TMI Blog2018 (10) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision M/S. SRD NUTRIENTS PRIVATE LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE GUWAHATI [2017 (11) TMI 655 - SUPREME COURT OF INDIA] referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue is required to be reversed and the said issue is answered in favour of the assessee. Disallowing deduction on account of Capital expenses claimed against the sale of mining rights and not reducing the short-term capital gains - Held that:- For the assessment year 2004-05, it was stated that the same is not revenue expenses then for the relevant year, in our considered opinion, the CIT(A) has rightly accepted the details that payment has been made through cheque and the same has been reflected by the assessee in the balance sheet, merely on that ground the expenses cannot be disallowed since for earlier year it was accepted as capital expenses and capital gains, the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no commercial expediency to make investment in subsidiary companies of the assessee company? 3. Whether the Tribunal was legally justified in deleting the addition of ₹ 11,10,98,825/- out of disallowance of interest of ₹ 12,90,03,457/- being the interest in relation to dividend income of ₹ 4,89,31,413/- claimed as exempt u/s10(35) and further directing the Assessing Officer for computing the interest for the period of NCD borrowing? 4. Whether the Tribunal was legally justified in deleting the disallowance of ₹ 25,00,816/- made on account of prior period expenses specifically when the assessee failed to substantiate its claim that the liability of account of such expenses had been settled/crystallized during the year under consideration? In D.B. ITA No.52/2018:- 4. Counsel for the appellant Mr. Jhanwar does not want to press question no.1 2 subject to liberty of raising the same in appropriate case, if the occasion arises for subsequent year. Thus, ground no.1 and 2 are decided as not pressed. 4.1 Regarding question no.3, Mr. Jhanwar has taken us to the order of CIT(A) and tribunal and strongly relied upon the circular dt.18.5.1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR137(SC) ; Amalgamated Coalfields Ltd. v. Janapada Sabha 1963 Supp (1) SCR 172; Devilal v. STO : [1965]1SCR686 ; Udayan Chinubhai v. CIT: [1967]63ITR416(SC) ; M.M. Ipoh v. CIT : [1968]67ITR106(SC) ; Kapur Chand v. Tax Recovery Officer (1969) 1 SCR 691 ; CIT, W.B. v. Durga Prasad: [1971]82ITR540(SC) ; Radhasoami Satsang v. CIT: [1992]193ITR321(SC) ; Society of Medical Officers v. Hope 1960 AC 55 ; Broken Hill Proprietary Co. Ltd. v. Municipal Council 1925 All ER 675 : 1926 AC 94 : 95 LJPC 33 ; Turner on Res Judicata, 2ndEdn., para 219, p. 193]. (ii) In Jaipuria Samla Amalgamated Collieries Ltd. vs. Commissioner of Income Tax (1971) 82 ITR 580 (SC), it has been held as under:- 5. Now it is quite clear that the aforesaid cesses would be allowable deductions either under Clause (ix) or Clause (xv) of Sub-section (2) of Section 10 unless they fell within Section 10(4). We have already referred to the provisions of both Acts under which the cesses are levied which show that their assessment is not made at a proportion of the profits of the assessee's business. What has to be determined is whether the assessment of the cesses is made on the basis of any such profits. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble deduction in computing the profits of the business under Section 10 of the Act. Their Lordships laid down the law in the following words: It will be noted that, in the absence of the necessary powers and machinery, which are not provided by the Act, the estimate of the annual income from business can only proceed on a rough guess, which is in no way comparable with the ascertainment of profits and gains under the Income-tax Act, and, in the opinion of their Lordships, the inclusion of this element of business income as part of the circumstances of the assessee with a view to the imposition of the union rate does not fall within Sub-section (4) of Section 10 of the Income tax Act. It is conceded that the union rate is not levied on the profits or gains , which clearly implies an ascertainment of such profits and gains, and the words assessed...on the basis of any such profits or gains in the later part of the sub-section must also be so limited, No such ascertainment of the profits and gains of the business can be undertaken for the purposes of the union rate. The main argument for the Crown, therefore fails. In our judgment this decision is quite apposite and fully c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Council in Broken Hill Proprietary Company Limited v. Municipal Council of Broken Hill [1925] A.C. 94 . (iv) In Godrej Boyce Manufacturing Company Ltd. vs. Dy. Commissioner of Income Tax ors. (2017) 247 Taxman 361 (SC), it has been held as under:- 33. While answering the said question this Court considered the object of insertion of Section 14A in the Income Tax Act by Finance