TMI Blog2008 (10) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... fic revenue in the years under consideration or subsequently over a defined period with the incurring of said expenditure. AO himself admitted the portion of expenditure debited in the profit and loss account as revenue expenditure. In these circumstances, we do not find any justification to interfere with the findings of the ld. CIT(A). Expenditure on computer software - Since in the case under consideration nature of software is not available on records nor any material has been placed before us in respect of nature of software(s) and expenditure incurred thereon, we are of the opinion that the matter needs to be restored back to the file of the AO for doing necessary exercise as laid down in the aforesaid decision. The AO shall examine the question whether expenditure on computer software is capital or revenue in the light of the criteria laid down in the case of Amway India Enterprises v. Dy. CIT [ 2008 (2) TMI 454 - ITAT DELHI-C] , after allowing sufficient opportunity of being heard to the taxpayer. Expenses incurred in obtaining fixed deposits - Following the decision CIT v. Investment Trust of India Ltd.[ 2002 (11) TMI 26 - MADRAS HIGH COURT] , We held that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd section 234C. Hence, It is clear that once a default within the meaning of sections 234B and 234C takes place, levy of such interest is automatic and there is no scope for applying the principles of equity or rules of natural justice. No hearing is required to be given to the assessee seeking any justification for not making the payment of advance tax. We, therefore, find no merit in the contention that the provisions of section 234C would not be attracted in cases where a company is assessed on the income computed u/s 115JA. As already observed, the levy is automatic without any notice to the assessee. It is well-settled that all words of a statute are to be given effect, and the Legislature is presumed not to use words that are superfluous or redundant. It is also in consonance with the principle of harmoniously interpreting to make the statute workable and giving a meaning to all the provisions of the statute without making anyone of them redundant. If the interpretation as sought by ld. AR on behalf of the taxpayer is applied that would make provisions of sub-section (4) of section 115JA otiose and redundant. It is not permissible to adopt a construction which woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer. 2. The ld. CIT(A) has erred in law and on facts in holding that the interest of Rs. 20,72,33,895 was allowable under section 36(1)(iii) of the Income-tax. Act, although the same represents preoperative expenses and was capital in nature. 3. The ld. CIT(A) has erred in law and on facts in directing the Assessing Officer not to charge interest under section 234C when the income is computed under section 115JA." ITA No. 2002/Ahd./2001 "1. The ld. CIT(A) has erred in law and on facts in allowing the expenditure of Rs. 1,56,44,614 as revenue expenditure which being pre-operative expenses was capital in nature and was rightly so held by the Assessing Officer. 2. The ld. CIT(A) has erred in law and on facts in holding that the interest of Rs. 14,64,58,864 was allowable under section 36(1)(iii) of the Income-tax Act although the same represents preoperative expenses and was capital in nature. 3. The ld. CIT(A) has erred in law and on facts in directing the Assessing Officer not to charge interest under section 234C when the income is computed under section 115JA. 4. The ld. CIT(A) has erred in law and on facts of the case in allowing the claim of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e advertisement 32.31 63,40,773 ------------------------------------------------------ 2. Computer software expenses 0.23 5,38,267 ------------------------------------------------------ 3. Public relation expenses/ 4.25 4,43,130 Cultural programme expenses ------------------------------------------------------ 4. Quota expenses 8.60 14,44,621 ------------------------------------------------------ 5. Sales promotion expenses 10.78 1,10,33,611 ------------------------------------------------------ 6. Fixed deposit expenses 184.80 1,37,51,366 ------------------------------------------------------ 7. Exhibition expenses - 6,86,140 ------------------------------------------------------ Total 240.97 3,42,37,908 ------------------------------------------------------ 3. Out of the aforesaid expenditure, an amount of Rs. 127.33 lakhs for the assessment year 1997-98 and Rs. 185.93 lakhs for the assessment year 1998-99 was amortised. To a query by the Assessing Officer, the taxpayer submitted that similar claim for deduction of exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1971] 82 ITR 363 and Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) and pointed out that the nature of expenditure is irrelevant. As regards expenses relating to fixed deposits, ld. AR relied upon the decision of Hon'ble Madras High Court in the case of CIT v. Southern Petrochemical Industries Corpn. Ltd. [2008] 301 ITR 255 and pleaded that out of total fixed deposits of Rs. 29 crores, Rs. 27 crores were for the period less than one year. He further contended that expenditure incurred in redeeming debts is always allowable while the fixed deposits can always be prematurely encashed. In respect of decision of the Hon'ble Supreme Court relied upon by the ld. DR, it was submitted that the said decision in the case of Madras Industrial Investment Corpn. Ltd. cannot be ipso facto applied to the expenses relating to the FD. It depends on terms and conditions for acceptance of debentures and the fixed deposits, as the case may be. To a query by the Bench, he added that the said decision reported in Madras Industrial Investment Corpn. Ltd. is not relevant to the facts of the case. 8. We have heard rival contentions and gone through the facts of the case. