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TMI Blog2022 (7) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... for the first assessment year (i.e. 2004-05) before us for the sake of brevity. However, if any particular issue is arising in other year for the first time, facts pertaining to the same are discussed accordingly. ITA No. 2440/Mum./2011 Assessee's appeal - AY 2004-05 3. In this appeal, the assessee has raised the following grounds: "1. The learned Commissioner of Income Tax erred upholding the disallowance of provision for bad and doubtful debts for computing the book profit u/s 115JB. 2. The learned Commissioner of Income Tax erred in upholding the disallowance of Rs.3,89,81,600 paid to Tata Sons Ltd., towards the subscription paid for The Brand Equity and Business Promotion (BEPB) Agreement. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance u/s 80M/section 14A with a direction to rework the same in respect of indirect expenses. 4. The learned Commissioner of Income Tax (Appeals) erred in limiting the claim of deduction in respect of Early Separation Scheme / Voluntary Retirement Scheme (VRS) to Rs.12,08,80,000, against the claim of Rs. 53,74,96,642. 5. The learned Commissioner of Income Tax (Appeals) erred in holding that 90% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted in earlier years, the Assessing Officer vide order dated 07/12/2006 passed under section 143(3) of the Act disallowed the aforesaid amount treating the same as non-business expenditure. 7. In appeal, before the learned CIT(A) assessee submitted that the said payment was made vide agreement dated 01/01/1999 titled 'Tata Brand Equity and Business Promotion Agreement' vide which the assessee had to pay 0.25% of its annual profits to M/s Tata Sons Ltd for using the Tata logo etc. The assessee further submitted that such payment was made annually on recurring basis. The learned CIT(A) vide impugned order dated 21/01/2011 dismissed the appeal filed by the assessee on this issue, by observing as under: "10.3 I have considered the facts of the issue and the submissions made by the AR. There is merit in AO's finding that the company is well known as a Tata Group Company since 1939 having its own reputation as a household name. Further, the AO is right in noting that the appellant had its own well established logo which clearly indicated the linkage of the appellant with the Tata Group. Hence, the company did not need to make any payments for utilizing the Tata logo to promote it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. The issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee by the decisions of the coordinate bench of the Tribunal in preceding assessment years. Thus, respectfully following the order passed by the coordinate bench of Tribunal in assessee's own case cited supra, we direct the Assessing Officer to delete the disallowance made on account of subscription paid to Tata Sons Ltd. As a result, ground no. 2 raised in assessee's appeal is allowed. 12. The issue arising on ground no. 3, raised in assessee's appeal is pertaining to allocation of expenses towards earning dividend income and disallowance under section 14A of the Act. 13. The brief facts of the case pertaining to this issue, as emanating from the record, are: For the year under consideration, the assessee had received dividend income on shares and income from units of mutual funds amounting to Rs. 36,88,68,929, which was claimed as exempt under section 10 of the Act. During the course of assessment proceedings, the assessee was asked to quantify the interest expenses attributable to such investments and explain why the same should not be disallowed under section 14A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before us. 15. During the course of hearing, learned counsel submitted that subsequent to the impugned order, the Assessing Officer passed order dated 03/08/2011 giving effect to the directions of the learned CIT(A), whereby, disallowance under section 14A of the Act was estimated at 5% of the exempt income and accordingly, Rs. 1,84,43,450 was disallowed under section 14A of the Act. Learned counsel submitted that while computing the disallowance, the Assessing Officer disregarded the suo moto disallowance of Rs. 4,80,000 offered by the assessee, considering 1% of salary of CFO, Deputy CFO, Head Treasury and 5% salary of staff and Treasury Department +10% of overheads thereon. Learned counsel further submitted that suo moto disallowance on similar basis has been accepted in preceding as well as subsequent assessment years. 16. On the other hand, learned DR vehemently relied upon the order passed by the lower authorities. 17. We have considered the rival submissions and perused the material available on record. In the present case, assessee's contention that surplus funds were invested in shares and other securities and borrowed funds were not invested in the shares was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtiliser unit at Haldia. 