[aaykarbhavan] Judgments and Information [19 Attachments]

The Definitive Answer To 20 Of Your Biggest Health Question 

 

Does olive oil prevent heart disease?

Short answer: Yes
The health benefits of olive oil come from the presence of polyphenols, antioxidants

That reduce the risk of heart diseases and cancers.
But to get these healthy compounds, consumers should buy good-quality, fresh "extra-virgin" olive oil, which has the highest polyphenol content. Most commercially available olive oils have low levels of polyphenols associated with poor harvesting methods, improper storage, and heavy processing.

 

 

 

 

 

 

Do cough syrups work? 

Short answer: No
In 2006, the nation's chest physicians agreed that the majority of over-the-counter cough medicines don't actually work.

These colorful syrups typically contain doses of codeine and dextromethorphan that are too small to be effective.
Only cough suppressants that contain older antihistamines seem to relieve coughs.

That includes brompheniramine, an active ingredient in Dimetapp.

 

 

 

 

 

 

Do sugary soft drinks lead to diabetes?

Short answer: Yes
The majority of health research is stacked against sugar-sweetened soda. A large 2004 study in the Journal of the American Medical Association found that women who drank one or more sugary drinks per day increased their risk of developing type 2 diabetes by 83% compared to those who consumed less than one of these beverages per month.

 

 

 

 

 

 

Do I need sunscreen with more than 30 SPF? 

Short answer: No
Sunscreens with an SPF (sun protection factor) of 30 block about 97% of ultraviolet rays,

While sunscreens with an SPF of higher than 30 block 97%-98%.
It's more important that you choose "broad-spectrum" sunscreen, meaning it protects against both UVB and UVA rays.

Sunbathers also need to apply a generous amount of sunscreen in order to get the full benefit of the SPF.

 

 

 

 

 

 

Is the MSG in Chinese likely to give you a headache? 

Short answer: No
A review of 40 years of clinical trials, published in the journal of the American Academy of Nurse Practitioners in 2006,

Found that all previous research "failed to identify a consistent relationship between the consumption of MSG

And the constellation of symptoms that comprise the syndrome," including headaches and asthma attacks.
The misconception spawned from several poorly-done small studies in the 1960s that seemed to connect MSG with a variety of maladies that people experienced after eating at Chinese restaurants.

Learn more about the MSG myth here »

 

 

 

 

 

 

Do nuts make you fat? 

Short answer: No
As much as 75% of a nut is fat. But eating fat doesn't necessarily make you fat.

The bigger factor leading to weight gain is portion-size.

Luckily, nuts are loaded with healthy fats that keep you full. They're also a good source of protein and fiber.
One study even found that whole almonds have 20% less calories than previously thought because

A lot of the fat is excreted from the body.

 

 

 

 

 

 

Is walking as effective as running?

Short answer: Yes
Studies have shown that how long you exercise — and thus how many calories you burn — is more important

Than how hard you exercise. Running is a more efficient form of exercise, but not necessarily better for you.
A six-year study published in the journal Arteriosclerosis, Thrombosis, and Vascular Biology in April found that walking at a moderate pace and running produced similar health benefits, so long as the same amount of energy was expended.

 

 

 

 

 

 

Is drinking fruit juice as good for you as eating fruit? 

Short answer: No
Calorie for calorie, whole fruit provides more nutritional benefits than drinking the pure juice of that fruit.

That's because when you liquefy fruit, stripping away the peel and dumping the pulp, many ingredients like

Fiber, calcium, vitamin C, and other antioxidants are lost.
For comparison, a five-ounce glass of orange juice that contains 69 calories has .3 grams of dietary fiber and 16 milligrams of calcium, whereas an orange with the same number of calories packs 3.1 grams of fiber and 60 milligrams of calcium.

 

 

 

 

 

 

Are all wheat breads better for you than white bread?

Short answer: No
Not all wheat breads are created equal. Wheat breads that contain all parts of the grain kernel,

Including the nutrient-rich germ and fiber-dense bran, must be labeled "whole grain" or "whole wheat."
Some wheat breads are just white bread with a little bit of caramel coloring to make the bread appear healthier,

According to Reader's Digest.

 

 

 

 

 

 

Can a hot tub make me sick? 

Short answer: Yes
Hot tubs — especially ones in spas, hotels, and gyms — are perfect breeding grounds for germs.
The water is not hot enough to kill bacteria, but is just the right temperature to make microbes grow even faster.

Even though hot tubs are treated with chlorine, the heat causes the disinfectant to break down faster

than it would in regular pools.
The most common hot tub infection is pseudomonas folliculitis, which causes red, itchy bumps.

A more dangerous side-effect of soaking in a dirty Jacuzzi is a form of pneumonia known as Legionnaire's disease.

This is what reportedly sickened more than 100 people at the Playboy Mansion back in 2011.

 

 

 

 

 

 

Does coffee cause cancer?

Short answer: No
Coffee got a bad rap in the 1980s when a study linked drinking coffee to pancreatic cancer.

The preliminary report was later debunked.
More recently, health studies have swung in favor of the caffeinated beverage.

Coffee has been linked to a lower risk of type 2 diabetes, Parkinson's disease, liver cancer, and even suicide.

 

 

 

 

 

 

Do eggs raise cholesterol levels?

Short answer: No
Although egg yolks are a major source of cholesterol — a waxy substance that resembles fat — researchers have learned that saturated fat has more of an impact on cholesterol in your blood than eating foods that contain cholesterol.
"Healthy individuals with normal blood cholesterol levels should now feel free to enjoy foods like eggs in their diet every day," the lead researcher from a 25-year University of Arizona study on cholesterol concluded.

 

 

 

 

 

 

Can you drink too much water? 

Short answer: Yes
It is very rare for someone to die from drinking too much water, but it can happen.
Overhydrating is most common among elite athletes. Drinking an excess of water, called water intoxication, dilutes the concentration of sodium in the blood leading to a condition known as hyponatremia.

The symptoms of hyponatremia can range from nausea and confusion to seizures and even death in severe cases.
To avoid this, drink fluids with electrolytes during extreme exercise events.

 

 

 

 

 

 

Can yogurt ease digestive problems? 

Short answer: Yes
Our digestive tract is filled with microorganisms — some good and some bad. Yogurt contains beneficial bacteria, generically called probiotics, that helps maintain a healthy balance.

Probiotics can relieve several gastrointestinal problems, including constipation and diarrhea.
Certain brands of yogurts, like Activa by Dannon, are marketed exclusively to treat tummy issues.

 

 

 

 

 

 

Do whitening toothpastes whiten teeth more than regular toothpastes? 

Short answer: No
Whitening toothpastes usually contain peroxides and other strong abrasives that might make

your teeth appear whiter by removing stains. Unlike at-home whitening strips and gels that contain bleach,

these toothpastes do not actually change the color of your teeth.

 

 

 

 

 

 

Is it safe to microwave food in plastic containers? 

Short answer: Yes
But the plastic container should display the words "microwave safe." This means that the Food and Drug Administration has tested the container to make sure no chemicals used to make the plastic leech into foods during microwaving.

If chemicals do seep out into food, the amounts are tiny and not dangerous to our health.
As a general guideline, plastic grocery bags as well as most plastic tubs that hold margarine, yogurt, cream cheese,

and condiments are not microwave safe.

 

 

 

 

 

 

Can watching TV ruin your eyesight? 

Short answer: No
Watching TV will not destroy your rods and cones as the outdated myth suggests. Before the 1950s,

TVs emitted radiation that could increase an individual's risk of eye problems after excessive TV viewing.

Modern TVs have special shielding that blocks these harmful emissions.

 

 

 

 

 

 

Is red wine better for you than white wine? 

Short answer: Yes
Red wine contains much more resveratrol than white wine, an antioxidant found in the skin of grapes

that has been shown to fight off diseases associated with aging.

 

 

 

 

 

 

Is bottled water better for you than tap water?

Short answer: No
Bottled water is no safer or purer than tap water, although it is substantially more expensive.
A recent study by Glasgow University in the U.K. found that bottled water is actually

more likely to be contaminated than water from your faucet because it is less well-regulated.
Bottled water and tap water typically come from the same sources — natural springs, lakes, and aquifers.

While public water supplies are tested for contaminants every day, makers of bottled water are only required

to test for specific contaminants every week, month, or year.

 

Income Tax

Whether when MAT liability of assessee is found out only because of alertness of AO, levy of penalty u/s 271(1)(c) is legitimately warranted - YES: HC

THE assessee company runs a hotel business. It filed its return disclosing "nil" income. It had admitted income from business at Rs.1,51,92,970/- and the same was set off with carried forward loss of the earlier years. In the course of the scrutiny proceedings, it was seen that the assessee was liable to tax u/s 115JB. The AO was of the view that the assessee was liable to pay MAT u/s 115JB. The adjusted book profit for working out the MAT payable u/s 115JB was calculated by the AO. Thereafter proceedings for levy of penalty u/s 271(1)(c) was initiated for the failure of the assessee to compute the book profit and the MAT payable u/s 115JB.

THE issue before the Bench is - Whether when the MAT liability of the assessee is found out only because of the alertness of the AO, the levy of penalty u/s 271(1)(c) is legitimately warranted. And the HC's answer is YES.

Central Excise

2013-TIOL-02-TRIBUNAL-AHM-VAT-LB

IN THE GUJARAT VALUE ADDED TAX TRIBUNAL

AT AHMEDABAD

Second Appeal No. 155 of 2012

M/s ESSAR STEEL LTD

Vs

THE STATE OF GUJARAT

K A Puj, President, Y P Bhatt, Member, N A Acharya, Member

Dated: June 5, 2013

Appellant Rep by: Shri Nayan Sheth, the learned Adv.
Respondent Rep by: R S Parmar, the learned Govt. Agent

Reduction of input tax credit under section 11(3)(b) of the GVAT Act should be calculated by determining the quantity of raw materials used in the manufacture of branch transferred goods and while so quantifying the reduction of input tax credit, the purchase price should be directed to be taken excluding the tax paid on such purchases.

JUDGEMENT

Per: K A Paul:

The appellant has filed this appeal against the order passed by the learned Joint Commissioner of Commercial Tax, Appeal-2, Vadodara on 09/02/2012, whereby the appeal filed before him came to be dismissed and the order passed by the learned Assessing Officer on 09/03/2011 for the assessment year 2010-11 was confirmed, This Tribunal has passed an order on 15/03/2012 admitting this Second Appeal and also directing the assessing authority not to carry out the assessment order for the year 2007- 08 up to 30/06/2012. This Tribunal vide its order dated 02/07/2012 directed the department not to take coercive measures up to 31/07/2012 and not to pass assessment proceedings for the year 2007-08. The said stay was extended from time to time. This Tribunal vide order dated 25/09/2012 has again directed the Deputy Commissioner of Commercial Tax not to further proceed for assessment for the years 2008-09 and 2009-10. However, vide its detailed order dated 27/12/2012 this Tribunal has vacated stay against the assessment proceedings for the years 2007-08, 2008- 09 and 2009-10 and stay in respect of recovery of the outstanding demand was continued. This Tribunal has further passed an order on 14/03/2013 recording the submissions made by Mr. R. S. Parmar, the learned Govt. Agent that in view of the stay granted by this Tribunal against the assessment proceedings for subsequent years for some period, the department can get the extended period of limitation for passing the assessment orders for subsequent years and hence the Department will not pass any order till the submissions are made before this Tribunal in the present case. This appeal was heard at great length on two different occasions. Firstly Mr. Nayan Sheth the learned advocate appearing for the appellant has made his submissions on 12/03/2013 and hearing was adjourned because of the fact that the learned Advocate General was to appear in this matter. However, he could not appear and hence Mr. R.S. Parmar, the learned Govt. Agent has made his detailed submissions on 25/04/2013 and the matter was kept for order.

2. It is the case of the appellant that the appellant is a public limited company, registered and incorporated under the provisions of the Companies Act, 1956 and it is engaged, inter alia amongst others in the business of manufacture and sale of sponge iron i.e. Hot Briquetted Iron (HBI) as also hot rolled coils and cold rolled coils. The appellant is holding registration certificates under the Gujarat Value Added Tax Act, 2003 as well as under the Central Sales Tax Act, 1956. The appellant had established its unit pursuant to sales tax incentives granted by the State Government. The unutilized incentives at the time of commencement of the Gujarat VAT Act amounting to Rs.95,84,96,729/- were admissible to the appellant in the year under dispute.

3. It is also the case of the appellant that during the year under consideration, the purchases were made by the appellant from within the State of Gujarat as well as in the course of interstate trade and commerce and imports.were also made by the appellant. The manufactured goods were sold locally, in the course of interstate trade and commerce as well as exported outside the country. The appellant had also made branch transfers of its manufactured goods to its branches situated in different parts of the country.

