Saturday, August 22, 2015

[aaykarbhavan] Judgments and Infomration [4 Attachments]




Sandvik Asia Limited vs. DCIT (Bombay High Court)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL: ,
DATE: August 11, 2015 (Date of pronouncement)
DATE: August 22, 2015 (Date of publication)
AY: 1990-91
FILE: Click here to download the file in pdf format
CITATION:
S. 37(1): Law on when expenditure towards property can be termed as being for protection of the property or for curing a defect and whether that is capital or revenue explained
(i) In the circumstances, the payment of Rs.23.35 lakhs paid by the Appellant was not with a view to protect the property per se but to ensure that the proceedings under ULCA do not result in the entire property being taken over by the State Government, which was otherwise a fait accompli. As a consequence, inter alia, of making a payment of Rs.23.35 lakhs, the Appellant received a benefit of enduring nature inasmuch as 10,462 sq. mtr of land came out of the clutches of ULCA and an area of 6767 sq. mtr was available for all times to be used by the Appellant including the power to sell of the land along with the structures thereon. In the above facts, the payment of Rs.23.35 lakhs from a businessman's point of view is a payment made to stop/stall the acquisition of land which a businessman was able to foresee. Therefore, the adoption of the entire process of exemption to ensure that the land is available to the Appellant for indeterminate period albiet with the constructed hostel, training centre and guest house on the same. The exemption itself only prohibits the Appellant from disposing of land in favour of any third party till such time as the construction on the land is complete in terms of the conditions of the exemption. Thereafter, there is no prohibition to transfer the structure along with the land. Thus a right to transfer, unfettered in any manner became available to the Appellant after construction of the building on the land. This right was not available to the Appellant prior to the grant of the exemption as the disposition was fettered because of the certain acquisition of land as even according to the Appellant, vacant land was in excess of the ceiling limit under ULCA. This payment made by the Appellant in its nature is different from a payment made to protect the property. In fact, Supreme Court in the case of Assam Bengal Cement Co. Ltd. v/s. CIT 27 ITR 34 while laying down the criteria to decide/ determine whether the payment is of capital or revenue nature has observed that the aim and object of the expenditure would determine the character of the payment. In the present facts, as pointed out above, the entire aim and object of the payment was not only that the certainty of acquisition is aborted but enduring benefit as pointed out above is obtained by the Appellant. This would conclusively determine that the payment in this case was capital in nature in the capital field.
(ii) It was also contended that the title to the exempted land in respect of which the payment was made, was at all times with the Appellant. Therefore, it could not be a case of acquisition of asset or curing a defect in the title so as to become an expenditure which is capital in nature. It is a settled position that a title is an evidence of ownership to the property. Ownership as such constitutes a bundle of rights over a land or thing i.e. right to possession, right to use and enjoy, right to consume, destroy or transfer and all the above rights are indeterminate in time. The ownership of the exempted land is affected inasmuch as the right to consume and/or transfer the excess vacant land is affected/fettered by virtue of the enactment of ULCA. Thus, by obtaining exemption from ULCA inter alia on payment of Rs.23.34 lakhs, the fetter / encumbrance/impediment is removed in the ownership of the land. Therefore, the title which is evidence of ownership in the present facts was not complete ownership as the same was fettered by the provisions of ULCA. This removal of a fetter by making payment completes the ownership of the land which was otherwise imperfect and would be reflected in the title on grant of exemption, the title to the exempted land is no longer encumbered by the provisions of ULCA. Therefore, we do not accept the Appellant's contention that the payment was revenue in nature. As observed by the Apex Court in Dalmia Jain & Co., v/s. CIT 82 ITR 754 if the expenditure is incurred to create, cure or complete the title, then the expenditure is capital in nature. In this case, the payment cures and/or completes the title by removing the fetter/ encumbrance of ULCA being invoked in respect of the exempted land. In fact, the authorities were correct in applying the test laid down in the Apex Court's decision in V. Jagmohan Rao v/s. CIT 75 ITR 375 that to determine an expenditure to be a capital expenditure, it must be incurred in getting rid of a defect in title or a threat to litigation. Moreover, in this case, the threat to a certain acquisition would be on a higher footing then a threat to litigation. Therefore, it has been correctly held to be capital in nature on both counts i.e. getting rid of a defect and avoiding a certain acquisition.
(iii) The expenditure of Rs.23.35 lakhs has been incurred so as to complete the title/ ownership of the land. Therefore, the above expenditure cannot be attributed to the construction of the building. The construction of the building mandated by the exemption order under Section 20 of ULCA is only on consequence of the title/ ownership becoming complete.

