TMI Blog2008 (3) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... erest can be considered tax under s. 11(2)(a) of the IT Act [sic-Special Court (Trial of offences) Relating to Transactions in Securities Act, 1992]. It may be pointed out that the ld DR has not been able to show any contrary authority. Hence, following the above authorities, we hold that the learned CIT(A) was not justified in upholding the addition made by the AO in respect of payment of interest under s. 201(1A) while computing book profit under s. 115JA of the IT Act. The issue is, therefore, decided in favour of the assessee. In the result, ground is allowed. Disallowed amount received as duty drawback and profit on sale of REP license u/s 80-IA and u/s 115JA - On going through the order of the Tribunal rendered in AY 1996-97 in assessee's own case, it is found that the Tribunal has considered similar arguments and after following the decision of Hon'ble Delhi High Court in the case of Britannia Industries Ltd. [ 2005 (10) TMI 30 - SUPREME COURT] held that the assessee is not eligible for deduction in respect of duty drawback and profit on sale of REP licenses. In the case of CIT vs. Ritesh Industries Ltd.[ 2004 (9) TMI 36 - DELHI HIGH COURT] , categorica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoting its business then such expenditure is to be allowed as business expenditure. In view of the above, we uphold the claim of the assessee and allow ground No. 5. Deduction u/s 80HH/80-IA - profits derived from goods manufactured on loan license basis - manufacture of drugs and pharmaceuticals - HELD THAT:- It was pointed out by the learned counsel for the assessee that in earlier year i.e. AY 1991-92 in assessee's own case the Tribunal has confirmed the order of the learned CIT(A) in setting aside the issue and in directing the AO to consider the claim of the assessee. Both the sides agreed before us that the same course should be adopted in this assessment year also. It could not be pointed out as to what happened to the directions of the Tribunal and what is the final outcome. Since position could not be ascertained and further since neither the AO nor the learned CIT(A) have considered the relevant facts nor carried out further examination or inquiry we consider it proper to restore the matter back to the file of AO to decide the issue afresh after examining all relevant aspects and as per law, of course, after providing opportunity of being heard to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicated above and the appeal filed by the Revenue is dismissed. - P. N. PARASHAR J.M. and K. D. RANJAN A.M. Ajay Vohra, Rohit Jain, Gaurav Jain, S. C. Agarwal Virendra Sharma, for the Appellant L. M. Pandey R. L. Meena, for the Respondent. ORDER P.N. PARASHAR, J.M. : These cross-appeals, filed by the Revenue as well as by the assessee, arise out of the order of CIT(A) dt. 21st Aug., 2002, relating to the asst. yr. 1997-98. Both the appeals were heard together and are being disposed of by this order. 2. Shri Ajay Vohra, advocate along with Shri Rohit Jain, advocate, Shri Gaurav Jain, chartered accountant; Shri S.C. Agarwal, Vice President (Taxation), and Shri Virendra Sharma, Manager (Taxation), appeared on behalf of the assessee whereas Shri L.M. Pandey, CIT'Departmental Representative along with Shri R.L. Meena, Departmental Representative represented the Revenue. ITA No. 3925/Del/2002 (Assessee's appeal) : 3. Ground No. 1 : This ground is as under : That on law, facts and in the circumstances of the case, the learned CIT(A) has erred in upholding the addition of ₹ 1,06,146 made by the AO in respect of payment of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing contained in any other provisions of this Act' and therefore, supersedes rest of the provisions as can be seen from the ratio of judgments in Union of India vs. G.K. Kokil AIR 1984 SC 1022 and CIT vs. Navabharat Enterprises (P) Ltd. (1987) 63 CTR (AP) 187: (1988) 170 ITR 332(AP). (d) The TDS is deducted out of various payments made to comply with the responsibility fastened on the payer under Chapter XVII of the IT Act. The said tax is not a tax levied on the profits or gains of any business carried on by the appellant. Therefore, the TDS is not at par with the tax leviable on the appellant's income but the same is in-built in the various (sic). (e) The addition on account of the interest on TDS may therefore be kindly deleted. 3.4 However, the learned CIT(A) did not find force in the above contentions of the assessee and confirmed the addition by holding that provision contained under cl. (a) of Explanation to s. 115JA is sufficient to cover payment of interest under s. 201(1A) as such interest is part and parcel of the amount of tax paid or payable. 