Act, 2001, details of which have already been noticed. Noticing the objects and reasons behind introduction of Section 14A of the Act this Court held that: Expenses allowed can only be in respect of earning of taxable income. In paragraph 17, this Court went on to observe that: Therefore, one needs to read the words expenditure incurred in Section 14A in the context of the scheme of the Act and, if so read, it is clear that it disallows certain expenditure incurred to earn exempt income from being deducted from other income which is includible in the total income for the purpose of chargeability to tax. The views expressed in Walfort Share and Stock Brokers P. Ltd. (supra), in our considered opinion, yet again militate against the plea urged on behalf of the Assessee. 34. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted an error in disallowing the expenses. In appeal no. 68/2018 8. Counsel for the appellant has taken us to the paper book submitted by her wherein she has pointed out the following observation of the tribunal which reads as under:- 58. Ground No. 3 of the assessee s appeal is against not allowing the expenditure of education cess of ₹ 2,41,59,485/- from income claimed by the appellant and the Ld. CIT(Appeals) erred in confirming the same. The education cess was actually paid on income tax and is not a part of income tax as per the provisions of section 40(a) (ii) of the Act. The facts and the submissions of the assessee before the ld. CIT(A) is as under:- That the assessee has debited the Profit and Loss Account for the year ended on 31.03.2008 by an amount of ₹ 9490.53 lac under the head Income Tax , the break-up of which is as under:- S.No. Description Income Tax Surcharge Education Cess Secondary Higher Education Cess Total Education Cess Grant Total (Tax surcharge Cess) (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue enjoys a higher priority than providing basic education to all children. The NCMP mandates Government to levy an education cess. I propose to levy a cess of 2 per cent. The new cess will yield about ₹ 4000- 5000 crore in a full year. The whole of the amount collected as cess will be earmarked for education, which will naturally include providing a nutritious cooked midday meal. If primary education and the nutritious cooked meals scheme can work hand-in-hand, I believe there will be a new dawn for the poor children of India 61. At the outset, the ld. CIT DR has submitted as under:- 1. Regarding the assessee's ground that the amount of education cess is deductible, it is humbly stated that the background relating to introduction of the said cess needs to be examined. The said cess was introduced by Finance Bill, 2004-05, the relevant portion of which is as follows: CHAPTER VI EDUCATION CESS 81.1 Without prejudice to the provisions of subsection (11) of section!, there shall be levied and collected, in accordance with the provisions of this chapter as surcharge for purposes of the Union, a cess to be called the Education Cess, to fulfill the commitment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 220,be liable, by way of penalty, to pay such amount as the Assessing Officer may direct and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, or, however, that the total amount of penalty does not exceed the amount of tax in arrears. The above said provision makes it clear that penalty is leviable in case of default in payment of tax . Such tax includes any demand relating to unpaid cess also, indicating that unpaid cess is treated as unpaid tax and is visited with all consequences of non-payment of demand. There is no separate machinery in the Act for recovery of unpaid cess and imposition of interest and penalty in case of default in payment of unpaid cess. This indicates that cess is a part of tax and all recovery mechanisms consequences pertaining to recovery of tax apply to recovery of cess also without explicit mention of the word cess in the foregoing provisions. Hence, drawing a parallel, no explicit mention of cess is required in sec. 40a(ii) for making disallowance thereof. 5. In view of the above submissions, it is humbly requested not to allow the appellant's plea for deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any commercial expediency to make investments in above said subsidiary companies. The assessee is paying interest @ 13.25%/12.75% per annum on the above said cash credit accounts. The interest payable on investments in above said subsidiaries is determined at ₹ 78,47,330/- as per calculations below:- (i) Interest @ 13.25% per annum on ₹ 5,23,94,115/- from 3.4.2008 to 31.3.2009 Rs.69,04,180/- (ii) Interest @ 12.75% per annum on ₹ 1.20 crore from 19.8.2008 to 31.3.2009 Rs.9,43,150/- Total Rs.78,47,330/- Therefore, disallowance of ₹ 78,47,330/- will be made out of interest paid by assessee on borrowed funds. 