
SUNIL*In favour of revenue.
Regards,
Pawan Singla , LLB
M. No. 9825829075__._,_.___
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