3.5 Before us, while challenging the findings of the learned CIT(A), the learned counsel for the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. CIT (supra) and the decision of Hon'ble Andhra Pradesh High Court in the case of Addl. CIT vs. Burugupalli China Krishnamurthy Ors. (1979) 12 CTR (AP) 250: (1980) 121 ITR 326(AP) as well as the decision of Hon'ble Delhi High Court in the case of Samtel Color Ltd. vs. Union of India Ors. (2002) 177 CTR (Del) 289 : (2002) 258 ITR 1 (Del), held as under : 13. We have heard the parties with reference to the material on record and the precedents relied upon. No adjustment is required to be made under s. 115JA in respect of any interest paid or payable debited to the P L a/c in order to compute book profit though the expense is not allowed as deduction while calculating/determining taxable income, with reference to s. 40(a)(ii) of the IT Act. The Kerala High Court in Fertilizers Chemicals Travancore Ltd. (supra) has observed that Expln. (a) of s. 115JA of the Act mentions only the amount of income-tax paid or payable. That does not include interest. Insofar as interest on income-tax is not mentioned in this section, this cannot be added under s. 115JA of the Act. It, therefore, came to the conclusion that the addition of interest on income-tax cannot be made. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislation like the IT Act are used in their technical meaning which they have acquired. The term 'income-tax' is understood in altogether a different sense from the term 'interest'. It means the income-tax which has been specified in Sch. I to the Finance Act, 1999 and, hence its meaning cannot be artificially extended to include interest. Interest on income-tax clearly falls outside the scope of the term 'income-tax' as used in Expln. (a) to sub-s. (2) of s. 115JA. Wherever the intention was to include interest, the legislature has specifically provided, as in s. 156, for inclusion of interest in the phrase 'sum payable'. No provision of law has been brought to show that the term 'income-tax' that been defined to include 'interest' within its ambit. Therefore, the scope of income-tax used in Expln. (a) to s. 115JA(2) could not be extended artificially, so as to include interest on 'income-tax' also. 3.10 It may be pointed out that the learned Departmental Representative has not been able to show any contrary authority. Hence, following the above authorities, we hold that the learned CIT(A) was not justified in upholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ctk); (ii) DLF Power Ltd. in ITA No. 1195/Del/2002; (iii) Bharat Rasayan Ltd. in ITA Nos. 4639 and 4640/Del/2002. 4.4 However, the learned counsel also fairly conceded that the issue has been decided by the Delhi Bench of the Tribunal against the assessee for asst. yr. 1996-97 but he submitted that this decision does not lay down the correct law. It was pointed out by him that the Tribunal has referred to sub-s. (3) to s. 80-IA whereas it should be sub-s. (5) of s. 80-IA. It was also pointed out by him that while deciding the issue the Tribunal has failed to appreciate that the allowance of deduction is regulated/governed by sub-s. (1) of s. 80-IA of the Act and sub-s. (5) is only a machinery provision to effectuate the allowance granted in sub-s. (1) of s. 80-IA of the Act. 4.5 The learned Departmental Representative on the other hand supported the order of the learned CIT(A). 4.6 On going through the order of the Tribunal dt. 15th Feb., 2007, rendered in ITA No. 1802/Del/2005 (asst. yr. 1996-97) in assessee's own case, it is found that the Tribunal has considered similar arguments and after following the decision of Hon'ble Delhi High Court in the case of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions, the issue has to be decided against the assessee. Ground Nos. A2 and B3 are therefore rejected. 5. Ground No. 4 : This ground is as under : That on law, facts and in the circumstances of the case, the learned CIT(A) has erred in restricting the disallowance at ₹ 13,20,116 incurred on rent, maintenance and depreciation relating to the guest house. 5.1 It may be pointed out that identical ground was raised by the assessee in asst. yr. 1996-97 and the Tribunal has decided this ground against the assessee. On going through paras 3 and 4 of the order of the Tribunal dt. 15th Feb., 2007, a copy of which has been filed in the paper book and which is available at pp. 1 to 11 of the paper book, it is found that the issue has been decided against the assessee. The relevant portion of the finding of the Tribunal is as under : 4. After considering the rival submissions, we hold that even the expenses in relation to rent, repairs and maintenance and depreciation in respect of guest house is disallowable in view of the decision of the Hon'ble Supreme Court in the case of Britannia Industries Ltd. vs. CIT (2005) 198 CTR (SC) 313: (2005) 278 ITR 546(SC). Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenditure incurred by the appellant under Rural Development Programme was allowed by Hon'ble Tribunal in company's appeal and the Departmental Representative were also rejected by Tribunal. (e) The Hon'ble CIT(A) in company's Appeal No. 337 of 1997-98 for the asst. yr. 1995-96 has allowed the grounds of appeal relating to contribution to RSF/RCHCS in favour of the appellant vide p. 12, para 18 of the order. Reliance is placed on the following decisions : (i) IAC vs. Nuchem Plastics Ltd. (1989) 35 TTJ (Del) 559; (ii) Delhi Cloth General Mills Company Ltd. vs. ITO (IT No. 5289/ Del/1974-75); (iii) Naskarpara Jute Mills Co. Ltd. vs. CIT Ref. No. 237 of 1969 (Calcutta High Court) dt. 12th Feb., 1974; (iv) CIT vs. Kamal Co. (1993) 113 CTR (Raj) 353 : (1993) 203 ITR 1038 (Raj); (v) Addl. CIT vs. Delhi Cloth General Mills Co. Ltd. (1983) 144 ITR 275(Del). 