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved. For the purpose of allowability of any expenditure under the Act, what is material is the classification between the capital and revenue and the same does not recognise of any concept of deferred revenue expenditure. That is why Assessing Officer himself allowed the amount debited in the profit and loss account. In a number of judgments viz. Amar Raja Batteries Ltd. v. Asstt. CIT [2004] 91 ITD 280 (Hyd.), Jt. CIT v. Modi Olivetti Ltd. [2005] 4 SOT 859 (Delhi), Asstt. CIT v. Medicamen Biotech Ltd. [2005] 1 SOT 347 (Delhi), Hero Honda Motors Ltd. v. Jt. CIT [2005] 3 SOT 572 (Delhi) and Charak Pharmaceuticals v. Jt. CIT [2005] 4 SOT 393 (Mum.), it has been affirmed that where any expenditure is treated as a deferred revenue expenditure, it presupposes that the concerned expenditure, creating benefit is in the revenue field and is a revenue expenditure, but considering its enduring benefits as well as the fact that it does not result in the creation of any new asset or advantage of enduring nature in the capital field, the same is required to be treated distinctly from capital expenditure. However, where any identifiable capital asset, tangible or intangible comes into existenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue. The accounting entries in the books of account are occasioned by a diverse set of considerations and issues such as compliance with statutory laws and mandatory accounting standards/principles and of course management decisions as to the treatment of a particular item which can be guided by considerations of reported profitability earning per share, impact on share prices etc. The Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. also affirmed the above view by observing that: "whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter." 12. Subsequently the Hon'ble Court re-affirmed the said view in Sutlej Cotton Mills. Ltd. v. CIT [1979] 116 ITR 1 (SC): "But it is now well-settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may. by making entries which are not in conformity with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of some other considerations. 15. In view of the foregoing, we may now analyse the claim of expenditure in these two assessment years: (a) Corporate advertisement, Exhibition, Public relation expenses/Cultural programme expenses, quota expenses and sales promotion-The undisputed fact is that the expenditure relating to Corporate advertisement, Exhibition, Public relation expenses/Cultural programme expenses, quota expenses and sales promotion is in the revenue field. The only issue to be considered is whether the assessee can claim the entire expenditure in this year itself, even though it had written off this expenditure in the books over a period of five years. In this connection, we may refer to the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd., wherein it was held- "... Section 37(1) further requires that the expenditure should not be of a capital nature. The question whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must be viewe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s expenditure on computer software, the relevant orders do not reveal the nature of expenditure on software. The ITAT Special Bench in the case of Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112 (Delhi) in their detailed judgment held that since software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where life of the computer software is shorter (say less than two years), it may be treated as revenue expenditure. It was further held that nature of advantage of computer software has to be seen in a commercial sense. If the advantage is in the capital field then the same would be capital expenditure. If the advantage consists merely in facilitating the assessee's trading operations or enabling 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. However, if assets/advantage is part of profit earning apparatus, it is capital. Whether or not expenditure on software is in revenue field, the Special Bench in the aforesaid case summarized their findings in following terms. "5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine the question whether expenditure on computer software is capital or revenue in the light of the criteria laid down above after giving an opportunity of being heard to the assessees. If on such examination, the Assessing Officer comes to the conclusion that the expenditure is capital expenditure, then the question regarding allowing depreciation will be decided in accordance with the principles laid down in the subsequent paragraphs." Since in the case under consideration nature of software is not available on records nor any material has been placed before us in respect of nature of software(s) and expenditure incurred thereon, we are of the opinion that the matter needs to be restored back to the file of the Assessing Officer for doing necessary exercise as laid down in the aforesaid decision. The Assessing Officer shall examine the question whether expenditure on computer software is capital or revenue in the light of the criteria laid down in the aforesaid