4. While filing returns under the Gujarat 'VAT Act, the appellant had amongst others, claimed input tax credit of the tax paid on the purchase of natural gas made from within the State of Gujarat by treating the same as being used as raw material in the manufacture of HBI. It is the say of the appellant that natural gas is processed in the gas reformer without any burning for separating carbon monoxide and hydrogen through chemical reaction. The two reducing gases so obtained are reacted with iron ore pallets or calibrated lumps so as to remove oxygen from the iron pallets which produces HBI. According to the appellant, what is significant to note is that natural gas is never used for burning or generating heat energy but it is an essential raw material in the manufacture of HBI. The use of gas was made only for the purpose of removing oxygen from iron pallets.

5.   It is also the case Of the appellant that for manufacturing steel, coke is injected in an electric arc furnace used for melting HBI, iron scrap and pig iron. The furnace used is electric furnace and thus coke is not used for burning but it is used for removing impurities. Use of coal brings down iron oxide level in the slag and thus it helps in better recovery of iron. Thus coke is used as a proceessing material in the process of manufacture of steel and therefore input tax credit was also claimed for the tax paid on the purchases of coke made from registered dealers of Gujarat.

6.  The appellant has also claimed input tax credit of tax paid on purchases of following goods made from within the State of Gujarat which were used as raw materials in the manufacture of goods. (a) Fire and safety goods - Safety of the employees and plant is of prime importance particularly because the process involves handling of hot iron .

Cb) Electrical goods - without use of .electrical goods manufacturing process cannot be accomplished.

Cc) Hoses and pipes - they are used for movement of gases, water etc. in the plant and thus are essential for the manufacturing process.

(d) Stores and spares - gOods of routine wear and tear without which manufacture of goods is not possible

7.   The appellant had also capitalized the cost relating to building materials used for the construction of foundation of the plant in the books of accounts. Since the building materials were used as capital goods, in the manufacture of textile goods, input tax credit was also claimed of the tax paid on purchases of such building materials as admissible under Section 11(3)(b)(vii) of the Gujarat VAT Act. Since the appellant had made certain branch transfer transactions, it had while filing returns, calculated the reduction of input tax credit by 40/o under Section 11(3)(b) of the Gujarat VAT Act by adopting the ratio of quantity of goods which transferred to total quantity of goods which was applied to the value of goods purchased from within the State of Gujarat.

8. The assessing officer, during the course of assessment proceedings, proposed to reduce the admissible input tax crdedit relating to the purchase of natural gas and coke used in the

manufacture of goods by relying upon Section 11(3)(b)(iii) of the

Gujarat VAT Act. The appellant has also filed detailed written submissions before the assessing officer. However, the assessing officer has rejected the submissions so made by the appellant and the assessment order was passed under Section 34 of the Gujarat VAT Act by concluding that natural gas and coke was used as fuel in the manufacture of goods and hence the admissible input tax credit relating to the purchases of natural gas and coke has been reduced to 4% of the purchase price by relying upon the provisions contained in Section 11(3)(b)(iii) of the Gujarat VAT Act. The assessing officer has also not given the input tax credit of goods though they are essential for the manufacture of goods and therefore qualify as raw material being used as processing materials and/or consumable stores in the manufacture of goods. The assessing officer has also not given input tax credit of the tax paid on the purchases of building materials used for construction of foundation which have been accounted as capital assets in the books of accounts. It appears that the assessing officer has undertaken cross verification regarding the tax invoices produced by the appellant for the purpose of claiming input tax credit. The assessing officer has not given input tax credit relating to certain purchases in respect of which negative reports were received by him. It is, however, the say of the appellant that the appellant was never confronted with the alleged reports obtained behind the back of the appellant.

9. It is also the case of the appellant that the method of disallowance of input tax credit by 4% for branch transfer transactions under Section 11(3)(b) of the Gujarat VAT Act has also been changed in assessment by the assessing officer while passing the assessment order. The assessing officer has adopted the ratio of total sales to branch transfer transactions and has applied the same to the total purchases including tax paid on purchases made from within the State of Gujarat and purchases of capital goods as well as purchases for which tax credit was not given to the appellant by treating such purchases as not used as raw material in the manufacture of goods.

10. By rejecting the contentions of the appellant regarding claim of input tax credit, the liability has been quantified which has resulted into less refund being granted to them and the said assessment has ultimately resulted into refund of Rs.13.41 crores which has been adjusted towards the dues assessed under the CST Act. It is also the case of the appellant that even while so quantifying the liability the assessing officer has not given interest on refund admissible under Section 38 of the Gujarat VAT Act up to the date of granting of provisional refund as well as the refund calculated in assessment. While on the one hand interest was not calculated on refund admissible to the appellant under the Act, correspondingly interest has been imposed on the dues raised by passing assessment order under the CST Act. Thus, according to the appellant double dual standard has been adopted by the assessing officer.

11. Being aggrieved by the order passed by the learned assessing officer for the year 2010-11, the appellant has preferred first appeal before the learned Joint Commissioner of Commercial Tax. However, the said appeal came to be dismissed, and the order passed by the Assessing Officer was confirmed. According to the appellant, the learned Joint Commissioner has failed to appreciate the facts of the appellant regarding use of natural gas in the process of manufacture of HBI. Natural gas is used as raw material. It is as such not burnt at all but through chemical reaction it was converted into reducing gases composing of carbon monoxide and hydrogen. These reducing gases are used for removing the oxygen from the iron ore pallets. The contention of the appellant that the appellant should be given input tax credit of total tax paid on the purchases of natural gas has been rejected in the first appeal on the ground that the goods which have been purchased for generating heat and which creates heat while being used in the manufacture of goods should be considered as used as fuel in the manufacture of goods. Section 11(3)(b)(iii) of the Gujarat VAT Act provides for reduction of input tax credit by 4%. Since, in the reduction process of iron ore for the purpose of manufacture HBI, natural gas is used and heat is generated, the first appellate authority, however, has confirmed the decision taken by the Assessing officer in his assessment to reduce the input tax credit relating to purchases of natural gas by 4% on the basis of Section 11(3)(b)(iii) of the Gujarat VAT Act.

12. Mr. Nayan Sheth the learned advocate appearing for the appellant has submitted that the learned Joint Commissioner of Commercial Tax has erred in concluding that natural gas is used as fuel merely because heat is incidentally generated during the process of manufacture of HBI. He further submitted that merely because heat is generated during the process of manufacture, it cannot be said that natural gas has been used as fuel and not as raw material in the manufacture of goods. He has further submitted that the term raw material has been construed widely by the Hon. Apex Court to cover ingredients which are essential for the ultimate production of goods irrespective of whether they retain their existence in the finished goods or not. He has invited the attention of this Tribunal to the decision of the Hon. Apex Court in the case of Collector of Central Excise Vs. Ballarpur Industries Ltd 77 STC 282 = (2002-TIOL-42-SC-CX-LB) as well as Tata Engineering and Locomotive Co.Ltd Vs. State of Bihar 96 STC 211- He has, therefore, submitted that the gas is used in the process of manufacture as a raw material or fuel depends upon its use in the process of manufacture. If the natural gas is used for removing oxygen from iron ore, lumps and thus it is used as raw material in the manufacture of goods. He has, therefore, submitted that it is an essential ingredient without which the manufacture of HBI is not possible.

13. Mr. Sheth further submitted that the conclusion drawn by the learned Joint Commissioner that because heat was generated in the process of manufacture of HBI, it cannot be conclusively proved that natural gas is used as fuel. Such conclusion drawn by the learned Joint Commissioner is absolutely invalid. It is also contrary to the decision of this Tribunal in the case of M/s. Welspun Steel Ltd Vs. The State of Gujarat, Appeal No. 27 of 2010 decided on 27/12/2011. Mr. Sheth therefore submitted that the decision of this Tribunal in the case of M/s. Welspun Steel Ltd is squarely applicable to the facts of the present case. In that case also it was held that merely because heat was incidentally generated. When natural gas is used as fuel in the manufacture of HBI, it cannot be said that natural gas is used as fuel in the manufacture of goods. Thus, the reduction of input tax credit relating to purchase of natural gas on the ground that it is used as fuel in the manufacture of HBI because of incidental generation of heat in the process of manufacture is bad and illegal.

14. Mr. Sheth further submitted that the learned Joint Commissioner has misconstrued the facts and submissions of the appellant relating to use of spent gas so as to support its conclusion for treating the entire use of natural gas as fuel in the manufacture of goods. He further submitted that while the entire quantity of natural gas was used in the reduction process, some spent gas is recovered after the process of obtaining reduced gases. Such recovered gas has different chemical composition and colorific value than the natural gas purchased by the appellant. He has submitted that from the total recovered spent gas around 2/3rd quantity was further enriched with natural gas for its use in the process of manufacture of HBI. The remaining 1/3rd quantity of spent gas is used for burning. However, what was submitted by the appellant was that the entire quantity of natural gas purchased by the appellant was used as raw material in the manufacture of HBI and 1/3rd of the spent gas recovered during the process of manufacture, was used for heating purpose. He has, therefore, submitted that while the total quantity of natural gas purchased by the appellant was used as raw material in the manufacture of HBI, the spent gas used for heating purpose was never purchased by the appellant and therefore Section 11(3)(b)(iii) of the Gujarat VAT Act is not applicable to such use of spent gas.

15. Mr. Sheth further submitted that merely because part of the spent gas was used for burning purpose, it cannot be said that the total quantity of natural gas purchased was used as fuel in the manufacture of goods. The learned Joint Commissioner simply by taking clue from the use of part of the spent gas for the purpose of burning, has confirmed the decision of the assessing officer that the entire quantity of natural gas was used as fuel in the manufacture of goods. Such conclusion was not only contrary to the facts of the case but also contrary to the provisions of Section 11(3)(b)(iii) of the Gujarat VAT Act which is only applicable to purchase of goods used as fuel in the manufacture of goods while spent gas was never purchased by the appellant.

16. Mr. Sheth further submitted that the learned Joint Commissioner has, while concluding that at what stage goods were used as fuel for the purpose of deduction under Section 11(3)(b)(iii) of the Gujarat VAT Act is immaterial, has completely ignored the contention of the appellant that natural gas purchased was used as raw material and spent gas was never purchased by the appellant and therefore Section 11(3)(b)(iii) of the Gujarat VAT Act is not applicable to the purchase of natural gas.

17. Mr. Sheth further submitted that the learned Joint Commissioner has confirmed assessment order by relying upon some determination orders passed under Section 80 of the Gujarat VAT Act. However, apart from the decision of this Tribunal in the case of M/s. Welspun Steel Ltd, two other determination orders have also been set aside by this Tribunal in the case of M/s. SAL Steel Ltd (Appeal No. 21 of 2010 dated 27/12/2011) and M/s. Saurashtra Ferrous Pvt. Ltd (Appeal No. 9 of 2011 dated 27/12/2011). Mr. Sheth further submitted that even in the case of M/s. Nilkanth Concast Pvt. Ltd 2009 GSTB 223, the determination order passed is impliedly overruled because of above decisions of this Tribunal. He has, therefore, submitted that the determination orders relied upon by the Joint Commissioner in support of his conclusion in the first appeal are no longer good law and therefore the decision in the first appeal that the input tax credit relating to purchases of natural gas is required to be reduced by 4% of the purchase price based on Section 11(3)(b)(iii) of the Gujarat VAT Act is absolutely bad and illegal.

18. Mr. Sheth further submitted that the Joint Commissioner has conspicuously remained silent on the contention of the appellant for granting input tax credit of tax paid on the purchase of coke. He has submitted that cock is used in electric furnace and it is never burnt. The use of coke is for purification during the process of manufacture of steel. Thus, coke is used as processing material and hence as raw material in the manufacture of goods. The appellant is therefore entitled to input tax credit of tax paid on the purchase of coke made from within the State of Gujarat.

19. Mr. Sheth further submitted that the reduction of input tax credit by 4% on the basis of Section 11(3)(b)(iii) of the Gujarat VAT Act of the turnover of purchase of natural gas and coke is absolutely bad and illegal and contrary to the direct decisions of this Tribunal. He has further submitted that the ratio to be adopted for reduction of input tax credit under Section 11(3)(b)(ii) of the Gujarat VAT Act in relation to stock transfer of goods should be the quantity of goods and not price of goods, has been rejected based on the generalization for the method generally adopted by the department in other cases. However, the real fact is that the price of iron and steel goods drastically changes from time to time and therefore the correct method for reduction of input tax credit under Section 11(3)(b)(ii) of the Gujarat VAT Act is the pro rata method derived based on quantity of goods sold and quantity of goods stock transferred during the year. The reduction of input tax credit under Section 11(3)(b)(ii) of the Gujarat VAT Act based on value of goods sold and stock transferred is therefore absolutely bad and illegal. He has further submitted that even while wrongly adopting the pro rata ratio for reduction of input tax credit under Section 11(3)(b)(ii) of the Gujarat VAT Act, the Joint Commissioner has failed to appreciate that the purchase turnover taken in assessment includes not only goods used as raw materials but also capital goods and other goods for which input tax credit has not been given on the ground that they are not used as raw materials in the manufacture of goods. Thus, reduction of input tax credit under Section 11(3)(b)(ii) of the Gujarat VAT Act has been done also in respect of the purchase of capital goods and goods not used as raw material in the manufacture of goods.

