TMI Blog2006 (7) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... nt paid by the assessee under the approved Voluntary Retirement Scheme (hereinafter called "VRS amounting to Rs. 1,06,57,907 by treating the same as capital expenditure. Briefly stated the facts of the case are that the assessee claimed VRS expenses at Rs. 1.06 crores arid in its books of account the said amount was treated as deferred revenue expenditure by claiming its 14th as deduction at Rs. 26,64,477. However, in the computation of income the entire amount was claimed as deduction. The Assessing Officer did not accept the claim of the assessee for deduction under section 37(1). He took note of the provisions of new section 35DDA inserted by the Finance Act, 2001, with effect from April 1, 2001, to conclude that no provision was availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was permissible in five annual instalments and the position prevailing prior to this section did not empower the assessee to claim any deduction. The learned Commissioner of Income-tax (Appeals) went a step forward by considering Circular (F. No. 200/79/2000-ITA-I) dated January 23, 2001 ( 248 ITR (St.) 257) regarding the admissibility of ex gratia amount paid by the assessee for gaining enduring benefit or advantage under VRS. At the outset, we note that this circular talks of the laying down of the text of enduring benefit as tool in considering the ex gratia amount, prima facie, as a capital expenditure. This circular has not conclusively directed the Assessing Officers to consider the VRS amount as capital expenditure in all cases. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future." Adverting to the facts of the case we find that by introducing the VRS the assessee sought to carry on its business more efficiently and profitably and did not obtain any advantage in the capital field inasmuch as its fixed capital remained untouched. 4 It is further observed that the aforenoted circular became the subject- matter of consideration by the hon'ble Madras High Court in the case of Madura Coats v. Deputy CIT [2005] 273 ITR 32 in which the petitioner applied for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the earlier rate of 30 per cent, was to be applied. The hon'ble High Court held that since this notification came into effect after April 1, 1980, being the first day of the relevant assessment year, the same cannot be held to be applicable in the assessment year 1980-81. Similar opinion has been expressed, as to the applicability of circular, by the Full Bench of the hon'ble Kerala High Court in CIT v. B. M. Edward, India Sea Foods [1979] 119 ITR 334. From the foregoing legal position it becomes abundantly clear that at any rate the said circular, coming into force on January 23, 2001, cannot be held to be applicable to the assessment year 2000-01, being the assessment year under consideration. 6 Now, we turn to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rminal benefits like pension, gratuity, leave encashment, etc., in respect of which normal provisions of the Act will apply. 33.3 The amendment will take effect from April 1, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years." 7 From the above it is clear that this section has been inserted prospectively and is applicable to the assessment year 2002-03 and thereafter. There is no indication to suggest, even remotely that this section would be the subject-matter of consideration in the assessment year 2000-01, which is under consideration. Thus it becomes manifest that the insertion of section 35DDA has to be ignored altogether and the legal position prevailing anterior to this amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the above judgments applicable in the pre 35DDA period, it becomes clear that the expenditure of VRS deserves deduction in entirety in the year in which it is incurred. Since the assessee paid the amount in the year in question, which has not been disputed by the Revenue, in our considered opinion, the entire amount is deductible as claimed by the assessee. By overturning the impugned order on this score, we allow deduction for the full amount of Rs. 1,06,57,907 in this year. 11 The only other ground is regarding the charging of interest under section 234B which the learned Commissioner of Income (Appeals) did not entertain by observing that no appeal lies against such charging of interest. Suffice to say that the learned Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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