20. The brief facts of the case pertaining to this issue, as emanating from record, are: The assessee, while filing the revised return of income, claimed deduction of 2,87,39,000 at 30% of the profits (being 5th year of claim) under section 80IB of the Act, in respect of erstwhile Hind Lever Chemicals Ltd. As in assessment year 2003-04, sales tax remission and price concession (subsidy) forming part of section 80IB claim was rejected, the Assessing Officer vide order passed under section 143(3) of the Act disallowed the above 2 items included in computation of deduction claimed under section 80IB of the Act. The learned CIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before us. 21. During the course of hearing, learned counsel submitted that the coordinate bench of the Tribunal in assessee's own case has granted relief in respect of this issue. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 22. We have considered the rival submissions and perused the material available on record. We find that, while deciding similar issue in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose; (iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India: Provided that the condition in this clause shall, in relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-section (4) shall apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted. Explanation 1- For the purposes of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years. Provided also that no deduction under this sub-section shall be allowed for the assessment year beginning on the 1st day of April, 2004 or any subsequent year to any undertaking or enterprise referred to in sub-section (2) of section 80-IC. Provided also that in the case of an industrial undertaking in the State of Jammu and Kashmir, the provisions of the first proviso shall have effect as if for the figures, letters and words 31st day of March, 2004, the figures, letters and words 31st day of March, 2012 had been substituted: Provided also that no deduction under this sub-section shall be allowed to an industrial undertaking in the State of Jammu and Kashmir which is engaged in the manufacture or production of any article or thing specified in Part C of the Thirteenth Schedule." "80-IC Special provisions in respect of certain undertakings or enterprises in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this Court, one in Loka Shikshana Trust v. Commissioner of Income-Tax [1975] 101 ITR 234 (SC) the other in Indian Chamber of Commerce v. Commissioner of Income-tax [1975] 101 ITR 796 (SC) and the third in Additional Commissioner of Income-tax v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) where the speech made by the Finance Minister while introducing the exclusionary clause in Section 2 Clause (15) of the Act was relied upon by the Court for the purpose of ascertaining what was the reason fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in s. 80J. In our view since the expression of wider import, namely, "attributable to" has been used, the Legislature intended to cover recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself. On this basis, the appeal was decided in favour of Revenue. 16. The sheet anchor of Shri Radhakrishnan's submissions is the judgment of this Court in Liberty India's case (supra). This was a case referring directly to Section 80-IB in which the question was whether DEPB credit or Duty drawback receipt could be said to be in respect of profits and gains derived from an eligible business. This Court first made the distinction between "attributable to" and "derived from" stating that the latter expression is narrower in connotation as compared to the former. This court further went on to state that by using the expression "derived from" Parliament intended to cover sources not beyond the first degree. This Court went on to hold:- '34. On an analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has stated that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. It therefore found, on the facts before it, that by reason of an export promotion scheme, an assessee was entitled to import entitlements which it could thereafter sell. Obviously, the sale consideration therefrom could not be said to be directly from profits and gains by the industrial undertaking but only attributable to such industrial undertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post-manufacture namely, export. On an application of the aforesaid test to the facts of the present case, it can be said that as all the four subsidies in the present case are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed. Also, the object behind DEPB entitlement, as has been held by this Court, is to neutralize the incidence of customs duty payment on the import content of the export product which is provided for by credit to customs duty against the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself. 21. The Calcutta High Court in Merinoply & Chemicals Ltd. v. CIT [1994] 209 ITR 508, held that transport subsidies were inseparably connected