20. Mr. Sheth further submitted that the turnover of purchases for the purpose of reduction of input tax credit under Section 11(3)(b) of the Gujarat VAT Act, has been wrongly taken including the tax paid on purchases, even though the term "taxable turnover" does not include the turnover not subject to tax under the Gujarat VAT Act. Moreover, the tax does not form part of sale price and consequently of the purchase price of the appellant because as per the Gujarat VAT Act it is mandatory to collect tax on sales when sales are made by registered dealer through a registered dealer. Not collecting tax so required under the Gujarat VAT Act is an offence and it also invites penal consequences, He has, therefore, submitted that tax is not a part of purchase price in view of the decision of the Hon. Apex Court in the case ofAnand Swarup Mahesh Kumar Vs. The Commissioner of Sales Tax 46 STC 477 (SC). He has therefore submitted that the inclusion of the tax paid on purchases while determining taxable turnover of purchases for the purpose of reduction of input tax credit under Section 11(3)(b)(ii) of the Gujarat VAT Act is bad and illegal.

21. Mr. Sheth further submitted that the disallowance of input tax credit of tax paid on the purchases of fire and safety goods, electrical goods, hoses and pipes and stores and spares is equally bad and illegal. As per Section 11(3)(a)(vi) of the Gujarat VAT Act input tax credit is admissible of tax paid on the purchase of goods used as raw materials in the manufacture of taxable goods. The term "raw material" is defined in Section 2(19) of the Gujarat VAT Act to include not only those goods which are used as inputs in the manufacture of goods but also goods used as processing materials and consumable stores in the manufacture of goods. He has invited the attention of this Tribunal to the decision of the Hon. Gujarat High Court in the case of M/s. Ami Pigments Pvt. Ltd Vs. State of Gujarat, 32 VST 97 (Guj.) wherein it is held that all those goods which play some role in the manufacture and marketing of the goods without which the manufacture of goods would be commercially inexpedient will have to be treated as being used either as processing materials or consumable stores in the manufacture of goods. He has further submitted that even the denial of input tax credit of tax paid on the purchases of building materials used for the construction of foundation of the plant is also not justified. The said denial was based on the ground that in the invoices issued by M/s. Essar Constructions Ltd, the price of material being sold and tax charged have not been separately indicated. Mr, Sheth submitted that the invoices issued by M/s. Essar Steel Ltd clearly give details of goods sold and the tax charged. Such cost incurred for the construction of plant was capitalized and it has been so certified also by the learned Chartered Accountant. He has therefore submitted that disallowance of input tax credit of tax paid on purchases of construction material is contrary to the decision of this Tribunal in the case of Anil Products Ltd Vs. State of Gujarat 2011 GSTB 1201. In this case this Tribunal has held that building materials used for construction of foundation for installation of plant and machinery are used as capital goods for which input tax credit is admissible under the Gujarat VAT Act. He has further submitted that even the alleged report received by the assessing officer with regard to cross verification of purchases made by the appellant is not justified and even it is in violation of the principles of natural justice as copy of such report was never given to the appellant.

22. Mr. Sheth further submitted that as per Section 11 of the Gujarat VAT Act if purchases are made from registered dealers of Gujarat for which tax invoices are issued by the vendors charging tax separately, then the purchaser is entitled to input tax credit of tax paid on such purchases, if the purchased goods are intended to be used for the purpose specified in Section 11(3)(a) of the Gujarat VAT Act. He has therefore submitted that if any default is committed by the vendors in discharging their liability under the Gujarat VAT Act, then also the appellant cannot be denied input tax credit of tax paid on such purchase of goods made from registered dealers of Gujarat. In support of this submission he has relied on the decision of the Hon. Kerala High Court in the case of K. Sadikali Vs. CTO 28 VST 82 (Ker.) wherein it has been held that once bills showing tax collected by vendors are produced, for claiming of input tax credit it is not the duty of the dealer to prove that tax is actually deposited by the vendor. Similarly in the case of Shree Kiran Oil Mills Vs. State of Gujarat, S.A. No.64 of 2009 decided on 17/08/2009) it has been held by this Tribunal that even if the registration certificate of the vendor is subsequently cancelled with retrospective effect the buyer is entitled to input tax credit of tax paid on purchases. He has, therefore, submitted that the appeal filed by the appellant deserves to be allowed and the orders passed by the authorities below are required to be quashed and set aside.

23. Mr. Sheth further submitted that the decision of this Tribunal in the case of M/s. Welspun Steel Ltd gets support from the decision of the Hon. Bombay High Court in the case ofAdditional Commissioner of Sales Tax, Mumbai, Vs. Gupta Metallics & Power Ltd [2012] 54 VST 292 (Bom.). In this case, the respondent dealer was a manufacturer of sponge iron. It claimed set off under Rule 53 of the Maharashtra Value added Tax Rules, 2005 of 100% of the tax paid on coal purchased on the ground that it was used in the manufacturing of sponge iron as raw material. The Deputy Commissioner, on the basis of a report submitted by the Head of the Department of Metallurgical and Materials Engineering, Visvesvaraya National Institute of Technology, Nagpur, took the view that part of the coal used in the manufacture of sponge iron was used as a fuel and part as raw material and permitted the dealer to set off to the extent of 50%. He also did not grant set off in respect of purchase of high speed diesel oil, which according to dealer was used as a fuel in the manufacture of sponge iron. The Joint Commissioner of Sales Tax has upheld the stand of the assessing officer on both counts. On further appeals, the Tribunal permitted the dealer to claim 100% set off in respect of the tax paid on the coal purchased and used in the manufacturing process as raw material and in regard to purchase of high speed diesel oil. On appeals filed by the Department, Hon. Bombay High Court has held that the report in question clearly indicated that to convert iron ore into sponge iron the non-coking coal is used, that the mixture of iron ore and non-coking coal when heated from outside would ultimately get converted into sponge iron, that on account of chemical qualities of the non-coking coal, heat is generated, the carbon of non-coking coal reduces the iron oxide slowly to sponge iron and carbon monoxide gas is generated, that inside the bed the non-coking coal plays the role of a reductant, a highly exothermic reaction takes place and produces the bulk of the heat required for the process, that non-coking coal provides the gas carbon monoxide for satisfying the heat requirements of the process. On account of, the author of the report observed that "it indirectly plays a role of fuel in the rotary kiln process". Merely because heat is generated in the process it cannot be a ground to hold that non-coking coal so used was used as fuel. The observations clearly showed that the coal used in the process of manufacturing of sponge iron is used as a raw material and not as a fuel. The assessing officer as well as the appellate authority misread the text of the report and the Tribunal has rightly held that the coal used by the dealer was a raw material and not used as a fuel and allowed it to set off the entire tax paid on the purchase of coal.

24. Mr. R.S. Parmar, the learned Govt. Agent appearing for the respondent on the other hand has supported the orders passed by the authorities below. He has submitted that the main point involved in this appeal is that whether the use of natural gas in the manufacturing process is considered to be fuel or raw material. The Assessing officer has reduced the input tax credit to the extent of 4% of the purchase of the natural gas made by the appellant by invoking the provisions contained in Section 11(3)(b)(iii) of the Gujarat VAT Act. The total purchase of the natural gas effected by the appellant during the year under consideration is to the tune of Rs.1,161.69 crores and 4% reduction of input tax credit thereof comes to Rs.46.46 crores. He has further submitted that as per the provisions contained under Section 11(3)(b)(iii) of the Gujarat VAT Act it is clearly stated that notwithstanding anything contained in this section, the amount of tax credit in respect of a dealer shall be reduced by the amount of tax calculated at the rate of 4% on the turnover of purchase. Section 11(3)(b) specifically refers to the purchase of fuel used for the manufacture of goods. He has further submitted that Section 2(19) of the Gujarat VAT Act defines raw materials which means goods used as ingredient in the manufacture of other goods and includes processing materials, consumable stores and material used in the packing of the goods so manufactured but does not include fuels for the purpose of generation of electricity. According to Mr. Parmar the word "fuel" is not defined under the Gujarat VAT Act and hence one has to see the dictionary meaning of the word "fuel". The dictionary meaning of the word "fuel" is that "any matter used to produce heat by burning that which feed fire, combustible matter used for fires, as woods, coal, peat etc". According to Wikipedia Encyclopedia, the Fuel is any material that stores energy that can be extracted to perform mechanical work in a controlled manner. In other words, it is a substance that contains energy that can be released and then manipulated mostly heat. According to Oxford Dictionary, fuel means any material such as coal, gas or oil that is burnt to produce heat or power. He has submitted that the main business of the appellant is manufacturing of HR Coil. This HR Coil is made out of HBI and HBI is made out of iron ore. To make HBI from iron ore furnace is used in the plant wherein by adopting reduction process HBI is made out of iron ore. The natural gas is to be put into gas reformer from where carbon monoxide and hydrogen are separated from natural gas by reduction process and thereafter carbon monoxide as well as hydrogen were put in the furnace and from the upper side of the furnace the iron ore was brought to down level and there was chemical reaction of carbon monoxide as well as hydrogen with iron ore and oxygen is separated from iron ore and iron was reduced at the down level. He has further submitted that the appellant has mainly relied on the report of Mecon Ltd which is a Govt. of India Enterprise.

25. Mr. Parmar further submitted that Section 11(3)(b)(iii) of the Gujarat VAT Act used the word "of fuel" and not "as fuel". The legislature has used this particular word which largely gives its proper meaning. Anything which is considered to be fuel and if it is used in the manufacture of goods in that case reduction of 4% is required to be made under Section 11(3)(b)(iii) of the Act. There is no dispute about the fact that the natural gas is a fuel and if that fuel is used then it would certainly invite reduction of 4% from input tax credit. He has further submitted that there is no second opinion about the interpretation of Section 11(3)(b)(iii) of the Act. For this purpose he relied on the decision of the Hon. Apex Court in the case of M/s. Grasim Industries Ltd 128 STC 349 = (2002-TIOL-497-SC-CUS-LB) wherein it is held that no words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. It is said that every statute is an edict of the Legislature. The elementary principle of interpreting any word while considering a statute is to gather the means or sententia legis of the Legislature. Where the words are clear and there is no obscurity, or no ambiguity and the intention of the Legislature is clearly conveyed, there is no scope for the court to take upon itself the task of amending or alternating the statutory provisions. Wherever the language is clear the intention of the Legislature is to be gathered from the language used. While doing so what has been said in the statute as also what has not been said has to be noted. The construction which requires for its support addition or substitution of words or which results in rejection of words has to be avoided. As stated by the Privy Council in Crawford Vs. Spooner (1946) 6 Moore PC 1 "we cannot aid the Legislature's defective phrasing of an Act, we cannot add or mend any, by construction make up deficiencies which are left there". In case of an ordinary word there should be no attempt to substitute or paraphrase of general application. Attention should be confined to what is necessary for deciding the particular case. This principle is too well settled and reference to few decisions of this Court would suffice. (Gwalior Rayons Silk Mfg. (Wog) Co. Ltd Vs. Custodian of Vested Forests, Palghat AIR 1990 SC 1747, Union of India Vs. Deoki Nandan Aggarwal AIR 1992 SC 96, Institute of Chartered Accountants of India Vs. Price Waterhouse (1997) 6 SCC 312 and Harbhajan Singh Vs. Press Council of India (2002) XT 3 SC 21).

26. Based on the above decisions Mr. Parmar has submitted that the natural meaning of the word "fuel" is required to be taken into consideration while considering the provisions contained in Section 11(3)(b)(iii) of the Act. If in the common parlance any item is considered to be fuel, in that case, it is immaterial whether it is used as raw material or fuel, on purchase of such fuel 4% input tax credit is required to be reduced.