Related Judgements

  1. Sandvik Asia Ltd vs. CIT (Bombay High Court) 
    Whether expenses incurred in a hotel would fall within "or other place of their work" appearing in Explanation 2 to Section 37(2A) of the Act, would entirely depend on the facts of each case. There cannot be any generalization in…Read more ›
  2. CIT vs. Groz Beckert Asia Ltd (P&H High Court – Full Bench) 
    In order to decide whether the expenditure is a revenue or a capital one has to look at the expenditure from a commercial point of view. Not every advantage of enduring nature constitutes capital expenditure. What is material to consider is the nature of the advantage in a commercial…
  3. AIMS Oxygen Pvt. Ltd vs. WTO (Gujarat High Court Full Bench) 
    The words 'if sold in open market' in s. 7 assumes that there is an open market and the property can be sold in such a market. However, if there is a restriction on transfer of the property, the value of the property has to be reduced. On facts,…
  4. Arvind Shamji Chheda vs. CIT (Bombay High Court) 
    The correct test to be applied is whether the partnership assets were converted to capital assets of the partners at the time of dissolution. This we find, was provided for in the dissolution deed itself which records in clause (3)…Read more ›
  5. Crompton Greaves Limited vs. DCIT (Bombay High Court) 
    Write-off of irrecoverable advances is not a "transfer" and the loss cannot be claimed as a capital loss u/s 45
    Having regard to the definitions of terms "capital asset" and "transfer" in sections 2(14) and 2(47), in order to be eligible for carry forward of capital loss, the capital…

Sandvik Asia Limited vs. DCIT (Bombay High Court)

S. 37(1): Law on when expenditure towards property can be termed as being for protection of the property or for curing a defect and whether that is capital or revenue explained
This payment made by the Appellant in its nature is different from a payment made to protect the property. In fact, Supreme Court in the case of Assam Bengal Cement Co. Ltd. v/s. CIT 27 ITR 34 while laying down the criteria to decide/ determine whether the payment is of capital or revenue nature has observed that the aim and object of the expenditure would determine the character of the payment. In the present facts, as pointed out above, the entire aim and object of the payment was not only that the certainty of acquisition is aborted but enduring benefit as pointed out above is obtained by the Appellant. This would conclusively determine that the payment in this case was capital in nature in the capital field

DCIT vs. Garware Polyester Ltd (ITAT Mumbai)

S. 115JB: Amount towards waiver of loan under OTSS, credited to "General Reserves" and not to the P&L Account cannot be added to "book profits"
Assessing Officer has not specified categorically that as to how the Part II & III of Schedule VI has not been followed or is against the prescribed accounting standard there is a requirement of law that waiver of loan taken for utilizing capital expansion is to be routed only through profit and loss account and cannot be credited to the 'General Reserve', i.e. directly in the Balance sheet

DCIT vs. Garware Polyester Ltd (ITAT Mumbai)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: August 14, 2015 (Date of pronouncement)
DATE: August 22, 2015 (Date of publication)
AY: 2007-08
FILE: Click here to download the file in pdf format
CITATION:
S. 115JB: Amount towards waiver of loan under OTSS, credited to "General Reserves" and not to the P&L Account cannot be added to "book profits"
The sole dispute raised is, whether the Assessing Officer could have made adjustment to the book profits for an amount of Rs. 3,52,78,000/-, which was on account of waiver of principal amount of loan, which has been credited by the assessee directly in the Balance Sheet in 'General Reserve' account, which according to the Assessing Officer should have been routed through profit and loss account and thus, would have been part of the book profit. The provisions relating to book profit u/s 115JB are absolutely clear that same is to be computed on the basis of profit and loss account prepared in accordance with the provision of Part-II and Part-III of Schedule-VI of the Companies Act and to such profit only certain adjustments as provided in Explanation 1 can be made. The Assessing Officer does not have the power to tinker with such accounts prepared as per Schedule VI and certified by the Auditors. Assessing Officer has also not specified categorically that as to how the Part II & III of Schedule VI has not been followed or is against the prescribed accounting standard there is a requirement of law that waiver of loan taken for utilizing capital expansion is to be routed only through profit and loss account and cannot be credited to the 'General Reserve', i.e. directly in the Balance sheet. Thus, the finding of the CIT(A) is purely in accordance with the provisions of the law and the principle laid down by the Hon'ble Supreme Court in the case of Apollo Tyres (supra). The Hon'ble Bombay High Court in the case of CIT vs Akshay Textiles Trading And Agencies (P) Ltd., reported in 304 ITR 401 and later on in the case of CIT vs Adbhut Trading Co. Pvt Ltd, reported in 338 ITR 94, following the aforesaid decision of the Hon'ble Supreme Court held that accounts prepared under the Companies Act and certified by the authorities under the said "Act" have to be accepted.

