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TMI Blog1990 (11) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... ad "interest on securities" and the head "profits and gains from business" and thereafter made disallowance under section 40A(5) with reference to the expenditure apportioned to the profits and gains of business. The CIT (Appeals) first referred to section 20 of the Act which lays down a rule for apportionment of deduction of common expenditure from income from interest on securities in the case of a banking company. He thereafter relied on a decision of the Madras High Court in the case of Addl. CIT v. Indian Overseas Bank [1980] 123 ITR 790 and observed that there was no merit in the contention of the appellant that the provisions of section 40A(5) are outside the purview of proportionate expenses allocable to interest on securities. 3.1 The counsel for the appellant pointed out that this issue has been decided by C-Bench of the Tribunal in another case of a non-resident banking company in ITA No. 1894(Bom)/81 dated 18-2-1983 in favour of the appellant and against the revenue. The Tribunal have dealt with this issue in paragraphs 7 and 8 of this order. The Tribunal accepted the stand of the CIT (Appeals) that the ceiling mentioned in section 40A(5) should be considered only in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible to work out an average of the head office expenses allowed during a base period of 3 years from the assessment years 1974-75 to 1976-77 in the appellant's case because this was the first year of the appellant's business in India and that, therefore, it was not possible to work out an average of head office expenses in terms of clause (b), and since the head office expenses in terms of this clause could not conceivably be worked out, the provisions of section 44C would not be applicable in the appellant's case. The CIT (Appeals), after making extensive reference to the memorandum explaining the provisions of the Finance Bill (102 ITR 187 Statutes) disposed of the arguments of the appellant in the following words : " 7. In order to carry out effectively the object of the new provision it is only necessary to make such construction as will express the mischief and advance the remedy and to suppress all evasions for the continuance of the mischief (Maxwell's Interpretation of Statutes --- 1985 Edition, p. 137). What section 44C contemplated is that the least of the three amounts as contemplated in clauses (a), (b) and (c) should be allowed as deduction. If one of the clauses is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 44C provided for adopting the least of the three different types of expenditure, if one of the three figures not available, it was not possible to give effect to the provisions of section 44C and, that therefore, section 44C was not at all applicable in the present case. In support of this argument, Shri Dastur first referred to a decision of the Spl. Bench of the Tribunal in Goodricke Group Ltd.'s case. In that case, the Spl. Bench held, applying the rationale of the decision of the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, that where there is a case to which computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. In view of this observation, it was clear that if any one or more of the computations under clause (a), (b) or (c) of section 44C is not conceivable in a particular case, it would have to be held that the non obstante provisions contemplating disallowance of head office expenditure under section 44C does not apply. Shri Dastur also relied on the aforementioned decision of the Supreme Court in B.C. Srinivasa Setty's case. Shri Dastur relied on yet another decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by inflating their claims in respect of head office expenses. With a view to getting over these difficulties, the Finance Act, 1976 has inserted a new section 44C in the Income-tax Act laying down certain ceiling limits for the deduction of head office expenses in computing the taxable profits in the case of non-resident taxpayers. Under this provision, the deduction in respect of head office expenses will be limited to--- (i) an amount equal to 5 per cent of the adjusted total income of the taxpayer for the relevant year; or (ii) the annual average of the head office expenditure allowed during a base period of three previous years, namely, the previous years relevant to the assessment years 1974-75 to 1976-77; or (iii) the actual amount of head office expenditure attributable to the business in India, whichever is the least. In cases where the adjusted total income of the resident for the current year is a loss, the rate of 5 per cent, referred to at (i) above will be applied with reference to the average adjusted total income of the non-resident for the three previous years immediately preceding the relevant assessment year ". It would be seen that the principle of ceiling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjusted total income and the expression "adjusted total income" is explained in clause (i) of the Explanation. Clause (b) of the section speaks of amount equal to the average head office expenditure and the expression "average head office expenditure" is explained in clause (iii) of the Explanation to that section and clause (c) speaks of the amount in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India, whichever is the least. The expression "whichever is the least" is used because three different types of expenses were considered possible at the point of