27. Mr. Parmar further submitted that the appellant has also produced the report of M/s. Mecon Ltd. However, in the said report it is stated that the spent gas recovered from the shaft furnace is partly 2/3rd recirculated after enrichment with natural gas to be catalic reformer to produce CO & H2 which are further fed in the shaft furnace as reductant. A part 1/3rd of spent gas of shaft furnace is used as a heating medium for catalytic reformer. He has, therefore, submitted that 1/3rd natural gas was used for the purpose of creating heat and it is therefore proved that the natural gas was used for creating the heat and therefore considered to be a fuel within the meaning of Section 11(3)(b)(iii) of the Act. Mr. Parmar has further submitted that the decision of the Hon. Bombay High Court in the case of M/s. Gupta Metallics and Power Ltd is not applicable to the facts of the present case as in that case the purchase of coal and its use in the manufacturing process was the issue whereas in the present case the purchase of natural gas and its use as a fuel in the manufacturing process is the real issue. In the present case the question regarding interpretation of Section 11(3)(b)(iii) of the Act is involved whereas before the Hon. Bombay High Court Rule 53 in respect of reduction in set off was under consideration. It says that the set off available under any rule shall be reduced and shall accordingly be disallowed in part or full in the event of any of the contingencies specified below and to the extent specified. One of the contingencies is that if the claimant dealer has used any taxable goods as fuel, then an amount equal to 3% of the corresponding purchase price shall be reduced from the amount of set off otherwise available in respect of the said purchase. Mr. Parmar further submitted that even the decision of Welspun Steel Ltd is also not applicable.to the facts of the present case as in that case also the use of coal in the manufacturing process was under consideration whereas in the present case the use of natural gas in the manufacturing process is under consideration.

28. Mr. Parmar further submitted that under the repealed Act i.e. Gujarat Sales Tax Act 1969, natural gas, lignite, furnace oil which are of different types of fuels were to be under the list of prohibited goods as defined under Section 2(21) of the GST Act and on such items no set off was available under Rule 42 of the GST Rules. After coming into force the Gujarat VAT Act, instead of disallowing the entire input tax credit on purchases of such items, reduction was made to the extent of 4% under Section 11(3)(b)(iii) of the Act which is in consonance with the provisions contained in Rule 42 of the GST Rules.

29. Mr. Parmar further submitted that under Section 11(3)(b) of the Act it is provided to reduce input tax credit at the rate of 4% on the turnover of purchases. Under Section 2(32) of the Act all purchases are included irrespective of the fact whether reductions are in excess of input tax credit. For this purpose he relied on the decision of the Hon. Apex Court in the case of M/s. Prabhat Solvent Extrusion Industries Pvt. Ltd (1996 GSTB Part-1, P. 133).

30. Considering the above submissions Mr. Parmar has submitted that the claim of the appellant is not allowable and hence appeal deserves to be dismissed.

31. We have heard Mr. Nayan Sheth the learned advocate appearing for the appellant and Mr. R.S. Parmar the learned Government Agent appearing for the respondent. We have also carefully considered the rival submissions made on behalf of the parties. We have further given our serious thoughts to the facts of the case and the documents produced on record and considered the same in light of the statutory provisions and decided case law on the subject. One of the core issues raised by the appellant in the present appeal is with regard to reduction of input tax credit by an amount calculated at 4%on the turnover of taxable purchases of natural gas used as fuel for the manufacture of taxable goods by invoking the provisions contained in Section 11(3)(b)(iii) of the Gujarat VAT Act. The other incidental issues are also raised in the present appeal. It is necessary to have a close look at the provisions contained in the Act so as to properly appreciate the controversy between the parties. Under the provisions of the Gujarat VAT Act, the input tax credit is available at the point of purchase itself, if the purchased goods are intended for the specific purposes. The adjustment of input tax credit available in relation to purchases of taxable goods purchased for the intended purpose is neither dependent nor related either to the sale of very goods purchased or to the sale of goods manufactured from the goods purchased, on which input tax credit is available, as was the case in relation to availability of set off under the Gujarat Sales Tax Act. The input tax credit is to be adjusted against the tax liability incurred by dealer on his sales of any taxable goods. Section 11 of the Act specifies the circumstances, the conditions and the extent of input tax credit available. Section 11(3)(b) deals with reduction of input tax credit. As per this Section, input tax credit is to be reduced by an amount calculated at 4% of the turnover of taxable purchases made within the State:

(i) of taxable goods consigned or dispatched for branch transfer or to his agent outside the state, or

(ii) of taxable goods which are used as raw materials in the manufacture, or in the packing of goods which are dispatched outside the State in the course of branch transfer or consignment or to his agent outside the State,

(iii) of fuels used for the manufacture of goods.

The reduction of tax credit is to be made in the tax period during which the consignment is made. However, in the case of stock transferred outside the State, where the rate of tax applicable on such goods is less than 4%, then in that case, reductions have to be made at scheduled rate applicable to such goods.

32. The appellant had claimed in its VAT returns input tax credit under Section 11 of the Act of the total tax paid on the purchases of natural gas by treating the same as being used as raw material in the manufacture of goods. According to the appellant the natural gas is processed in gas reformer without burning for separating carbon monoxide and hydrogen through chemical reaction. The two reducing gases so obtained are reacted with iron ore pallets or calibrated lumps so as to remove oxygen from the iron pallets so as to produce HBL The natural gas is never used for burning or generating heat energy but it is an essential raw material in the manufacture of iron. Its use being made only for the purpose of removing oxygen from iron pallets. Similarly the appellant used to inject coke in electric arc furnace used for melting HBI, iron scrap and pig iron so as to remove impurities. The furnace used by the appellant is electric furnace and thus coke is not used for burning but it is used for removing impurities. It is, therefore, the say of the appellant that the coke being used as processing material in the process of manufacture of goods, input tax credit was claimed for the total tax paid on the purchases of coke from registered dealers within the State of Gujarat. The appellant had also claimed input tax credit of tax paid on purchases of fire and safety goods, electrical goods, hoses and pipes, stores and spares and the appellant has capitalized the cost relating to building materials used for construction of foundation as capital asset in the books of accounts. Since the appellant had made certain branch transfer transactions, it had while filing returns, calculated the reduction of input tax credit by 4% under Section 11(3)(b) of the Act by applying ratio of quantity of goods stock transferred to total quantity of goods sold to the value of goods purchased from within the State of Gujarat.

33. while finalizing the assessments under Section 34 of the Act the learned Deputy Commissioner of Commercial Tax has taken the view that use of natural gas and coke was as fuel in the manufacture of goods and hence the admissible input tax credit relating to these purchases was reduced by 4% by applying the provisions contained in Section 11(3)(b)(iii) of the Act. The learned Deputy Commissioner of Commercial Tax has also not given input tax credit of goods viz. fire and safety goods, electrical goods, stores and spares and hoses and pipes. The learned Deputy Commissioner of Commercial Tax has also not given input tax credit on the purchases of building materials used for construction of foundation and capitalised on the books of accounts. He has also not allowed input tax credit in relation to purchases of such goods in respect of which he has undertaken cross verification regarding the tax invoices produced by the appellant and he has received negative reports with regard to such tax invoices. The order passed by the learned Deputy Commissioner of Commercial Tax was virtually confirmed by the learned Joint Commissioner of Commercial Tax on these issues.

34. For proper appreciations of the issues raised before us, it is also necessary to have some idea about the manufacturing process adopted by the appellant. The appellant's unit is engaged inter-alia in the manufacture of Hot Briquetted Iron (HBI) and Directly Reduced Iron (DRI), using the MIDREX Technology which requires the use of following principal raw materials.

(1) Iron ore pellets or calibrated lump ore; and

(2) Natural Gas (comprising mainly of methane chemical formula (CH4).

The manufacturing process is completed in two main stages viz.

(1) Gas reformer stage and (2) Shaft Furnace stage.

In gas reformer stage, the natural gas (methane gas) is converted to reducing gas (CO + H2) in the gas reformer by taking a mixture of fresh natural gas (primarily methane (CH4) and 2/3rd recycled spent gas (which mainly contains 16-20%carbon dioxide (co2), 44-50% Hydrogen (H2), 18-23% carbon monoxide (CO) and 2.5-4.5% methane (CH4). This mixture of gas is then passed through closed tubes (300-400 tubes) located within the gas reformer in the presence of a nickel based catalyst. Since the mixture of gases pass through closed tubes within the gas reformer, there is no burning, ignition or combustion involved within the gas reformer. This process does not produce any heat but on the contrary consumes heat as the gas reformer requires to be kept heated. The chemical reactions through which the methane present in natural gas is converted to reducing gases i.e. carbon monoxide (CO) and hydrogen (H2) require a temperature ranging between 850 degrees Celsius to 880 degrees Celsius. The chemical reactions which take place in the gas reformer are as under:

• CH4 + CO2 -> 2CO + 2H2 above 880 degrees Celsius

• CH4 + H2O -> CO + 3H2 above 850 degrees Celsius

From the above it stands established that the gases chemically react within the tubes of the gas reformer without any burning of the natural gas and producing carbon monoxide (CO) and hydrogen (H2). Carbon monoxide (CO) and hydrogen (H2) are the two reducing gases require for the production of iron in the next stage i.e. shaft furnace stage. From the above, it is found that the natural gas purchased by the appellant and on which input tax credit is availed of is not burned nor does it participate in any process which results in its ignition or combustion. The entire process of converting natural gas into reducing gas takes place is a closed system of tubes within the gas reformer and therefore no burning is intended. The main purpose of natural gas is to use it as a "raw material" to produce the reducing gases and once the reducing gases are produced, the purpose for which the natural gas was obtained gets completed. After the chemical reactions in the gas reformer, natural gas does not remain natural gas any more, but is transformed by the process resulting in the emergence of reducing gases. With the emergence of the reducing gases in the gas reformer, the appellant's obligation to use the natural gas as a raw material stands fully discharged. What happens subsequently to the reducing gas in the manufacturing process is not relevant for the availment of input tax credit on natural gas since natural gas stands fully consumed in the gas reformer itself.

35. In the second stage viz. Shaft furnace stage the reducing gases mainly carbon monoxide (CO) and hydrogen (H2) are taken together with the iron ore pellets or calibrated lump ore in the shaft furnace to convert the iron oxide (iron ore pellets) into highly reduced product. The process of removing oxygen from the iron ore (iron oxide) is also called reduction process which results into the production of iron. The chemical process which takes place in the shaft furnace for producing the iron / HBI have also been explained in great detail. The manufacturing process explained by the appellant is also duly supported by a certificate fromMECON Ltd, a Govt. of India Enterprise, Bangalore dated 12/03/2008 which shows uses of natural gas in the HBI manufacturing process as reductant in MIDREX HBI process. It shows that iron ores occur naturally as mixtures of hematite or magnetite with various refractory oxide gangue. The direct reduction process converts iron oxide to highly reduced product suitable for steel making in an electric arc furnace. To achieve this conversion, reducing gases are used to extract chemically bonded oxygen from iron oxide. Natural gas is most widely used reductant in DR process. MIDREX HBI process developed in early 70's also uses natural gas as the reductant for producing iron. After explaining the brief description of the MIXREX HBI process, the MECON Ltd has concluded that natural gas is used with spent gas inside the catalytic reformer tube for producing reducing gases (CO and H2) to be used in shaft furnace as reductant. A part of spent gas from shaft furnace is used as heating medium in catalytic reformer and hence no portion of natural gas is used as fuel in normal plant operation of MIDREX HBI process.

36. Whether any particular material is used as fuel or otherwise depends upon its outcome. When any material is used as fuel, the outcome would be the conversion of energy from one form to another. For instance, when kerosene oil is burnt in a stove, the chemical energy stored in kerosene gets transformed to heat energy. In a power plant where naptha or gas is used, chemical energy is converted to electrical energy. In a motor vehicle, the fuel consumed is converted from chemical energy to mechanical energy. So wherever a substance is considered to be a fuel, there should be a conversion of the energy. In the present case the main purpose of natural gas is to use it to produce the reducing gases and once the reducing gases are produced, the purpose for which the natural gas was obtained, is served. Similarly, the obligation for use as a raw material stands discharged. What happens subsequently in the manufacturing process with the reducing gases is not relevant for the availment of input tax credit on natural gas as the same have been consumed. It is also important to take note of the fact that an item which is generally used as fuel may also have some other end uses. Though, generally natural gas is used as a fuel, it is also used for other purposes, such as ammonia, urea, chloroform, iron etc. Similarly, wood is often used as a fuel (firewood), however, every use of wood is not necessarily as fuel. Wood can also be used for making furniture. In that case, the use of wood cannot be said to be use of wood as fuel. Whether a substance is used as fuel will be determined as per nature of the use. It would be a process which would be intended to convert the energy form. The certificate issued by MECON Ltd also confirms that natural gas is a raw material in manufacturing steel.

