TMI Blog1994 (7) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with the relevant provisions of law relating to payment of such royalty. 4. The Commissioner of Income-tax observed that the balance-sheet of the assessee-company as at the close of the relevant previous year for assessment year 1985-86 disclosed an outstanding liability of royalty amounting to Rs. 25,76,250. After giving a show-cause notice to the assessee and after considering the reply submitted on behalf of the assessee, the learned CIT came to the conclusion that royalty payable by the assessee is in the nature of duty and is hit by section 43B. The assessment order made by the ITO without considering the applicability of section 43B in relation to such outstanding amount of royalty is erroneous and prejudicial to the interest of revenue. The assessment order was, therefore, set aside with a direction that the same should be made de novo after giving opportunity to the assessee. 5. The assessee has submitted the present appeal against the said order in which as many as 10 grounds have been raised. The pith and substance of all these grounds is that the revisional proceedings initiated under section 263 is patently wrong and the provisions of section 43B are not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionate to the quantity of mineral removed or consumed from the demised area within a point of time. It cannot, therefore, be equated to tax. Our attention was also invited towards copy of the letter dated 5-3-1990 submitted to the CIT, Baroda in response to show-cause notice under section 263. The learned counsel on the strength of the aforesaid decisions submitted that the order passed by the CIT should be set aside and the original assessment order should be restored. 7. The learned Sr. D.R. relied on the elaborate reasons mentioned in the order under section 263 and also placed heavy reliance on the judgment of Hon'ble Supreme Court in the case of India Cement Ltd. in which it was held that royalty is a tax but cess on royalty is not a tax on land. It was pointed out by the learned Sr. D. R. that in view of such a clear decision holding royalty to be tax the provisions of section 43B would be clearly applicable in relation to such amount of outstanding royalty. The order of the learned CIT deserves to be confirmed. 8. We have carefully considered the rival submissions made by the learned representatives and have also very carefully gone through the various judgments relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law.' 79. So the question still remains, in what sense the expression had been used in section 43B. It will be seen from article 277 that other species of taxes are duties, cess or fees. Now in section 43B, as it was originally enacted, the expression 'terms and duties' alone were included, cess or fees were not part of the section. Nevertheless, the department had been attempting to include market cess as a prohibited item under section 43B. The Supreme Court in the case of Om Parkash Agarwal v. Giri Raj Kishori [1987] 164 ITR 376 had brought out a distinction between 'tax' and 'fees'. Whereas tax is an imposition for public purposes without reference to special benefit to taxpayer, the essential Character of fee is that it should be correlated to expenses incurred by the Government in rendering services. The distinction between the taxes and fees were made use of by the Andhra Pradesh High Court in the case of Srikakollu Subba Rao Co. v. Union of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to decide this point in relation to the present appeal which relates to assessment year 1985-86. Such amendment made w.e.f. 1-4-1989 will be applicable only from assessment year 1989-90 and cannot be made applicable in relation to prior years. We, therefore, cancel the order under section 263 passed by the CIT. It will, however, be necessary to direct the Assessing Officer to verify whether deduction in respect of the said amount of royalty has been allowed in the subsequent year as and when the amount of royalty was paid on payment basis. If that has been allowed in the subsequent year the assessee will have to simultaneously agree for withdrawal of that deduction in the subsequent year. The Assessing Officer is directed to ensure that no double deduction in respect of the same amount is allowed in more than one year. With these observations, the order of the CIT under section 263 for the assessment year 1985-86 is set aside and the original assessment order of the ITO is restored. 9. We will now consider assessee's appeal for assessment year 1986-87. The assessee has raised three grounds in this appeal and raised an additional ground along with an application dated 16th Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at before the assessee can claim set off in respect of such carried forward amount of deficiency under section 80J, the assessee should have derived profits from the said new industrial undertaking. The benefit of carry forward and set off of the deficiency under section 80J(3) is confined to profits derived from the industrial undertaking and cannot operate in respect of any profits derived by the assessee from any trade or business other than that industrial undertaking. He also relied on various decisions which have been referred to at page 2 of the assessment order. 