9911796707
TMI Blog2017 (3) TMI 1565X X X X Extracts X X X X X X X X Extracts X X X X ..... IT vs Chloride Industries Ltd reported in 76 ITD 1 (Kol) ITAT). The assessee filed details of these payments in the course of scrutiny proceedings. The ld AO on perusal of the same observed that the payments have been made to employees welfare funds, staff clubs employees co-operatives and sports committees which is not allowable u/s 40A(9) of the Act. He stated that section 36 of the Act provides that any such sum paid/contributed by the assessee as an employer by way of contribution towards the recognized provident fund or an approved superannuation fund and to an approved gratuity fund is allowable. Details submitted by the assessee do not indicate that any of the payment, except for contribution of Rs. 6,86,000/-towards ITC workmen welfare scheme is covered u/s 36(1)(iv) and (v) of the Act. Accordingly, the ld AO disallowed the remaining sum of Rs. 9,66,249/- u/s 40A(9) of the Act in the assessment. The ld CIT(A) by placing reliance on the orders of his predecessor in assessee's own case for the Asst. Years 2004-05 and 2005-06 held that the expenditure in respect of educational institutions i.e Tribeni Tissues Vidyapith of Rs. 4,20,000/- is allowable and confirmed the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f library at the Club, expenses for maintenance of indoor game section¸ expenses for conduct of sports competition and their families, reimbursement of expenses towards electricity, expenses incurred on providing cultural recreation to the members/cultural events, expenses for organizing fete for the members/families of assessee's employees, expenses incurred on organizing cultural events on different occasions, annual social meets of the employees/their families, etc., except direct subscription made to one Cooperative Society of Rs. 25,800/-. Considering the facts of the case, we do agree with the assessee that in the assessment year under consideration, the assessee has filed the details of the expenses reimbursed to the Recreation Clubs/Organizations/Societies of the employees and their families and it was not an expenditure incurred by the assessee towards setting up formation or giving direct contribution to a fund, Trust, Company, Association of Persons, Body of Individuals, Society registered under Societies' Registration Act, 1860 (except to one contribution of Rs. 25,800/- as mentioned hereinabove), but the reimbursement is of the expenditure actually incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OF THE ACT Ground No. 2 in ITA No. 253/Kol/2011 for Asst Year 2006-07 - Assessee Appeal Ground No.1 in ITA No. 336/Kol/2011 for Asst Year 2006-07 - Revenue Appeal The brief facts of this issue is that the ld AO observed that the assessee had substantial amount of exempt income including dividend income of Rs. 136,98,28,578/- and income from tax free bonds of Rs. 21,52,88,990/-. The assessee was asked to explain as to why a part of the expenditure claimed in the profit and loss account should not be held to be directly related to the earning of exempted income and accordingly why such expenditure should not be disallowed u/s 14A of the Act read with Rule 8D of the Rules. In response the assessee replied that only a sum of Rs. 2,48,600/- is attributable to the earning of exempted income and accordingly the same was offered for disallowance u/s 14A of the Act in the assessment proceedings. This offer of disallowance was duly supported by detailed workings. The ld AO ignored the submissions of the assessee on the ground that it is highly inconceivable that a very petty sum of Rs. 2,48,600/- was incurred for earning huge exempt income of Rs. 158 crores and accordingly resorted to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on determining the expenses having some connection to the said exempt income. Relief Prayed: The disallowance of Rs. 98,11,279/- should be deleted. & 1. That the Ld. ClT(A) has erred on facts and circumstances of the case and in law by allowing just 1% of exempt income as disallowance and deleting the addition made u/s 14A made by the Assessing Officer even though he has correctly applied Rule 8D as per law in respect of exempt income. 3.2. The ld AR argued that the disallowance u/s 14A of the Act had to be worked out on the basis of some rational workings prior to Asst. Year 2008-09. He argued that even though the tribunal had held that 1% of exempted income would be fair and reasonable for disallowance u/s 14A of the Act, in all those cases, there was no mechanism for making disallowance of expenses incurred for earning exempt income and the assessee had not come forward with its workings for disallowance with scientific basis. In the instant case, the assessee had worked out the disallowance in the sum of Rs. 60,39,896/- scientifically on the basis stated hereinabove which has not been considered at all by the ld CIT(A). He stated that let the workings given by the ld A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under provisions of section 194H or 194J of the Act and for these reasons there was no liability to deduct tax at source. The ld AO observed that the assessee would indulge in appointing these directors only after ascertaining the fact that they are independently possessing the requisite professional skills, ability and qualification and accordingly the commission payments made to them would fall under the ambit of provisions of section 194J of the Act. He also held that in any case, the subject mentioned payments would fall under the ambit of commission or brokerage in terms of section 194H of the Act which warrants deduction of tax at source at the rate of 5% and failure to do so would invite disallowance u/s 40(a)(ia) of the Act. Accordingly, he disallowed the commission in the sum of Rs. 24,00,000/-, u/s 40(a)(ia) of the Act. 4.1. Before the ld CIT(A), the assessee stated that such expenditure has been repeatedly held for the purpose of business and is fully allowable under the Act and in support of this, it placed reliance on the decision of the Hon'ble Supreme Court in the case of J K Woolen Manufacturers vs CIT reported in 72 ITR 612 (SC) and