37. It appears that the respondent authorities have restricted the input tax credit on natural gas mainly on the ground that the appellant's process of manufacturing steel is similar to that of SAL Ltd and Neelkanth Concast and that determination orders have been passed against the said two dealers by the Joint Commissioner of Commercial Tax holding the view that coal used in their steel manufacture is fuel. However, the process of manufacturing adopted by the appellant is completely different from that of SAL Ltd and Neelkanth Concast. In appellant's manufacturing process there is no burning or combustion of natural gas and hence it cannot be considered as fuel. Even otherwise as indicated above, the determination orders passed in the said two cases have already been reversed by this Tribunal. The appellant has rightly relied on the determination order passed in the case of Gujarat Alkalies & Chemicals Ltd where natural gas was used in the manufacture of chloroform. In that case, natural gas which incidentally is the same raw material used by the appellant was held to be raw material in the manufacture of chloroform. It was concluded that proviso to Section 11(3)(b)(iii) of the Act which requires a restriction in the admissible input tax credit by 4% for fuels is not applicable to natural gas. A clear distinction is therefore required to be drawn between the gases which are used for heat generation or energy conversion which are considered as fuel and the goods which are used as raw materials in the manufacture of goods where neither any heat nor any energy is generated. Thus, every use of natural gas is not necessarily as a fuel. A further support is also derived from Howley's Condensed Chemical Dictionary, 11th Edition Page 811 which describes the various uses of natural gas. It says that natural gas can be used as fuel and cooking gas, ammonia synthesis, formaldehyde and other petrochemical feed stocks, source of synthesis gas and methanol.

38. From the above discussion, it is very obvious that natural gas is used in the present case to produce reducing gas. With the chemical conversions of the natural gas resulting in the production of reducing gas, the obligation to use the natural gas a raw material stands discharged. The subsequent events including the use of the reducing gases for producing iron in the subsequent stages of manufacture through a series of reduction reactions in the shaft furnace become irrelevant when considering the claim for input tax credit on natural gas. The respondent authorities are, therefore, not justified in reducing the input tax credit by 4% on the purchases of natural gas when they are used as either fuel or raw materials for reducing the gas.

39. The view which we are taking here in this case gets enough support from various decisions of this Tribunal as well as the Hon. High Court and Hon. Supreme Court and references to which have already been made in earlier part of this Judgment. In this view of the matter, the submissions made by Mr. Parmar on this issue and the findings recorded by the authorities below in this regard, would not find any approval by this Tribunal. The appellant therefore succeeds on this issue.

40. The discussions made and findings recorded hereinabove equally hold good in respect of use of coke in electric arc furnace for creating foaming cells for the purpose of removing impurities. The coke is, therefore, used as processing materials and hence raw material. The appellant is, therefore, entitled to input tax credit of total tax paid on the purchase of coke.

41. The disallowance of input tax credit of tax paid on the purchases of fire and safety goods, electrical goods, hoses and pipes and stores and spares is not justified under the VAT Act. Input tax credit is admissible on tax paid on the purchases of goods used as raw materials in the manufacture of taxable goods. The term "raw materials" is defined in Section 2(19) of the Act and it reads as under:

"Section 2(19) "Raw materials" means goods used as ingredient in the manufacture of other goods and includes processing materials, consumable stores and material used in the packing of the goods so manufactured but does not include fuels for the purpose of generation of electricity"

In view of this definition of raw materials, all such goods are included within the meaning of the term "raw materials" which are used as inputs in the manufacture of goods and it also includes all such goods which are used as processing materials and consumable stores in the manufacture of goods. In the case of Vasuki Carborandum Works Vs- The State of Gujarat 43 STC 294 (Guj.) it is held that any goods which are necessary for the ultimate manufacture and marketing of the finished goods can be treated as goods used as consumable stores in the manufacture of goods. Applying this principle "kathi" used for packing of manufactured glass was held as used as consumable stores. Similarly in the case of Commissioner of Sales Tax Vs. Vadilal Dairy Frozen Food 146 STC 9 (Guj.) it is held that even after the manufacturing activity is over, dry ice required for marketing icecream and hence it can be considered as consumable stores in the manufacture of goods. In the case of Ami Pigments Pvt. Ltd Vs. State of Gujarat 32 VST 97 (Guj.) it is held that the legislative history prior to the incorporation of the Act and the subsequent to its repeal of GST Act clearly establishes that all those goods which play some role in the manufacture and marketing of the goods without which the manufacture of goods would be commercially inexpedient will have to be treated as being used either as processing material or consumable stores in the manufacture of goods. The appellant is, therefore, entitled to the grant of input tax credit of tax paid on the purchases of fire and safety goods, electrical goods, pipes and hoses and stores and spares.

42. So far as the grant of input tax credit of tax paid on the purchase of building materials used for the construction of foundation is concerned, reliance was placed on the decision of this Tribunal in the case of Anil Products Ltd Vs. The State of Gujarat, (Appeal No.9 of 2008 decided on 22/12/2008). In this case the Tribunal has held that building materials used for construction of foundation for installation of plant and machinery are to be treated as used as capital goods for which input tax credit is admissible under the Act. However, the facts of that case are quite different from the facts of the case on hand. In that case the machinery was put to use after doing foundation work and electrification wiring in the installation of materials, cement, sand and other things were used in the foundation and wiring, switchboard etc. were used in the electrification. The depreciation was claimed on all these things under the income tax Act, In the present case, there is merely accounting entry in the books of accounts. No certificate from the Chartered Accountant is produced before the authorities below. Under Section 11(3)(a)(vii) the purchasing dealer can claim input tax credit on his purchase of taxable goods which are intended for the purpose of use as capital goods meant for use in manufacture of taxable goods intended for the purposes mentioned in sub-clause (i) to (vi) of Section 11(3)(a) subject to the condition that such capital goods are purchased after the appointed day. The word "capital goods" is defined in Section 2(5) of the Act which means plant and machinery (other than second hand plant and machinery) meant for use in manufacture of taxable goods and accounted as capital assets in the books of accounts. Thus, three conditions are required to be satisfied. (1) Capital goods are to be used for the manufacture of taxable goods (2) Such capital goods are to be accounted for as capital assets in the books of accounts and (3) such capital goods are not to be used previously. In the present case, the appellant has not produced any reliable evidence for purchase of building materials. The certificate dated 23/02/2012 issued by Manish Rathi and Associates is produced for the first time before this Tribunal. It was neither available nor produced before the authorities below. The learned Joint Commissioner of Commercial Tax has also observed that no certificate from Chartered Accountant is produced. The authorities below have, therefore, no opportunity to examine the said certificate. This Tribunal cannot take cognizance of any additional evidence produced for the first time before this Tribunal, without following due procedure. In this view of the matter, the appellant is not entitled to claim input tax credit on the purchase of building materials used for construction of foundation.

43. So far as disallowance of input tax credit of the tax paid on the purchases of goods in respect of which negative reports were received by the learned assessing officer on cross verification of the purchases, is concerned, the appellant has mainly raised the issue regarding violation of principles of natural justice as such cross verification report were not given to the appellant. It is also urged before this Tribunal that as per Section 11 of the Gujarat VAT Act if purchases are made from registered dealers of Gujarat for which tax invoices are issued by the vendors charging tax separately, in that case the purchaser is entitled to input tax credit paid on such purchases if the purchased goods are intended for use as provided in Section 11(3)(a) of the Act. It is the say of the appellant that the use of the goods for the eligible purpose is not in dispute. Even if a default is committed by the vendors in discharging their liability under the VAT Act then also the appellant cannot be denied input tax credit of tax paid on such purchases of goods made from registered dealers of Gujarat. Reliance was placed on the decision of the Hon. Kerala High Court in the case ofK. Sadikali Vs. CTO 28 VST 82 (Ker.) wherein it is held that once bills showing tax collected by vendors are produced, for claiming of input tax credit it is not the duty of the dealer to prove that tax is actually deposited by the vendor. Similarly in the case of Shree Kiran Oil Mills Vs State of Gujarat (in S.A. No 64 of 2009 decided on 17/08/2009) it is held that even if registration certificate of the vendor is subsequently cancelled with retrospective effect, the buyer is entitled to input tax credit of tax paid on such purchases. This would not render any assistance to the appellant as in the case of the appellant, on cross verification, it is found that the vendors have not deposited the tax with the State Government. Unless and until such tax collected from the appellant is deposited by the vendors with the State Government, the appellant is not entitled to claim input tax credit on the purchase of goods made from such vendors. The assessing authority is therefore directed to re-look in the matter and after providing necessary details regarding cross verification to the appellant and calling for his explanation, the issue will have to be decided afresh.

44. Since the appellant had made certain branch transferred transactions, it had, while filing returns calculated the reduction of input tax credit by 4% under Section 11(3)(b) of the Act by applying the ratio of quantity of goods, stock transferred to total quantity of goods sold to the value of goods purchased from within the State of Gujarat. Instead of adopting the method as calculated by the appellant, the learned assessing officer had adopted a general method of applying the ratio of branch transfer transactions to total sales to the purchases made from within the State of Gujarat. The main reason adopted by the assessing officer is that it is not possible to verify the quantity of raw materials used in the manufacture of goods branch transferred outside the State of Gujarat. However, this does not appear to be the correct reason in as .much as the proportion of every raw material used for the manufacture of goods was very precisely fixed by the appellant and therefore there cannot be any difficulty in quantifying the quantity of raw materials used for the manufacture of goods branch transferred outside the State of Gujarat. Though the assessing officer has further observed that the production and purchase registers were not produced, it is the say of the appellant that entire accounting record was before the learned assessing authority and the appellant was also ready to show whatever details as may be required for determining the purchase price of goods used as raw materials in the manufacture of goods branch transferred outside the State of Gujarat, for the purpose of quantifying reduction of input tax credit under Section 11(3)(b) of the Act. The learned assessing officer is therefore directed to call for all the details from the appellant so as to determine the purchase price of goods used as raw materials in the manufacture of goods branch transferred outside the State of Gujarat for the purpose of quantifying reduction of input tax credit under Section 11(3)(b) of the Act.

45. The learned assessing officer has taken the purchase turnover inclusive of tax collected by the vendor, Such tax does not form part of sale price and consequently of the purchase price of the appellant. As per the provisions contained in the VAT Act it is mandatory to collect tax on sales when sales are made by a registered dealer to a registered dealer. Not collecting tax so required under the VAT Act is an offence and it also invites penal consequences. The tax is therefore not forming part of purchase price in view of the decision of the Hon. Apex Court in the case of Anand Swarup Mahesh Kumar Vs. The Commissioner of Sales Tax 46 STC 477 (SC). The assessing officer is, therefore, directed to exclude the tax paid on purchases from purchase turnover. Moreover, certain goods which are not used as raw materials in the manufacture of goods and yet they have been added to the turnover of purchases for the purpose of reduction of input tax credit under Section 11(3)(b) of the Act are required to be excluded.

46. As per the recent decision of this Tribunal in the case of M/s. Mukti Exports Pvt. Ltd Vs. State of Gujarat (S.A. No. 139 of 2011 decided on 22/01/2013) the appellant is entitled to interest on the provisional refund. The appellant therefore succeeds on this issue.

47. In the above view of the matter we pass the following order:

ORDER

1. This appeal is partly allowed.

2. The orders passed by the authorities below reducing and/or confirming the reduction of input tax credit of 4% on the turnover of taxable purchases of natural gas and coke used in the manufacture of goods under Section 11(3)(b)(iii) of the Gujarat VAT Act are hereby quashed and set aside and it is held that the appellant is entitled to entire input tax credit relating to such purchases.

3. The appellant is entitled to input tax credit of tax paid on the purchases of fire and safety goods, electrical goods, hoses and pipes and stores and spares used as consumable stores in the manufacture of goods.

4. The appellant is not entitled to input tax credit of tax paid on the purchases of building materials used for construction of foundation and thus used as capital goods in the manufacture of goods.

5. The appellant is not entitled to input tax credit in relation to purchases made from the vendors in respect of whom adverse reports were received on cross checks. The assessing officer is hereby directed to re-look in the matter and after providing necessary details regarding cross verification to the appellant and calling for its explanation, the said issue will have to be decided afresh.

6. It is hereby held that the reduction of input tax credit under Section 11(3)(b) of the Gujarat VAT Act should be calculated by determining the quantity of raw materials used in the manufacture of branch transferred goods and while so quantifying the reduction of input tax credit, the purchase price should be directed to be
taken excluding the tax paid on such purchases.

7. The appellant is entitled to interest on the provisional refund as well as the refund quantified in the final assessment order passed by the learned assessing authority.

8. There should be no order as to cost.

(Pronounced in open court on this 5.6.2013.)

