2010 (3) TMI 895 - AT - Income Tax

Tribunal decision: Dispute resolution on plant & machinery, income application, interest recalculated.

Shree Changdeo Sugar Mills Ltd. Versus Joint Commissioner of Income-tax, Special Range-13, Mumbai

Shree Changdeo Sugar Mills Ltd. Versus Joint Commissioner of Income-tax, Special Range-13, Mumbai - [2011] 44 SOT 479 (Mum.) Issues Involved:1. Deduction of Rs. 269.13 lakhs as consideration paid for transfer of licenses for manufacturing sugar.2. Deduction of Rs. 160 lakhs paid to Bank of Madura as expenses.3. Levy of interest under section 234B.4. Disallowance of Rs. 92,61,767 as expenditure incurred in connection with the transfer of Plant & Machinery and licenses within the meaning of section 48(1).Detailed Analysis:Issue 1: Deduction of Rs. 269.13 lakhs as consideration paid for transfer of licenses for manufacturing sugarThe Tribunal initially dismissed the appellant's claim for deduction of Rs. 269.13 lakhs, considering it as payment for plant and machinery rather than for licenses. The assessee argued that the entire proceeds were attributed to the sale of the industrial license, which had no cost of acquisition, implying no capital gain. The Assessing Officer, however, found that the sale consideration was for plant and machinery, not the license. The CIT(A) upheld this view, noting the valuation report did not include the cost of the license. The Tribunal concluded that the sum of Rs. 269.13 lakhs was rightly attributed to plant and machinery, and the claim for treating it as consideration for licenses was without foundation.Issue 2: Deduction of Rs. 160 lakhs paid to Bank of Madura as expensesThe assessee argued that Rs. 160 lakhs paid to Bank of Madura should be excluded from the sale consideration, claiming it was diverted by an overriding title. The Assessing Officer and CIT(A) disagreed, stating it was a liability of the assessee discharged by NSSK, hence, no diversion of income by overriding title occurred. The Tribunal upheld this view, finding no merit in the claim that the payment to the bank was a charge on income, rather it was an application of income.Issue 3: Levy of interest under section 234BThe Tribunal considered whether the assessee was liable to pay advance tax and consequently interest under section 234B. The assessee contended that no advance tax was payable as it filed a return of loss. The Tribunal referred to the Supreme Court judgment in CIT v. Kwality Biscuits Ltd., which held that interest under sections 234B and 234C is not leviable when income is computed under section 115J. However, if income is computed under regular provisions, interest is mandatory. The Tribunal directed the Assessing Officer to re-compute the income and decide on the interest based on whether the income is computed under regular provisions or section 115J.Issue 4: Disallowance of Rs. 92,61,767 as expenditure incurred in connection with the transfer of Plant & Machinery and licenses within the meaning of section 48(1)The Tribunal noted that the provisions of section 50 applied to the capital assets forming part of a block of assets, and the short-term capital gain should be computed accordingly. The assessee's claim for deduction of Rs. 92.61 lakhs as revenue expenditure was upheld as per the Tribunal's earlier order, allowing it against the business of trading/dealing in shares.Conclusion:The Tribunal partly allowed the assessee's appeal, upholding the findings of the Assessing Officer and CIT(A) on the major issues while allowing the deduction of Rs. 92.61 lakhs as revenue expenditure. The Tribunal directed the Assessing Officer to re-compute the income and decide on the levy of interest under sections 234B and 234C based on the final computation of income.