Hon'ble Jurisdictional High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that payments made to the concerned institutions by no stretch of imagination would fall within the scope of section 194H or section 194J of the Act. The ld CIT(A) however concluded that the provisions of Explanation to section 194H defining the term 'commission or brokerage' is very wide and broader interpretation is to be given to the same and hence the subject mentioned payments would fall under the ambit of section 194H of the Act. Accordingly, he upheld the order of the ld AO in this regard. Aggrieved, the assessee is in appeal before us on the following ground:- (3) Commission to non-whole time Directors disallowed under section 40(a)(ia): Rs. 24,00,000/- For that the learned CIT(A) was not justified in disallowing the domestic payment of commission to the non-whole time Directors under section 40(a)(ia) although there are no provisions for deduction of TDS under the Income Tax Act. For that the learned CIT(A) erred in stating that TDS provisions of section 194H for payment of commission are applicable ignoring the provisions of the Income Tax Law. For that the learned CIT(A) was not justified in making the disallowance in respect of Rs. 12,00,000/- (included in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before us that this issue is covered by the decision of jurisdictional Tribunal in the case of Jahangir Biri Factory Pvt. Ltd. Vs. DCIT 7 ITA 919/K/2011 ITC Limited. A.Y.07-08 (2009) 126 TTJ 567 (Kol), wherein the issue of TDS on directors' commission was decided vide para 8 to 12 as under: 8. As regarding the second issue, i.e. commission payment to directors amounting to Rs. 5,94,036, the learned CIT(A) has deleted the same by observing as under: "I have carefully considered the submission of the Authorised Representative and perused the assessment order. On careful consideration of the relevant facts, I am of the opinion that the 'commission' paid to the directors is not the nature of 'commission or brokerage' as is envisaged in s. 194H, nor as 'fees for professional or technical services' considered in s. 194J of the Act. Therefore, there was no justification for disallowing the claim for commission payment to directors, under s. 40(a)(ia) of the Act, which is otherwise an allowable business expenditure. It is a different matter that actually 'commission' should also have been included within 'salary' payable to the directors an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments have been brought within the ambit of section 194J of the Act only with effect from 1.7.2012 and hence the same cannot be made applicable for earlier years. Respectfully following the aforesaid order of this tribunal, we allow the ground no. 3 raised by the assessee. 5. ADDITION TOWARDS RECEIPT FROM ELEL HOTEL AND INVESTMENTS LTD Ground No. 2 in ITA No. 336/Kol/2011 in Revenue Appeal The brief facts of this issue is that the assessee acquired the 'right to operate' the Hotel Searock, Land's End, Bandstand, Bandra, Mumbai - 400050 by virtue of an Operating License Agreement dated 3.5.1986 with Elel Hotels and Investments Ltd (hereinafter referred to as ELEL) who owned the hotel. No non-refundable payment was made by the assessee at the time of entering into agreement but ELEL would receive 23% of gross turnover from the hotel operation as its share of income every year. To resolve various disputes arising out of the aforesaid Operating License arrangements dated 3.5.1986, the assessee entered into a Settlement Agreement dated 11.5.2005 with ELEL. Simultaneously Consent Terms was signed by both assessee and ELEL before the Arbitrator on 11.5.2005 and in pursuance of the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k as per the terms of agreement which included payment of 23% of gross turnover of the said hotel to ELEL every year. So when the said hotel was ceased to be operated by the assessee, no transfer in relation to a capital asset took place as no right to carry on the business as such was conferred on the assessee at the time of entering into the agreement dated 3.5.1986 so as to bring the transaction within the ambit of capital gain. 5.2. The ld AO further observed that the amount received by the assessee is even not covered under the head 'capital gains' as per clause (i) of first proviso below section 28(va) of the Act. The assessee has not transferred any right to carry on any business to ELEL. The word 'right' inherently means that a person has element of 'discretion' attached with the concerned property. The assessee had no option to transfer the business of running of Hotel Searock to any other party even if it wanted. It had no ownership over the property and the assessee had to act as per the strict terms of the agreement which is evident from some clauses in the agreement. The ld AO observed that various disputes arose between the assessee and ELEL in relation to/concerning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 enclosed in pages 15 to 36 of the Paper Book wherein he specifically referred to Article II in page 20 of the paper book which reads as under :- 2.2. It is hereby expressly agreed and understood by the parties that this agreement shall and is meant to confer full and unfettered right to ITC to operate the said Hotel subject to no breach of any of the terms on the part of ITC under this agreement. EHIL hereby irrevocably during the subsistence of this agreement or any renewal thereof, authorizes ITC to do and execute all such acts, deeds, matters, things and documents to conduct and operate the said Hotel, the intention being that ITC shall have an unfettered right to run the said Hotel, so long as ITC does not commit any breach or default of any terms agreed under these presents. 