TMI Blog2006 (9) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals can be disposed of by the single consolidated order by adjudicating the grounds issue-wise. 3. The first ground raised in Appeal No. 2060/Bom/1992 is with regard to the disallowance of Director s Remuneration under section 40C of the I.T. Act and this ground is raised only in I.T.A. No. 2060/Bom/1992 and in this regard, the learned counsel for the assessee has invited our attention that the Managing Director of the assessee-company is not in fact an employee of the assessee-company, but he is an employee of the State Government who comes on deputation in the assessee-company as a Managing Director as such, the provisions of section 40C would not apply. Whatever perquisites the Managing Director gets, it is, on account of terms of employment of the assessee-company, as such, the benefits given to the Managing Director do not fall within the meaning of the perquisites. 4. The learned DR on the other hand has submitted that though the assessee is a Public Sector Undertaking under the State Government, but, it has its own bye-laws. No doubt, the Managing Director comes from the State Government, but, whatever benefit he enjoys after joining the assessee, it was on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Managing Director cannot be exonerated from the relevant provisions of the Act which are applicable to the Managing Director and Directors of the assessee-company. Keeping in view of the facts and circumstances of the case, we are of the considered opinion that the revenue authorities are rightly invoked the provisions of section 40(C) of the I.T. Act. Since the CIT(A) has adjudicated the issue in right perspective, we find no infirmity therein. Accordingly, we confirm the order of the CIT(A) in this regard. 6. The next issue raised in ITA Nos. 2060/B/92, 7782/B/94, 987/Bom/94, 7783/Bom/94 and 270/Bom/95 relate to an addition on account of fees collected for payment to "deposit insurance and credit guarantee corporation". Though the facts are similar in all appeals, we take up the facts of Appeal No. 2060/Bom/92 in which during the course of assessment proceedings, the Assessing Officer noticed from the details of other credit balance that it includes an amount of Rs. 34,27,924 being DICGC guarantee fees deposit. On enquiry from the assessee, the nature and source of the credit balances were explained by the assessee as under : "( i ) Re : DICGC guarantee fee deposit Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,64,42,900 i.e., opening balance as on 1-4-1987. The Assessing Officer accordingly held that this amount of Rs. 7,94,510 constitute the income of the assessee for the present assessment year and he added back the same. On a similar pattern, he has also collected a sum of Rs. 5,34,063 which was also not paid to the corporation during the year. This amount was also added by the Assessing Officer as an income to the assessee. The relevant observation in this regard of the Assessing Officer are extracted hereunder : "The assessee is a financial corporation mainly engaged in providing financial assistance to small scale industrial units and other industrial units manufacturing a wide range of products. The main source of income is interest earned on loans and advances, given by the assessee. The assessee follows cash system of accounting. The loans granted by the corporation are covered under credit guarantee scheme of Deposit Insurance and Credit Guarantee Corporation. For this guarantee the Corporation has to pay guarantee fee to DICGC. As per the practice followed by the assessee, guarantee fee in respect of the loans up to Rs. 50,000 is borne by the assessee and is charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which these are actually received. And since it is the assessee who is liable to DICGC for fees payable to them, it will be entitled to claim these payments as revenue expenditure in the year when there is actual payment. During the previous year relevant to the present assessment year, the assessee has collected and credited to suspense (Other) account a sum of Rs. 79,54,510 on account of such fees collected, but not paid to DICGC (Rs. 3,43,97,410 balance as on 31-3-1988 less Rs. 2,64,42,900 opening balance as on 1-4-1987). Accordingly, it is held that said amount of Rs. 79,54,510 constitutes the income of the assessee for the present assessment year, and is added back. 10.5 Similarly the assessee has also collected Rs. 5,34,063 (Rs. 34,27,924 closing balance as on 31-3-1988 Rs. 8,93,861 the opening balance as on 1-4-1987) from borrowers in advance being DICGC guarantee fee, credited to "DICGC guarantee fee deposit account", but not paid to the said corporation during the year. As held above, this amount also constitutes the assessee s income for the present year, and accordingly is added back for identical reasons." 