TMI Blog2013 (9) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the disallowance of Rs. 2,69,64,162/- under Rule-8D read with section 14A of the Income Tax Act, computed at % of the average value of investments, as expenditure relatable to exempted income. 3. Briefly stated relevant facts of the case are that the assessee is engaged in the business of generation and distribution of power. During the year, assessee filed the return of income declaring the total income at Rs. NIL on 29.9.2008, which was subsequently revised on 5.12.2008 and again on 25.3.2010 declaring the total income at Rs. NIL. The revised return was filed to give effect to the Demerger scheme of the company and to claim additional amount of TDS of Rs. 14,80,385/-. Assessment was completed u/s 143(3) of the Act determining the total income under normal provisions of the Act at Rs. NIL and income on the book profit u/s 115JB of the was determined at Rs. 34,98,42,790/-. AO made additions in the assessment. Aggrieved with the decision of the AO, assessee filed an appeal before the first appellate authority. 4. During the proceedings before the first appellate authority, CIT (A) considered the submissions made by the assessee and partly allowed the appeal of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence not income in the assessee s hand. The above stand of the assessee is not acceptable as the said amount is being received with regard to sale of power to GEB. The method followed in deciding the amount payable by GEB is immaterial as far as the nature of receipt in the assessee s hands is concerned. Whether GEB pays this amount as a reimbursement of expenditure or by way of payment for services rendered or as a return on investment of capital, the nature of such receipt cannot be different in the hands of the assessee. Assessee is required to show all the receipts from GEB as revenue and claim deductions applicable under the IT Act. In the instant case 11.07 crores is therefore required to be included from revenue from GEB and reductions if any shall be allowed as per the Act. The said amount is therefore added to the total income. Since income tax is not a deductible expenditure no further deduction is therefore considered. The addition comes to Rs. 11.07 crores. Since Rs.11.07 crore is income of the assessee as held above, the same considered and added to the book profit for computation u/s. 115JB also . 12. On appeal, the ld. CIT(A) after considering the submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee for the proposition that reimbursement is not an income also placed reliance in CIT vs. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bom) wherein it has been held that at placitum 57 page 340 that reimbursement of expenses can, under no circumstances, be regarded as a revenue receipt and in the present case the Tribunal had found that the assessee received no sums in excess of expenses incurred. He further submits that similar view has been taken by the Hon ble jurisdictional High Court in the case of Director of Income Tax (International Taxation) vs. Krupp Udhe GmbH (2010) 38 DTR (Bom) 251 wherein it has been held that reimbursement of expenses is not chargeable to tax. He further submits that in Mahindra Mahindra Ltd. DCIT, (2009) 30 SOT 374 (Mum)[SB] it has been held that at placitum ‗D page 403 that ―Reimbursement of expenses does not have the income element and, hence, cannot assume the character of income deemed to accrue or arise in India. The ld. Sr. counsel for the assessee after referring to the provisions of section 44BB of the Act submits that in the case of Director of Income Tax (International Taxation) and Another vs. Schlumberger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. in other words it is not deductible expenditure and, hence, it was rightly treated by the A.O. as income. He further submits that in the case of Louis Berger International Inc.(supra) relied on by the ld. Sr. counsel for the assessee it has been observed by the Tribunal at page 396 that ―there is a lot of difference between payment of service tax and income-tax , therefore, the decision relied on by the ld. Sr. counsel for the assessee is distinguishable and not applicable to the facts of the present case. He further submits that all other decisions relied on by the ld. Sr. counsel for the assessee are in respect of reimbursement of expenses, custom duty and service tax and are not in respect of reimbursement income-tax, therefore, all the decisions relied on by the ld. Sr. counsel for the assessee are distinguishable and not applicable to the facts of the present case. He, therefore, submits that the addition made by the A.O. and confirmed by the ld. CIT(A) be upheld. 17. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him. For the purpose of computation of his total income, gross salary, gross dividend or gross interest, etc. i.e. the amount actually received plus the amount of tax deducted at source, will have to be considered. 23. We further find from the copy of agreement dtd. 30-5-1996 between Gujarat Electricity Board (GEB) and Essar Power limited (assessee) that in Cl. 7.1 of the annexure IV of Schedule of the agreement appearing at page 3 to 87 at page 81 that the tariff has been determined as follows:- TARIFF The Tariff shall be determined as follows (a) Annual Fixed Charges to be determined in terms of Section 7.1.1. (b) Variable Charges to be determined in terms of Section 7.2 (c) Incentive Payment to be determined in terms of section 7.3 7.1.1.Annual Fixed Charges: Computation and payment. The Annual Fixed Charge shall be computed on the following basis: (a) Interest on Debt: .. (b) Accounting year: .. (c) Depreciation : . (d) Tax on Income: Tax on Income shall be determined in accordance with the provisions of the Income tax Act, 1961 every year as under:- Tax payable by the company x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd held at page 486-487 as under:- The definition of income in clause (24) of section 2 of the Act is an inclusive definition. It adds several artificial categories to the concept of income but on that account the expression income does not lose its natural connotation. Indeed, it is repeatedly said that it is difficult to define the expression income in precise terms. Anything which can properly be described as income is taxable under the Act unless, of course, it is exempted under one or the other provisions of the Act. It is from the said angle that we have to examine whether the amount paid by Ballarpur by way of tax on the salary amount received by the assessee can be treated as the income of the assessee. It cannot be overlooked that the said amount is nothing but a tax upon the salary received by the assessee. By virtue of the obligation undertaken by Ballarpur to pay tax on the salary received by the assessee among others, it paid the said tax. The said payment is, therefore, for and on behalf of the assessee. It is not a gratuitous payment. But for the said agreement, and but for the said payment, the said tax amount would have been liable to be paid by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee. 31. In Siemens