TMI Blog2017 (1) TMI 1676X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the orders of earlier years, the A O is directed to follow the orders of the earlier years and allow a sum as business loss and the balance amount on account of write-off of investment as capital loss should be disallowed, as held above also. Thus, assessee gets part relief. This ground is partly allowed. AO to partly allow relief as above. This common issue of assessee s appeal is dismissed and that of the Revenue is also dismissed. Deduction under section 10(23G) - interest expenses incurred for earning interest free income from bonds instead being only direct expenses thereby allowing only part expenses u/s 10(23G) - HELD THAT:- No interest expense was disallowed by the assessee by claiming that it was the gross income to be allowed as exempt u/s 10(23G). As in the earlier year, now, the assessee before us also filed alternative working of expenses, which was not before the lower authorities. Before us now, as per the working of the expenses, the same was not analyzed by the lower authorities. Hence, we remit the mater back to the file of the AO for fresh consideration. The only differential fact in the present case is that the assessee itself has disallowed direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding. Accordingly, these two issues are restored back to the file of the AO. Disallowance of VRS expenses be deferred and amortized expenses over a period of time - HELD THAT:- Revenue could not point out how the expenses are capital in nature and could not find fault with the findings of CIT(A). Even otherwise, the expenses on VRS are incurred wholly and exclusively for the purpose of business and hence revenue in nature and allowable entirely in the year in which these are incurred. Admittedly, these expenses are incurred in this very year, which is not in dispute. Accordingly, we confirm the order of CIT(A) and this issue of revenue s appeal is dismissed. Discount on repurchase of foreign currency bonds - HELD THAT:- Claim of deduction represents discount on re-purchase of foreign currency borrowings, which is nothing but a capital receipt and it only represents an accounting entry. We find no infirmity in the order of CIT(A). Hence, this issue of revenue s appeal is dismissed. Exclusion of 234 B levy in regard to the deemed tax payable under section 143 (4) - HELD THAT:- assessed tax for the purposes of Section 234 B is clearly defined under the Act. This defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 200001 passed in Appeal No.CIT (A)XII/DC. 3(1)/IT-111/03-04. The Assessment was framed by DCIT Range 3(1), Mumbai for the A.Y. 2000-01 vide order dated 28-022003 u/s 143(3) of the Income Tax Act, 1961 (hereinafter the Act ). 2. The first issue in assessee s appeal is as regards to deduction of write off of investments and for this assessee has raised following ground: - (A) Re: Deduction of write-off of investments - ₹ 2,28, 15,80,396 [Para 5, pages 2 of the CIT(A) Order] 2. On the facts and circumstances of the case and in law, the CIT(A) erred in not assessing ₹ 2,28,15,80,396 as long term capital loss in respect of write-off of shares and debentures made in certain companies. At the outset, the learned Counsel for the assessee stated that an identical issue has been decided by the Tribunal in favour of the assessee in assessee s own case in ITA No.5424/Mum/2001 wherein vide Para 7.2 and 7.3 of the order dated 13-07-2016. 3. We find that the AO noticed from the accounts of the assessee that profit on sale of investments was arrived at after providing for write off of investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow the orders of the earlier years and allow a sum of ₹ 10,47,95,551 as business loss and the balance amount on account of write-off of investment as capital loss should be disallowed, as held above also. Thus, assessee gets part relief. This ground is partly allowed. Respectfully following the decision of the Coordinate Bench of the Tribunal in assessee s own case as above, we direct the AO to partly allow relief as above. This common issue of assessee s appeal is dismissed and that of the Revenue is also dismissed. 