decision, after allowing sufficient opportunity of being heard to the taxpayer. If on such examination, the Assessing Officer comes to the conclusion that the expenditure is capital expenditure, then the question re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, allowable as a deduction. The Apex Court also held that obtaining capital by issue of shares is different from obtaining loan by debentures. ................. In CIT v. Investment Trust of India Ltd. [2003] 264 ITR 506 this Court held that the expenditure on advertisements in newspapers inviting fixed deposits from the public is allowable in the words: 'In view of the provisions contained in section 58A of the Companies Act, 1956, the assessee-company had to advertise the notice calling for deposits and if there was any breach, the assessee was liable to be proceeded against under the relevant provisions of the 1956 Act. Section 37(3A) was introduced to curb extravagant and socially wasteful expenditure on advertisement at the cost of the exchequer. The assessee had incurred the expenditure on advertisements for collecting fixed deposits and the advertisements were statutory advertisements and, therefore, the provisions of section 37(3A) read with section 37(3B) were not applicable to the said expenditure.' Considering the ratio laid down in the abovesaid decisions, we are of the view that when the Tribunal has recorded a finding that the expenses relating to ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions and gone through the facts of the case. The issue regarding claim for deduction of interest on borrowed funds has now been settled by the decision of the Hon'ble Supreme Court in the aforesaid case of Core Health Care Ltd., wherein it was held:- "In the case of Challapalli Sugars Ltd [1975] 98 ITR 167 this Court observed that interest paid on the borrowing utilised to bring into existence a fixed asset which has not gone into production, goes to add to the cost of installation of that asset. It was further observed that if the said borrowing was not "for the purpose of business" inasmuch as no business had come into existence, it must follow that it was made for the purpose of acquiring an asset which could be put to use for doing business, and hence interest paid on such borrowing would go to add to the cost of the assets so acquired. In our view the above observations have to be confined to the facts in the case of Challapalli Sugars Ltd. [1975] 98 ITR 167 (SC). It was a case where the company had not yet started production when it borrowed the amount in question. The more appropriate decision applicable to the present case would be the judgment of this Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese decisions of the Apex Court, we hold that the Assessing Officer was not justified in making disallowance of interest of Rs. 20,72,33,895 for the assessment year 1997-98 and Rs. 14,64,58,864 for the assessment year 1998-99. There being no infirmity in the findings of ld. CIT(A), we uphold his orders for these two years. Thus, ground No. 2 in the appeals for the assessment years 1997-98 and 1998-99 is dismissed. 23. Ground No. 3 in the appeals for the two assessment years relates to levy of interest under section 234C of the Act while computing income in terms of provisions of section 115JA of the Act. While determining income in terms of provisions of section 115JA of the Act, inter alia, the Assessing Officer charged interest under section 234C of the Act. On appeal, it was contended before the ld. CIT(A) that only on finalization of books of account, the book profit can be determined and one cannot know as to whether there will be any liability to tax in terms of provisions of section 115JA of the Act. In such circumstances, there cannot be any liability under section 234B or 234C of the Act. In this connection, the ld. AR relied upon the following decisions:- (i) CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 519 and held that where there is non-payment or short payment due to the computation of income under section 115J of the Act, interest can be levied under sections 234B and 234C of the Act and dissented from the view taken by the Karnataka High Court in Kwality Biscuits Ltd.'s case [2000] 243 ITR 519. Even though it is brought to our notice that the decision of the Apex Court in CIT v. Kwality Biscuits Ltd. [2006] 284 ITR 434, confirming the decision of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519, we find that the Apex Court has only dismissed the appeal. It is a settled law that dismissal simpliciter would not be a declaration of the law and it would not be a binding precedent (vide: Saurashtra Oil Mills Association v. State of Gujarat [2002] 3 SCC 202; AIR 2002 SC 1130). As we have already observed, the Division Benches of different High Courts, viz., the Madras High Court, the Bombay High Court and the Punjab and Haryana High Court considered the judgment of the Karnataka High Court in Kwality Biscuits Ltd.'s case [2000] 243 ITR 519 and dissented from the view taken by the Karnataka High Court. Therefore, agreeing with the view expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done at the end of the financial year, and the provisions of sections 207, 208, 209 and 210 cannot be made applicable until and unless the accounts are audited and the balance-sheet prepared. The department preferred appeals to the Hon'ble Supreme Court and the Hon'ble Supreme Court dismissed the appeals. 