Related Judgements

  1. DCIT vs. Bombay Diamond Co (ITAT Mumbai) 
    In Apollo Tyres Ltd 265 ITR 273 and Kinetic Motor Co. Ltd 262 ITR 340 it was held that if the accounts were prepared in accordance with Schedule VI, the AO had no jurisdiction to make adjustments beyond what was provided in s. 115JB. However, as the assessee had…
  2. Dharmayug Investments Ltd vs. ACIT (ITAT Mumbai) 
    The book profits as contemplated in section 115JB means the net profit, which has been shown/credited in the profit & loss account as prepared under the relevant provisions of the Companies Act. The concept of indexation while computing the Long term capital gain cannot be imported to the computation…
  3. Krung Thai Bank PCL vs. JDIT (ITAT Mumbai) 
    S. 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax u/s 115 JB…
  4. Padinjarekara Agencies Pvt. Ltd vs. ACIT (ITAT Cochin) 
    The question that had arisen was whether the Assessing officer was entitled to disturb the net profit shown by the assessee in the profit and loss account prepared as per the Companies Act, 1956.in order to enable anybody to understand…Read more ›
  5. DCIT vs. Envision Investment & Finance Pvt. Ltd (ITAT Mumbai) 
    Even if the loss claimed by the assessee relating to share transactions as well as loss resulting on valuation of closing stock is treated as speculation loss, the same is entitled to be set-off against the profit on sale of shares in view of DLF Commercial Developers Ltd. 261…

CIT vs. Forever Diamonds Pvt. Ltd (Bombay High Court)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS:
COUNSEL:
DATE: August 12, 2015 (Date of pronouncement)
DATE: August 22, 2015 (Date of publication)
AY: 2004-05
FILE: Click here to download the file in pdf format
CITATION:
S. 115JB: Dept's grievance that if amount is not credited to P&L A/c, accounts are not correctly prepared as per Schedule VI to the Companies Act, 1956 and adjustment to book profits can be made is not acceptable if auditors and ROC have not found fault with A/cs
The assessee earned gross profit of Rs.1,68,95,500/- from sale of its rights in immovable property. This amount was not shown in the P&L Account but was taken directly to the balance sheet. The AO held that under sub-clause (xi) of clause-3 of Part-II of Schedule-VI, the assessee is required to show the amount of income earned from investment in the P&L Account, distinguishing between trade investments and other investments. He held that it was mandatory for the company to show profit/loss on sale of assets in the P&L Account and that the P/L account had not been prepared in accordance with Part-II and Part- III of Schedule-VI of the Companies Act. He relied on CIT vs. Veekaylal Investment Co. P. Ltd. (249 ITR 597) and made an adjustment to the "book profits" u/s 115JB. However, the Tribunal deleted the addition. On appeal by the department to the High Court HELD dismissing the appeal:
The observations of the Apex Court in Apollo Tyres Ltd. v/s CIT 255 ITR 273 concludes the issue by holding that the Assessing Officer does not have power to embark upon the fresh enquiry with regard to the entries made in the books of accounts of the Company when the accounts of an assessee Company is prepared in terms of Part II Schedule VI of the Companies Act scrutinized and certified by the statutory auditors, approved by the Company in general meeting and thereafter filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. If the grievance of the revenue is to be accepted, then the conclusiveness of accounts prepared and audited in terms of Section 115JB of the Companies Act would be set at naught. This without successfully impeaching the Auditor's certificate or without the Registrar of Companies holding that the accounts have not been prepared in accordance with the provisions of the Companies Act. There is no distinction between s. 115JA and 115JB and the principles laid down in Apollo Tyres applies to s. 115JB as well (CIT vs. Akshay Textiles Trading And Agencies P. Ltd. (304 ITR 401) and CIT vs. Adbhut Trading Co. P. Ltd. (338 ITR 94) followed)