2014-TIOL-1126-HC-AHM-IT

IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD

Sur Tax Reference No.2 of 1993

COMMISSIONER OF INCOME TAX

Vs

THE ATUL PRODUCTS LTD

M R Shah And K J Thaker, JJ

Dated: July 1, 2014

Appellant Rep by: Mr Manish Bhatt, Adv.
Respondent Rep by: Mr JP Shah, Adv.

Companies (Profit) Sur Tax Act, 1964 - Section 7(2) - Whether Debenture Redemption Reserve can be treated as reserve and part of capital.

The assessee filed the return of income declaring the chargeable profits at Rs.1,17,34,811/-. The notice u/s 7(2) of the Companies (Profit) Sur Tax Act, 1964 was issued to the assessee proposing the computation of net chargeable profits at Rs.1,49,96,631/-. The ITO completed the provisional assessment u/s 7(2) computing the net chargeable profit at Rs.1,49,96,631/-. Later on the ITO modified the provisional order u/s 13. The assessee created the Debenture Redemption Reserve of Rs.44,22,855/- and the assessee treated the same as capital. While framing the regular assessment, the ITO treated the said Debenture Redemption Reserve as a liability or a reserve by observing that the aforesaid amount of Debate Redemption Reserve, which was set apart was to meet the known liability in future and the same was not available for future use for business of the Company. Consequently, the ITO did not consider the aforesaid amount as reserve. The CIT(A) held the aforesaid amount of Rs.44,22,855/- as reserve, the tribunal has confirmed the order of the CIT(A). 

Before the HC the Revenue Counsel submitted that that both the CIT(A) as well as the tribunal have materially erred in treating the Debenture Redemption Reserve of as reserve and/or part of capital. The Assessee Counsel submitted that considering the decision of the Supreme Court in the case of National Rayon Corporation only that amount, which is kept in reserve to the extent of liability, is not to be treated as reserve and any amount beyond the liability is required to be treated as part of reserve. It was submitted that in the present case as such factually nothing is on record that the Debenture Redemption Reserve was towards future liability and/or the same was much more than the actual liability. 

Having heard the parties, the HC held that,

++ the amount of Rs.44,22,855/-/- was kept as Debenture Redemption Reserve for future liability, which could not have been used by the Company in the business. The view taken by the tribunal and the CIT (A) to treat the Debenture Redemption Reserve of Rs.44,22,855/- as reserve and part of capital cannot be sustained. In view of the clear cut finding, no fruitful purpose would be served to remand the matter to the ITO once it is found that the aforesaid Debenture Redemption Reserve of Rs.44,22,855/- was for a future liability.

Reference answered in favour of Revenue

Cases followed:

National Rayon Corporation Ltd. Vs. CIT reported in (1997) 227 ITR 765

CIT Vs. Travancore Titanium Products Ltd. (2001) 247 ITR 186

JUDGEMENT

Per: M R Shah:

1. The present Reference, at the instance of the revenue, is made by the Income Tax Appellate Tribunal in compliance with this Court's order under Section 256(2) of the Income Tax Act for its opinion on the following substantial question of law;

"Whether, the appellate tribunal has erred in law and on facts in holding that the debenture redemption reserve of Rs.33,22,855/- which in fact is a reserve forming part of the capital employed?"

2. The facts leading to the present Reference in a nutshell are as under;

2.1. The respondent-assessee filed the return of income on 26/08/1976 declaring the chargeable profits at Rs.1,17,34,811/-. The notice under Section 7(2) of the Companies (Profit) Sur Tax Act, 1964 (hereinafter referred to as 'the Act') was issued to the assessee proposing the computation of net chargeable profits at Rs.1,49,96,631/-. The assessee submitted its objections and after considering the same, the Income Tax Officer completed the provisional assessment under Section 7(2) of the Act computing the net chargeable profit at Rs.1,49,96,631/-. Later on the Income Tax Officer modified the provisional order dated 24/09/1976 under Section 13 of the Act to adopt the net chargeable profit as per return. The aforesaid was without prejudice to the rights of the Department to make interpretation of the Sur Tax Act and Rule thereon while completing the regular assessment and as such the assessee agreed not to take support of the order under Section 13 of the Act. It appears that the assessee created the Debenture Redemption Reserve of Rs.44,22,855/- and the assessee treated the same as capital. While framing the regular assessment, the Income Tax Officer negatived the claim of the assessee to treat the said Debenture Redemption Reserve as a liability or a reserve by observing that the aforesaid amount of Debate Redemption Reserve, which was set apart was to meet the known liability in future and the same was not available for future use for business of the Company. Consequently, the Income Tax Officer did not consider the aforesaid amount of Rs.44,22,855/-, which was kept as Debenture Redemption Reserve, as reserve under Clause I (iii) of the Second Schedule. That on appeal by the assessee, the Commissioner of Income Tax (Appeals) held the aforesaid amount of Rs.44,22,855/- as reserve following his order for the Assessment Years 1979-80 and 1980-81 and on appeal by the revenue, the tribunal has confirmed the order of the Commissioner of Income Tax (Appeals). Thereafter, at the instance of the revenue and pursuant to the order passed by this Court, the tribunal has referred the aforesaid question to this Court for its opinion.

3. Shri Manish Bhatt, learned Counsel appearing on behalf of the revenue has vehemently submitted that both the Commissioner of Income Tax (Appeals) as well as the tribunal have materially erred in treating the Debenture Redemption Reserve of Rs.44,22,855/- as reserve and/or part of capital. It is submitted that as such the aforesaid issue/question is now not res integra in view of the decision of the Hon'ble Supreme Court in the case of National Rayon Corporation Ltd. Vs. Commissioner of Income Tax reported in (1997) 227 ITR 765 as well as another decision of Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Travancore Titanium Products Ltd. reported in (2001) 247 ITR 186. It is submitted that as such in view of the aforesaid two decisions of Hon'ble the Supreme Court, the decision in the case of Nutan Mills Ltd, which has been relied upon by the Commissioner of Income Tax as well as tribunal is no longer a good law. It is further submitted by Shri Bhatt, learned Counsel appearing on behalf of the revenue that in view of the aforesaid two decisions of the Hon'ble Supreme Court the view taken by the Commissioner of Income Tax (Appeals) confirmed by the tribunal treating the Debenture Redemption Reserve of Rs.44,22,855/- as reserve and/or part of capital cannot be sustained and, therefore, it is requested to answer the question in favour of the revenue.

4. Shri J.P. Shah, learned Counsel has appeared on behalf of the assessee. He has fairly conceded that as such the issue referred to this Court would be covered by the decision of the Hon'ble Supreme Court in the case of National Rayon Corporation Ltd. (Supra), however, has submitted that considering the decision of the Hon'ble Supreme Court in the case of National Rayon Corporation Ltd. (Supra) only that amount, which is kept in reserve to the extent of liability, is not to be treated as reserve and any amount beyond the liability is required to be treated as part of reserve. It is submitted that in the present case as such factually nothing is on record that the Debenture Redemption Reserve was towards future liability and/or the same was much more than the actual liability. It is submitted that as such as the tribunal considered the orders in favour of the assessee in the previous years and when the Commissioner of Income Tax (Appeals) granted full benefit to the assessee there was no occasion for the assessee to provide for the same. It is therefore requested to remand the matter to the Income Tax Officer or to the tribunal. No other submissions have been made.

5. We have heard Shri Bhatt, learned Counsel appearing on behalf of the revenue and Shri J.P. Shah, learned Counsel appearing on behalf of the assessee. The question, which is referred to this Court by the tribunal is, whether the tribunal has erred in law and on facts in holding the Debenture Redemption Reserve of Rs.44,22,855/- as reserve forming part of capital employed? It was the contention on behalf of the assessee that the Debenture Redemption Reserve of Rs.44,22,855/- was required to be treated as reserve and/or part of capital. However, it was specifically found by the Income Tax Officer that the aforesaid amount of Rs.44,22,855/- was set apart to meet the known liability in future and the same was not liable for future business of the Company. In view of the aforesaid finding recorded by the Income Tax Officer, the question, which is referred to this Court, is required to be considered. Thus, as such, the aforesaid amount of Rs.44,22,855/-/- was kept as Debenture Redemption Reserve for future liability, which could not have been used by the Company in the business. In the case of National Rayon Corporation Ltd. (Supra) while considering the very provisions under the Act and the very issue it is held that the Debenture Redemption Reserve cannot be treated as reserve and is not includible in capital. While holding so, the Hon'ble Supreme Court has observed and held as under;

"The expressions "provision" and "reserve" have not been defined under the Companies (Profits) Surtax Act, 1964. Therefore, the two concepts "reserve" and "provision" which are fairly well known in commercial accountancy and which are used under the Companies Act dealing with preparation of balance-sheet and profit and loss accounts, have to be gathered from the meanings attached to them by the Companies Act itself. "Provision" and "reserve" have been defined in Part III of Schedule VI to the Companies Act, 1956. The definition clearly indicates that if an amount is retained by way of providing for any known liability that amount shall not be treated as reserve. Clause 7(2)(b) makes it clear that only an amount which is in excess of what is reasonably necessary for meeting a known liability shall be treated as reserve and not as provision. The directors will have to form an opinion as to what is reasonably necessary for meeting the known liability of a company. The opinion of an accountant or an auditor or a lawyer is quite immaterial for this purpose.

The liability to repay arises the moment money is borrowed. The amount borrowed may be repayable immediately or in future. The date of repayment of loan may be deferred by agreement but the obligation or the liability to repay will not cease on that account.

By issuing debentures a company takes a loan against the security of its assets. This loan may not be repayable in the year of account. But the obligation to pay the loan is a present obligation. Any money set apart in the accounts of the company to redeem the debentures must be treated as money set apart to meet a known liability. The debentures will have to be shown in the company's balance sheet of the year as "liability". Merely because debentures are not redeemable during the accounting period, the liability to redeem the debentures does not cease to exist. It is redeemable on repayable at a future date.

There is another aspect of this case. In the prescribed form of balance-sheet, under the heading "Reserves and Surpluses" seven types of reserves have to be shown: (1) Capital reserves (2) Capital redemption reserve, (3) Share premium account, (4) Other reserves, (5) Surplus i.e., balance in profit and loss account, (6) Proposed additions to reserves, (7) Sinking funds. However, for the purpose of computation of capital of a company under Rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 items 5, 6 and 7 will not be treated as reserves. A sinking fund created for redemption of debentures will not be treated as reserve even though (1) it has to be shown as "reserve" in the balance sheet and (2) the amount kept in this fund is in the nature of allocation of profits and not a charge against them. In the context of this Rule in the Second Schedule to the Surtax Act, a debenture redemption reserve cannot be treated as "reserve" on the ground that the amounts set apart for redemption of debentures are not in the nature of a charge against profits but merely appropriation of profit. What has to be computed under rule 1 of the Second Schedule to the Surtax Act is the capital of the company and not its working capital. The amount shown as sinking fund maybe invested in a fruitful way so that the principal and gains from the investments taken together will enable the company to pay off its debts. Investment of monies standing to the credit of the sinking fund is nothing but utilisation of the company's assets for the discharge of its liabilities. There is no reason why a sinking fund for redemption of debentures should not be a reserve but a debenture redemption reserve created with the same purpose should be treated as reserve and included in the computation of capital of the company for surtax purpose. A construction which leads to absurdity should be avoided.

The basis principle is that any amount retained by way of providing for a known liability will not be "reserve". Explanation to Rule 1 of the Second Schedule to the Surtax Act takes this principles to its logical conclusion by providing that even a sinking fund, which has to be shown as a reserve in the prescribed form of balancesheet will not be treated as "reserve" for the purpose of computation of capital. Moreover, the surplus and unallocated balance in the profit and loss account has been specifically excluded from "reserves" for computation of capital under the Surtax Act. Therefore, availability of the amount for utilisation as working capital of the company or for distribution of dividend cannot be a criterion for deciding whether a particular amount retained from the profits of the company will be treated as its reserve or not."

5.1. Similar view has been expressed by Hon'ble the Supreme Court in the case of Travancore Titanium Products Ltd. (Supra). In the said decision it is held that Debenture Redemption Reserve amount, which is set apart to meet the liability, is not includible in capital.

5.2. In view of the aforesaid two decisions, the view taken by the tribunal and the Commissioner of Income Tax (Appeals) to treat the Debenture Redemption Reserve of Rs.44,22,855/- as reserve and part of capital cannot be sustained. The tribunal has heavily relied upon the decision in the case of Nutan Mills Ltd., however, in view of the aforesaid two decisions of the Hon'ble Supreme Court, the decision in the case of Nutan Mills Ltd. is no longer a good law.