6. Since the decision of the Karnataka High Court has been approved by the Hon'ble Supreme Court, we decide this question in favour of the assessee and against the revenue. We are of the view that the Tribunal has correctly decided the issue and held that interest under sections 234B and 234C is not chargeable when income is computed under section 115J of the Act. 7. This appeal is accordingly dismissed." 26.1 Ld. AR further pointed out that the observations of Hon'ble Madras High Court in their order in the case of Geetha Ramakrishna Mills (P.) Ltd., that the judgment of the Hon'ble Supreme Court reported in Kwality Biscuits Ltd.'s case is not speaking and would not be binding precedent is fallacious argument. It was not mere dismissal of SLP, but this was a case of dismissal of civil appeal, wherein the decision of the Hon'ble Karnataka High Court has been affirmed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the said decision, the ld. AR argued that the decision of the Hon'ble Supreme Court in Kwality Biscuits Ltd.'s case, is binding and no interest could be changed under section 234C of the Act. 26.2 Continuing, the ld. AR further argued that since determination of book profits in terms of provisions of section 115JA of the Act is fictional, interest on the said fictional income cannot be levied. On the other hand, the ld. DR contended that in that case no interest can be levied on the income assessed in terms of provision of sections 68, 69 and 2(22)(e) of the Act and therefore, the logic of the ld. AR cannot be accepted. 26.3 The ld. AR further relied upon the decisions of the ITAT Delhi Bench 'E' in the case of Amtek Auto Ltd. v. Addl. CIT [2008] 19 SOT 625 and ITAT Ahmedabad Bench in ITA Nos. 141 and 142/Ahd./2002, dated 3-8-2006 and while inviting our attention to decision of the Hon'ble Madras Court in the case of Geetha Ramakrishna Mills (P.) Ltd., argued that the decision relied upon by the Hon'ble High Court in the case of Saurashtra Oil Mills Association v. State of Gujarat AIR 2002 SC 1130 was not a decision in civil appeal, but in SLP. Though ld. AR sough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant previous year. Explanation.-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year pre-paied under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by,- (i) the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that sections; (ix) the amount of profits eligible for deduction under section 80HHE, computed under sub-section (3) of that section. (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A. (4) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section." 28. Relevant provisions relating to advance tax read as under:- "207. Liability for payment of advance tax.-Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable." 29. As is evident from the aforesaid provisions of sections 207 to 209 of the Act, every assessee has to pay advance tax on his 'current income' if liability for such tax exceeds Rs. 5,000 'Current income' has to be determined in accordance with provisions of section 209 of the Act. The provisions of section 209(1) of the Act stipulate that the assessee shall estimate his current income for the relevant financial year. In terms of provisions of section 209(2) of the Act, such current income can be last assessed income or returned income, whichever is higher. In terms of these provisions, for determining liability on account of advance tax, first step is that current income has to be estimated. Section 209 deals with the computation of advance tax based on rates in force for the financial year, as contained in the Finance Act. The provisions of sections 207 to 209 contemplate estimation of current income and on the basis of such estimation, the assessee is required to pay advance tax. There is nothing in these provisions that advance tax is not payable on the current income if the current income is computed under section 115JA or any other provision of the Act. That means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of civil obligations. These provisions have been introduced to eliminate the subjective discretion of the tax authorities, ensuring uniform treatment to similarly situated persons. The provisions are mandatory and the levy thereunder is automatic, the moment it is proved that a default has been committed within the comprehension of any one of the provisions in question. In Anjum M.H. Ghaswala's case, the nature of these provisions was examined by the Apex Court and it was held that interest leviable under sections 234A, 234B and 234C of the Act was mandatory in nature. At page 13, the Apex Court has observed as under:- "Sections 234A, 234B and 234C in clear terms impose a mandate to collect interest at the rates stipulated therein. The expression 'shall' used in the said section cannot by any stretch of imagination be construed as 'may'. There are sufficient indications in the scheme of the Act to show that the expression 'shall' used in sections 234A, 234B and 234C is used by the Legislature deliberately and it has not left any scope for interpreting the said expression as 'may'. This is clear from the fact that prior to the Amendment brought about by the Finance Act, 1987, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Supreme Court in Kwality Biscuits Ltd.'s case. Hon'ble Supreme Court held in their decision that- "The appeals are dismissed." 