10. Thereafter, she has taken us to the finding of the CIT (A) which reads as under:- 4.8 Ground # 8 That the l d Joint Commissioner erred in disallowing interest of ₹ 78,47,330/- in respect of proportionate interest paid by assessee on borrowed funds on account of investment made in subsidiary companies without proving any nexus between investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income must not be includible in the total income of the Assessee. Once the said condition is satisfied, the expenditure incurred in earning the said income cannot be allowed to be deducted. The Section does not contemplate a situation where even though the income is taxable in the hands of the dividend paying company the same to be treated as not includible in the total income of the recipient Assessee, yet, the expenditure incurred to earn that income must be allowed on the basis that no tax on such income has been paid by the Assessee. Such a meaning, if ascribed to Section 14A, would be plainly beyond what the language of Section 14A can be understood to reasonably convey. 10.2 For 25,00,816/-, she has relied upon the finding of CIT(A) which reads as under:- 4.12 Assessee s submissions The assessee vide letter dated 21.08.2012, 17.09.2012 15.10.2012 submitted as under:- The details of major prior period expenses are as under:- 1. ₹ 9,43,693.00:- By oversight, the Income of Co-marketer arrangement was wrongly booked in excess vide document no. 100247242 dt. 31.03.2008 in the financial year 2007-08 and the error was noticed by us in next financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 2008 to March 2009 from the HDFC Bank Account and the bank has charged cash credit interest of only ₹ 3,87,800/- during the period from December 2008 to March 2009. However, the L d Assessing Officer calculated notional interest based on the period of holding of the security without considering the actual interest paid during the relevant peirod. When the total interest of only ₹ 3,87,800 was paid in respect of HDFC, it is inconceivable that an interest of about ₹ 12.77 crores has been calculated by the L d Assessing Officer without any basis. Further there is a mistake in the calculations of the L d Assessing Officer are taken into consideration and there is a calculation mistake of ₹ 9,598,087 as is evident from the statements given at Annexure 6 and 7. Considering the above, it is humbly submitted that the addition made on this account deserves to be deleted. 10.3 She has also relied on the observations of the tribunal which reads as under:- 18. We have heard the rival contentions and perused the material available on record. Firstly, regarding amount of ₹ 9,43,693, it relates to income under the co-marketer arrangement which was booked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teral reading of the said observations does not help the assessee. As we have pointed out hereinabove the surtax is essentially levied on the business profits of the company computed in accordance with the provisions of the Income-tax Act. Merely because certain further deductions (adjustments) are provided by the Surtax Act from the said profits, it cannot be said that the surtax is not levied upon the profits determined or computed in accordance with the provisions of the Income-tax Act. Section 4 of the Surtax Act read with the definition of chargeable profits and the First Schedule made the position abundantly clear. 8. We may mention that all the High Courts in the country except the Gauhati High Court have taken the view which we have taken herein. Only the Gauhati High Court has taken a contrary view in the decisions in Makum Tea Co. (India) Limited and Anr. v. Commissioner of Income Tax MANU/GH/0040/1989 and Doom Dooma Tea Co. Limited v. Commissioner of Income Tax MANU/GH/0033/1989. The decision of the Gauhati High Court in Makum Tea Co. (India) Limited, is under appeal before us in Civil Appeal Nos. 3976-77 of 1995. Similarly Civil Appeal No 3246 of 1995 is preferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment under the provisions of Central Excise Act, 1944 or under any other law for the time being in force. Sub-section (3) of Section 93 provides that the provisions of the Central Excise Act, 1944 and the Rules made thereunder, including those related to refunds and duties etc. shall as far as may be applied in relation to levy and collection of Education Cess on excisable goods. A conjoint reading of these provisions would amply demonstrate that Education Cess as a surcharge, is levied @ 2% on the duties of excise which are payable under the Act. It can, therefore, be clearly inferred that when there is no excise duty payable, as it is exempted, there would not be any Education Cess as well, inasmuch as Education Cess @ 2% is to be calculated on the aggregate of duties of excise. There cannot be any surcharge when basic duty itself is Nil. 12. We have heard counsel for the parties. 13. On the third issue in appeal no.52/2018, in view of the circular of CBDT where word Cess is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is ind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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