6.3 However, the learned CIT(A) did not find any force in these submissions and rejected the same by observing as under : I have carefully considered the submissions of the appellant. However, it is noted that the contribution to RSF and RCHCS cannot be covered under s. 35/37 of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services in urban and rural areas. It was claimed that society as well as the foundation were promoted and supported by the assessee and in all major activities carried out by these organizations, the name of the assessee i.e. 'Ranbaxy' was always prominently displayed which resulted in earning of the goodwill and publicity. According to the learned counsel, the activities which were carried out by these two institutions helped the assessee not only promoting its goodwill and publicity but also its business interest and therefore the expenditure was allowable as revenue expenditure under s. 37 of the IT Act. 6.6 The learned counsel also submitted that similar kind of expenditure made under a rural development programme was allowed by the Tribunal in assessee's own case for asst. yrs. 1991-92 to 1995-96. It was contended that in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT (1997) 137 CTR (SC) 267: (1997) 223 ITR 101(SC), the Hon'ble apex Court has held that any contribution made to a public welfare fund which is directly connected or related with the carrying on of assessee's business or which results in benefit to the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in May, 1994. The list of governing council of Ranbaxy Science Foundation contains various names. The name of Dr. Parvinder Singh, chairman and managing director, Ranbaxy Laboratories Ltd., New Delhi figures on top in the list of members. The memorandum of association of Ranbaxy Community Healthcare Society, available at pp. 86 to 93 of the paper book, lays down the objects of the society. The main objects are to provide primary comprehensive health care and to initiate and provide necessary assistance to any programme for rural development. One of the objects of the society is to establish community-based scientific research for control of various endemic diseases. The another object is to organize, convene, conduct, hold and participate in conferences, seminars, workshops and exhibitions, etc. On going through the material placed in the paper book and on examining various activities carried out by the society and the foundation, it is found that these activities are closely linked with the business activities of the assessee company. It appears that the assessee company is the main source behind these two institutions, which have been created for promotion of its own busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ana Rice Mill Contractors Co. vs. CIT (supra), the assessee claimed deduction of the amount paid by it to Andhra Pradesh Welfare Fund as a business expenditure under s. 37(1) of the IT Act. The case of the assessee was that it was carrying on business of exporting rice from the State of Andhra Pradesh and for this purpose, a permit was granted by the Collector who gave permits only if payment was made to a welfare fund. The ITO disallowed the deduction by holding that the payment was neither mandatory nor statutory, but was only discretionary. The CIT(A) also disallowed the claim of the assessee. The Special Bench of the Tribunal came to the conclusion that though there was no compulsion on the assessee to make contribution but still the contribution was made in pursuance of a scheme which was evolved by the Rice Millers' Association in consultation with the District Collector and therefore the deduction was allowable under s. 37(1) of the Act. The Tribunal also held that such contribution could not be held to be opposed to public policy. The Department filed reference application under s. 256. The Hon'ble High Court answered the questions referred in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Any expenditure laid out or expended for their benefit, if it satisfied the other requirements, must be allowed as a deduction under s. 37(1) of the Act. The fact that somebody other than the assessee was also benefited or incidentally took advantage of the provision made, should not come in the way of the expenditure being allowed as a deduction under s. 37(1) of the Act. Nevertheless, it is an expenditure allowable as deduction under the Act. (ii) That the word 'expenditure' primarily denoted the idea of spending or paying out or away. It was something which was gone irretrievably, but should not be in respect of an unascertained liability of the future. It must be an actual liability in praesenti, as opposed to a contingent liability of the future. (iii) That the reasons given by the Tribunal for rejecting the claim of the assessee were not sound. Moreover, since the Tribunal had not recorded a finding as to whether the donation made by the assessee to the trust could be considered as 'expenditure', the matter had to be remanded to the Tribunal for decision afresh in the light of the observations contained in the judgment. 