5. The next common issue in this appeal of the assessee and that of Revenue is as regards to the order of the CIT (A) partly confirming the interest expenses of ₹ 379,11,90,416/- incurred for earning interest free income from bonds instead of ₹ 174,37,66,592/- being only direct expenses thereby allowing only part expenses u/s 10(23G) of the Act. For this, the assessee has raised following grounds No.3 and 4:- (B) Re: Deduction under section 10(23G) ₹ 3,79,1 1,90,416 [Para 6, pages 2 S 3 of the CIT(A) Order] 3. On the facts and circumstances of the case and in law, the CIT(A) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital 550.53 3,900.21 Reserves and surplus I 4,450.74 _____________ II 29,393.86 Interest bearing funds: (I + II) 3,844.59 Ratio of borrowed funds to total funds (29,393.86/33844.59*100) 86.85% 2. Ratio of allocable expenses Total interest expenses as per Revenue Account 4,439.67 Ratio for allocation (25,02,93/4439.67*100) 56.38% 3. Calculation of income exempt u/s 10(23G) A 1,371,052.701 Proportion of income out of borrowed funds (137,10,52,701*86.85%) B 1,190,752.329 Less: Expenses allowable (proportionate) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the learned Counsel for the assessee, the AO has disallowed exemption u/s 10(23G) of the Act on account of receipts of financing to infrastructure sector and not the gross receipt. The assessee filed revised computation during assessment claiming exemption of entire amount of gross receipt of ₹ 379,11,90,416/-. The AO allowed the claim of exemption at ₹ 104,74,00,449/- relating to income computed on account of infrastructure sector eligible for claim of deduction u/s 10(23G) of the Act. The CIT (A) further allowed relief partly modifying the order of the AO. Aggrieved, now the assessee as well as the Revenue, both are in appeal before the Tribunal. 7. Before us now, as narrated above, the assessee relied on the decision of the Coordinate Bench of the Tribunal for assessment year 1997-98 wherein no interest expense was disallowed by the assessee by claiming that it was the gross income to be allowed as exempt u/s 10(23G) of the Act. As in the earlier year, now, the assessee before us also filed alternative working of expenses, which was not before the lower authorities. Before us now, as per the working of the expenses, the same was not analyzed by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made before us in the facts or legal position with regard to the issue under consideration. Under these circumstances, we direct the AO to follow the orders of the Tribunal for earlier years and decide this ground accordingly in favour of the assessee, after verifying the requisites facts. This ground is accordingly allowed for statistical purposes . 10. We also find that the Tribunal in assessee s own case for assessment year 1995-96 i.e. in ICICI Bank Ltd. Vs JCIT, SR-28, Mumbai (2008) 115 ITD 25 (Mumbai) has directed the AO to allow depreciation on all items claimed by the assessee. Respectfully following the said decision of the Tribunal in earlier year in assessee s own case, we direct the AO to allow the claim of the assessee after verifying the facts and figures. This issue of the assessee s appeal is thus allowed in both the years. 11. The next common issue in this appeal of the assessee and that of the Revenue is as regards to the order of the CIT (A) in partly confirming the disallowance of interest expenses of ₹ 221,88,52,452/- and 1% of managerial and administrative expenses. For this, the assessee has raised the following ground No.6:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. (supra). It is noted that in assessment year 1995-96 (order dt. 09.09.2015), the Tribunal decided this issue after considering not only the judgment of Hon ble Bombay High Court in the case of Emerald Co. Ltd. (supra) but after considering section 14A as well. Therefore, respectfully following the orders of earlier years, this ground is principally decided in favour of the assessee, subject to verification of facts of this year. Thus, A O is directed to follow the orders of earlier years and decide this ground after verification of facts of this year, and compute the deduction allowable to the assessee taking guidance from tribunal s orders of earlier years. This ground is treated as allowed for statistical purposes . 13. After hearing both the sides, we find that the AO while examining the assessee s own funds vis- -vis investments in shares will follow the decision of the Hon ble Bombay High Court in the case of HDFC Bank Ltd. (supra) and Reliance Utilities Power Ltd. (supra). In case, the investment is made out of assessee s funds, then, no interest expenses is to be allocated to the interest income. Accordingly, we set aside this issue to the file of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure incurred to earn such income. Certain income like interest on Government securities, as well as hire purchase operation do involves fund cost but they are not in the nature of finance business. For income from securities loans and advances, stock of hire, etc., the interest cost is allowed at 71% of such income. The assessee s arguments mentioned in its submissions are not of any relevance to the matter of