TMI Blog2020 (11) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the payment made by the assessee to very same party i.e. M/s KEMA Quality BV Netherland cannot be brought to tax in India as Fees for Technical Services in accordance with India Netherland DTAA. Disallowance provisions made for sales incentive in respect of Shahenshah Sales Incentive Scheme - assessee made a provisions in respect of Shahenshah Scheme towards Sales Incentives payable to its dealers and distributors - HELD THAT:- As during the previous year Assessment Year 2007-08, the assessee made a provisions in respect of Shahenshah Scheme towards Sales Incentives payable to its dealers and distributors. The said scheme was introduced to promote sales and ensure timely collection of payments from its customers. Out of the provisions made till date payment was made by the assessee during the Assessment Year under consideration. The Tribunal in A.Y. 2007-08 held that the provision made by the assessee in respect of Shahenshah Scheme was on a scientific basis and, therefore, allowable deduction. The facts in the present assessment year is identical, thus the issue is squarely covered in assessee s own case for Assessment Year 2007-08. [ 2020 (9) TMI 31 - ITAT DELHI] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res in so far as the shares were redeemed at par value. Thus, there was no gain which accrued to the assessee as a result of redemption of such shares, since the shares were redeemed at par value. AR submitted that gain arose to the assessee on account of repatriation of foreign currency to India, which is an event separate and distinct from the event of transfer of shares of the subsidiary company. The exchange gain was only a consequence of repatriation of the consideration received in Euro to INR and cannot be construed to be part of consideration received on redemption of shares. Thus, the applicability of Section 45 does not come in picture in the present case. Therefore, the Assessing Officer was not right in applying Section 45 for making the addition. Allowance of deduction in respect of Education Cess and Secondary Higher Education Cess - HELD THAT:- Levy of education cess on Income tax is distinct from that of an income tax or surcharge since the letter to form part of part one of the First Schedule which defines income tax and provides rate of levy thereof. Unlike income tax and surcharge which are levied for general purpose, Government has explained an educat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax (Appeals) further failed to appreciate that disallowance under section 40(a)(ia) of the Act was, in any case, not warranted, since: (a) no amount was payable as on the last date of the previous year; and (b) non-deduction of tax was on account of bona fide view taken by the appellant. 2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not only confirming but also enhancing the disallowance of provision made for sales incentive in respect of Shahenshah Sales Incentive Scheme . 2.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the provision made by the appellant under the aforesaid scheme was not being made on a scientific or logical basis and therefore, the entire provision, is not allowable as deduction. 2.2 That the Commissioner of Income-tax (Appeals) erred on facts and in law in restricting the amount of provision allowable as deduction to the extent of 15% on an ad-hoc basis and in consequently, enhancing the amount of disallowance by ₹ 29,56,344. 2.3 That the Commissioner of Income-tax (Appeals) exceeded his jurisdiction in enhancing the disallowance of provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out appreciating that the embargo/ prohibition contained in the case of Goetze India Limited: 284 ITR 323 (SC) do not apply to the powers of the appellate authority to entertain any fresh/ new claim. 6. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not directing the assessing officer to allow deduction of excess provision of bad debts written back of ₹ 2,58,164. 6.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not adjudicating the aforesaid claim on the ground that the claim was not made by filing a revised return, without appreciating that: (a) the decision in the case of Goetze India Limited: 284 ITR 323 (SC) had no application in case of mere enhancement of a claim of deduction; and (b) the embargo/ prohibition contained in the aforesaid case do not apply to the powers of the appellate authority to entertain any fresh/ new claim. 3. The assessee company is engaged in the business of manufacturing of switchgears, energy meters, cables wires, Electrical fans, compact fluorescent lamp and related components and trading luminaries lighting fixtures and exhaust fans. The assessee filed e-retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) vide order dated 30/09/2019. 4. The Ld. DR relied upon the assessment order and the order the CIT(A). 