7. Aggrieved, the assessee preferred an appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a statutory liability. It was collected on account of resolutions passed by the assessee-company to pay to the DICGC in order to ensure its recovery of the outstanding dues from the loanees. Since, it was collected with a different motive or object and was never formed to be a part of the income/trading receipts of the assessee, it is not chargeable to tax. 9. The learned DR on the other hand has submitted that undisputedly the assessee has collected the guarantee fees from the borrowers by debiting their accounts, but, it was never paid to the DICGC. Moreover, this amount was not kept under a separate account. It was kept on a common account though separate head was created in its books of account. Nothing is placed on record to establish that this collected funds was never used by the assessee and was kept intact for its payment to DICGC on a future date. The judgments on which the assessee has relied are rendered on different facts, as in those cases the Dharmada or surcharge for local charities was collected and was also applied for that purpose. But, in the instant case, the assessee has collected the guarantee fees, but, was used by it though a separate head was cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. We have also carefully examined the judgments referred to by the assessee and the Revenue and was find that the Apex Court in the case of Synclair Murray Co. (P.) Ltd. ( supra ), has categorically held following the earlier judgment of the Apex Court in the case of Chowranghee Sales Bureau (P.) Ltd. ( supra ) that, it is the nature and quality of the receipt that would prove decisive. The fact that the assessee credited the sales tax received in a separate account, did not make any material difference. If a receipt is a proving receipt, the fact that it is not so shown in the account books of the assessee, would not proving the assessing authorities from treating it as a trading receipt. The assessee did not separately earmarked the amounts realized on sales tax or put in hand a different account. The assessee also did not deposit the amount with the Government as and when realized nor did the assessee refund it to the purchaser from whom the amounts had been received. The assessee mixed-up the amounts of sales tax with its own sums and treated the same as its on money. Therefore, sales tax collected was liable to be included in the total income of the assessee. Their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see under an obligation to spend the same for charitable purposes only, with the result that, these receipts cannot be regarded as forming part of income of the assessee. Their Lordships have further observed that Dharmada amounts paid by the customers cannot be regarded as part of price or surcharge on price of the goods purchased by the customers. The amount Dharmada is undoubtedly a payment which customer is required to pay in addition to the price of the goods, which was purchased from the assessee. Dharmada amount is therefore clearly not a part of the price, but a payment for a specific purpose i.e., charitable purpose. Their Lordship have further observed that this Dharmada payment cannot be said to have been made unvoluntarily by the customers and in any case the compulsory nature of the payments if there be any kind of impress, the receipts with the character of being trading receipts. Being a customary levy the constituents or customers, whether literate or illiterate would be knowing that the additional payments over and above price were meant for being spent by the assessee for charitable purpose. Further, the fact that assessee would be having some discretion as rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the said credit facilities. The scheme also requires an agreement to be executed between the Corporation and the Credit Institution to enable it for guarantee in respect of the eligible credit facility. To avail this facility, the guarantee fees as per clause ( 8 ) of the scheme shall be paid to the corporation by the credit institution availing itself of the guarantee provided under the scheme at such rate or rates as may, with the prior approval of the Reserve Bank of India, be notified by the corporation to the credit institution from time to time. In his instant case, the assessee being a credit institution has entered into an agreement with the corporation and was required to make the payment of guarantee fees on its collection from the borrowers. Since the scheme was launched by the Board of Deposit and Insurance Credit Guarantee Corporation in the exercise of power conferred by sub-section (2) of section 21A of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, the recovery of guarantee fees and its payment to the corporation has a statutory force, though it is not a statutory liability in a strict sense as in the case of sales tax. In the instant case al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r its file for re-adjudicating the issue in the light of the scheme and the modalities. Since this finding of the Tribunal, which was in favour of the assessee, was set aside by the A.P. High Court, it would not hold the field and does not render any assistance to the assessee. In the instant case, copy of the scheme is filed before us and from its careful perusal, we find that the assessee was under an obligation to collect the guarantee fees from its borrower and also to make the payment of the same to the Corporation. If he does not make the payment to the corporation and utilized it for its own purpose, it would partake the character of business receipts of the assessee in the light of the Judgment of the Apex Court in the case of Chowranghee Sales Bureau (P.) Ltd. ( supra ) and Sinclar Murray Co. (P.) Ltd. ( supra ) and is chargeable to tax. Following the view taken by the Apex Court in the case of Sinclair Murray Co. (P.) Ltd. ( supra ) we are also of the view that whenever the assessee makes the payment of the guarantee fees collected from the borrowers to the corporation i.e., DICGC or refunds to the borrower, the assessee would be entitled to claim deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s granted by the Government to enable the assessee to run the business more profitably and for not setting up of the industry, it is his operation subsidy and hence a revenue receipt. 