13. The CIT(A) rejected the assessee's contention and confirmed the view taken by the Assessing Officer. Before us, the learned counsel for the assessee relied upon the decision of ITAT, Bombay in the case of Indo French Time Industries Ltd., a copy of which was placed in the paper book at pages 11 to 19. He also relied upon the decision of ITAT, Ahmedabad reported in ITO v. Gujarat Bright Bar Industries (P.) Ltd. [1984] 19 TTJ (Ahd.) 406 and a decision reported in Ganpati Cotton Co. v. ITO [1984] 39 CTR (Delhi) 31. The learned counsel on the strength of these decisions submitted that the benefit of carry forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me earned in the previous year relevant to the assessment year. On the other hand, the Assessing Officer relied on the decisions reported in Ashok Motors Ltd. v. CIT [1961] 41 ITR 397 (Mad.), CIT v. Standard Motor Products of India Ltd. [1962] 46 ITR 814 (Mad.) and Chembra Peak Estates Ltd. v. CIT [1972] 85 ITR 401 (Ker.) He came to the conclusion that it is only the profits of the "new industrial undertaking" that would be eligible for deduction under section 80J. Since the new industrial undertaking known as Vanil Udyog has made a loss, the assessee's claim for deduction under section 80J cannot be accepted. In our view, the Sr. D.R. has rightly pointed out that a plain reading of the relevant provisions of section 80J(1), read with sub-section (3) clearly reveals that before an assessee is held to be eligible for deduction under the said provisions, there should be profits which can be termed as derived from the said new industrial undertaking. The deduction is confined to profits derived from such industrial undertaking and cannot operate in respect of any profit derived by the assessee from income of the old unit or any trade or business other than that industrial undertaking. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that no extra shift allowance can be granted on assets like electric sub-station. 18. After considering the submissions made by the learned representatives and after going through the order of the Tribunal in assessee's own case for assessment year 1985-86 in ITA No. 999/Ahd/89 dated 21-5-1993. We are of the considered opinion that this issue should be restored back to the Assessing Officer for deciding the same afresh in the light of directions given by the Tribunal in para 8 of the order of assessment year 1985-86. The assessee will also be at liberty to bring to the notice of the Assessing Officer further decisions on this point and the Assessing Officer will also be at liberty to take into consideration any other material or subsequent decision for a proper decision on the point relating to allowability of extra shift allowance. The matter will be decided afresh after providing reasonable opportunity to the assessee. 19. The last ground of assessee's appeal relates to disallowance made in respect of sales-tax reimbursed to the Government of Gujarat in respect of the sales-tax payable by that Government on royalty paid by the assessee to the State Government for obtaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department in relation to collection of certain forest produces. The relevant provisions of the sales-tax law as clarified by the Commissioner of Sales-tax, Ahmedabad and the invoice raised by the forest department clearly reveals that so far as the assessee is concerned, the amount of sales-tax charged by the forest department, from the assessee along with the amount of royalty is a part of the purchase price in the hands of the assessee. The sales-tax is payable on the amount of royalty by the forest department and not by the assessee. In our view, the said sales-tax payable on royalty by the assessee to the forest department cannot be regarded as payment of tax or duty by the assessee. The provisions of section 43B would, therefore, not be applicable in relation to the reimbursement of the sales-tax on the amount of royalty. The Assessing Officer is directed to cancel the said addition. Moreover, in case, the assessee has already got the deduction of this amount in the year of payment, the same will have to be simultaneously withdrawn in the year of payment. A perusal of the statement of total income submitted for assessment year 1985-86 indicates that the assessee claimed dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT v. Chandulal Venichand [1994] 73 Taxman 349. The view taken by the CIT(A) is therefore, confirmed. 25. The next ground relates to directions given by the CIT(A) for allowing deduction of royalty payments not pertaining to this year. The Assessing Officer disallowed the total sum of Rs. 55,882 as expenses pertaining to earlier years. Such a disallowance was based on tax audit report. The said amount included expenses for royalty pertaining to the year 1983-84 amounting to Rs. 9,864. 26. The CIT(A) sustained an addition of Rs. 2,214 and granted relief of Rs. 53,608. The total amount of royalty provided during the financial year 1983-84 was Rs. 25,62,798.74. Actual payments made up to March 1985 was Rs. 25,72,662. There remained a balance of Rs. 9,863.83. The difference amount was adjusted at the close of the year in the month of September 1985. The short provision made in the preceding year was adjusted in the year under consideration, namely, assessment year 1986-87 when the actual payment of short provision was ascertained. 27. We have gone through the photocopy of the accounting entry submitted in the compilation. We have also considered the submissions made by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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