TMI Blog1993 (4) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed and is rejected. 5. Ground No. 2 relates to expenses for increase in authorised capital. The amount involved is Rs. 70,000. It is admitted before us that the point in controversy was covered against the assessee by paras 7 and 8 of the aforesaid decision of the Tribunal in the case of Sarabhai Chemicals Pvt. Ltd. and Reference Application in that case had been rejected by order dt. 25th Sept., 1986 in R.A. No. 157/Ahd/1986. The assessee relies on decision of Madras High Court in the case of CIT vs. Kisanchand Chellaram (India) P. Ltd. (1980) 16 CTR (Mad) 248 : (1981) 130 ITR 385 (Mad) and the decision of Karnataka High Court in the case of Hindustan Machine Tools Ltd. vs. CIT (1988) 71 CTR (Kar) 166 : (1989) 175 ITR 220 (Kar). We find that there is difference of opinion amongst High Courts on this point. We respectfully follow earlier decision of Tribunal and reject this ground. 6. Ground No. 3 relates to Guarantee Commission. The amount involved is Rs. 3,16,668. It is admitted before us that the point in controversy was covered against the assessee by paras 23 to 27 of the aforesaid decision of the Tribunal in the case of Sarabhai Chemicals Pvt. Ltd. and that the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und No. 5 relates to addition on account of purchases amounting to Rs. 4,72,232. 8(i). The CIT(A) has set aside the finding of the ITO on this point with direction to record fresh finding. It was submitted before us that fresh assessment has already been made wherein the ITO added a small sum of Rs. 17,962 for which the assessee had preferred an appeal before the CIT(A) who had deleted the said addition of Rs. 17,962 by order dt. 5th May, 1986. In view of these subsequent events, the assessee did not want to press this ground. This ground is accordingly rejected. 9. Ground No. 6 relates to Commutation charges of Rs. 32,50,557. In fact this is a main ground on which elaborate arguments have been made. We shall deal with this ground after deciding the other grounds. 10. Ground No. 7 relates to gratuity liability of Rs. 2,95,207. It was admitted before us that the point in controversy was covered against the assessee by the decision of the Supreme Court in the case of Sajjan Mills Ltd. vs. CIT (1985) 49 CTR (SC) 193 : (1985) 156 ITR 585 (SC). The assessee therefore did not want to press this ground. This ground is accordingly rejected. 11. Ground No. 8 relates to closing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78 by order dt. 1st May, 1987 in ITA No. 1044/Ahd/1984 and Reference Application filed by the assessee has been rejected by Tribunal by order dt. 9th Nov., 1987 in R.A. No. 697/Ahd/1987 and hence this ground was not pressed. This ground is accordingly rejected. 15. Ground No. 11(a) relates to investment allowance on R D Assets and the amount involved is Rs. 21,770. This ground was not pressed and hence is rejected. 16. Ground No. 11(b) relates to Investment Allowance in respect of Elscope Division and the amount involved is Rs. 1,12,125. It was submitted that in fresh assessment the ITO has granted investment allowance in respect of Elscope Division. Consequently this ground was not pressed. It is accordingly rejected. 17. Ground No. 11(c) and (d) are in respect of investment allowance pertaining to Sarabhai Common Services Division and Sarabhai Chemicals Division. The amounts involved are Rs. 17,905 and Rs. 43,393. These grounds were not pressed because of the fact that they were going to be finally decided in ITA No. 2236/Ahd/86. They are accordingly rejected. 18. Ground No. 12 relates to foreign tour expenses of Dr. K. Ramanathan and the amount involved is Rs. 7,90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith interest. In reply to show cause notice the assessee explained vide letter that the amount was not of the character of income or deemed income and that it had nothing to do with the trading activities of the assessee. It was submitted that the amount represented capital receipt and was not liable to tax. The ITO rejected the submissions of the assessee and observed that the assessee had acquired going concerns and had transferred the same within a period of four months w.e.f. 1st July, 1977 and the profit arising on the reduction of liabilities was thus trading profit which was liable to tax as business income of the assessee. He, therefore, assessed the amount of Rs. 32,50,557 as assessee's income. In the alternative, he held that the said amount was liable to tax as capital gains arising to the assessee on short-term basis. 22. The details of commutation charges were as under: "Name of the Investment Company Liability as on 30/6/1977 Commutation charges at the discounting rate of 12% Amount payable in lump sum on demand . Rs. Rs. Rs. Kailash Inv. Pvt. Ltd. 64,42,365.00 12,01,782.47 50,40,582.53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction in the nature of trade and commutation amount represented Revenue profit. In the alternative, it was submitted that the said amount represented short-term capital gains. Reliance was placed on certain decisions of the Tribunal and also on the following decisions 1. CIT vs. Mogul Line Ltd. (1962) 46 ITR 590 (Bom), 2. B. Guha Co. vs. CIT (1958) 34 ITR 873 (Punj), 3. Bhagwan Dass Jain vs. Union of India Ors. (1981) 21 CTR (SC) 339 : (1981) 128 ITR 315 (SC), 4. CIT vs. Smt. Shanti Meattle (1973) 90 ITR 385 (All), 5. Delhi Stock Exchange Association Ltd. vs. CIT (1961) 42 ITR 495 (SC). 25. We have considered the rival submissions and facts on record. We find that the difference between the total amount payable in five annual equal instalments and the total amount payable on demand represented reduction in the capital liability. The reduced amount represented present value of the original liabilities which were payable in future and in instalments, at the discounting rate of 12%. Such commutation charges did not have characteristic of income. The said sum of Rs. 1,68,71,605 representing unpaid purchase consideration payable for the undertakings and the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had transferred the undertakings to Ambalal Sarabhai Enterprises P. Ltd. which was another subsidiary of Sarabhai Chemicals P. Ltd. and that prior to said transfer, land and building had not been legally transferred in favour of assessee but were only subject matter of agreement of purchase dt. 28th Feb., 1977. We find that this circumstance is of no relevance. This is because the properties which are held under agreement of purchase could be legally transferred. In such cases what would be transferred would be the right of the seller to obtain conveyance from the original vendor. Consequently, nothing turns on these facts. 28. The CIT(A) has also observed that floating of the subsidiary company and the transfer of industrial undertakings from the holding company to a subsidiary company and from the subsidiary to further subsidiary, has been practised by the assessee as a scheme of tax planning. It is not clear from the order of the CIT(A) as to what savings in tax has been made by the assessee. If the CIT(A) was of the opinion that transactions were of colourable nature or were not real transaction and were sham and bogus, then the finding to that effect should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. We find that those decisions are not applicable to the facts of the present case. The interest under s. 215 would be consequential. We accordingly direct the ITO to recompute the interest after giving effect to the order of the Tribunal. ITA No. 856/Ahd/1983 33. This appeal by the assessee relates to asst. yr. 1979-80. The only ground in this appeal pertains to commutation charges of Rs. 24,59,188 which has been treated as income by the ITO. The CIT(A) has confirmed the order of the ITO. The facts are stated in the orders of the ITO as well as in the order of CIT(A) and need not be stated again in the present appeal. It is admitted before us that the point in controversy was identical to that in the appeal for asst. yr. 1978-79 and that the decision on that point in said appeal would govern the decision in the present appeal. For reasons given while dealing with the appeal for asst. yr. 1978-79 we hold that commutation charges did not represent income of the assessee. We accordingly delete the addition of said amount. ITA No. 756/Ahd/1983: 34. In this Departmental appeal the following two grounds have been raised: "(1) The learned CIT(A) has erred in law and on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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