35. Earlier, the Hon'ble Karnataka High Court in the aforesaid decision while accepting the claim of the assessee, observed:- "Under section 115J, where the total income of the company is less than 30 per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to 30 per cent of such book profit. It is thus, by way of deeming fiction that this income has been considered to be deemed income. The profit and loss account has to be prepared in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act. In the Explanation under section 115J(1A), it is provided that for the purposes of this Section book profit means the net profit as shown in the Profit Loss Account for the relevant previous year prepared under sub-section (1A) as increased by various amounts given in the section. Thus, for the purpose of assessing tax under section 115J, firstly, the profit as computed under the Incop1e-tax Act has to be prepared, and thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly made applicable. 37. However, the Hon'ble Gauhati, Madras, Madhya Pradesh and Mumbai High Courts which took a view that even in cases covered by section 115J of the Act, the assessee's are liable to pay advance-tax. In the case of Assam Bengal Carriers Ltd. v. CIT [1999] 239 ITR 862, the Hon'ble Gauhati High Court observed as under:- "Section 207 of the Act envisions that tax shall be payable in advance, during any financial year on current income in accordance with the scheme provided in sections 208 to 219 (both inclusive) in respect of the total income of the assessee that would be chargeable to tax for the assessment year immediately following that financial year. Section 215(5) of the Act spelled out what is the 'assessed tax', i.e., the tax determined on the basis of the regular assessment so far as such tax relates to income subject to advance tax. The evaluation of the current income as well as the determination of the assessed income accordingly, are to be made in terms of the statutory scheme comprising section 115J of the Act. Under the setting of the statute, the levy of interest is inescapable. The scheme of the statute as referred to above, unerringly points o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e added to arrive at the book profit. There is no doubt that the entire exercise under section 115J of the Act is required to be made and can be made only on the basis of the net profit arrived at on the basis of the profit and loss account. However, the question remains whether it is not possible for the assessee to estimate the profit of the current year. It is axiomatic that all assessees who are chargeable to income-tax are required to estimate current income and nay advance tax on the current income. The companies have all along been estimating current income prior to the insertion of section 115J of the Act and paying the advance tax on the current income. It is significant that the company assessees have been estimating the total income after providing for the deductions admissible under the Income-tax Act. The shift now is that a company has to estimate its profit and pay advance tax on the basis of the estimate of the profits of the company. We are of the view, it cannot be regarded that it would be an impossible exercise or an insurmountable difficulty for the company assessees to estimate the profits of the company during the current year itself and there would be no dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k a contrary view. On a perusal of decision of Hon'ble Karnataka High Court in Kwality Biscuits Ltd.'s case, Hon'ble High Court, inter alia, held that when a deeming fiction is brought under the statute, it is to be carried to its logical conclusion, but without creating further deeming fiction, so as to include other provisions of the Act which are not specifically made applicable. In the case under consideration, the provisions of section 115JA specifically stipulate in sub-section (4) that all other provisions of the Act shall apply. Thus, even in terms of the aforesaid decision of the Hon'ble Karnataka High Court, interest under sections 234B and 234C of the Act is leviable, since now the deeming provisions itself stipulate applicability of provisions of sections 234B and 234C of the Act. With due respect there is nothing to suggest in the decision in the case of Kwality Biscuits Ltd. as to whether the Hon'ble High Court or Supreme Court considered that the interest under sections 234B and 234C of the Act is mandatory Hon'ble Karnataka High Court itself in their earlier decision in the case of Union Home Products Ltd. held that the levy of interest under sections i34B and 234C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (4) of section 115JA specifically stipulate applicability of all other provisions of the Act. Thus, the said decision in a way supports the case of revenue in the case under consideration. As is apparent, the aforesaid decision in the case of Kwality Biscuits Ltd. and Associated Crown Closures (P.) Ltd. were not rendered in the context of provisions of section 115JA of the Act nor the relevant decisions of Hon'ble Apex Court, holding levy of interest under sections 234A, 234B and 234C of the Act mandatory, were brought to the notice of their Lordships. In this context Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 observed:- "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other provisions of Act including the provisions relating to payment of advance tax are applicable even when the income is computed under section 115JA of the Act. Section 115JA has a specific provision in the shape of sub-section (4) which reads as under:- "Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company, mentioned in this section." It is well-settled that all words of a statute are to be given effect, and the Legislature is presumed not to use words that are superfluous or redundant. It