6.12 In the case of Mahind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to incur such obligation. On second appeal, by making reference to various authorities including the decision of Hon'ble Karnataka High Court in the case of Mysore Kirloskar Ltd. vs. CIT (supra), the Tribunal upheld the claim of the assessee. We consider it proper to reproduce the relevant findings of the Tribunal which are as under : It had been held by the Karnataka High Court in the case of Mysore Kirloskar Ltd. vs. CIT (1987) 61 CTR (Kar) 265: (1987) 166 ITR 836(Kar) : (1987) 30 Taxman 467(Kar), that while the basic requirements for invoking ss. 37(1) and 80G are quite different, but nonetheless the two sections are not mutually exclusive. Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts, though in the nature of donations, and nonetheless, these amounts may be deductible under s. 37(1) as well. Therefore, merely because the expenditure in question was in the nature of donation, or, as per the words of the CIT(A), 'prompted by altruistic motives', it did not cease to be an expenditure deductible under s. 37(1). In the case of Mysore Ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed as business expenditure. In view of the above, we uphold the claim of the assessee and allow ground No. 5. 7. Ground No. 6 : This ground is as under : That on law, facts and in the circumstances of the case, the learned CIT(A) has erred in rejecting the claim for deduction under s. 80HH/80-IA on the profits derived from goods manufactured on loan license basis. 7.1 The assessee company, which is mainly engaged in the manufacture of drugs and pharmaceuticals was also getting the job done on loan license basis. However, the manufacturing of goods on loan license basis was carried out under the assessee's control and supervision, whereas the assessee company supplied all relevant material including packaging, consumables,etc. to the loan licensees which were further processed by the loan licensees and finally goods were manufactured in the name of the assessee. The company claimed deduction under s. 80-I on goods manufactured on loan license basis. The AO rejected the claim of the assessee. In appeal, the learned CIT(A) also rejected the claim on the ground that it has not been quantified by the assessee. 7.2 At the time of hearing, it was pointed out by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her pointed out that the issue stands covered in favour of the assessee by the decision of the Tribunal for asst. yr. 1996-97. 8.4 On the other hand, the learned Departmental Representative supported the order of the learned CIT(A). 8.5 We have gone through the order of the Tribunal dt. 15th Feb., 2007 rendered in ITA No. 1802/Del/2005 in assessee's own case for asst. yr. 1996-97, wherein after considering various authorities it has been held that sale of scrap is not to be included in total turnover for the purposes of computing deduction under s. 80HHC. The learned Departmental Representative has not been able to point out any decision of jurisdictional High Court in favour of the Revenue. As the issue stands covered in favour of the assessee by the earlier decisions of the Tribunal in the case of the assessee itself, respectfully following the same, we uphold the claim of the assessee and allow the ground in assessee's favour. Ground is allowed. 9. In the result, assessee's appeal stands partly allowed as indicated above. ITA No. 4251/Del/2002 (Revenue's appeal) : 10. Ground No. 1 : This ground is as under : On the facts and in the circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a banking company was permitted to claim an ad hoc deduction @ 5 per cent of its debts as provision for bad debts under s. 36(1)(viia) irrespective of the actual amount of doubtful debts. (f) Appellant's accounts were scrutinized and certified by the statutory auditors, approved by sharesholders in AGM and accepted by RoC and other Government authorities and no objection whatsoever was raised in regard to preparation thereof in accordance with Parts II and III of Sch. VI to the Companies Act, 1956. (g) It is respectfully submitted that the learned AO has only the power of examining whether the accounts are certified by the authorities under the Companies Act and having been maintained in accordance with the Companies Act. The AO thereafter has the limited power of making increases and reductions as provided for in the Explanation to s. 115JA(2) of the Act the adjustment under unascertained liabilities or contingent liabilities. The provision for bad debt is not for meeting the liability but in fact the same was for diminution in value of asset. The same is therefore not an item permitted under the said Explanation. (h) It is respectfully submitted that the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on various authorities including the decision of jurisdictional High Court in the case of CIT vs. HCL Comnet Systems Services (2007) 292 ITR 299(Del). In that case also the assessee had made provision for bad and doubtful debts in its P L a/c. 10.5 On the other hand, the learned Departmental Representative placed reliance on the order of AO. 10.6 We have carefully considered the entire material on record and the rival submissions. In the case of CIT vs. HCL Comnet Systems Services (supra), the assessee had made provision for bad and doubtful debts in its P L a/c for asst. yr. 1997-98. According to the AO this was not an ascertained liability and hence it could not be included in the book profits of the assessee in view of Explanation to s. 115JA. On the other hand, the learned