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TMI Blog2007 (9) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... Liquid Ammonia since the year 1983. The basic raw material was industrial gas which was supplied by ONGC. The goods manufactured were sold to Rashtriya Chemicals and Fertilisers (RCF) and Zuari Agro Chemicals Ltd. (ZACL). The assessee-company was entirely dependent on the aforesaid two companies to sustain the production. In order to reduce this dependency and also with a view to optimize utilization of existing ammonia plant and further to diversify its operations, the assessee-company decided to set up an additional plant for the manufacture of Ammonium Nitro-Phosphate, Diluted Nitric Acid and certain other similar products. The basic raw material for all these products was the Liquid Ammonia which was already manufactured by the assessee-company in the existing plant. In order to finance the new project, the company issued debentures and also procured loans on which interest was paid by the assessee. Such payment of interest was claimed as deduction under section 36(1)(iii) of the Act in the assessment year 1990-91 and the subsequent assessment years. The Assessing Officer following his earlier order, disallowed the claim of the assessee but the learned CIT(A) following his earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance with administrative formalities and law relating to transfer of shares. The above situation is indeed in pari materia with a cooperative housing society wherein a society is the legal owner of the building while members, by virtue of their shareholding in the society, have exclusive right to use and occupy the premises. Form 37-I were also filed and no objection certificates under section 269UL(3) of the Income-tax Act, 1961 were obtained from the income-tax appropriate authority." Further vide letter dated 19-1-2000, it was reiterated that on the basis of purchase of shares, the assessee-company became entitled to have exclusive right to use and occupy certain premises which are freely transferable. Thus, the transaction is in pari materia with a Co-operative Housing Society, the possession of the said premises were taken by the assessee-company and the valuation of such property has also been shown in the Wealth Tax return. Reliance was also placed on the Supreme Court judgment in the case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775. Reference was also made to the provisions of section 27(iii) of the Income-tax Act which treats such transactions as transaction of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erals Ltd. Aggrieved by the same, the revenue is in appeal before the Tribunal. 5. Both tile parties have been heard at length. The learned D.R. has strongly relied on the reasons given by the Assessing Officer while the learned counsel for the assessee has relied on the reasons given by the learned CIT(A). Since we have already dealt with such submissions in the earlier paragraphs, the same need not be repeated. After considering the submissions of both the sides as well as relevant provisions of the Income-tax Act, we are of the view that order of learned CIT(A) must be upheld on this issue. There is no dispute that in order to claim the depreciation in respect of any property it is the condition precedent that assessee must be the owner of that property and the same is used for the purpose of business. The word 'owner' has not been defined in the IT Act and, therefore, the question arises as to what meaning should be assigned to the word 'owned' used by the Legislature in section 32 of the Act. 6. At this stage it would be useful to refer to the judgment of Hon'ble Supreme Court in the case of R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 where the Hon'ble Court had to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that the word 'owner' should be understood in the sense in which the Hon'ble Supreme Court understood in the case of R.B. Jodha Mal Kuthiala and in the case of Poddar Cements (P.) Ltd. In other words, it was submitted that the term 'owned' in section 32(1) of the Act should be assigned a contextual sense. According to him, the benefit arising in section 32 should not be denied merely on the ground that conveyance deed was not executed. After considering the submissions from both the sides, Their Lordships observed as under: "Section 32 of the Income-tax Act confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the Legislature to the assessee. It is also well-settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred. What is ownership? The terms 'own', 'ownership' and 'owned', are 'gene', are generic and relative terms. They have a wide and also a narrow connotation." Subsequently, after considering various dictionary meanings, the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 269UA(d)(ii) that assessee was required to obtain no objection certificate from the competent authority prescribed under Chapter XX of the Act. All these provisions, if read together, lead to the only inference that Legislature has accepted the fact of transfer of property through the transfer of shares of a company. Therefore, the objection of the Assessing Officer that property cannot be transferred through the transfer of shares cannot be sustained. 