is also in consonance with the principle of harmoniously interpreting to make the statute workable and giving a meaning to all the provisions of the statute without making anyone of them redundant. If the interpretation as sought by ld. AR on behalf of the taxpayer is applied that would make provisions of sub-section (4) of section 115JA otiose and redundant. It is not permissible to adopt a construction which would render any expression superfluous or redundant. Therefore, the argument of the ld. AR that interest under section 234C of the Act cannot be levied on deemed book profits is not tenable since the deeming pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engg. Co. Ltd. [2005] 279 ITR 123, in the context of levy of interest under sections 234B and 234C of the Act while determining income in terms of provisions of section 115JA of the Act, held- "We fully concur with the view expressed in the aforesaid judgments. The Madras High Court has correctly pointed out that for the purpose of payment of advance tax, all assessees including companies, are required to make an estimate of their current income. Even before the introduction of the provisions of section 115J of the Act, companies had been estimating their total income after providing deductions admissible under the Act. In fact, all assessees who maintain books of account have to undertake this exercise for the purpose of payment of advance tax. If a profit and loss account can be drawn up on estimate basis for the purpose of the Income-tax Act, it is not understood as to why a similar profit and loss account on estimate basis under the Companies Act cannot be drawn up. It the explanation of the companies that the profits under section 115J of the Act can only be determined after the close of the year were to be accepted, then no assessee who maintains regular books of account wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the submissions of the taxpayer, the Assessing Officer reduced 90 per cent of the aforesaid gross amount of interest while working out book profits in terms of provision of section 115JA of the Act. 51. On appeal, the taxpayer contended before the ld. CIT(A) that the Assessing Officer was not justified in reducing the book profits by the interest received of Rs. 22.94 crores. Even if interest income has to be excluded, it is net interest and not the gross interest which should be deducted from the profit to be deducted under section 115JA of the Act. In this connection, the ld. AR relied upon the following decisions:- (i) Order of CIT(A)-V, Ahmedabad dated 4-9-1998 in the case of Jindal Worldwide Ltd. For assessment year 1995-96 in appeal No. CIT(A)-V/DC.SR.2/49/97-98 wherein following Supreme Court decisions have been relied upon:- (a) Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 (SC). (b) Keshavji Ravji Co. v. CIT [1990] 183 ITR 1 (SC). (ii) ITAT Ahmedabad Bench decision in the case of Hindustan Fashion Ltd v. Asstt. CIT [1999] 104 Taxman 262 (Mag.). (iii) ITAT Mumbai Bench decision in the case of Kantilal Chhotalal v. Dy. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocess of statutory profit, which has already been overwhelmed by sections 115J, 115JA and 115JB. This reconciles the alleged incompatibility pointed out by the revenue that the deduction available to an assessee under Chapter VI-A is subject to section 80AB. Therefore, we find that the deduction under section 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted book profit and not on the basis of the profit computed under the regular provisions of law applicable to the computation of profit and gains of business or profession." 55. Regarding netting off, the aforesaid decisions relied upon by ld. DR were considered in the case of Shri Ram Honda Power Equipment and were dissented from The Hon'ble Delhi High Court, while approving the decision in case of Lalsons Enterprises concluded as under:- "(i) In computing what the profits derived from exports for the purposes of section 80HHC(1) read with section 80HHC(3) are, the nexus test has to be applied to exclude that which does not partake of profits that can be said to have been derived from the business of exports. (ii) In the specific context of clause (baa) of the Explanation to section 80HHC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment of the assessee situate outside India. (viii) The word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross interest". Therefore, in deducting such interest, the Assessing Officer will take into account the net interest i.e., gross interest as reduced by expenditure incurred for earning such interest. The decision of the Special Bench of the Income-tax Appellate Tribunal in Lalsons [2004] 89 ITD 25 (Delhi) to this effect is affirmed. In holding as above, we differ from the judgments of the Punjab and Haryana High Court in Rani Paliwal [2004] 268 ITR 220 and the Madras High Court in Chinnapandi [2006] 282 ITR 389 and affirm the ruling of the Special Bench, of the Income-tax Appellate Tribunal in Lalsons [2004] 89 ITD 25 (Delhi). (ix) Where, as a result of the computation of profits and gains of business and profession, the Assessing Officer treats the interest receipt as business income, then deduction should be permissible, in terms of Explanation (baa) of the net interest, i.e., the gross interest less the expenditure incurred for the purposes of earning such interest. The nexus between obtaining the loan and paying interest there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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