TMI Blog2012 (12) TMI 670X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by the assessee is a part of tariff charges as per agreements and, hence, it is an income in the hands of the assessee and, therefore, the said amount without allowing any deduction is liable to be included in the income of the assessee. - Decided against the assessee. Minimum alternate tax - Addition to book profit - Section 115JB - held that:- There is no dispute that under clause (i) of Explanation 1 to section 115JB of the Act there is a retrospective amendment made by Finance (2) Act, 2009 w.e.f. 1-4-2001, therefore, the book profit has to be recomputed in accordance with the above clause (i) of Explanation 1 to section 115Jb of the Act. - matter remanded back on this issue. - ITA No. 5318 & 5725/Mum/2007 - - - Dated:- 9-11-2012 - Dinesh Kumar Agarwal And N K Billaiya, JJ. Appellants Rep by: Shri Soli Dastur Neeraj Seth Respondent Rep by: Shri P.K. Shukla ORDER Per: Dinesh Kumar: These cross appeals by the assessee and the Revenue are directed against the order dtd. 22-6-2007 passed by the ld. CIT(A) V, Mumbai for the A.Y. 2003-04. Both these appeals are disposed of by this common order for the sake of convenience. 2. Briefly state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on sales tax refund. It was further submitted that even though the A.O. has treated interest income under income from other sources , the assessee has got relief from the ld. CIT(A) and hence the same view should be considered for the current assessment year also. As regards the interest on sales tax refund the assessee submitted that sales tax is a tax payable in the course of the assessee s business. The interest received on these refunds due from Sales Tax Department is received in the normal course of business, therefore, interest on sales tax should not be brought to tax under the head income from other sources . It was also submitted that the sales tax paid by the assessee was, in fact, sales tax on the lease rentals received on plant and machinery given on lease in earlier years, therefore, the interest from this refund have been earned in the normal course of assessee s business and taxable under the head business income only. However, the A.O. did not accept the assessee s submission. With regard to the interest income from M/s Essar Projects Limited, Employees loans and advances, bank/margin deposits, the A.O. in line with the stand of the department and in ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA of the Act. He, therefore, submits that the issue may be decided accordingly. 8. On the other hand, the ld. D.R. while relying on the order of the A.O. submits that in view of the decision in the case of Liberty India vs. CIT (2009) 317 ITR 218 (SC) the assessee is not entitled to the deduction u/s 80IA of the Act. 9. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute. On the question as to whether the assessee is entitled to deduction u/s 80IA of the Act on the net interest income on employees loans advances, interest on margin money and interest income on dues towards income tax refund adjustment from Essar Project Ltd., we are of the opinion that the issue involved in the present case is no more res-integra and is covered by the decision of the Hon ble Apex Court in the case of Liberty India (supra) wherein it has been held that duty drawback, DEPB benefits, rebates, etc., cannot be credited against the cost of manufacture of goods debited in the profit and loss account for purposes of section 80-IA/80-IB as such remissions (credits) would constitute independent sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s hands is concerned. Whether GEB pays this amount as a reimbursement of expenditure or by way of payment for services rendered or as a return on investment of capital, the nature of such receipt cannot be different in the hands of the assessee. Assessee is required to show all the receipts from GEB as revenue and claim deductions applicable under the IT Act. In the instant case 11.07 crores is therefore required to be included from revenue from GEB and reductions if any shall be allowed as per the Act. The said amount is therefore added to the total income. Since income tax is not a deductible expenditure no further deduction is therefore considered. The addition comes to Rs. 11.07 crores. Since Rs.11.07 crore is income of the assessee as held above, the same considered and added to the book profit for computation u/s. 115JB also . 12. On appeal, the ld. CIT(A) after considering the submission of the assessee has held as under:- 3.5 I have gone through the above submissions as well as the findings of the Assessing Officer. I find that the appellant s argument does not hold good as this reimbursement is nothing but a method of raising the sales invoices towards t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a revenue receipt and in the present case the Tribunal had found that the assessee received no sums in excess of expenses incurred. He further submits that similar view has been taken by the Hon ble jurisdictional High Court in the case of Director of Income Tax (International Taxation) vs. Krupp Udhe GmbH (2010) 38 DTR (Bom) 251 wherein it has been held that reimbursement of expenses is not chargeable to tax. He further submits that in Mahindra Mahindra Ltd. DCIT, (2009) 30 SOT 374 (Mum)[SB] it has been held that at placitum D page 403 that Reimbursement of expenses does not have the income element and, hence, cannot assume the character of income deemed to accrue or arise in India. The ld. Sr. counsel for the assessee after referring to the provisions of section 44BB of the Act submits that in the case of Director of Income Tax (International Taxation) and Another vs. Schlumberger Asia Services Ltd. (2009) 317 ITR 156 (Uttarkhand) = (2009-TII-33-HC-UKHAND-INTL) it has been held that reimbursement towards the customs duty paid by the assessee, being statutory in nature, could not form part of amount for the purposes of deemed profits, unlike the other amounts received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal at page 396 that there is a lot of difference between payment of service tax and income-tax , therefore, the decision relied on by the ld. Sr. counsel for the assessee is distinguishable and not applicable to the facts of the present case. He further submits that all other decisions relied on by the ld. Sr. counsel for the assessee are in respect of reimbursement of expenses, custom duty and service tax and are not in respect of reimbursement income tax, therefore, all the decisions relied on by the ld. Sr. counsel for the assessee are distinguishable and not applicable to the facts of the present case. He, therefore, submits that the addition made by the A.O. and confirmed by the ld. CIT(A) be upheld. 17. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the assesse has shown below the line the P L account Rs. 11.07 crores as provision for tax recoverable and has not included the said amount in the total income computed by the assessee. The case of the assessee is that the said amount reflects the income-tax payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 30-5-1996 between Gujarat Electricity Board (GEB) and Essar Power limited (assessee) that in Cl. 7.1 of the annexure IV of Schedule of the agreement appearing at page 3 to 87 at page 81 that the tariff has been determined as follows:- TARIFF The Tariff shall be determined as follows (a) Annual Fixed Charges to be determined in terms of Section 7.1.1. (b) Variable Charges to be determined in terms of Section 7.2 (c) Incentive Payment to be determined in terms of section 7.3 7.1.1.Annual Fixed Charges: Computation and payment. The Annual Fixed Charge shall be computed on the following basis: (a) Interest on Debt: .. (b) Accounting year: .. (c) Depreciation : . (d) Tax on Income: Tax on Income shall be determined in accordance with the provisions of the Income tax Act, 1961 every year as under:- Tax payable by the company .............. x Return on Equity plus Total taxable Income Incentive Payment For the purposes of determination of the Annual Fixed Charges, the Tax on Income shall be computed on an estimated basis. Any under or over recovery o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not lose its natural connotation. Indeed, it is repeatedly said that it is difficult to define the expression "income" in precise terms. Anything which can properly be described as income is taxable under the Act unless, of course, it is exempted under one or the other provisions of the Act. It is from the said angle that we have to examine whether the amount paid by Ballarpur by way of tax on the salary amount received by the assessee can be treated as the income of the assessee. It cannot be overlooked that the said amount is nothing but a tax upon the salary received by the assessee. By virtue of the obligation undertaken by Ballarpur to pay tax on the salary received by the assessee among others, it paid the said tax. The said payment is, therefore, for and on behalf of the assessee. It is not a gratuitous payment. But for the said agreement, and but for the said payment, the said tax amount would have been liable to be paid by the assessee himself. He could not have received the salary which he did but for the said payment of tax. The obligation placed upon Ballarpur by virtue of section 195 of the Income-tax Act cannot also be ignored in this context. It would be u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of reimbursement are liable to tax. To answer that issue, we may gainfully refer to the judgment of a Division Bench of the Delhi High Court in CIT v. Industrial Engineering Projects P. Ltd. [1993] 202 ITR 1014. The learned Division Bench of the Delhi High Court was pleased to hold that reimbursement of expenses can, under no circumstances, be regarded as a revenue receipt and in the present case the Tribunal had found that the assessee received no sums in excess of expenses incurred. A similar issue had also come up for consideration before the Division Bench of the Calcutta High Court in CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493 (Cal). The learned Division Bench was answering the following question : "Whether, on the facts and in the circumstances of the case, the amounts received by the assessee (English company) from M/s. Dunlop Rubber Co. (India) Ltd. (Indian company) as per agreement dated July 29, 1957, constituted income assessable to tax?" On considering the issue the learned Bench noted that the Tribunal was of the view that what was recouped by the English company was part of the expenses incurred by it. The learned court upheld the said finding. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch utilised by the subsidiaries as well as the head office organisation would not be income which would be assessable to tax. A similar view was taken in CIT v. Stewarts Lloyds of India Ltd., (supra). Consequently, in view of the judgment in Siemens, the first and second issue would not raise any substantial question of law since they are covered against the Revenue . 33 In Mahindra Mahindra Ltd. (supra) it has been observed and held at placitum D at page 403 as under:- Reimbursement of expenses does not have the income element and, hence, cannot assume the character of income deemed to accrue or arise in India . 34. In Schlumberger Asia Services Ltd. (supra) it has been held (Headnote): Held, dismissing the appeal, that reimbursement towards the customs duty paid by the assessee, being statutory in nature, could not form part of amount for the purposes of deemed profits, unlike the other amounts received towards reimbursement. Therefore, there was no reason to interfere with the orders passed by the Tribunal affirming the view taken by the Commissioner (Appeals) . 