TMI Blog2011 (3) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... nd even the formula for collecting the net present value was also given by the SICOM and the amounts had been paid as per that formula - Therefore, such payment of net present value of a future liability could not be classified as remission or cessation of the liability so as to attract the provisions of section 41(1)(a) Assessing Officer noticed that the assessee has received dividend income of Rs 87,57,108 but has not offered any expenses for disallowance under section 14 A - The contention of the assessee was that no direct expenses have been incurred to earn this dividend income, but this contention was rejected - Held that: disallowance restricted to 2%, as has been done by the coordinate benches in group cases Regarding deduction u/s 80HHC - C.B.D.T. Circular No. 772 dated 23-12-1998 - To illustrate, if Rs. 100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80, then, in view of section 80-IA(9), the deduction under section 80HHC would be restricted to Rs. 70, so that the aggregate deduction does not exceed the profits of the business - Appeal is all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike part remission of the deferred sales tax liability is not taxable as a profit of the business, it can be taxed as gains of business. It is then pointed out that the circular relied upon by the Special Bench was in the context of Section 43B and it cannot be construed to be of application in all the matters relating to the Income Tax Act. It is also pointed out that sales tax authorities are not in the business of granting loans and the nature of concession received from the sales tax authorities cannot be treated as a simplictor lender borrower transaction. Our attention is then invited to the accounting treatment extended to the sales tax deferral transactions, which, according to the learned Departmental Representative, shows that a taxable benefit did accrue to the assessee. Learned counsel for the assessee, on the other hand, takes us through the order of the Special Bench, demonstrates similarity of material facts between Sulzer's case and assessee's case, and points out that all the arguments which are now advanced before us have already been dealt with by the Special Bench. Learned Departmental Representative may not be happy with the conclusions arrived at by the Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t make any distinction between any contractual trading liability or any statutory trading liability. Even if any statutory liability is remitted or ceased of, or any amount, whether in cash or in any other manner, has been obtained in respect of the expenditure incurred by way of statutory liability, the same would be deemed to be the profit and gain of the business of the assessee and would, accordingly, be chargeable to income-tax as the income of that year in which such benefit or amount is obtained. [Para 71] On the plain reading of the above provisions of section 38(1), (2), (3), (4), of the Bombay Sales Tax Act, 1959, it provides the manner as to how the payment of tax, penalty and interest, as prescribed, may be made. The first proviso states that the Commissioner may, in respect of any particular dealer or person for the reason to be recorded in writing, extend the date of payment or allow him to pay such an amount by instalments without prejudice to the levy of penalty, interest or both. The second proviso provides that the Commissioner may, in respect of a dealer to whom an eligibility certificate has been granted, extend the date of payments or grant a moratorium for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of NPV. For example, the payment of BST Rs. 27,903 and CST Rs. 70,171 due on 1-5- 2003 was deposited on 30-12-2002, i.e., four months before the due date, the discounted percentage of deferred tax to be paid as NPV was prescribed in the said table at 96.4955 per cent and, accordingly, the NPV amount of BST and CST was worked out at Rs. 26,925 and Rs. 67,712, respectively, as per certificate dated 27-12-2002 and the same was paid on 30-12-2002 as per the certificate dated 25-8-2003. This amount was paid by the assessee as per offer made by the State Government who appointed the State Industrial and Investment Corporation of Maharashtra Limited (SICOM) for settlement of the deferred sales tax liability by an immediate one-time payment. Accordingly, the assessee had paid an amount of Rs. 337.13 lakhs to SICOM, which according to the assessee represented the NPV as determined by SICOM. The payment was made to SICOM on 30-12-2002 as per certificates dated 25-8-2003. The revenue had placed no material on record to show that the net present value (NPV) of a future sum was not the same or in the process of calculation of present value of a future sum there was any conversion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides that where an entitlement certificate has been granted to the eligible unit for availing of the incentives by way of deferment of sales tax, etc., such eligible unit may, in respect of the periods during which the said certificate is valid, at its option, prematurely pay in place of the amount of tax deferred by it an amount equal to the net present value of the deferred tax as may be prescribed and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid. In the instant case the assessee had opted for the offer of SICOM, an implementing agency of the State Government and repaid an amount of Rs. 337.13 lakhs to SICOM which according to the assessee represented the NPV of the future sum as determined and prescribed by SICOM. The said payment was made to SICOM on 30-12-2002 as per certificates dated 25-8-2003. It has already been demonstrated that NPV is equivalent to future value of the sum. In other words, what the assessee was required to repay after 12 years in six annual/equal instalments, the same was repaid by the assessee, in the public interest, as NPV is equivalent to the Future Value of the sum. Further, there was no iota of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscounted value or what one may call net present value immediately. Thus, in this situation, it could not be construed as remission of liability, because the State Government had not waived of any of the liability as given in the illustrations. Had the State Government accepted lesser amount after twelve years or reduced such instalments, then it could have been a case of remission or cessation. However, in the instant case the State Government had chosen to receive the money immediately which was receivable from 1-5-2003 to 1-5-2008. The amount of Rs. 337.13 