CIT(A) took a contrary view. The Tribunal upheld the view of the learned CIT(A) by holding that the amount could be included in the book profits of the assessee only if it fell within the Explanation to s. 115JA. The Hon'ble High Court while dismissing the appeal, held as under : Held, dismissing the appeal, that there was no reason why a bad and doubtful debt claimed by the assessee could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion @ 40 per cent on trucks leased out as against the permissible rate of 25 per cent. 12.1 The assessee had claimed depreciation @ 40 per cent on trucks. These trucks were leased out by erstwhile M/s Croslands Research Laboratories Ltd. ( CRL in short), which stood merged into assessee company. The AO allowed depreciation on the leased trucks @ 25 per cent only on the ground that higher rate of depreciation was available only on vehicles used by the assessee himself in business of hiring and not on vehicles given on lease. The learned CIT(A) upheld the claim of the assessee and directed the AO to allow depreciation @ 40 per cent on assets leased out by it considering the fact that the leased trucks were used in the business of hire by the lessee. He did so by following the ratio of decision in the case of CIT vs. Shaan Finance (P) Ltd. (1998) 146 CTR (SC) 110: (1998) 231 ITR 308(SC). He also made reference to the decision in the case of Crosslands Research Laboratories Ltd. for asst. yrs. 1995-96 and 1996-97. 12.2 The learned Departmental Representative has challenged this finding of the learned CIT(A) by placing reliance on the order of the AO. 12.3 On the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce amount of ₹ 61,95,562 from the total assessable income. The AO although accepted the contention of the assessee in principle, but did not exclude the principal portion of the lease rent from the income chargeable to tax on protective basis. He did so by observing that the assessee's appeal for asst. yr. 1996-97 was pending. 13.3 In appeal, it was pointed out before the learned CIT(A), that the CIT(A) Mumbai, has already dismissed the appeal of CRL and the entire tax due on account of disallowance of depreciation has been deposited with the Department. It was thus submitted that the AO was not justified in including the recovery of amount towards principal in the taxable income. Accepting this contention of the assessee, the learned CIT(A) deleted the addition of ₹ 61,95,562 made on protective basis by the AO. The findings of the learned CIT(A) are as under : I have considered the issue. Since the appellant has already accepted the decision of the CIT(A) in the case of CRL, the amount received towards principal amounting to ₹ 61,95,562 cannot be taxed. The interest income on the transaction has already been subjected to tax. Accordingly, the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. On careful consideration of relevant facts, we are in agreement with the submissions of learned counsel for the assessee. The miscellaneous income which has no ingredients of turnover i.e. items in which the assessee is dealing can be included as part of total turnover. Accordingly, the miscellaneous income, financial and technical consultancy charges cannot be considered as part of total turnover. As regards sale of scrap, the Tribunal in the case of Philco Exports vs. Asstt. CIT in ITA No. 224/Del/2004 [to which one of us (AM) was party], held as under : '5. We have considered relevant facts, arguments advanced and the case laws cited. The word 'turnover' has not been defined either in the Act or in s. 80HHC. Clause (b) of the Explanation to s. 80HHC defines 'export turnover' as the sale proceeds received in or brought into India in convertible foreign exchange. Even this definition neither expressly nor by implication provides that the sale of scrap should be included in the total turnover. Clause 'total turnover' has been defined by way of an Explanation in cl. (ba) of the Explanation below sub-s. (4B) of s. 80HHC. It is explained that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case for the assessment year under consideration, therefore, respectfully following the order of the Tribunal in assessee's own case for earlier year, we see no reason to interfere in the order of the learned CIT(A). Accordingly, order of the learned CIT(A) on the issue in question is upheld. Ground fails. 15. Ground No. 7 : This ground is as under : On the facts and in the circumstances of the case, the learned CIT(A) has erred : in directing to exclude the proportionate lease rent on oak wood barrels leased to M/s Khodey Distillery Ltd. amounting to ₹ 23,28,750 by M/s CRL Ltd. 15.1 Crosslands Research Laboratories Ltd. (CRL) leased out oakwood barrels to M/s Khoday Distillery Ltd. amounting to ₹ 23,28,750. While completing the assessment of CRL for asst. yr. 1995-96 it was held that the claim of higher deduction for depreciation @ 100 per cent on these barrels, the purchase price was paid to KDL on higher side. The learned CIT(A) therefore substituted purchase price at ₹ 15,63,000 as against ₹ 1,00,03,200. It was submitted before the learned CIT(A) by the assessee that CRL had accepted the order of the learned CIT(A) finally and deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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