2.3. EHIL shall execute from time to time or as may be required by ITC one or more specific powers of Attorney or such other documents or instruments as ITC may require in order to conduct, operate and run the said Hotel. ITC hereby indemnifies and keeps EHIL indemnified against any loss or damage EHIL may sustain or any costs, charges and expenses EHIL may suffer as a result of any irregular or ille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would only result in transfer u/s 2(47) of the Act and hence the resultant gain thereon would only fall under the ambit of 'capital gain'. Since the assessee has been using the said right from 1986 onwards, the resultant gain would only be Long Term Capital Gain. Moreover, the assessee had entered into a Settlement Agreement dated 11.5.2005 in order to give quietus to various disputes among the assessee and ELEL with the assistance of an Arbitrator and the said Arbitrator had duly passed an Award wherein the assessee was made to relinquish its right to operate the hotel by receiving a consideration of Rs. 32.42 crores and both the parties unconditionally withdrawing their respective cases filed before the Hon'ble Bombay High Court. Hence we hold that that the consideration received by the assessee pursuant to this Settlement Agreement in the sum of Rs. 32.42 crores for relinquishing its capital asset (i.e. right to operate the hotel) is to be taxed only as Long Term Capital Gain. We find that the reliance placed on the decision of the Hon'ble Madhya Pradesh High Court, Indore Bench supra is well founded wherein it was held that :- 14. The expression 'property of any kind' used i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et and Profit and Loss Account c) Audited particulars of cost and revenue with full details d) Audited statement showing market value of power which is the APSEB/WBSEB rates respectively, based on which section 80IA claim was computed. 6.1. The ld AO disallowed the entire deduction u/s 80IA of he Act for the following reasons :- a) Captive power undertaking is not entitled to the said deduction since it has supplied power only to the paper undertaking and not to outsiders. The assessee stated that the Captive Power Undertaking (PU I) at Bhadrachalam was set up in Asst. year 1998-99 and Power Undertaking II (PU II) was set up in Asst. Year 2005-06. The Captive PU II at Tribeni was set up in Asst. Year 200203. This helped the company in managing the problem of acute power shortage with respect to supply of power to the paper undertakings and ever increasing power cost by reducing the drawal of power from external governmental sources i.e Andhra Pradesh State Electricity Board (APSEB) an West Bengal State Electricity Board (WBSEB). The ld AO held that since the power generated by the assessee in its power plant has been captively consumed by it, the assessee is not eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricity of the State Electricity Board and they are billed for separately. 6.2. The ld CIT(A) by placing reliance on the decisions of this tribunal for the earlier years allowed relief by allowing deduction u/s 80IA of the Act to the assessee. With regard to the market value issue, he held that the ld AO had wrongly made the said adjustment in the computation since the transmission and distribution costs are billed for separately by the State Electricity Boards. The market value has been calculated by the assessee in line with the decisions of the CIT(A) and Tribunal in assessee's own case for earlier years and therefore the addition made by the ld AO cannot be sustained. Aggrieved, the revenue is in appeal before us on the following ground:- 3. That the Ld. CIT{A} has erred on facts and circumstances of the case and in law by deleting the disallowance u/s 80lA made by the AO without considering the fact that the assessee's captive power plant does not fulfill conditions laid down in Section 80IA{8} and Section 80IA(1) of the Act to be eligible for deduction u/s 801A. 6.3. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR stated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ously be a distribution company or a company engaged both in generation and distribution. Therefore, the rate at which electricity is sold to any such company can only be the market rate contemplated by the section. The judgment in the case of Thiru Arooran Sugars Ltd. (supra) has no manner of application for the simple reason that the Court in that case was concerned with the question as to the market value of sugarcane grown by the assessee at home. The Supreme Court was of the opinion that the sugarcane grown at home would be deemed to have been sold to the sugar mill at the same rate at which sugar cane was purchased by the sugar mill. That obviously is correct because if the sugarcane grown at home had not been sold to the sugar mill of the assessee itself, the sugarcane would have been sold in the open market. The rate of sale in the open market would be the same at which sugarcane was purchased by the sugar mill of the assessee. But in the case before us the electricity generated by the assessee could not be sold to anyone other than a distribution company or a company which is engaged both in generation and distribution. The rate at which electricity could have been sold to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Graphite India Limited, wherein the assessee had computed the receipts for captively consumed power at the rate at which it had purchased power from the board. That appeal preferred by the revenue was not admitted by this Court and was dismissed at the admission stage without examining of the matter. Therefore, that judgment does not constitute a precedent. Another judgment was drawn to our attention by Mr. Khaitan which is in the case of CIT v. Kanoria Chemicals & Industries Ltd. [2013] 219 Taxman 35(Mag.)/35 taxmann.com 566 (Calcutta) to which one of us was a party (Girish Chandra Gupta, J.). That judgment was rendered on concession. Therefore, that judgment also does not constitute a precedent. 25. Considering the view we have taken, for ends of justice the matter shall now go back to the assessing officer. He shall give an opportunity to the assessee to adduce evidence as regards market rate at which electricity could have been sold to the distribution licensee by a generating company. Based on such evidence the quantum of benefit under Section 80IA shall be worked in accordance with law. Respectfully following the same, we deem it fit and proper to set aside this aspect of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