lakhs was actually paid to SICOM on 30-12-2002. Thus, the amount which was payable from 1-5-2003 to 1-5-2008, had been paid on 30-12-2002. Thus, it did not satisfy the condition of actual remission in praesenti. It was a simple case of collecting the amount at net present value which was due later on and even the formula for collecting the net present value was also given by the SICOM and the amounts had been paid as per that formula. Therefore, such payment of net present value of a future liability could not be classified as remission or cessation of the liability so as to attract the provisions of section 41(1)(a). [Para 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the following items:- a) Prepaid Sales tax b) Insurance Claim c) Penalty on bounced cheque 13. As far as gains on prepaid sales tax is concerned, learned representatives agree that in the event of ground no. 1, i.e. challenging addition of surplus arising on prepayment of deferred sales tax, is allowed, this issue will not for any adjudication and will have to be dismissed as infructuous. As ground no. 1 is already allowed earlier in this order, we dismiss ground 3(a) as infructuous. 14. As regards ground 3(b), i.e. exclusion of 90% of insurance claim received by the assessee, learned representatives agree that the issue is covered in favour of the assessee by Hon'ble Bombay High Court's judgment in the case of CIT vs Pfizer Limited (330 ITR 62), even as learned Departmental Representative dutifully relied upon the orders of the authorities below. Respectfully following the esteemed views of Hon'ble jurisdictional High Court, we uphold the grievance of the assessee and direct the Assessing Officer not to exclude the insurance claim receipts. Ground No. 3 (b) is thus allowed. 15. In ground 3(c), assessee's grievance is against exclusion of penalty on boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rments (supra) and Hindustan Mint and Agro Products (P.) Ltd. (supra), which are affirmed by the Delhi High Court in the case of Great Eastern Exports (supra). Reliance is also placed on decision of the Kerala High Court in the case of Olam Exports (India) Ltd. (supra) which supports the case of the revenue. 38. We find it difficult to subscribe to the views expressed by the Delhi High Court in interpreting the provisions of section 80-IA(9). In that case, in fact, the Counsel for the revenue had argued (see para 38 of the judgment) that section 80-IA(9) applies at the stage of allowing deduction and not at the stage of computing deduction under other provisions under heading 'C' of Chapter VI-A. It was argued that in the matter of grant of deduction, the first stage is computation of deduction and the second stage is the allowance of the deduction. Computation of deduction has to be made as provided in the respective sections and it is only at the stage of allowing deduction under section 80-IA(1) and also under other provisions under heading 'C' of Chapter VI-A, the provisions of section 80-IA(9) comes into operation. While accepting the arguments advanced by the Counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 80 HHC, in the light of law so laid down by Their Lordships. 20. Ground No. 4 is thus allowed. 21. In ground no. 5, the assessee has raised the following grievance:- The learned CIT(A) erred in confirming the disallowance of Rs 20,35,641 being write off of capital work in progress. The appellant submits that the Assessing Officer be directed to allow the same. 22. The expenses in question were incurred for developing an alternative machine for manual setting of crude setting equipment but since this project was unsuccessful and had to be abandoned, the loss on capital work in progress has arisen. This claim was made before the Assessing Officer by way of a letter but Assessing Officer did not deal with the same. In appeal, however, CIT(A) rejected the same on merits. Aggrieved, assessee is in appeal before us. 23. Having heard the rival submissions and having perused the material on record, we see no reasons to interfere in the matter for the short reason that factual elements embedded in assessee's submissions are not borne out of material on record before us. We, therefore, approve the conclusions arrived at by the CIT(A) and decline to interf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the coordinate benches in group vases. In this view of the matter, the grievance raised by the Assessing Officer is rendered infructuous and is to be dismissed as such. 32. Ground No. 2 is dismissed. 33. In ground no. 3, the Assessing Officer has raised the following grievances:- 3(a) On the facts and circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to treat the income from agency commission, service charges, scrap sales and sales tax as a part of business profit for the purpose of working out deduction under section 80 HHC. 3(b) On the facts and circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to adjust the interest receipts against interest paid and consider the net amount as other income for the purpose of working out deduction under section 80 HHC. 34. As far as ground no. 3 (b) is concerned, learned representatives agree that the issue is now covered against the assessee by Hon'ble Bombay High Court's judgment in the case of CIT vs Asian Star Co. Ltd. (326 ITR 56). Respectfully following Hon'ble Bombay High Court judgment, we vacate the relief granted by the CIT(A). Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ITA 3342/Mum/06), copies of which were placed before us. Learned Departmental Representative, however, dutifully relied upon the stand of the Assessing Officer. Consistent with the stand taken by the coordinate benches, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 40. Ground No 3 is thus partly allowed in the terms indicated above. 41. In ground no. 4, the Assessing Officer's grievance is as follows:- On the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of entrance fees paid to club at Rs 1,01,645. 42. As regards this grievance of the Assessing Officer, we have noted that what has been disallowed are the normal club expenses and not the entrance fees. Learned representatives agree that the issue is covered in favour of the assessee by Tribunal's order for 1995-96 and the relief granted by the CIT(A), on this issue, in the intervening years has not even been called into question before the Tribunal. 43. We are unable to see any particular reason for this issue being challenged in this particular year. In any event, even on merits, the matter is covered in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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