Aktiongesellschaft (supra) it has been inter alia observed and held at placitum 57 to 59 at page 340-341 as under:- That leaves us with the last contention as to whether the amounts by way of reimbursement are liable to tax. To answer that issue, we may gainfully refer to the judgment of a Division Bench of the Delhi High Court in CIT v. Industrial Engineering Projects P. Ltd. [1993] 202 ITR 1014. The learned Division Bench of the Delhi High Court was pleased to hold that reimbursement of expenses can, under no circumstances, be regarded as a revenue receipt and in the present case the Tribunal had found that the assessee received no sums in excess of expenses incurred. A similar issue had also come up for consideration before the Division Bench of the Calcutta High Court in CIT v. Dunlop Rubber Co. Ltd. [1983] 142 ITR 493 (Cal). The learned Division Bench was answering the following question : Whether, on the facts and in the circumstances of the case, the amounts received by the assessee (English company) from M/s. Dunlop Rubber Co. (India) Ltd. (Indian company) as per agreement dated July 29, 1957, constituted income assessable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as recouped by the English company was part of the expenses incurred by it. The learned Court upheld the said finding. The learned Bench was pleased to hold that sharing of expenses of the research utilised by the subsidiaries as well as the head office organisation would not be income which would be assessable to tax. A similar view was taken in CIT v. Stewarts Lloyds of India Ltd., (supra). Consequently, in view of the judgment in Siemens, the first and second issue would not raise any substantial question of law since they are covered against the Revenue 33 In Mahindra Mahindra Ltd. (supra) it has been observed and held at placitum D at page 403 as under:- Reimbursement of expenses does not have the income element and, hence, cannot assume the character of income deemed to accrue or arise in India. 34. In Schlumberger Asia Services Ltd. (supra) it has been held (Headnote): Held, dismissing the appeal, that reimbursement towards the customs duty paid by the assessee, being statutory in nature, could not form part of amount for the purposes of deemed profits, unlike the other amounts received towards reimbursement. Therefore, there was no reason to interfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be the amount which bears to the profits of the business as computed under the head ―Profits and gains of business , the same proportion as the export turnover bears to the total turnover. The emphasis is on the words ―profits derived from the exports . Therefore, weightage must be given to such profits. Such profits cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover. Therefore, the turnover should be restricted to such receipts which have an element of profit in it. It is only the actual sale price which is relevant. Anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit. Even, according to accounting principles, such levies do not form part of the profit and loss account. In fact, they are shown as liability in the balance-sheet. In the circumstances, the above two items cannot be included in the total turnover. Section 80HHC is a separate code by itself. Hence, the general definition of the word turnover or the case law dealing with the said definition under the Sales Tax Act which is a State levy, cannot be imported into sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case. Accordingly, ground no.1 is decided against the assessee and the ground is therefore dismissed. 7. Regarding ground no.2, Ld Counsel mentioned that the issue relates to the disallowance of expenditure of Rs. 2,69,64,162/- u/s 14A read with Rule-8D of the IT Rules, 1963. In this regard, Ld Counsel brought our attention to the additional ground filed by the assessee vide letter 21.9.2013 arguing that the additional ground being legal in nature may be admitted and the said additional ground reads as under: The Ld CIT (A), while upholding the disallowance of Rs. 2,69,64,162/- u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 erred in not holding that in any case, such disallowed sum could not be added back to the computation of book profit u/s 115JB of the Act. The Ld CIT (A) ought to have directed the AO not to added back Rs. 2,69,64,162/- while computing book profit u/s 115JB of the Act. 8. In this regard, Ld Counsel also brought our attention to the letter containing the prayer for admitting the additional ground in view of the various decisions which read as under: i. National Thermal Power Corporation vs. CIT [229 ITR 383 (SC)] ii. Jute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debenture as Business Income instead of Income from Other Sources as assessed by the Assessing Officer. 2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in directing the AO to delete the provisions of the income tax recoverable from the customers amounting to Rs. 3,96,76,000/- for the purpose to compute the book profits u/s 115JB of the Act. 12. At the outset, Ld Counsel filed a chart and mentioned that ground no.1 relates to the treating of the interest income (i) on loan given to the employees, margin deposits and (ii) convertible debentures as business income‟ instead of income from other sources‟ as assessed by the AO. Ld Counsel mentioned that the first limb of the ground is covered and decided in favour of the assessee vide the order of the Tribunal in assessee s own case for the AY 2000-2001 to 2001-2002 in ITA No.6430/M/2003 and ITA No.439/M/2005, order dated 11.8.2008 vide para 12 to 16 of the Tribunal‟s order. Ld Counsel read out the said paras which are as under: 12. As far as the issue before us concerned, in our opinion, the limited controversy is whether the said interest income can be ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions made before the lower authorities and relied on the order of the CIT (A) and submitted that the assessee earned interest on NCD of Rs. 4,89,767/- issued by Essar Oil Limited in the course of the business of the appellant. Therefore, the interest income earned on such investments should be considered as business income. 15. Per contra, Ld DR heavily relied on the order of the AO and submitted that these receipts being interest earned by the assessee on the debentures should be treated as income from other sources instead of business income. 16. We have head both the parties and perused the orders of the Revenue Authorities as well as the material placed before us on the issue of treating the interest income earned on the debentures. The interest income received by the assessee on the debentures cannot be considered as business income as held by the assessee relying on the decisions of the Revenue Authorities for the earlier years. In principle, the claim of the assessee and the decision of the CIT (A) are not acceptable considering the fact that the interest being related to the debentures, cannot be considered as business income. As such, no supporting material was bro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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