TMI Blog2002 (12) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1987, had introduced a proviso to Section 43B of the Act, with effect from 01.04.1988. As per this proviso, no disallowance under Section 43B of the Act is required to be made in respect of unpaid tax liability provided the same is actually paid by the assessee on or before the due date for furnishing the return under Section 139(1) of the Act. The Hon'ble Apex Court in the case of Allied Motors (P) Ltd. v. CIT, 224 ITR 677 (SC) held this proviso to be clarificatory in nature and, therefore, to be treated as retrospective. In view of the decision of the Hon'ble Apex Court, the proviso would be applicable to the year under consideration. 6. The lower authorities have not examined whether the tax liability disallowed under Section 43B of the Act was paid by the assessee before the due date for furnishing the return. We, therefore, set aside the orders of the authorities below on this point and direct the AO to re-adjudicate upon the issue in view of the proviso to Section 43B of the Act, read with the decision of the Hon'ble Apex Court in the case of Allied Motors (P) Ltd. (supra). 7. Ground No. III in assessee's appeal as well as Ground No. VII in the revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from that, that will not by itself confer any benefit on the debtor as contemplated by the section. 10. The learned Departmental Representative also relied upon the decision of the Apex Court in the case of CIT v. T.V. Sundaram Iyengar Sons Ltd., 222 ITR 344 (SC). In this case it was held that if an amount is received in the course of a trading transaction, even though it is not exigible to tax in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, common sense demands that the amount should be treated as income of the assessee. In this case, unclaimed balances representing deposits from customers were transferred to profit and loss account after the claim of the customers became time-barred. On this factual backdrop, amounts so transferred were treated as assessable in the hands of the assessee. 11. From the perusal of the above two decisions, it is evident that they operate in the different fields and it has to be examined with reference to the facts of the case that which of the above two dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is rejected. 18. Ground No. VII of the assessee's appeal reads as under:- VII. FORFEITURE OF SECURITY DEPOSITS: 7.1 On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assistant Commissioner of Income-tax in including in the total income, a sum of ₹ 2,46,618/- being security deposits forfeited. 7.2 The Commissioner of Income-tax (Appeals) failed to appreciate that there was no remission or cessation of liability and accordingly the provisions of Section 41(1) were not attracted and the said amount also could not have been taxed as trading receipts in view of the fact that the said deposits were not received during the previous year relevant to the assessment year 1987-88. 19. At the time of hearing before us, it is submitted by the learned counsel for the assessee that the assessee had received the security deposits from the scrap dealers. Since they did not fulfill their contractual obligation, the security deposit was forfeited and, therefore, it is a capital receipt. The learned DR, on the other hand, stated that the assessee is selling the scrap on regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es should not be considered as perquisite. It has also been challenged that the proportionate salary during the period of employees' stay outside India should be excluded while computing the disallowance under Section 40A(5) of the Act. 24. We have heard both the parties in respect of Ground No. VIII and IX. We find that the Hon'ble Apex Court in the case of CIT v. British Bank of Middle East, 251 ITR 217 (SC) has held that while computing the disallowance under Section 40A(5) of the Act, the actual expenditure incurred on the (SIC) should be considered and not its perquisite value as per Rule 3. Therefore, the finding of the lower authorities on this point is sustained. The issue with regard to the expenditure on repairs of the residential accommodation provided to the Director/employees is also covered against the assessee by the decisions of the Hon'ble jurisdictional High Court in the case of Lubrizol India Ltd. v. CIT, 187 ITR 25 (Bom) and in the case of CIT v. Mercantile Bank Ltd., 237 ITR 676 (Bom). Therefore, the finding of the lower authorities on this point is also sustained. The issue relating to the remuneration received by the Director/employees in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible unit under the Local Sales Tax Law but for an exemption, computed at the maximum rates specified under the Local Sales Tax Law as applicable from time to time. For the purposes of the above clause, sales made on consignment basis within the State of Maharashtra or branch transfers within the State of Maharashtra shall also be deemed to be 'Sales made within the State exigible to tax'. AND (b) Tax payable under the Central Sales Tax Act, 1956, on the sales of finished products of the eligible unit made in the course of inter-State trade or commerce computed at the rate of tax applicable to such sales as if these were made against certificates in Form 'C' on the basis that the sales are exigible to tax under the said Act. For the purposes of the above clause, branch transfers/transfers on consignment basis outside the State of Maharashtra shall be deemed to be 'Sale in the course of inter-State trade or commerce'. 30. In order to buttress the claim before the AO, assessee placed reliance on the decision of the Hon'ble Madhya Pradesh High Court rendered in the case of CIT v. Dusad Industries, 162 ITR 784 (MP). 