TaxTMI 
TaxTMI 
2003 (2) TMI 170
X X X X Extracts X X X X
X X X X Extracts X X X X
....h was perused by the AO. The AO noted that the buildings have been taken on a lease agreement and, therefore, this was not a case of exact sale to the assessee and, therefore, the assessee did not become the owner of the property. He also held that as per the requirements of Transfer of Property Act r/w Indian Registration Act, as no duly executed registered sale indenture was there, as such, there was no proper sale of the property and the assessee could not be considered to have become owner of the property under consideration. He held that as the essential ingredients of the ownership required under s. 32 of the Act was not fulfilled, the depreciation on the office building at Delhi and Bombay were not allowable. On appeal, the CIT(A) upheld the findings of the AO against which the assessee is in appeal before us. Learned counsel Shri Tulsian stated that when the CIT(A) passed the order, the decision of Hon'ble Supreme Court in the case of Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1 : (1999) 239 ITR 775 (SC) was not available. But now the issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Mysore Minerals Ltd. and in the case of CIT vs. Podda....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he possession of the property has been already given to the assessee and the assessee was enjoying the property. The only question arises as to whether the lease under which the assessee got the possession of the property and the enjoyment thereof was revocable or not. As mentioned earlier, the assessee had option for an outright purchase of the property. The agreement also provided that the option of the assessee-company to purchase the leased property at the stipulated price of Rs. 3.36 crores shall not be rejected by the vendor-company under any circumstances for any reason whatsoever. It also provided that any subsequent extension of lease shall not destroy the above right of purchase by the assessee-company. Para 5 of the agreement mentions the liability to the assessee to pay initially its contribution to the sinking fund for the replacement of capital goods like air-conditioning, plant, generators, machinery, electrical equipments and cables, etc. Clause (vi) of the lease deed also specified the efforts to be made by the vendor-company for obtaining all such permission from the Government as are necessary to carry on the sales and operations. The agreement also refers to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the purpose of the business or profession. The terms "own", "ownership" and "owned" are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. CIT vs. Poddar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC), is a case under the IT Act and has to be taken as a trend-setter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term "owned" as occurring in s. 32(1) of the Act. The term owned as occurring in s. 32(1) of the IT Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. "Building owned by the assessee", the expression as occurring in s. 32(1) of the IT Act, means a person who having acquired possession ove....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by a consolidated order. For the sake of convenience, we will first take up the appeal directed by the Revenue for asst. yr. 1995-96. 11. The first issue raised by the Revenue relates to the allowance of depreciation on the building which is yet to be registered in the name of the assessee-company. 12. We have adjudicated this issue in the assessee's appeal for asst. yr. 1994-95. In that year, the AO/CIT(A) had disallowed the depreciation by holding that there was no real transfer of the property and also the assessee has not become the owner of the property in absence of registered conveyance deed. When the CIT(A) had passed the order in that year, the decision of the Hon'ble Supreme Court in the case of Mysore Minerals Ltd. was not available. The assessee was, therefore, in appeal before us which we have adjudicated earlier. But in the year under consideration, the CIT(A) has allowed depreciation on such building by following the decision of Hon'ble Supreme Court in the case of Poddar Cement Ltd. The Revenue is in appeal before us against the findings of the CIT(A). 13. We have adjudicated this issue in the assessee's appeal for asst. yr. 1994-95 wherein we have held tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the object of promoting and development of industries was inadvertently not taken into consideration notwithstanding the fact that the subsidy allowed in the form of exemption was in the nature of a capital grant. However, subsequently, the assessee revised its return of income claiming that such amount of sales-tax was in the nature of capital subsidy. Such amount came to Rs. 7,27,71,570. During the course of assessment proceedings, the assessee also relied on various decisions reported as CIT vs. Tirmumala Bricks & Tiles Factory (1996) 131 CTR (AP) 211 : (1996) 217 ITR 547 (AP), 217 ITR 757 (AP) (sic), Tribunal Bombay decision dt. 27th April, 1994, in ITA No. 1418 and the decision reported in CIT vs. P.J. Chemicals Ltd., Etc. Etc. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC). However, the claim of the assessee did not find favour with the AO. In his order, the AO made the following observations: "(a) There is no doubt that the amount of Rs. 7,27,71,570 represents the income of the assessee-company. This issue had already been settled finally by several judgments of the Hon'ble Supreme Court of India e.g., Chowringee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....und reasoning while allowing the claim of the assessee and, therefore, the Revenue's appeal on this ground deserves to be dismissed. 