Related Judgements

  1. In Re The Timken Company (AAR) 
    Though s. 2(17) defines a "company" to include a "foreign company", the context of the definition has to be seen. Income, which does not have a source in India, cannot be made part of the book profits. The annual accounts, including the P&L Account, cannot be prepared as per…
  2. DCIT vs. Garware Polyester Ltd (ITAT Mumbai) 
    Assessing Officer has not specified categorically that as to how the Part II & III of Schedule VI has not been followed or is against the prescribed accounting standard there is a requirement of law that waiver of loan taken for utilizing capital expansion is to be routed only…
  3. DCIT vs. Bombay Diamond Co (ITAT Mumbai) 
    In Apollo Tyres Ltd 265 ITR 273 and Kinetic Motor Co. Ltd 262 ITR 340 it was held that if the accounts were prepared in accordance with Schedule VI, the AO had no jurisdiction to make adjustments beyond what was provided in s. 115JB. However, as the assessee had…
  4. Krung Thai Bank PCL vs. JDIT (ITAT Mumbai) 
    S. 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax u/s 115 JB…
  5. Dharmayug Investments Ltd vs. ACIT (ITAT Mumbai) 
    The book profits as contemplated in section 115JB means the net profit, which has been shown/credited in the profit & loss account as prepared under the relevant provisions of the Companies Act. The concept of indexation while computing the Long term capital gain cannot be imported to the computation…

CIT vs. Forever Diamonds Pvt. Ltd (Bombay High Court)

S. 115JB: Dept's grievance that if amount is not credited to P&L A/c, accounts are not correctly prepared as per Schedule VI to the Companies Act, 1956 and adjustment to book profits can be made is not acceptable if auditors and ROC have not found fault with A/cs
The Assessing Officer does not have power to embark upon the fresh enquiry with regard to the entries made in the books of accounts of the Company when the accounts of an assessee Company is prepared in terms of Part II Schedule VI of the Companies Act scrutinized and certified by the statutory auditors, approved by the Company in general meeting and thereafter filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. If the grievance of the revenue is to be accepted, then the conclusiveness of accounts prepared and audited in terms of Section 115JB of the Companies Act would be set at naught

Shivalik Venture Pvt. Ltd vs. DCIT (ITAT Mumbai)

S. 115JB: (i) Even if an amount is credited to the P&L A/c, the assessee can seek exclusion of that amount for purposes of "book profits" if a note to that effect is inserted in the A/cs (ii) The exemption conferred by S. 115JB to sums exempt u/s 10 should be extended to all sums which are not chargeable to tax
The profit arising on transfer of capital asset to its wholly owned Indian subsidiary company is liable to be excluded from the Net profit., i.e., the Net profit disclosed in the Profit and Loss account should be reduced by the amount of profit arising on transfer of capital asset and the amount so arrived at shall be taken as "Net profit as shown in the profit and loss account" for the purpose of computation of book profit under Explanation 1 to sec. 115JB of the Act. Alternatively, since the said profit does not fall under the definition of "income" at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act

Shivalik Venture Pvt. Ltd vs. DCIT (ITAT Mumbai)