31. AO distinguished th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh which the various precedents were viewed. 35. The Tribunal, while making comparison of the Andhra Pradesh Scheme under Government Order MS No. 455 dated 3rd May 1971, with Maharashtra Scheme sanctioned by the Government of Maharashtra vide Resolution No. IDL-7079/(2043)-IND-8 dated 5th January 1980, laid stress on the form, not on the substance of the Scheme. The quantum of incentive or the period of eligibility is not a determining factor to decide whether the incentive given is of the nature of subsidy. True purport of the Scheme should be spelt out. What is subsidy? That is discussed by the Hon'ble Calcutta High Court in the case of Sarda Plywood Industries Ltd. v. CIT, 238 ITR 354, 368 (Cal). The relevant portion is reproduced here as under:- In Kesoram Industries' case (1991) 191 ITR 518 (Cal), the meaning of the word subsidy had been considered in great detail which is to the following effect; (page 529) Webster's New World Dictionary, 1962: 'a grant of money, specifically (a) ..... (b) a government grant to a private enterprise considered of benefit to the public.' Shorter Oxford English Dictionary: 'Help, aid, assistance ..... Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. In the Concise Oxford Dictionary the word incentive is defined as tending to incite, incitement (to action, to do, to doing), payment or concession to stimulate greater output by workers. We have considered the various clauses of the Scheme. In our opinion, exemption from Sales Tax was only a concession. It cannot be equated with subsidy. 37. The assessee did make the claim vide letter dated 24th October, 1989 on the basis of the decision rendered in the case of CIT v. Dusad Industries, 162 ItR 784 (MP). It is pertinent to note that the case of Dusad Industries was overruled by the Apex Court in the case of Sahney Steel and Press Works Ltd. and Ors. v. CIT, 228 ITR 253 (SC). Hon'ble Supreme Court, while commenting on the said decision, has said that the Madhya Pradesh High Court failed to notice the significant fact that under the Scheme framed by the Government, no subsidy was given until the time production was actually commenced. As such, the decision was found to be erroneous. In the present case also the incentive was given after the commencement of commercial production. 38. In the case of Reliance Industries Ltd., the Tribunal relied on the decision rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are made to the assessee to assist him in carrying in the hands of the recipient - whether revenue or capital - will have to be determined, having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of project, such subsidies must be treated as assistance for the purpose of the trade. 43. In the present case the incentives were given conditional upon commencement of production. There is no dispute on this point. The Sales Tax exemption was given to the assessee for assisting him in carrying out the business operation. It was not given for the purpose of setting up business or to complete a project. This decision applies on all fours to the facts of the present case. The Tribunal was not correct in the case of Reliance Industries Ltd. to give a different interpretation to the decision in Sahney Steel and Pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quity or the demerit of the situation having been mitigated, it can be no more fair to seek for immunity from taxation. 46. Alternatively, it was argued that Sales tax is an allowable business expenditure as such deemed receipt should be allowed as deemed expenditure Under Section 37(1) of the Act. One of the conditions precedent for availing the benefit of Section 37(1) of the Act is that the claim must be of the nature of expenditure. The term expenditure connotes 'spending' in the sense of 'paying out or away' of money. This is the primary meaning of 'expenditure'. 'Expenditure' is what is paid out or away and is something which is gone irretrievably. Expenditure, which is deductible for income-tax purposes, is one which is either actually paid or, if the accounts are on mercantile basis, provided for towards a liability actually existing at the time. We find that in the present case Sales Tax cannot be construed to be the expenditure as it was not actually paid. It was not reflected in the accounts. No liability was created towards it in the books. Nothing has gone out of the coffers of the assessee. No obligation was satisfied. Neither the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be capital receipt. As such, it is exigible to tax. We uphold the impugned order on this court. 49. Ground No. XII in assessee's appeal is against the addition of ₹ 70,00,000/- sustained by the CIT(A) in respect of deposit paid to Maharashtra State Electricity Board. Ground No. 1 of the revenue's appeal is also similar. 50. The facts in this regard are, during the previous year relevant to the assessment year under consideration, the assessee made the payment of ₹ 1,40,00,000/- to the Maharashtra State Electricity Board (MSEB) for extension of 132 KV line from Aurangabad sub-station to the assessee's unit at Waluj. Out of the above ₹ 70,00,000/- was non-refundable capital contribution and ₹ 70,00,000/- was deposit, which was to be adjusted against the electricity bills subsequently. The assessee claimed the deduction of ₹ 70,00,000/- which was non-refundable contribution, as an expenditure because the assessee had enduring benefit by making the above payment. 51. The assessee went in appeal before the CIT(A) against the disallowance of ₹ 70,00,000/-. Before the CIT(A), assessee raised additional ground contending that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been the owner of the electricity, it would have claimed depreciation thereon. 