with the business carried on by the assessee. In that case, the Division Bench held:- "We do not find any perversity in the Tribunal's finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB). Both the incentives considered by the Apex Court in the case of Liberty India could be availed after the manufacturing activity was over and exports were made. But, we are concerned in this case with the transport and interest subsidy which has a direct nexus with the manufacturing activity inasmuch as these subsidies go to reduce the cost of production. Therefore, the judgment in the case of Liberty India v. Commissioner of Income Tax has no manner of application. The Supreme Court in the case of Sahney Steel and Press Works Ltd. & Others versus Commissioner of Income Tax, reported in [1997] 228 ITR at page 257 expressed the following views:- " ........ Similarly, subsidy on power was confined to 'power consumed for production'. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We do not find it necessary to further encumber this judgment with the judgments which Shri Ganesh cited on the netting principle. We find it unnecessary to further substantiate the reasoning in our judgment based on the said principle. 27. A Delhi High Court judgment was also cited before us being Dharam Pal Prem Chand Ltd.'s case (supra) from which an SLP preferred in the Supreme Court was dismissed. This judgment also concerned itself with Section 80-IB of the Act, in which it was held that refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction under Section 80-IB of the Act. 28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the relevant assessment year. Thus, respectfully following the order passed by the coordinate bench of Tribunal in assessee's own case cited supra, we direct the Assessing Officer to allow the deduction claimed by the assessee under section 80 IB of the Act. As a result, ground no. 6 raised in assessee's appeal is allowed. 24. The issue arising on ground no. 7, raised in assessee's appeal, is pertaining to denial of deduction in respect of amortisation of lease rental deposits. 25. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings it was noted that the assessee entered into sale and lease back agreement with L&T, Bajaj Auto and HDFC Ltd. The lease agreements provided for certainly lease deposit and annual rent. Under the agreement, it was agreed between the assessee and the lessors that this deposit is to be written off and adjusted against future lease rentals. Accordingly, the deposit amount of Rs. 38.12 crores was decided to be amortised in the books of the assessee. During the year under consideration, an amount of Rs. 2,18,09,383 was amortised and provided towards lease deposits. While filing the retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty levied for breach of conditions for license. The Government forfeited security deposit against arrears of license fee. The AO added the forfeited amount in assessable income. The Tribunal allowed security deposit adjusted as revenue expenditure in same manner as payment of license fee. The Tribunal also held that forfeiture was not by way of penalty for breach of any term of license. The Hon'ble High Court held that (i) There is no Tata Chemicals Ltd. 21 ITA Nos. 2965 & 3383/Mum/2015 material on record to show that the forfeiture order was not merely a direction for adjustment of the security amount against the arrears of license fee. The Revenue did not suggest before the Tribunal that the failure to pay any installment of license fee entailed a criminal penalty, nor pointed out that there was any other breach of condition of license or any excise law to support its plea that the said forfeiture resulted from a violation of law disentitling the assessee's claim for deduction of the amount as a business expenditure, (ii) The finding given by the Tribunal that the security deposits was adjusted towards the arrears of license fee and the same was not a forfeiture by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at: "when the assessee claims a business loss, the main question to be considered is whether the loss is incidental to the business. Having regard to the facts and findings recorded by it, the Tribunal was correct in coming to the conclusion that the deduction claimed by the assessee in writing off the forfeited amounts was in the course and incidental to the assessee's business. Accordingly, the impugned amounts were deductible from the total income of the assessee". In the instant case, in the financial year 1994-95, the assessee entered into sale and lease back agreements with L&T, Bajaj Auto and Tata Chemicals Ltd. 23 ITA Nos. 2965 & 3383/Mum/2015 HDFC Ltd. The lease agreements provided for certain lease deposit and annual rent. During the year under reference, an amount of Rs.2,58,92,853/- was amortized and provided towards lease deposit. We find that on the basis of above facts, the present case is distinguishable from the above case laws relied on by the Ld. counsel. We are of