COURT:
CORAM: ,
SECTION(S): ,
GENRE:
CATCH WORDS: , ,
COUNSEL:
DATE: August 19, 2015 (Date of pronouncement)
DATE: August 22, 2015 (Date of publication)
AY: 2009-10
FILE: Click here to download the file in pdf format
CITATION:
S. 115JB: (i) Even if an amount is credited to the P&L A/c, the assessee can seek exclusion of that amount for purposes of "book profits" if a note to that effect is inserted in the A/cs (ii) The exemption conferred by S. 115JB to sums exempt u/s 10 should be extended to all sums which are not chargeable to tax
The assessee held a parcel of land admeasuring about 61,506 sq.mtr as its capital asset. The said land was attached with development rights/FSI. The assessee transferred development rights/FSI of 55,464.04 sq.mtr which was available on a portion of above said land to its wholly owned Indian subsidiary company. The said transfer generated Long Term Capital Gain (LTCG) of 300.68 crores. The assessee disclosed the same as "Extra Ordinary Income" in the profit and loss account. The said LTCG was not chargeable to tax u/s 47(iv) of the Act as it arose from the transfer of a capital asset by a company to its wholly owned Indian subsidiary. For purposes of computation of book profits u/s 115JB, the assessee inserted a note in the accounts stating that the said amount credited to the P&L A/c did not have the character of "income" and was not chargeable as "book profits". The AO & CIT(A) relied on the judgement of the Special Bench in Rain Commodities Ltd v/s DCIT (2010) (40 SOT 265; 131 TTJ 514) where it was held that if an amount, though not chargeable as capital gains u/s 47(iv), is credited to the P&L A/c, the same cannot be excluded from the book profits u/s 115JB. On appeal by the assessee to the Tribunal HELD allowing the appeal:
(i) The decision rendered by the Special Bench of Tribunal in Rain Commodities Ltd (40 SOT 265; 131 TTJ 514) is not applicable because in that case the capital gains had been included in the profit and loss account and it was accepted that the accounts have been prepared in accordance with the provisions of Part II and Part III of Schedule VI to the Companies Act. In the present case, it is clearly stated in the Notes forming part of accounts that the said profit is not includible for computing book profit u/s 115JB of the Act, even though it is credited to Profit and Loss account. The profit and loss account prepared in accordance with the provisions of Part II to Schedule VI of the Companies Act should be read along with the 'Notes forming part of accounts'. Hence the net profit shown in the Profit and loss account shall be first adjusted to take care of the qualifications given in the Notes (CIT V/s Sain Processing & Wvg. Mills (P.) Ltd. (2010) 325 ITR 565 (Delhi) & K.K. Nag Ltd. V/s Additional Commissioner of Income-tax [2012] 52 SOT 381 (Pune) referred);
(ii) As regards the contention that since the profit arising on transfer of a capital asset by a company to its wholly owned subsidiary company is not treated as income" u/s 2(24) of the Act and since it does not enter into computation provision at all under the normal provisions of the Act, the same should not be considered for the purpose of computing book profit u/s 115JB of the Act, it is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term "income" as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation 1 to sec.115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of "income" at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in "book profit" u/s 115JB of the Act.
(iii) A careful perusal of the decision rendered by the Special bench in the case of Rain Commodities Ltd would show that the above said legal contentions were not considered by the Special bench. The Special bench considered cases where the Courts were dealing with the issue of inclusion of Capital gains in the computation of "Book Profits", but such capital gains were otherwise chargeable to capital gain tax u/s 45 of the Act under the normal provisions of the Act. However, here is the case that the profits and gains arising on transfer of capital is not falling under the definition of "transfer" and hence under the definition of "Capital gains chargeable u/s 45" and consequently, the same does not fall within the purview of the definition of "income" given u/s 2(24) of the Act. Further, the Special bench did not have occasion to consider the argument urged that the profits and gains arising on transfer of a capital asset by a holding company to its wholly owned Indian Company does not fall under the definition of "income" at all u/s 2(24) of the Act and hence the same does not enter into the computation provisions of the Act at all.

Related Judgements

  1. Dharmayug Investments Ltd vs. ACIT (ITAT Mumbai) 
    The book profits as contemplated in section 115JB means the net profit, which has been shown/credited in the profit & loss account as prepared under the relevant provisions of the Companies Act. The concept of indexation while computing the Long term capital gain cannot be imported to the computation…
  2. DCIT vs. Bombay Diamond Co (ITAT Mumbai) 
    In Apollo Tyres Ltd 265 ITR 273 and Kinetic Motor Co. Ltd 262 ITR 340 it was held that if the accounts were prepared in accordance with Schedule VI, the AO had no jurisdiction to make adjustments beyond what was provided in s. 115JB. However, as the assessee had…
  3. Rain Commodities vs. DCIT (ITAT Hyderabad Special Bench) 
    The assessee had included the said capital gains in the P & L A/c and it was not its' case that same was not includible. The fact that the capital gains was exempt u/s 47(iv) does not mean it can be excluded from the "book profit" because no such…
  4. Krung Thai Bank PCL vs. JDIT (ITAT Mumbai) 
    S. 115 JB can only come into play when the assessee is required to prepare its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax u/s 115 JB…
  5. DCIT vs. Garware Polyester Ltd (ITAT Mumbai) 
    Assessing Officer has not specified categorically that as to how the Part II & III of Schedule VI has not been followed or is against the prescribed accounting standard there is a requirement of law that waiver of loan taken for utilizing capital expansion is to be routed only…


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