6. Under the circumstances, as such, the question, which is referred to this Court, is required to be answered in favour of the revenue and against the assessee. Now so far as the request made by Shri J.P. Shah, learned Counsel appearing on behalf of the assessee to remand the matter to the Income Tax Officer is concerned, as nothing is on record whether the Debenture Redemption Reserve of Rs.44,22,855/- was in excess of actual Debenture Redemption Reserve liability or not is concerned, in the facts and circumstances of the case, the same cannot be accepted. As observed hereinabove, the Income Tax Officer has specifically given the finding and has observed that the aforesaid Debenture Redemption Reserve of Rs.44,22,855/- was set apart to meet the known liability in future and the same was not available for future use in business of the Company. In view of the aforesaid clear cut finding, no fruitful purpose would be served to remand the matter to the Income Tax Officer once it is found that the aforesaid Debenture Redemption Reserve of Rs.44,22,855/- was for a future liability and in view of the aforesaid two decisions of the Hon'ble Supreme Court, the same cannot be treated as reserve and/or part of capital. Under the circumstances, the request made by Shri Shah, learned advocate appearing on behalf of the assessee to remand the matter to the Income Tax Officer is hereby rejected.

7. In view of the above and for the reasons stated hereinabove, the question referred to this Court is answered in favour of the revenue and against the assessee. With this, the present Reference is disposed of

IT : Where assessee-trust was created with object of financing infrastructure projects in State such as provision of water supply, roads, health services etc. to be implemented through municipal bodies or corporation, said object being in nature of advancement of general public utility, assessee's claim for registration under section 12AA was to be allowed

■■■

[2014] 46 taxmann.com 186 (Hyderabad - Trib.)

IN THE ITAT HYDERABAD BENCH 'B'

Andhra Pradesh Urban Infrastructure Fund

v.

Director of Income-tax (Exemptions)*

B. RAMAKOTAIAH, ACCOUNTANT MEMBER 
AND SAKTIJIT DEY, JUDICIAL MEMBER

IT APPEAL NO. 549 (HYD.) OF 2013

MAY  9, 2014 

Section 2(15), read with section 12AA, of the Income-tax Act, 1961 - Charitable purpose (Objects of general public utility - Financing of infrastructure projects) - Assessee trust was created by State Government with primary object of financing infrastructure projects in State undertaken by urban local bodies, statutory bodies, public sector undertakings and private investors - Assessee filed application seeking registration under section 12AA - Director (Exemptions) opined that object of assessee trust did not fit in to term 'Charitable purpose' as defined in section 2(15) as said object could not be considered to be for general public utility - Accordingly, assessee's application was rejected - It was undisputed that infrastructure projects as mentioned in trust deed included provision of water supply, roads, drainage, solid waste management, street lights, sewerages, health services etc. - Whether on facts, by providing funds for development of such infrastructural projects to be implemented through municipal bodies or corporation, assessee was indirectly working for achievement of its objects of 'general public utility' - Held, yes - Whether, therefore, assessee's application for registration under section 12AA was to be allowed - Held, yes [Para 9][In favour of assessee]

FACTS

 

■		The assessee-trust was created by the State Government with the primary object of financing infrastructure projects in the State, undertaken by urban local bodies, statutory bodies, public sector undertakings and private investors.
■		The assessee filed an application seeking registration under section 12AA.
■		The Director (Exemptions) was of the view that the assessee-trust was mainly providing financial assistance to different bodies for development of infrastructure projects which did not fit in to the term 'Charitable purpose' as defined in section 2(15) as the objects of the trust could not be considered to be for general public utility.
■		Accordingly, the assessee's application was rejected.
■		On appeal:

HELD

 

■		A reading of provision of section 2(15) would make it clear that any object in the nature of general public utility also comes within the expression of 'Charitable purpose'. Therefore, the issue is whether the activities/objects of the trust as mentioned in the trust deed are in the nature of objects of general public utility. [Para 7]
■		It is not disputed by the Director (Exemptions) that the loan grant/ funds provided by the assessee-trust is towards achieving the object of establishing the infrastructure projects. Therefore, creating of infrastructure projects is certainly towards achieving the objects of 'general public utility' since by development of such infrastructure projects, the public at large will be benefitted.
■		Further, the trust acts as a nodal agency for implementing various infrastructure oriented schemes of the Central Government and State Government. The funds received by the trust under these schemes are given as grants/ loans with nominal interest to Municipalities and Municipal Corporations for developing infrastructure facilities under the schemes. Therefore, the activity of the assessee can be considered to be advancing the objects of general public utility without profit motive. [Para 10]
■		Therefore, the objects of the assessee-trust as mentioned in the trust deed would certainly make it clear that they are in the nature of 'general public utility' since the funding of different projects ultimately are for the benefits of general public. In aforesaid view of the matter, the Director (Exemptions) was not correct in refusing the registration on the aforesaid grounds.
■		So far as the conclusion of the Director (Exemptions) that the trust has been created for the benefit of Government is concerned, it is opined that the conclusion of the Director (Exemptions) is totally irrelevant. The Government certainly works for the benefit of the citizens, and hence it cannot be said that income arising from the trust is not for the general public utility and for the benefit of particular class of people or particular section of society.
■		In this view of the matter, the Director (Exemptions) was not justified in not granting registration to the assessee under section 12AA. [Para 11]
■		In the result, assessee's appeal is allowed.

CASES REFERRED TO

 

CIT v. AP State Road Transport Corpn. [1986] 159 ITR 1 (SC) (para 5) and CIT v. Gujarat Maritime Board [2007] 295 ITR 561/[2008] 166 Taxman 58 (SC) (para 5).

Subrahmanyam and V. Sivakumar for the Appellant. Solgy Jose T. Kottaram for the Respondent.

ORDER

 

Saktijit Dey, Judicial Member - The appeal of the assessee is directed against the order dated 28-2-2013 passed by the DIT (E), Hyderabad rejecting the assessee's application for grant of registration u/s 12AA of the Act.

2. Briefly, the facts are the assessee a trust created by the Government of Andhra Pradesh was formed vide trust deed executed on 23-2-2005, the settlor of the trust is Governor of Andhra Pradesh and members of trust board are as under:—

(a)	Chief Secretary of Andhra Pradesh	Chairman
(b)	Principal Secretary to Government, Finance Deptt.	Trustee
(c)	Prl. Secy./Secretary to Govt. MA&UD Deptt.	Trustee
(d)	Prl. Secy to Govt., Planning Deptt.	Trustee
(e)	Prl. Secretary to Govt. Housing Deptt.	Trustee
(f)	Commissioner and Director of Municipal Administration	Trustee
(g)	Managing Director, APUFIDC	Secretary of Trust

The trust was created with the primary object of financing infrastructure projects in the State of Andhra Pradesh undertaken by urban local bodies, statutory bodies, public sector undertakings and private investors, as the settler has noted the need for providing cost effective finance for urban infrastructure through direct loans, EPT and also providing for raising resources on it pooled basis and also provide new credit enhancements for achieving the objective of low cost finance for the urban sector. The assessee made an application in the prescribed manner on 30-5-2007 before the DIT (E) seeking registration, u/s 12AA of the Act. The application was initially rejected by the DIT (E) vide order dated 22-11-2007 for the reason that the assessee failed to furnish the information called for and did not make the required compliance to the queries made by him.

3. The assessee challenged the order passed by the DIT (E) refusing registration by filing an appeal before the ITAT. The Tribunal vide order dated 31-3-2008 in ITA No.128/Hyd/2008 set aside the order assed by the DIT (E) and remitted the matter back to him for considering the matter afresh after providing a reasonable opportunity of being herd to the assessee. In pursuance to the order passed by the ITAT, the DIT (E) took up the proceedings again by issuing a notice to the assessee on 2-8-2008. In course of proceedings, the DIT (E) sought for clarification from the assessee on different issues. He also called upon the assessee to submit a note describing the factual position. The DIT (E) after examining the books of accounts also sought clarification with regard to certain expenditure debited in the account for different financial years and also asked the trust to produce the bank statement for the preceding three financial years i.e., 2004-05 to 2006-07. After examining the books of accounts and verifying other information furnished by the assessee, the DIT (E) noted that the assessee trust was formed pursuant to G.O. No.72 of Municipal Administration and Urban Development Department dated 18-2-2005 of Government of Andhra Pradesh. On going through the object of the trust as mentioned in the trust deed, the DIT (E) noted that the trust was created primarily for the purpose of providing finance for infrastructure project in the State of Andhra Pradesh. Referring to paras 2 and 3 at page-4 of the trust deed, the DIT (E) noted that the purpose for which the trust has been created i.e., finance for infrastructure projects in the state of Andhra Pradesh under taken by different bodies is not charitable having regard to the meaning of 'charitable purpose' as contained in the provisions of section 2(15) of the Act. Hence the registration cannot be granted u/s 12A of the Act to the assessee. Further, referring to the main objects of the assessee as contained in section 2.3 under Article-II at page-9 of the said trust deed, the DIT (E) was of the view that as a whole the assessee trust is mainly providing financial assistance to different bodies for development of infrastructure projects which does not fit in to the term 'charitable purpose' as defined in section 2(15) of the Act, as the objects of the trust cannot be considered to be for general public utility. The DIT (E) on going through some clauses of the trust deed was of the view that not only the trust has been formed by the Government of Andhra Pradesh but the Govt. of A.P is also the sole beneficiary of the Trust. Further referring to clause -5 of the trust deed, it is noted that the trust is fully owned by Government of Andhra Pradesh. From this, the DIT (E) concluded that as the entire income from the trust is meant for the Govt. of A.P and as the trust is wholly owned by Government of Andhra Pradesh and the Government of AP is the sole beneficiary, it cannot be granted registration u/s 12AA of the Act by treating it as public charitable institution. With the aforesaid observation, the DIT (E) rejected the assessee's application for registration.

4. The learned AR referring to the preamble of the trust deed as well as other clauses submitted that the mission statement declares that trust would facilitate the sustained development of urban infrastructure in the state by enabling urban local bodies and other local entities to have access to low cost capital by supporting urban sector reforms to make them creditworthy and eventually access the capital market on their own and by facilitating public private community initiative for building urban infrastructure. The learned AR referring to the object of the trust as contained in section 2.3 of Article II of the trust deed submitted that the trust receives monies from Central and State government Urban Infrastructure oriented schemes. In the preceding years, he trust received funds grants from Central Government under Jawaharlal Nehru National Urban Renewal Mission (JNNURM), Urban Infrastructure Development Scheme for small and medium Towns (UIDSSM) and Integrated Housing and Development Program and, from State Govt. under AP Municipal Development Project. It was submitted that these funds were utilized by the Trust to sanction grants and loans with nominal interest, to various Urban Local Bodies (Municipalities and Municipal Corporations) based on the approved urban infrastructure plan. It is submitted that the components to which these grants can be released to Urban Local Bodies is specified in the scheme framed by the Government and the trust has to adhere to the norms fixed by the Government and the eligible items under these schemes generally include sewerage, storm water drainage, solid waste management, improve infrastructure facilities in towns, create durable public assets, to promote planned integrated development of towns and cities. It was submitted that portion of the amount to be released is earmarked as loan to the ULB with an intention to create a revolving fund, which will received the loan repayments from these ULB and utilize the same to fund urban infrastructure projects in future.

5. It was submitted that the detailed list of activities and nature of the elements to which these were granted were submitted to the DIT (E). It was contended that the DIT (E) failed to appreciate the function of the Trust arising from its objects and was able to decipher an activity carried out to aid urban poor non charitable. Contesting further the reasoning of the DIT (E), the learned AR submitted that the DIT (E) is not justified in holding that since the assessee trust is wholly owned by the Government of Andhra Pradesh and also since the Government is the sole beneficiary, the assessee trust cannot be granted registration under sec. 12AA of the Act. The DIT (E) has ignored the stated objects which clearly show that the assessee trust, created by the Government of Andhra Pradesh, acting through the Governor, has for its object the improvement of urban infrastructure through more than one means and these are enumerated in the objects which clearly show that the objects have a larger goal of improving the living standards of the urban population and also address problems of environmental conservation. It was submitted that the premises on which the DIT (E) refused to grant registration is totally unfounded. In support of his contention the learned AR relied on the decisions of jurisdictional High Court (sic) in case of CIT v. AP state Road Transport Corpn. [1986] 159 ITR 1 (SC) and the decision of CIT v. Gujarat Maritime Board [2007] 295 ITR 561/[2008] 166 Taxman 58 (SC). The learned AR further contended, to encourage such kind of activities being taken up by a trust created by the Central or a State Government, Sec. 10(46) has been enacted by Finance Act, 2011 w.e.f. 1-6-2011. The learned AR submitted that since the assessee-trust has been created on 23-2-2005 when the provision u/s 10(46) was not incorporated in the statute book but nevertheless the statutory provision brought by the Finance Act, 2011 clearly highlights the fact that the legislature recognizing the need for providing incentive to trusts created by Central or State Govt., with the object of regulating or administering any activity for the benefit of the general public has brought the provision into the statute.