time when this section was first introduced, i.e., by Finance Act, 1976 with effect from 1-6-1976. One such possibility which is spelt out in clause (b) is the average of head office expenses allowed in the years 1974-75, 1975-76 and 1976-77 in computing the income of the assessee chargeable under the head "Profits and gains of business". Now, in cases like that of the present appellant, who were not assessed to tax in those years, it is just not possible that this figure can ever be worked out. Therefore, in such cases, there is no question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing whether the transfer of goodwill gives rise to capital gains for the purpose of income-tax. What is contemplated by section 48(ii) is an asset, in the acquisition of which it is possible to envisage a cost. It must be an asset which possesses inherent qualities of being available on the expenditure of money to a person seeking to acquire it. The Supreme Court observed that none of the provisions pertaining to the head 'Capital expenses' suggests that they include an asset, in the acquisition of which no cost at all can be considered. Therefore, they held that when goodwill in a new business is sold, what is charged is capital value of asset and not any profit or gain. This reasoning went to the very basis of charge and laid down the fundamental principle that when a self-generating asset is sold, capital gains cannot be computed, because the cost of such asset cannot be determined. This decision of the Supreme Court lays down a principle concerning the charge to capital gains tax of certain assets, the cost of which it is not possible to ascertain or determine. Similarly, another decision of the Superme Court also concerned the chargeability to super-tax of companies in liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the decision of the CIT(A) for the assessment year 1981-82 on this issue has been confirmed in the appellant's own case by the Tribunal, we would, for the reasons stated by the Tribunal in the aforementioned paragraphs of their order dated 3-1-1990, confirm the disallowance of representative office expenses for the assessment year 1984-85 and would, therefore, dismiss the third ground of appeal. 9. Before we part with this order, we have to deal with an additional ground which was sought to be raised by the appellant in their letter dated 19-12-1989. The additional ground raised reads as under : " In the event of the expenses not being computed for carry forward and set off then entire expenses incurred during the assessment years 1980-81 to 1983-84 be allowed as expenses related to the previous year relevant to this assessment year. " While arguing that the additional ground should be admitted, Shri Dastur, the learned counsel for the assessee, relied on the decision of the Delhi High Court in the case of Shriram Refrigeration Industries Ltd. v. CIT [1981] 127 ITR 746, the decision of Andhra Pradesh High Court in the case of Coromandel Fertilizers Ltd. v. CIT [1984] 148 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion, the additional ground cannot be admitted and has to be dismissed in limine on preliminary ground itself, we do not consider it necessary to pronounce on the applicability of this decision to the facts of the present case. Similarly, in Coromandel Fertilizers Ltd.'s case, the Andhra Pradesh High Court had laid down tests for deciding whether the expenditure incurred for acquiring technical know-how could be allowed as revenue expenditure or whether it could be considered as capital expenditure. Here, again, the judgment deals with the merits of the issue which could be considered after the ground is admitted. So far as Atlas Cycle Industries Ltd.'s case is concerned, it would appear that the issue about the Tribunal's power to allow additional evidence came up for consideration before the Punjab & Haryana High Court in that case. The Court observed that the power of the Tribunal in appeal to allow an additional plea and, consequently, for additional evidence being taken, has been given to do substantial justice between the parties. The Tribunal has to allow or disallow the additional plea and additional evidence for applying its judicial mind. In that case, the assessee had cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the Delhi High Court in CIT v. Anand Prasad [1981] 128 ITR 388 observed that when the point has not been taken before the AAC and is not mentioned in the order of the AAC, then the Commissioner cannot object nor can the assessee object. Both these decisions would appear to support the objection of the learned Departmental Representative. We would, therefore, decline to admit the additional ground raised which is, therefore, dismissed in limine. 12. There is one more reason why the additional ground cannot be allowed to be taken at the present stage. The form in which the question is framed implies that the entire expenses for earlier years which are not allowed are to be treated as loss to be carried forward and set off. Whether, such expenses not allowed for the earlier years are to be treated as losses of those years is a question of fact on which no pronouncement has been made by the revenue authorities for those years. Therefore, the question raised is not a pure question of law and cannot be decided without adjudicating on facts. There is no finding of the assessing authority or the appellate authority about whether such expenses can be treated or have been determined as ..... 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