35. In Mitchell Drilling International Pty. Ltd (supra) it has been held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver. The emphasis is on the words profits derived from the exports . Therefore, weightage must be given to such profits. Such profits cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover. Therefore, the turnover should be restricted to such receipts which have an element of profit in it. It is only the actual sale price which is relevant. Anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit. Even, according to accounting principles, such levies do not form part of the profit and loss account. In fact, they are shown as liability in the balance-sheet. In the circumstances, the above two items cannot be included in the total turnover. Section 80HHC is a separate code by itself. Hence, the general definition of the word turnover or the case law dealing with the said definition under the Sales Tax Act which is a State levy, cannot be imported into section 80HHC of the Act . 40. There is no quarrel with the principle enunciated in the aforesaid decisions relied on by the ld. Sr. counsel for the assessee. However, the facts of the present case are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve additional ground has been taken by the assessee for the first time before the Tribunal. The Hon ble Madhya Pradesh High Court in the case of CIT vs. Tollaram Hassomal (2008) 298 ITR 22 (M.P.) has held as under:- Held, that the Tribunal having permitted the assessee to raise four additional grounds treating them to be legal grounds in appeal for the first time, should have set aside the order of the Commissioner of Income-tax (Appeals) and remanded the case to the Commissioner of Income-tax (Appeals) for deciding the appeal afresh on all the issues including on those four grounds raised by the assessee in the appeal before the Tribunal rather than to decide the additional grounds on the merits for the first time by itself . 45. Respectfully following the ratio of the above decision, we are of the view that, in the interest of justice, the matter should go back to the file of the A.O. and accordingly we send back the matter to the file of the A.O. to decide the same afresh in the light of the decision relied on by the ld. Sr. counsel for the assessee in the case of Emami Ltd. vs. CIT (2011) 337 ITR 470 (Cal.) and other cases after providing reasonable opportunity of bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n para 1.5 and 1.6 of his order as under:- 1.5 As an alternative claim Appellant Company has submitted that company has borrowed funds in addition to its own funds, therefore, proportionate interest paid by the company worked out based on the average cost of funds against the interest income needs to be allowed. 1.6 The above issue was dealt by my predecessors appellate Commissioner in the order referred to in earlier paragraph, wherein it has been held that proportionate interest based on the average cost of funds be allowed as deduction against the interest income earned by the appellant company. Appellant company has submitted before me the statement of average cost of funds and working of proportionate interest paid based on the aforesaid average rate. As per the said statement, average rate of interest works out to 10.19% and based on the same proportionate interest paid works out to Rs. 97,63,398/-. In line with my predecessors order, the A.O. is directed to allow the interest paid amounting to Rs. 97,63,398/- based on the average cost of funds after verification . 52. At the time of hearing, both the parties have agreed that this issue is covered in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e I.T. Act. 56. At the time of hearing, it has been agreed by the parties that the above ground has been taken prior to the amendment made by the Finance (No. 2) Act, 2009 w.r.e.f. 1-4-2001, therefore, the issue may be set aside to the file of the A.O. 57. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the parties that this issue requires a fresh consideration in view of the retrospective amendment made by Finance (No. 2) Act, 2009 w.e.f. 1-4-2001 wherein under Explanation [1] of section 115 JB it has been substituted under sub-clause (i) the amount or amounts set aside as provision for diminution in the value of any asset . In the absence of any modified ground taken by the Revenue in the light of the above amendment, we, in the interest of justice, consider it fair and reasonable that the matter should go back to the file of the A.O. and accordingly we set aside the order passed by the Revenue on this account and send back the matter to the file of the A.O. to decide the same afresh in the light of the aforesaid amended provisions of the Act and according to law after providing reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the above decision of Hon ble Supreme court. The Book Profit can be increased only under the clauses (a) to (f) of Explanation to Section 115JB. The recovery of income tax does not fall under these clauses. In view of this, I hold that tax recoverable of Rs.11.07 crores cannot be added back while computing the Book Profit u/s 115JB of the Income Tax Act. Therefore A.O. is directed to delete the above addition of Rs.11.07 crores made by him while computing the Book Profit u/s 115JB of the appellant company . 60. At the time of hearing, the ld. D.R. supports the order of the A.O. 61. On the other hand, the ld. Sr. Counsel for the assessee relied on the order of the ld. CIT(A). 62. We have carefully considered the submissions of the rival parties and perused the material available on record. There is no dispute that under clause (i) of Explanation 1 to section 115JB of the Act there is a retrospective amendment made by Finance (2) Act, 2009 w.e.f. 1-4-2001, therefore, the book profit has to be recomputed in accordance with the above clause (i) of Explanation 1 to section 115Jb of the Act. In this view of the matter and keeping in view of our finding recorded in para 58 of this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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