10. Now the question arises whether in the present case, the assessee can exercise the rights of an owner in its own rights in respect of the property acquired by it through the purchase of shares of Yerrowda Investments Ltd. We have gone through the Articles of Association of the company - Yerrowda Investments Ltd. The articles 5 to 7 of the said Articles of Association which are relevant are being reproduced as under: "5. The Company is developing a property bearing Plot Nos. 190 (Part) and 192 (Part) situated at National Games Road, Shastri Nagar, Opp. Golf Course, Yerrowda, Pune-411 006. The company has already constructed 18 buildings on the said property. The company will also construct further area of 300,000 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue relates to the disallowance in respect of prior period expenses. This issue arises in the assessment years 1997-98, 1998-99 and 2000-01. The disallowance has been made without much discussion by the Assessing Officer in these years but the learned CIT(A) following his earlier order decided the issue in favour of the assessee. It had been contended before learned CIT(A) that certain expenses are not supported by the bills/vouchers and sometimes the claims are not processed and accepted by the accounts department. As and when such bills/vouchers are received or claims are settled, the expenses are booked though sometimes it may relate to the earlier years. It was also submitted that such procedure was being followed consistently. The learned CIT(A) accepted the contention of the assessee. The learned CIT(A) also took into consideration the decision of Bombay High Court in the case of CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 wherein Their Lordships observed that where the deduction is obviously a permissible deduction then the department should not dispute as to the year in which deduction should be allowed. Following the aforesaid observations of Bombay High Court and for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not applicable to the facts of the present case. On the other hand, the case was covered by the decision of the Bombay High Court in the case of Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501. Aggrieved by the same, the revenue is in appeal before the Tribunal. 14. After hearing both the sides, we do not find merit in the appeals of the revenue. We have gone through the decision of the Hon'ble Supreme Court. In that case, the deposits were received in the course of trading activity and because of this fact the court held that it was converted into income when the amount was written off. On the other hand, the Bombay High Court in the case of Mahindra & Mahindra Ltd. was concerned with a case where a loan was given by an American company to the assessee to facilitate the purchase of Plant and Machinery. Subsequently, the amount of loan was waived and, therefore, the question arose where such amount can be assessed as income either under section 28 itself or by virtue of section 41(1) of the Act. The Hon'ble Bombay High Court held that it was a capital receipt at the time when there was a cessation of liability and could not be assessed as income either under section 28 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein it has been held that the principal laid down by the Hon'ble Supreme Court in the case of Kwality Biscuits Ltd. would also apply to the computation of book profits under section 115JA and consequently no interest under section 234B would be chargeable. Following there decisions, the issue is decided in favour of the assessee. Consequently, the orders of the learned CIT(A) are upheld on this issue. Assessee's Appeals: 16. The first issue arising from the appeal for the assessment year 1997-98 relates to disallowance of guest house expenses. The learned counsel for the assessee concedes that this issue is covered against the assessee by the decision of the Hon'ble Supreme Court in the case of Britannia Industries Ltd. v. CIT [2005] 278 ITR 546. Therefore, following the same, the ground raised by the assessee is dismissed. 17. The next issue relates to the disallowance of entertainment expenses out of canteen expenses relating to assessment year 1997-98. The learned CIT(A) has held that only 25 per cent of canteen expenses should be considered as entertainment expenses. Still aggrieved, the assessee is in appeal before the Tribunal. The learned counsel for the assessee conced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Accounting Standard prescribed by the Institute of Chartered Accountants which were binding on the assessee. Therefore, the said decision should not be relied. It was also contended that the stocks can be valued at cost or market value as per the decision of Hon'ble Supreme Court in the case of Chainrup Sampatram v. CIT [1953] 24 ITR 481. In our opinion both the contentions are without force. Normally, the Accounting Standards is accepted but it cannot override the provisions of the Income-tax Act as held by the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd v. CIT [1997] 227 ITR 172. The judgment of Bombay High Court would, therefore, apply to the present case wherein it has been clearly held that loss can be claimed only in the year in which such items are sold. The decision of Supreme Court in the case of Chainrup Sampatram is applicable only where stock in trade is to be valued and not other items. In the present case, the items written off do not form part of stock in trade. Hence, the said decision would not apply. No other contention has been raised. Therefore, following the judgment of Bombay High Court in the case of Heredilla Chemicals Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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