5. We have heard both the parties and perused the material available on record. It is pertinent to note that in A.Y. 2007-08, the assessee paid levy and certificate charges aggregating to ₹ 5,68,856/- to M/s KEMA Quality BV, Netherland for the purpose of certification of electrical products manufactured by the assessee. The aforesaid foreign entity was authorized for certification of products for export which is a mandatory requirement for selling products in Europe, Middle East Countries, and South African Countries. The explanation given by the assessee before the Assessing Officer for not withhold tax at source on the aforesaid payment of ₹ 5,68,856/- made to the overseas entity, since the assessee bonafidely believed that such certification fee was not liable to tax in India, as the same was not covered within the meaning of Fee for Technical Services as provided u/s 9(1) (vii) of the Act and/or the overriding provisions of the Double Taxation Avoidance Agreements. The aforesaid issue stands covered in favour of the assessee by the order of the Tribunal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout issuing the notice of enhancement u/s 251 of the Act. The Ld. AR submitted that the aforesaid issue now stands covered in favour of the assessee by the order of the Tribunal in asseesse s own case for Assessment Year 2006-07 2007-08 (being ITA No. 5530/Del/2010 and ITA No. 466/Del/2011 order dated 30/09/2019). The Tribunal held that the provision made by the assessee in respect of Shahenshah Scheme was on a scientific basis and, therefore, allowable deduction. 7. The Ld. DR relied upon the assessment order and the order of the CIT(A). 8. We have heard both the parties and perused the material available on record. It is pertinent to note that during the previous year Assessment Year 2007-08, the assessee made a provisions of ₹ 5,01,73,763/- in respect of Shahenshah Scheme towards Sales Incentives payable to its dealers and distributors. The said scheme was introduced to promote sales and ensure timely collection of payments from its customers. Out of the provisions made till date payment of ₹ 1,04,82,408/- was made by the assessee during the Assessment Year under consideration. The Tribunal in A.Y. 2007-08 held that the provision made by the assessee in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 65,04,50,969 (₹ 44,88,013) (₹ 3,75,70,429) 2008-09 ₹ 77,13,11,134 ₹ 9,60,51,074 ₹ 14,76,48,913 Total ₹ 1,84,37,58,056 ₹ 9,15,63,061 ₹ 10,26,07,803 For the Assessment Year under consideration (i.e. Assessment Year 2008-09), the assessee in the revised return of Income claimed deduction u/s 80IC of the Act in respect of following units: Unit No. 1, Baddi: ₹ 77,13,11,135 Unit No. 2, Baddi: ₹ 9,60,51,073 Haridwar Unit : ₹ 14,76,48,913 Deduction claimed ₹ 101,50,11,121 The deduction so claimed under Section 80-IC of the Act was duly supported by audit report in prescribed Form No.10CCB filed along with the return of income. The Ld. AR submitted that the Assessing Officer, merely relied on the decision of ACIT vs. Goldmine Shares Finance (P) Limited 302 ITR 208 (Ahemdabad) (SB) and without appreciating the facts of the case and correct position in law, held that in terms of section 80-IA(5) of the Act, lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit(s) of the assessee-company in the respective year(s) as under:- Assessment Year Baddi Unit -I Baddi Unit -2 (EOU) Haridwar Other Units Gross Total Income 2005-06 ₹ 10,02,00,466 Not started Not started ₹ 26,33,28,245 ₹ 36,35,28,711 2006-07 ₹ 32,17,95,487 Not started (₹ 74,70,681) ₹ 36,62,56,010 ₹ 68,05,80,816 2007-08 ₹ 65,04,50,969 (₹ 44,88,013) (₹ 3,75,70,429) ₹ 46,66,04,234 ₹ 107,49,96,761 2008-09 ₹ 77,13,11,134 ₹ 9,60,51,074 ₹ 14,76,48,913 ₹ 44,25,07,648 ₹ 145,75,18,769 The Ld. AR further pointed out that the entire loss was set off against profits of non-eligible units and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein it was held that it is not permissible to compute the profits of the priority industry in respect of which the relief is claimed by taking into account the depreciation losses from other industries. The aforesaid provisions of sub-section (5) of Section 80-IA merely give legislative sanction/ statutory recognition to the stand taken by the assessee and subsequently approved by the Hon ble Apex Court in case of Canara Workshops (supra) to avoid any unnecessary controversy/ debate on the issue. The said sub-section (5) of Section 80-IA of the Act, thus, gave legislative sanction/ approval to the stand taken by the assessee that profits of the eligible undertaking need not be set off against loss suffered in any other unit for computing allowable deduction. The aforesaid sub-section, provides that the eligible unit claiming deduction under Section 80-IA of the Act would be treated as a separate source of income and deduction has to be allowed only vis- -vis profits derived from the eligible unit unaffected by the profits/losses of other units owned by the assessee. The manner of computation of deduction allowable under similar provisions of Section 80HH/ 80I of the Act had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide that the eligible unit would be treated as a separate source of income, in order to settle the controversy and put the matter beyond doubt that the deduction has to be allowed only vis- -vis profits derived from the eligible unit unaffected by the profits/losses of other units owned by an assessee. Subsection (5) provides that for computing deduction under Section 80IA of the Act, profits of the eligible undertaking is to be taken on a stand-alone basis without being affected by losses of the other unit(s). The said sub-section cannot be read to restrict the claim of deduction under Section 80-IA/IB of the Act by notionally bringing forward the losses of earlier years of the eligible undertaking, which have already been set off against profits of other units in earlier years. Such an interpretation would be contrary to the provisions of Sections 70, 71 and 72 and inconsistent with the scheme of the Act. Had the intention of the Legislature been otherwise, viz., to require notional adjustment of already absorbed losses, the sub-section (5) of Section 80-IA would have read differently. The Ld. AR submitted that the provisions of