computation of the eligible deduction. In case of the assessee, the major cost is the interest cost which works out to about 80% of its total cost of operations . When this was confronted to the learned CIT DR, he fairly conceded the position. In view of this and the fact that the identical issue is covered in favour of assessee for A.Y. 1998-99 and 1999-2000 vide Revenue s appeal no. in ITA No. 4824 4825/Mum/2004 order 06-09-2016, hence we confirm the order of the CIT (A) and this issue of Revenue s appeal is dismissed. However, we are in agreement with the argument of the learned Counsel for the assessee that AO be directed to remove the non-fund based commission amounting to ₹ 129,41,05,983/- instead of ₹ 194,31,55,445/- as claimed vide additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances, 17,05,52,154/- and the claim for interest of ₹ 3,92,75,669/- cannot be allowed.. 19. At the outset, the learned Counsel for the assessee stated the claim of depreciation and claim of interest on loan for building on fixed assets acquired on merger with Anagram Finance Ltd. but the CIT(A) has not considered this aspect. She claimed that the depreciation on business and commercial rights acquired at the time of merger being in the nature of goodwill should have been allowed in term of the decision of the Hon ble Supreme Court in the case of CIT v. Smiffs Securities Ltd. 348 ITR 307 (SC) and as regards to interest on capitalization of building ought to have been allowed as revenue expenditure following the decision of the Hon ble Bombay High Court in the case of CIT v. Tata Chemicals 175 CTR 433 (Bom). On query from the bench, the learned Sr. DR fairly conceded that let the facts be examined by the AO because none of the authorities below have deliberated on these issues. Learned Counsel for the assessee has not objected to the proposal. In term of the above, we restore these two issues back to the file of the AO for deciding the issue in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed back to the file of the AO by the following directions:- 27. At the outset, the learned Counsel for the assessee as well as the learned AO DR conceded that the Tribunal in assessee s own case for assessment year 1996-97 and 1997-98 in ITA No.4109 5424/Mum/2001 order dated 09-09-2015 and 31-07-2016, wherein exactly on identical facts following assessee s own case for assessment year 1987-88 in ITA No.8958/Bom/90 decided the issue and the matter back to the file of the A O. The Tribunal in assessment year 1987-88 restored the matter back to the file of the A O by observing as under in Para 9 by following Hon ble Supreme Court decision in the case of AO Vs United Provinces Electric Supply Co. 110 Taxman 134 as under:- We find that for the asst. year 1986-87 also similar issue came up before the AO (A) and he had set aside the matter to the file of A O with similar direction. When the matter came before the Tribunal, the Tribunal vide its order in ITA No.1224/Bom/90, sustained the direction of the AO (A). However, for the year under consideration, at the time of hearing before us, the learned counsel for the assessee made an additional argument that since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e can be allowed. We find that this issue is curved by the Tribunal s decision for AY 1996-97 in ITA No. 3782/Mum/2001 dated 28-10-2005. Respectfully following the same, we allow this issue of Revenue s appeal. 27. The next issue in this appeal of Revenue is against the order of CIT(A) allowing VRS expenses amounting to ₹ 35,19,357. For this Revenue has raised following ground No.5(a) and 5(b): 5(a) On the facts and circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of ₹ 35,19,357/-, being voluntary retirement expenses. 5(b) On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate the full facts of the case based on which the Assessing Officer had held that the expenditure has given the assessee a benefit of enduring nature. 28. We have heard rival contentions and gone through facts and circumstances of the case. We find that the AO disallowed the VRS expenses be deferred and amortized expenses over a period of time. The assessee claimed that these expenses are allowable in view of Hon ble Bombay High Court decision in the case of CIT vs. Bho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of deduction of ₹ 84,32,492/- represents discount on re-purchase of foreign currency borrowings, which is nothing but a capital receipt and it only represents an accounting entry. We find no infirmity in the order of CIT(A). Hence, this issue of revenue s appeal is dismissed. 