the considered view that the amount paid as consideration for obtaining the lease is for the acquisition of a capital asset which enables the lessee to carry on its business. It is a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit derived by the assessee is not chargeable to income tax as it is a capital receipt. We have carefully perused the West Bengal incentive scheme 1999, which is notified on 22/6/1999 to extend incentive for promotion of industries in the state. The assessee has setup unit in Midnapore district and therefore according to clause number [7] this area was covered under the scheme> According to scheme, assessee has option either to defer the payment of the Sales tax or remission of the Sales tax on sale of finished goods. It is apparent that assessee has opted for the remission of sales tax due for payment by the unit for nine years which is subject to ceiling of 100 % of the gross value of the fixed capital asset of the approved project. On reading of the scheme, it is apparent that it is formulated to extend incentive for promotion of industries in the state. 017. As held by Honourable Supreme court in CIT Madras Vs Ponni Sugar [2008] 174 Taxman 87 (SC)/[2008] 306 ITR 392 (SC)/[2008] it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. In the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018, r/w circular F. no.279/Misc./142/2007-ITJ-(Pt) dated 20th August 2018. In view of the aforesaid, Revenue's appeal deserves to be dismissed. However, the Revenue is given liberty to seek recall of this order if, at a later point of time, it is found that the appeal falls under any of the exceptions provided in the Circulars referred to above. 40. In the result, appeal by the Revenue appeal is dismissed. ITA No. 2692/Mum/2012 Assessee's appeal - AY 2005 - 06 41. In this appeal, assessee has raised following grounds: "1. The learned Commissioner of Income Tax erred upholding the disallowance of provision for bad and doubtful debts for computing the book profit u/s 115JB at Rs. 4,72,42,353/-. 2. The learned Commissioner of Income Tax erred in upholding the disallowance of Rs.6,00,000 in respect of Provision for wealth-tax for computing the book profit u/s 115JB. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance made under section 14A pertaining to dividend income for the purpose of book profit u/s 115JB. 4. The learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance u/s 14A. 5. The learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned CIT(A), and assessee is agreeable to the methodology adopted by the Assessing Officer, ground no. 4 raised in assessee's appeal is dismissed. Further, as regards ground no. 3, in any case, as per the decision of Special Bench of Tribunal in ACIT vs Vireet Investment (P) Ltd.: [2017] 58 ITR(T) 313 (Delhi - Trib.) (SB), while computing book profit under section 115JB of the Act, disallowance made under section 14A of the Act cannot be added. Accordingly, ground no.3, raised in assessee's appeal is allowed. 49. Ground no. 6 raised in assessee's appeal is pertaining to denial of deduction in respect of lease rental deposits. Thus, our findings/conclusion in assessee's appeal being ITA No. 2440/Mum/2011 for assessment year 2004-05 shall apply mutatis mutandis. Accordingly, ground no. 6 raised in assessee's appeal is dismissed. 50. In the result, appeal by the assessee is partly allowed. ITA No. 2553/Mum/2012 Revenue's appeal - AY 2005-06 51. The issue arising on ground no.1, raised in Revenue's appeal, is pertaining to deletion of disallowance made under section 40A(9) of the Act. 52. The brief facts of the case pertaining to this issue, as emanating from the record, are: Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 3082/M/02, dated 26.07.2006) and AY 1996-97 (ITA No. 6496/M/04, dated 17.08.2007). In case of Nutan Bal Sikshan Sangh and Kindergarten Primary School and Mithapur/Kamgar Club, Mithapur, in AY 1992-93 (ITA No. 4442/M/96, dated 04.02.2000), in case of Tata Chem Sports & Cultural Club, Babrala in AY 1995-96 (ITA No. 3082/M/02, dated 26.07.2006), AY 1996-97 (ITA No. 6496/M/04, dated 17.08.2007), AY 1992-93 (ITA No. 4442/M/96, dated 04.02.2000), in case of Flag Day Collection in AY 1992-93 (ITA No. 4442/M/96, dated 04.02.2000), in case of Fort Medical Society in AY 1995-96 (ITA No. 3082/M/2002, dated 26.07.2006), in AY 1996-97 (ITA No.6496/M/04, dated 17.08.2007) and in case of Tata Chem Co-op. Credit Society in AY 1995-96 (ITA No. 3082/M/02, dated 26.07.2006), in AY 1996-97 (ITA No. 6496/M/04, dated 17.08.2007), A.Y. 1992-93 (ITA No. 4442/M/96, dated 04.02.2000), similar issues have been decided by the Tribunal in favour of the assessee. Tata Chemicals Ltd. 31 ITA Nos. 2965 & 3383/Mum/2015 Facts being similar, we uphold the order of the Ld. CIT(A) and dismiss the 1st ground of appeal." 56. The learned DR could not show any reason to deviate from the aforesaid order and no c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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