Section 80-IA(5) of the Act do not override the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee opted out of the provisions, could not be brought forward, that too, on a notional basis, for setting off against the eligible profits for the year under consideration. The Ld. AR relied upon the decision of Hon ble Karnataka High Court in the case of CIT vs. Sh. Anil H. Lad 45 taxmann.com 98 wherein the assessee was engaged in the business of operating windmills. During the Assessment Year 2008-09, the assessee claimed deduction under Section 80-IA of the Act in respect of profits derived from a windmill which had become operational during Financial Year 2005-06. During Assessment Years 2006-07 and 2007-08, the assessee had incurred a loss from operation of the said windmill which had been adjusted against income from other business activities. The Assessing Officer denied deduction under Section 80-IA on the basis that, in view of the provisions of Section 80- IA(5) of the Act, the loss and depreciation for earlier years had to be notionally brought forward and set off against profits of eligible business in the relevant assessment year. On appeal, the CIT(A) upheld the order of the Assessing Officer on the basis that there needed to be a notional set off of precedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Year 2008-09. But the Assessing Officer set-off notional losses of earlier years, for the purpose of computing deduction under Section 80-IC of the Act. As per sub-section (5) to Section 80IC which provides that the eligible unit claiming deduction under Section 80-IA of the Act would be treated as a separate source of income and deduction has to be allowed only vis- -vis profits derived from the eligible unit unaffected by the profits/losses of other units owned by the assessee. Thus, the losses of earlier years already set off against income of previous year should not be reopened again for computing deduction under Section 80IC of the Act. The case laws relied by the Ld. AR laid down the same principle and thus, applicable in the present case as well. The Ld. DR could not controvert the fact that the entire loss was set off against profits of non-eligible units and there was no loss that was actually carried forward to Assessment Year 2008-09. Thus, the Assessing Officer was not correct in setting off notional losses of earlier years, for the purpose of computing deduction under Section 80-IC of the Act. Therefore, Ground No. 3 and 3.1 are allowed. 12. As regards Ground Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter, converted to INR for the purposes of Section 45 of the Act. In other words, the cost of acquisition of shares and consideration received thereon should necessarily be considered in Euro and the resultant gain/loss thereon should thereafter be converted into INR at the prevailing market rate. In the present case, the net gain/loss on redemption of shares was Nil since the shares were redeemed at par value and thereby there was no capital gains taxable under Section 45 of the Act. The Ld. AR submitted that Section 45 of the Act provides for taxation of any profits or gains arising from the transfer of a capital asset. Thus, what is sought to be taxed under the said section is only gains accruing as a result of transfer of the asset and nothing more. In the present case, as stated above, there was no gain on transfer/redemption of the shares in so far as the shares were redeemed at par value. Thus, there was no gain which accrued to the assessee as a result of redemption of such shares, since the shares were redeemed at par value. The Ld. AR submitted that the said contention is supported by Rule 115 of the Income Tax Rules, which provides the rate of exchange for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods and meeting other expenses. The assessee was also the selling agent of Baldwin Locomotive Works of United States for sale of their products in India and in connection with this work, the assessee incurred expenses on their behalf in India. These expenses were reimbursed to the assessee in United States by paying the amount to Tata Inc., New York. The assessee also earned a commission of $ 36,123 as selling agent of Baldwin Locomotive Works and this amount received as commission was taxed in the hands of the assessee in the relevant assessment year on accrual basis, after being converted into INR according to the then prevailing rate of exchange, and tax was paid on it by the assessee. The amounts paid by Baldwin Locomotive Works by way of reimbursement of expenses and by way of commission were not remitted by the assessee to India but were retained with Tata Inc., New York, for purchase of capital goods with the sanction of the exchange control authorities. There was balance of $ 48,572.30 in the assessee's account with Tata Inc., New York, on 16th September, 1949, when, on devaluation of the rupee, the rate of exchange which was ₹ 3.330 per dollar shot up to ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney was originally stock-in-trade, it changed its character of stock-in-trade when it was blocked and sterilized and the increment in its value owing to the exchange fluctuation must be treated as a capital receipt. Since the sum of ₹ 3,97,221 was held on capital account and not as part of the circulating capital embarked in the business of banking, it was held by the Hon ble Supreme Court that the profit arising to the assessee on remittance of the said amount on account of alteration in the rate of exchange was not a trading profit but a capital accretion and, thus, not eligible to tax. The view