33. The next issue in this appeal of revenue is against the order of CIT(A) deleting the charging of interest u/s 234B of the Act on the deemed tax payable u/s 143 (4) of the Act. For this revenue has raised following grounds: 8. On the facts and circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to exclude levy of interest u/s.23413 of the IT. Act, in respect of the deemed tax payable uls.143(4) of the I.T. Act. 34. We find that the CIT(A) has deleted this charging of interest by observing in para 18.1 as under: 18.1 A similar ground was taken in appeal before me by the Appellant in their own case for A.Y. 1998-99, wherein, in my order No. CIT(A)XII/AC.3(1)/IT-17/00-001 dated 26.3.2004, the charge of interest u/s. 234 B has been held to be consequential but in so far as levy of interest u/s234 B on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account special reserve withdrawal u/s 41 (4A) of the Act and confirmed by CIT(A). For this assessee has raised following ground no.8:- (f) Re: Addition of special reserve withdrawal under section 41(4A) of the Act ₹ 3,10,26,61,276 [Para 11, Pages 5 6 of the CIT(A) order) [8] On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition of ₹ 3,00,26,61,276 being special reserve withdrawn from special reserve account created up to A.Y. 1997-98 under section 41(4A) of the Act. 38. Brief facts are that, the AO observed in assessment order that the assessee had withdrawn a sum of ₹ 310,26,61,276/- from the special reserve u/s 36(1) (VIII) of the Act. According to AO, this amount was not offered to tax by the assessee and hence in view of newly introduced provision of section 41 (4A) of the Act by the Finance Act 1997, this amount taxable. The AO added back this amount to the total income of the assessee. Aggrieved assessee preferred appeal before CIT(A), who also confirmed the action of AO relying on assessee s own case for A.Y 1998-99 by observing as under:- 11.2 A similar i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by discussing the issue at pages 64 to 70 of his order and concluded that the assessee is eligible for deduction @ 40% amounting to ₹ 64.58 crores. The computation has been given in para 69 70 by the AO. From these facts, it cannot be said that the AO has not applied his mind while allowing the deduction under section 36(1)(viii) in respect to special reserve created. The assessment has been reopened by the AO for the reason that as per the provisions of new section 41(4A) introduced w.e.f. 1.4.98 which is applicable from AY 1998-99, the withdrawal made by the assessee is to be treated as deemed income of business and profession. In our considered view, the reopening of the assessee is on account of merely on change of opinion for the reason that the AO, who passed assessment order originally cannot be said he was not having knowledge of provisions of sec. 41(4A). He was aware of the section 41(4A) as, as per new section 41(4A) and as per the language of sub sec. 36(1)(viii) the amount withdrawn from special reserve created and maintained are to be taxed. Upto AY 97-98 the wording of section 36(1)(viii) was created and now from AY 1998-99, the wording of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o maintain the special reserve so created and correspondingly, no restriction on the utilisation of such special reserve. On the other hand, at the relevant time there were several sections in the Act which not only contained a similar condition of creation of reserve for availing of the respective deduction but also allowed the assessee (a) to utilise the reserve created for designated purposes in some cases within a prescribed time frame and (b) in case of non-utilisation of the reserve amount or utilisation for a purpose other than that specified, brought to charge the amount allowed as deduction eg. sec. 32A(4)(ii) read with 32A(5); 33A(3)(ii); 33ABA(l) read with (3); 33AC(1) read with (2) and (3); 34(3)(a), 80HHB(3)(11) read with (4); 80FfHBA(2)(ii) read with (3); 8OHHC (1) 2' proviso (as it existed prior to 1.4.1989); and 80HHD(1) read with (4) and (5). 41. She further explained that unlike the provisions referred to hereinabove, sec. 36(l)(viii) of the Act was silent as to the period for which the reserve was retained and/or utilisation of the same. In the absence of any specific bar, an assessee was at liberty to use the special reserve so created at any point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amended provision imposed an obligation to maintain special reserve created u/s 36(1)(viii). It is thus not a replacement of the earlier provision but an extension of the existing provisions, imposing an obligation to maintain the special reserve created and thereby plug the loopholes of misusing the special reserve created. Therefore, the presumption against retrospectivity does not