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TMI Blog2010 (12) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner of Income-tax (Appeals) and the Revenue is aggrieved by the relief granted by the Commissioner of Income-tax (Appeals). Therefore, these cross appeals before us. 3. First we will consider the appeal of the assessee filed for the assessment year 2000-01 in I.T.A.No.697/Mds/2009:- 3.(i) The first issue raised by the assessee in this appeal is against the inclusion of scrap sales in the total turnover of the assessee-company for the purpose of computing the deduction claimed under sec.80HHC of the Act. The Hon'ble Supreme Court in the case of CIT v. K. Ravindranathan Nair (295 ITR 228) had considered the issue of various segments to be considered while computing the export turnover and total turnover in the context of deduction provided under sec.80HHC to the exporters. The Court has held that scrap sales and labour charges have no nexus with the export business carried on by an assessee and therefore, those receipts could not form part of the business profits. Relying on the above judgment of the Hon'ble Supreme Court, the Chennai Tribunal has held in assessee's own case for the assessment year 2003-04 that scrap sales and labour charges have to be inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is rejected. 4.(iii) The second ground raised by the Revenue is against the order of Commissioner of Income-tax (Appeals) granting 100% depreciation on civil works connected with reverse osmosis plant and ceiling and partition works. This issue also was considered by the Chennai Bench in the case of the assessee for the assessment year 2003-04 as referred in the above paragraph and has held that the assessee was entitled for 100% depreciation on these items. 4.(iv) The reverse osmosis plant erected by the assessee-company is for the purpose of treating effluents discharged by the assessee-company in its manufacturing process. The process of effluent treatment has different stages of facilities. There has to be equalisation process wherein effluent are collected in the tank to make concentration of the liquid uniform to feed into the reaction tank. Once it is fed so, the reaction tank converts the impurities into solid state. This is achieved through precipitation process. Thereafter precipitates need to be physically separated through coagulation and clarification to get clear water. Thereafter, the solid precipitates are thickened further for pressing in fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the said Indonesian project by deploying assessee's staff, obtaining the aid of external agencies and providing in-house and outside consultancy services. 5.(iii) The expenditure incurred by the assessee-company for the above purposes related to the previous years 2004-05, 2005-06 and 2006-07. The assessee accounted these expenditure under the head "expenditure pending allocation". While the Indonesian project was in progress, the expenses were debited in the above account of the assessee-company, ultimately, for the purpose of transferring the same to the Indonesian company once the project was completed and put on stream. 5.(iv) The assessee incurred the above expenditure for the said three previous year period as follows:- "(i) financial year 2004-05 Rs. 5,00,31,849/- (ii) financial year 2005-06 Rs. 16,14,13,328/- (iii) financial year 2006-07 Rs. 15,73,34,099/- Total Rs. 36,87,79,276/-" 5.(v) As against the above expenditure incurred by the assessee-company for the period relevant to the assessment years 2005-06, 2006-07 and 2007-08, a debit note was raised against the Indonesian subsidiary in the previous year 2006-07 relevant to the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax (Appeals). When the assessee-company was incurring the expenditure towards its Indonesian project, the real character of the spending was not decided by the assessee-company. That is why the amounts were debited and kept under the head "expenditure pending allocation". This accounting treatment given by the assessee-company can be justified for the reason that the real character could be decided only when the assessee-company was able to recover the amounts from its Indonesian subsidiary. Once the recovery was made not only in full but even to a mark up extent, the assessee-company ultimately decided to declare its nature as expenditure and correspondingly offered the amounts recovered from the Indonesian company as income. 5.