6. The learned DR, on the other hand, while justifying the order of the DIT (E) contended that as the activities of the assessee trust, does not come within the meaning of charitable purpose as defined u/s 2(15) of the Act, it is not eligible for registration u/s 12AA. The learned DR submitted that the assessee trust does nothing more than providing finance to local bodies, statutory bodies, public sector undertaking and private investors. Therefore, it is purely a financing agency and not carrying out any activity of general public utility. Hence, registration u/s 12AA cannot be granted.

7. We have heard the parties and perused the material on record. We have also carefully applied our mind to the decisions placed before us. On perusal of the order passed by the DIT (E), it is apparent that he has refused to grant registration u/s 12AA of the Act primarily on two reasons:

(i)		The object of the trust shows that it has been solely made for the purpose of financing infrastructure projects in the state of Andhra Pradesh under taken by different bodies which does not come within the meaning of charitable purpose as defined u/s 2(15) of the Act.
(ii)		The trust has been created by Government of Andhra Pradesh and government being the sole beneficiary of the trust, it cannot be treated as a public charitable institution.

8. Before going into the merits of the issue it is necessary to look into the definition charitable purpose u/s 2(15) of the Act, which read as under:—

'"Charitable Purpose" includes relief of the poor, education, medical relief, (preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relating to any trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:

Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year;'

A reading of the aforesaid provision would make it clear that any object in the nature of general public utility also comes within the expression of 'charitable purpose'. Therefore, the issue before us is whether the activities'/objects of the trust as mentioned in the trust deed are in the nature of objects of general public utility.

9. There is no dispute to the fact that the assessee trust has been created by the Government of Andhra Pradesh and the Board of trustees as mentioned herein before are functionaries of the State Government or its agencies. The reading of the trust deed as a whole certainly makes it clear that the trust has been created to finance different schemes/utilizing the funds provided by the Central or State Government by way of granting loans, grants etc., to different municipal bodies or municipal corporation for implementing schemes of central or state government. The infrastructure projects as mentioned in clause(j) of section 1.1 of Article 1 of the trust deed makes it clear that they include provision of water supply, roads, drainage, solid waste management, street lights, sewerages, sewerage disposal, health services etc. Therefore, by providing funds for development of such infrastructural projects to be implemented through municipal bodies or corporation, the assessee, may be indirectly, is working for achievement of its objects of 'general public utility'.

10. It is not disputed by the DIT (E) that the loan grant/ funds provided by the assessee trust is towards achieving the object of establishing the aforesaid infrastructure projects. Therefore, creating of infrastructure projects as mentioned in clause (j) of 1.1. of Article-1 of the trust deed is certainly towards achieving the objects of 'general public utility' since by development of such infrastructure projects, the public at large will be benefitted. Further, it appears from the submissions of the learned AR that the trust acts as a nodal agency for implementing various infrastructure oriented schemes of the Central Govt. and State Govt. The funds received by the Trust under these schemes are given as grants/loans with nominal interest to Municipalities and Municipal Corporations for developing infrastructure facilities under the schemes. Therefore, the activity of the assessee can be considered to be advancing the objects of general public utility without any profit motive. The term 'general public utility' in section 2(15) of the Act is subject matter of interpretation of Hon'ble Supreme Court in number of decisions. The Hon'ble Supreme Court in case ofGujarat Maritime Board (supra) while interpreting the expression 'general public utility' as mentioned in section 2(15) of the Act held as under :

'We have perused a number of decisions of this court which have interpreted the words, in section 2(15), namely, "any other object of general public utility". From the said decisions it emerges that the said expression is of the widest connotation. The word "general" in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose (CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC)). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry (CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC)). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity (Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC)).

The present case in our view is squarely covered by the judgment of this court in the case of CIT v.Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1 (SC) in which it has been held that since the Corporation was established for the purpose of providing efficient transport system, having no profit motive, though it earns income in the process, it is not liable to income-tax.

Applying the ratio of the said judgment in the case of Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1 (SC), we find that, in the present case, the Gujarat Maritime Board is established for the predominant purpose of development of minor ports within the State of Gujarat, the management and control of the Board is essentially with the State Government and there is no profit motive, as indicated by the provisions of section 73, 74 and 75 of the 1981 Act. The income earned by the Board is deployed for the development of minor ports in the State of Gujarat. In the circumstances, in our view the judgment of this court in Andhra Pradesh State Road Transport Corporation [1986] 159 ITR 1 squarely applies to the facts of the present case.'

11. Therefore, considered in the light of the ratio laid down in the aforesaid decisions by the Hon'ble Supreme Court, it has to be held that the objects of the assessee trust as mentioned in the trust deed would certainly make it clear that they are in the nature of 'general public utility' since the funding of different projects ultimately are for the benefits of general public. In aforesaid view of the matter, the DIT (E) was not correct in refusing the registration on the aforesaid grounds. So far as the conclusion of the DIT (E) that the trust has been created for the benefit of Government is concerned, we are of the view that the conclusion of the DIT (E) is totally irrelevant. The Government certainly works for the benefit of the citizens, and hence it cannot be said that income arising from the trust is not for the general public utility and for the benefit of particular class of people or particular section of society. In this view of the matter, we are of the opinion that the DIT (E) was not justified in not granting registration to the assessee u/s 12AA of the Act. Accordingly, we direct him to grant registration to the assessee trust u/s 12A of the Act.

12. In course of hearing of appeal before us, the learned AR has submitted that the assessee should be granted registration from the creation of the trust and not from the date of application made in form No.10A. However, it is not disputed that the assessee trust though was created w.e.f. 23-2-2005 but it made application for registration before the DIT (E) on 30-5-2007. Therefore, it is apparent and obvious that he assessee has not made the application within the time prescribed u/s 12A (1)(a) of the Act. However, the proviso to the aforesaid section provides an exception by giving a discretion to the registering authority to grant registration from the date of creation of the trust subject to the condition that the assessee trust satisfies the registering authority that it was prevented by sufficient cause for making an application before expiry of the period as mention in clause (a) of section 12A(1). Therefore, it is the duty of the assessee trust to satisfy the registering authority that it was prevented by sufficient cause in applying for registration within the prescribed time. At this stage, we cannot usurp the power of the registering authority by condoning delay. With the aforesaid observation, we set aside the order of the DIT (E) and direct him to grant registration to the assessee trust u/s 12A of the Act. However, the date of grant of registration is left open as the assessee has to satisfy the DIT (E) regarding the cause of delay. The DIT (E) shall afford a reasonable opportunity of being heard to the assessee to explain the delay and decide the issue accordingly.

13. In the result, the appeal filed by the assessee stands allowed.

SUNIL

---

*In favour of assessee.

--
Regards,

Pawan Singla , LLB

M. No. 9825829075

Transfer of ownership rights via agreement to sell held as 'transfer', even if possession wasn't given to purchaser

July 21, 2014[2014] 46 taxmann.com 268 (Allahabad)

IT : Where assessees being, owners of a property entered into agreement to sell whereby they transferred their right of ownership in favour of purchasers who on basis of said agreement, resold a part of property and further carried out certain development work, transaction in question was to be regarded as transfer of capital asset within meaning of section 2(47)(v)

Income tax - Whether disallowance u/s 14A can exceed total administrative expenditure debited by assessee in Profit & Loss account - NO: ITAT 

By TIOL News Service

MUMBAI, JULY 21, 2014: THE issue before the Bench is - Whether disallowance under section 14A can exceed the total administrative expenditure debited by the assessee in the Profit & Loss account. And the answer goes against the Revenue.

Facts of the case

The assessee is a non–banking financial company deriving interest income from money lending and income from investment. The assessee had shown short term capital gain and long term capital gain from the sale of shares. The assessee, during the course of assessment proceedings, in response to the show cause notice, filed details submissions with regard to the overall transactions of shares, holding period, treatment given in the books, number of transactions undertaken and the history of the assessee's case in the earlier years. Assessing Officer rejected the assessee's contention on the ground that the purchase and sale of shares was not an unrelated activity but incidental to the business of the assessee. The assessee had continuously and systematically carried out the activity of trading in shares over the period of one year and had borrowed funds to fund his activity for purchase and sale of shares. The Assessing officer was of the view that the assessee had shown all the characteristics of a trader rather than an investor. Thus, the profit claimed as capital gain was taxed as business income.

In appeal, Commissioner (Appeals) noted that the reasons given by the Assessing Officer were pari materia with the assessment order passed for the assessment year 2007–08 and 2008–09. In those years, the Commissioner (Appeals) had rejected the reasoning of the Assessing Officer. Commissioner (Appeals) held that the facts prevailing in the present assessment year were identical and, therefore, on similar grounds and conclusion, the income shown from the sale of shares by the assessee in this year also should be taxed as capital gain and not as business income.

B) The assessee had earned long term capital gain and dividend income which was claimed as exempt. As regards the direct expenditure incurred in relation to the investment, the assessee had already disallowed expenditure in the return of income as relatable to the investment activities. Besides this, the assessee had also submitted that the amount paid in respect of STT (Security Transaction Tax) and donation had already been disallowed in the return of income. The balance expenditure debited to the Profit & Loss account were general administrative expenditure which were not specifically related to earning of tax free income. The Assessing Officer rejected the assessee's working and held that the disallowance had to be made as per the formula prescribed in rule 8D and, accordingly, he made the disallowance after computing the administrative expenditure @ 0.5% of average investments.

In appeal, Commissioner (Appeals), following the earlier year's order passed by the Commissioner (Appeals), held that the Assessing Officer should disallow the administrative expenditure as per rule 8D(2)(iii), however, the disallowance should not exceed the total administrative expenditure incurred.

Having heard the parties, the tribunal held that,

+ similar nature of issue has come up for consideration before the Tribunal in assessee's own case in the assessment year 2007–08 and 2008–09, wherein the Tribunal, in Revenue's appeal, has upheld the order of the Commissioner (Appeals) after observing and holding as under:–

"6. We have considered the rival submissions and per used the orders of authorities below. The dispute is regarding the nature of income from sale and purchase of shares by the assessee. The issue whether the income from sale and purchase in a particular case should be treated as capital gain or as business income is a debatable issue and there are conflicting decisions of the Tribunal on this issue. Each case is, therefore, to be based on its factual situation. In the present case, the total number of transaction is 68 out of which 40 transactions relate to LTCG. 15 transactions relate to STCG and 30 transactions relate to close out transaction of STCG. The total number of scrips dealt by the assessee is 26. Further average holding period for capital gains is 37 days or 1.75 years. The average holding period for STCG is 217 days. These facts speak for themselves. In a stock market where more than 5000 company's shares are traded every day, the transaction of the assessee cannot be held as in the nature of trading. The past history of the assessee also shows that right from assessment years 2001-02 to 2006-07, when the assessments has been made after thorough scrutiny u/s 143(3) of the Act, the Department has accepted the profit under the he ad capital gain. Even for the sake of argument, it is accepted that resjudicata does not apply to the income tax proceedings, but rule of consistency is to be followed. When the facts are same and the law has not changed, we do not find any reason to take a different view as from the past assessment of the assessee. We, therefore, do not find any merit in Revenue's appeal and accordingly the finding of the CIT(A) is confirmed. Ground No.1 of Revenue's appeal is dismissed."

++ in this year also, it is an admitted fact that the reasoning given by the Assessing Officer and the Commissioner (Appeals) are akin to that of the earlier years and, therefore, consistent with the view taken by the Tribunal in earlier years, we uphold the finding of the Commissioner (Appeals) that the income derived by the assessee from the transactions of the shares is to be taxed under the head "capital gain" and not "income from business". Accordingly, ground no.1, raised by the Revenue stands dismissed;

B) after hearing both the parties and considering the order of the Commissioner (Appeals), we find no infirmity in the order passed by the Commissioner (Appeals) as the disallowance under section 14A, cannot exceed the total administrative expenditure debited by the assessee in the Profit & Loss account. Even under the formula given in rule 8D, the disallowance cannot exceed the overall expenditure claimed in the Profit & Loss account. Thus, we do not find any merit in the ground raised by the Revenue and the same stands dismissed.

(See 2014-TIOL-455-ITAT-MUM)

__._,_.___

View attachments on the web

---

Posted by: Dipak Shah <djshah1944@yahoo.com>

---

receive alert on mobile, subscribe to SMS Channel named "aaykarbhavan"
[COST FREE]
SEND "on aaykarbhavan" TO 9870807070 FROM YOUR MOBILE.

To receive the mails from this group send message to aaykarbhavan-subscribe@yahoogroups.com

Visit Your Group

• Privacy • Unsubscribe • Terms of Use