20. We have carefully examined the orders of the lower authorities in the light of rival submissions and the relevant judgments referred by the parties and we find that in the case of Sahney Steels Press Works Ltd. ( supra ), their Lordship of the Apex Court have laid down the guidelines or the criteria to work out whether subsidy granted to the assessee is a capital receipt or a revenue receipt. It has been held specifically that what is material to determine the nature of subsidy is the purpose of which it has granted and not the source of grant. If the purpose is to help the assessee to set up its business or a complete project, the monies must be treated as to have been received for capital purpose, but, if the monies are given to the assessee for assisting him in carrying out the business operation and the monies given only after the commencement of production, such subsidies must be treated as assistance for the purpose of trade and revenue in nature. In the instant case, undisputedly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue with regard to disallowance of payments made to Udyog Mitra, MCED and Mitcon are raised in ITA Nos. 7783/Mum./94, 270/Mum./95, 6088/Mum./96 and 1936/Mum./99 and the facts borne out from the record are that assessee has made certain payments to Udyog Mitra, MCED and Mitcon as per the guidelines of the State Government and Central Government and debited it to the P L account. This claim was disallowed by the Assessing Officer on the ground that it was not incurred for the business purpose of the assessee. The assessee preferred an appeal before the CIT(A), but, did not find favour with him. 25. Now the assessee is in appeal before the Tribunal with the submissions that with a view to avoid duplication of efforts, labour and consequential wastage of time, money and in order to achieve more effective output of the various lending institutions, set up for encouraging entrepreneurship and industrialization in the various region, certain specialized bodies had been set up by the Government of Maharashtra to assist the financial institutions set up to carry out their objectives. The expenses incurred by these bodies are in turn borne by the financial institutions by way of contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onations, but, are incurred wholly and exclusively for the purpose of business of the assessee. In support of his contention, assessee has relied upon the following judgments: (1) Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101 (SC). (2) CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 (Mad.) (3) Mysore Kirloskar Ltd. v. CIT [1987] 166 ITR 836 (Kar.). 25.1 The learned counsel for the assessee further contended that the assessee has incurred these expenses to promote the industrial growth of the State of Maharashtra. As such, it was the expenditure, incurred for the purpose of business of the assessee. 26. The learned DR on the other hand has placed heavy reliance upon the order of the CIT(A). 27. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the record, we find that undisputedly the assessee is a public sector of the State Government and was set up to provide the financial assistance to various industrial units. The MCED, Udyog Mitra, Mitcon were also promoted by the State Government to give training/information to new entrepreneurs in order to set up their industries within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s business or which results into the benefit of the assessee business has to be regarded as an allowable deduction under section 37(1) of the Act. Such a donation, whether voluntary or at the instance of authorities concerned, when made to a Chief Minister s Draught Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee s business, cannot be regarded as payment opposed to a public policy. There is no law which prohibits to make all such donations. The mere fact that making of a donation for a charitable or a public cause or in public interest results in the Government giving patronage or benefit can be no ground to deny the assessee, a deduction of that amount under section 37(1) when such payment had been made for the purpose of assessee s business. 29. If we examine the facts of the case in the light of the ratio laid down by the Apex Court and the Madras High Court in the aforesaid cases, we find that assessee is a State Government Public Sector and the other institutions were promoted by the State Government for the public welfare and the growth of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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