(ix) We do not find any accounting or legal infirmity in the claim of deduction made by the assessee-company in the above background. When the assessee has offered the entire amount recovered from its Indonesian subsidiary as income for the assessment year 2007-08, nothing can prevent the assessee from claiming the corresponding expenditure as deduction in computing its taxable income. The assessee's claim is in accordance with the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings, the assessing authority has disallowed 2% of the expenditure as pertaining to earning of dividend income. Even though this disallowance was raised before the Commissioner of Income-tax (Appeals) in first appeal, the issue was not pressed before him. But the Commissioner of Income-tax (Appeals) found that the disallowance of 2% made by the assessing authority was not correct in view of the Rule 8D introduced subsequently. The Commissioner of Income-tax (Appeals) held that the disallowance should be made in accordance with Rule 8D. Accordingly, he directed the Assessing Officer to enhance the quantum of disallowance. The Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. DCIT (234 ITR 1) has held that the operation of Rule 8D is only prospective and not retrospective. In view of that judgment, Rule 8D does not apply to the impugned assessment year 2005-06. I.T.A.T., Mumbai Bench 'G' in the case of M/s. Godraj Agrovet Ltd. v. ACIT has held that Rule is prospective in nature and therefore, cannot be applied in respect of earlier assessment years. In view of the above, we vacate the direction of the Commissioner of Income-tax (Appeals) and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 8.(iii) The question raised before the Hon'ble Special Bench was as follows:- "Whether in the facts and circumstances of the case, the remission of deferred sales tax liability is chargeable to tax as business income of the assessee u/s.41(1) being remission of trading liability or the same is exempt from tax as capital receipt being remission of loan liability." 8.(iv) On going through the facts of the case narrated by the Special Bench in the case of Sulzer India Ltd. v. Jt. CIT 6 ITR (Trib) 604 (Mumbai), we find that the facts of the present case are also exactly similar. The Revenue has placed heavy reliance before the Special Bench on the decision of the Hon'ble Bombay High Court in the case of Solid Containers Ltd. v. Dy. CIT (178 Taxman 192) and the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-tax v. T.V. Sundaram Iyengar and Sons Ltd. (222 ITR 344). The Special Bench observed that the Hon'ble Supreme Court in the case of T.V.Sundaram Iyengar and Sons Ltd. (222 ITR 344) was examining the nature of certain unpaid deposits available in the hands of the assessee. In that case certain deposits were received from regular custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r convertible into money or not, arising from business or the exercise of a profession, as profits and gains of business or profession. Therefore, what is to be examined is whether the waiver of loan would amount to a perquisite so as to be taxable, as such, under section 28. The Bombay High Court in the case of Mahindra and Mahindra Ltd. v. Commissioner of Income-tax [2003] 261 ITR 501/128 Taxman 394, has explained that section 28(iv) seeks to charge the value of any benefit or perquisite, meaning thereby that the benefit must be in kind; the Court further held that waiver of loan is in respect of money transaction and, therefore, would not be in nature of any benefit or perquisite as construed in section 28(iv)." 8.(viii) In view of the above finding of the Special Bench in the case of Sulzer India Ltd., we hold that the remission of sales deferral payments would not be in the nature of income either under sec.41(1) or under sec.28(iv). 8.(ix) Therefore, we uphold the order of the Commissioner of Income-tax (Appeals) on this point. This issue is decided against the Revenue. 9. The next issue raised by the Revenue is against the decision of the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments do not contain wholly or partly any taxable income, no deduction of tax at source is called for. 9.(viii) This issue has been recently settled by the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. CIT (327 ITR 456). The Court examined the expression "chargeable under the provisions of the Act". The Court held that the expression "chargeable under the provisions of the Act" in sec.195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. If the tax is not so assessable, there is no question of tax at source being deducted. The Hon'ble Supreme Court has explained the ratio of its earlier decision in the case of Transmission Corporation of A.P. Ltd. v. Commissioner of Income-tax (239 ITR 587) that the said decision does not impose a blanket responsibility to approach the Assessing Officer under sec.195(2) in respect of every payments remitted outside India without examining the character of the payments. The Court in its earlier decision what was held is that the Assessing Officer has to be approached under sec.195(2), to decide the correct amount of deduction where tax is ded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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