55. We have carefully considered the arguments of both the sides and perused the material placed before us. From the perusal of the assessment order, it is evident that the AO has nowhere mentioned that the assessee is the owner of the extended electricity line to the assessee's Waluj unit. On the other hand the AO observed the capital contribution was made for creating special EHV supply facilities to assessee's requirements. The expenditure is certainly in the nature of providing 'enduring advantage' over a period of several years . The learned DR has not brought on record any evidence to establish that the assessee is the owner of the electricity line from Aurangabad sub-station to the assessee's unit. The learned counsel for the assessee made a statement at Bar that the assessee is not the owner of the said electricity line and has not claimed any depreciation on this payment of ₹ 1,40,00,000/-. This statement made at Bar remain uncontroverted. In view of these facts, we hold that the assessee is not the owner of the electricity line, for which the assessee made the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for late payment of RTO tax ₹ 521/- c Fine for traffic offences ₹ 2,505/- ₹ 11,831/- 61. After hearing both the parties, we agree with the learned counsel that the penalty for late payment of property tax and RTO tax was compensatory in nature though it was named as penalty. However, the payment of ₹ 2,505/- was for the violation of traffic rules and it was an offence. Therefore, the fine of ₹ 2,505/- which was for infraction of law cannot be allowed. Accordingly, the order of the CIT(A) is partly reversed and the disallowance to the extent of ₹ 2,505/- is sustained. 62. Ground No. 3 of the revenue's appeal is against the reduction in the disallowance of entertainment expenditure under Section 37(2A) of the Act. 63. We have heard both the parties. The facts of the case are that out of the expenditure incurred on tea, coffee, etc., the AO deducted 25% of the expenses towards employees and considered 75% of the expenditure for working out the disallowance under Section 37(2A) of the Act. However, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had claimed vehicle designing expenses of ₹ 70,698/- revenue expenditure. The AO disallowed the same following is own order for the assessment year 1986-87. The CIT(A) has allowed the expenditure as revenue expenditure. We find that in the assessment year 1986-87, the matter came before the ITAT and the ITAT vide its order dated 28.07.1994 in ITA No. 7038/Bom/1988 decided this issue against the assessee. The ITAT found that the expenditure was incurred on obtaining drawings, designs etc. which was capital in nature; as the drawings, designs, etc. became the property of the assessee under the terms of the agreement. 69. The assessee made an alternate claim before us that the expenditure should be allowed as expenditure incurred on scientific research. However, we find that the ITAT has found that the expenditure was incurred on acquisition of a capital asset in the nature of obtaining drawing and design and not incurred on any scientific research. In view of the above finding of the ITAT in the assessment year 1986-87, the alternate claim of the assessee is also rejected. Ground No. 5 of the revenue's appeal is thus allowed. 70. Ground No. 6 of the revenue's a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79. We find this issue to be also covered in favour of the assessee by the decision of the ITAT in assessee's own case for the assessment year 1986-87 vide ITA No. 7038/Bom/1988 dated 28.07.1994. Respectfully following the same, Ground No. 10 of the revenue's appeal is rejected. 80. Ground No. 11 of the revenue's appeal is against the deletion of the disallowance of ₹ 2,500/- made by the AO under Section 40A(12) of the Act in respect of the expenditure incurred for sur-tax proceedings. 81. After hearing the parties, we find this issue also to be covered in favour of the assessee by the decision of the ITAT for the assessment year 1986-87 (supra). Respectfully following the same, Ground No. 11 of the revenue's appeal is rejected. 82. Ground No. 12 of the revenue's appeal reads as under:- On the facts and in the circumstances of the case and in law, the learned CIT()A erred in deleting the addition made on account of duty draw back and cash assistance etc. on the ground that they are assessable on cash basis and not on mercantile basis. 83. We have heard both the parties and we find this issue to be also covered in favour of the assessee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above submission, we set aside the orders of the authorities below on this point and restore the matter back to the file of AO, with the direction that he will re-compute the disallowance under Section 40A(5)/40(c) in the light of the decisions of the Hon'ble Apex Court/jurisdictional High Court. He will allow opportunity of being heard to the assessee. 87. Ground No. 15 of the revenue's appeal reads as under:- On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the expenditure in respect of 13 canteen trolleys is revenue in nature and not capital as held in assessment order. 88. We have heard both the parties and perused the material placed before us. AO has recorded a finding that as per the Tax Audit Report, there was a capital expenditure of ₹ 66,640/- debited to the Profit Loss Account. In view of the above, he disallowed the sum of ₹ 66,640/-. Before the CIT(A) it was pointed out that the expenditure was incurred for purchase of 13 canteen trolleys. The CIT(A), after considering the submission of the assessee's counsel, directed to treat the same as revenue expenditure. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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