taken in the above two decisions was reiterated by the Hon ble Supreme Court while delivering judgment in the case of Sutlej Cotton Mills Limited. v. CIT 116 ITR 1, wherein the following tests was propounded to determine the character of loss/gain arising due to exchange fluctuations. It was similarly held by the Hon ble Supreme Court in case of CIT vs. Woodward Governor India (P) Ltd. 312 ITR 254 (SC). The Ld. AR further relied upon the decision of Hon ble Calcutta High Court in the case of Indian Leaf Tobacco Development Co. Ltd. vs. CIT 137 ITR 827 wherein the assessee-company, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal upheld the addition made by the Assessing Officer. On further appeal, the Hon ble High Court observed that that the amount was held by the assessee for the purpose of investment only and was not utilized for any business transaction; the amount when repatriated to India had resulted in a receipt of additional amount over and above the book value on account of devaluation of rupee which took place in the relevant previous year prior to such repatriation. Accordingly, the Hon ble High Court held that such profit had accrued to the assessee not in the course of any trading activity or on money held for the purpose of trade but on account of appreciation in value of amount, which was held for the purpose of investment, the accretion was capital in nature. The Ld. AR further relied upon the decision of Hon ble Madras High court in case of Addl. CIT vs. Chettinad Corporation (P) Ltd. 112 ITR 898. In that case, the profits realized by the assessee from its business in Ceylon could not be repatriated to India due to the policy of Ceylon Government. As a result of devaluation of Indian currency, on subsequent remittance of money into India after the removal of restrictions, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fluctuation gains made by the Assessing Officer and sustained by CIT(A) calls for being deleted in toto. 13. The Ld. DR relied upon the assessment order and the order of the CIT(A). 14. We have heard both the parties and perused the material available on record. It is pertinent to note that it is an undisputed fact that investment made by the assessee in shares of M/s. Havells Holdings Ltd was made in Euro and redemption of such shares were also made in Euro. Thus, actual profit or loss on sale/redemption of such shares have to necessarily be computed in Euro only and thereafter, converted to INR for the purposes of Section 45 of the Act. In other words, the cost of acquisition of shares and consideration received thereon should necessarily be considered in Euro and the resultant gain/loss thereon should thereafter be converted into INR at the prevailing market rate. In the present case, the net gain/loss on redemption of shares was Nil since the shares were redeemed at par value and thereby there was no capital gains taxable under Section 45 of the Act. From the perusal of Section 45 of the Act it can be seen that for taxation of any profits or gains arising from the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid in the Assessment Year 2008-09. The Assessing Officer rejected the assessee s claim by holding that the claim cannot be entertain in the light of the decision of the Hon'ble Supreme Court in the case of Goetz (India) Ltd. Vs. CIT(A) 284 ITR 323 considering that the assessee had not made such claim by filing revised return of income. Even on merits, the Assessing Officer held that the claim of the assessee was void of any merits. Since, deduction contemplated under the scheme of the Act envisages only those expenses which have been incurred to arrive at the taxable income of the assessee and not beyond the point of taxation. The CIT(A) upheld the order of the Assessing Officer thereby relying on decision of the Hon ble Apex Court in case of Goetz (India) Ltd. (supra). The Ld. AR submitted that the aforesaid action of the Assessing Officer and the CIT(A) is not based on judicious appreciation of facts and position in law for the reasons that admittedly the claim of deduction in respect of education and higher secondary cess was not made by the assessee by filing revised return of income, but the same was made vide letter dated 24/11/2010 during the course of assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess on Income tax is distinct from that of an income tax or surcharge since the letter to form part of part one of the First Schedule which defines income tax and provides rate of levy thereof. Unlike income tax and surcharge which are levied for general purpose, Government has explained an education cess and is admittedly levied for specific purpose that is to fulfill the commitment of the government to provide quality health services and finance universalized quality basic education and secondary and higher education. Unlike surcharge which was an exclusive component of income tax, education cess as introduced vide Finance Act, 2004 was also imposed an additional levy on indirect taxes namely Customs, Excise and Service Tax. Education cess does not part take the care of being a component of income tax per say as levied under the provisions of the Act. The decision of the Hon ble Supreme Court in case of Goetz India (supra) will not be applicable in the present case. The claim of the assessee in respect of the education cess is allowable as deduction for the purpose of computation of taxable profits under the Act as held in the Hon ble Bombay High Court s decision in case of Cesa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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