apply. Ld. CIT DR further submitted that section 41(4A) was also introduced w.e.f. 01.04.1998 whereby any amount subsequently withdrawn from such special reserve is liable for taxation from AY 1998-99 onwards. Since, the assessee has withdrawn money from the special reserve in A.Y. 2000-01, i.e. after assessment year 1998-99, it is liable for taxation u/s 41(4A). Section 41(4A) does not distinguish between special reserve created upto 1997-98 and special reserve created and maintained in the subsequent period. Once the amendment was made w.e.f. 01.04.1998, special reserve created in the earlier assessment year loses its separate identity and merges into special reserve created and maintained from AY 1998-99 onwards. The treatment given by an assessee in its books of account is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal had set aside the order of the CIT u/s 263. The Hon'ble Court decided the issue against the department on the ground that since two views are possible with regard to applicability of section 36(1)(viii) r.w.s. 41(4A) and the Tribunal adopts one of the two views possible which has resulted in loss of revenue, it cannot be treated as an erroneous order prejudicial to the interest of revenue, unless the view taken by the Tribunal was unsustainable in law. Hence, the decision has been rendered under different facts and circumstances and it cannot be applied to the facts of the assessee. 44. We have heard rival contention and gone through facts and circumstances of the case. We have gone through the provisions of section 41(4A) which applies to a special reserve created and maintained under Section 36(l)(viii). During the relevant year the assessee has not withdrawn any amount from the special reserve 2 that is, special reserve created and maintained since AY1998-99. The assessee had withdrawn from the special reserve created upto AY1997-98. Such withdrawal would not attract the provisions of sec. 41(4A) for the reason that the condition for maintaining sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een transferred up to the financial year 1995-96. According to Hon ble Court it was not as though the assessee had surreptitiously transferred any amount nor was it the case of the Revenue that transfer of such funds from the special reserve was in any manner contrary to any law. Hon ble High Court affirmed the order of Tribunal that there was no obligation to maintain fund when the fund was created and the withdrawal was from the special reserve created before the obligation to maintain the fund came in to effect on and after 01.04.1998. Hon ble High Court has particularly relied on the decision of Hon ble Delhi High Court in the case of CIT vs. Industrial Finance corporation of India Ltd. [2012] 66 DTR 490 (Delhi) and relevant observation reads as under: 11. This court held in the matter of Grasim Industries Ltd. (supra) that the condition precedent to the exercise of ITA604.11 jurisdiction under section 263 was that the order sought to be revised must be erroneous insofar as it was prejudicial to the interests of the revenue. Where two views are inherently possible and the assessment could not be subjected to the jurisdiction under section 263. A similar view has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India Ors. v. Indian Tobacco Association5, the doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra Ors. 6It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here. 34. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the preamended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law. The above summing up is factually based on the judgments of this Court as well as English decisions. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas Anr.8, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation, it ought to be construed as prospective only. 37. In the case of C.I.T., Bombay v. Scindia Steam Navigation Co. Ltd.11, this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year. Answer to the Reference 38. When we examine the insertion of proviso in Section 113 of the Act, keeping in view the aforesaid principles, our irresistible conclusion is that the intention of the legislature was to make it prospective in nature. This proviso cannot be treated as declaratory/statutory or curative in nature. There are various reasons for coming to this conclusion which we enumerate herein below: 46. In view of the above referred judgements of Hon ble Supreme Court and of Hon ble Bombay Delhi High Court, we are of the view that the amendment introduced in the said section by the Finance Act 1997 is not clarificatory. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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