18. We have considered the rival submissions. It appears that while disallowing the claim of the assessee, the AO had in mind the ratios laid down by the Hon'ble Supreme Court in the case of Sinclair Murray & Co. (P) Ltd. and Chowringhee Sales Bureau (P) Ltd. wherein it was held that sales-tax collected was part of trading receipts. As the same has not been paid within the time allowed under proviso to s. 43B of the Act, the deduction was not allowable. However, the CIT(A) had treated the amount of sales-tax collected by the assessee as a capital subsidy and while relying on the decision of Hon'ble Supreme Court in the case of P.J. Chemicals held that the amount received by the assessee was not a trading receipt. 19. As mentioned earlier, the units of the assessee-company are located in Distt. Ghaziabad (UP). The particular area has been notified to be specified area. The UP Government vide its notification mentioned earlier notified that the State Government was of the opinion that for promoting the development of certain industries in the esta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be made to the Circular No. 496, dt. 25th Sept., 1987, issued by the CBDT reproduced in (1988) 169 ITR (St) 53 dealing with the question of applicability of s. 43B to the cases of the deferment of sales-tax payment under the State Government Scheme. The CBDT directed that if the State Government would make an amendment in the ST Act to the effect that the sales-tax deferred under the scheme shall be treated as actually paid, such a deeming provision will meet the requirement of s. 43B of the Act. In the present case, the two schemes of the UP Government allowing exemption/reduction in the sales-tax are recognised through requisite statutory gazette notification and hence have got statutory administrative sanction. The exemption/reduction provision in the scheme negate the requirement of sales-tax payment and hence the question of actual payment of sales-tax to that extent does not arise at all. In view of these facts, we hold that no amount was disallowable under s. 43B of the Act. 21. Coming to the next issue as to whether the amount collected by the assessee by way of sales-tax for a specified period which was not payable to Government, was a subsidy granted by the State Gov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....company by the State Government not for the purposes of carrying on its business in a more profitable manner but merely in consideration of setting up the production units in backward areas. The purpose of the State Government in granting subsidy is clear from the preamble portion of the two notifications under which the appellant-company became entitled to exemption in respect of sales-tax amount. 22. Though the subsidy/grant allowed by the Government appears to be in the nature of exemption/reduction in the amount of sales-tax payable by the appellant-company, actually, however, the sales-tax amount is simply a measurement of the subsidy to be allowed by the State Government. The subsidies are purely gratuitous in nature and cannot be considered to be an assistance provided to the appellant-company for carrying on its business operation in a day-to-day manner. On the other hand as discussed earlier, the subsidy has been granted specially for the purpose of promotion and development of the industries in the backward areas of the State. In the case of Senai Ram Dungermall vs. CIT (1961) 42 ITR 392 (SC) at 397, the Hon'ble Supreme Court held that it is the quality of the payment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ordance with the notification of the State Government. While upholding the finding of the CIT(A), we dismiss the ground of appeal raised by the Revenue. 23. In the result, the appeal directed by the Revenue is dismissed. 24. In the asst. yr. 1996-97, the Revenue has raised two grounds relatable to the depreciation on building as well as the amount of sales-tax collected but exempted from payment. 25. We have adjudicated both the issues in the asst. yr. 1995-96 and in view of our findings therein, both the grounds of appeal raised by the Revenue are dismissed. 26. In the result, the appeal directed by the Revenue is dismissed. 27. In the asst. yr. 1997-98, the ground Nos. 2 and 3 related to the amount of sales-tax collected and the depreciation on the office building. 28. We have adjudicated both the issues in the asst. yr. 1995-96 and in view of our findings therein, both these grounds of appeal raised by the Revenue are dismissed. 29. Ground No. 1 raised by the Revenue related to the computation of book profits under s. 115JA of the Act. 30. Briefly, the facts of the case are that during the course of assessment proceedings, the AO noted that as per computa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... counsel Shri S.K. Tulsiyan stated that the AO had relied on the decision of Hon'ble Kerala High Court in the case of Apollo Tyres while rejecting the claim of the assessee. But since the said decision of the Hon'ble Kerala High Court in the case of Apollo Tyres has been reversed by the Hon'ble Supreme Court, the CIT(A)'s order was in accordance with law and deserves to be upheld. 33. We have considered the rival submissions. The provisions of s. 115JA under which the book profits have been computed read as under: "115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997, but before the 1st day of April, 2001 (hereinafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (2) Every assessee, being a company, shall, for the pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Explanation, or (ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the P&L a/c; or (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation: For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation, is nil; or (iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or (v) the amount of profits derived by an industrial undertaking located in an industrially backward State or district as referred to in sub-s. (4) and sub-s. (5) of s. 80-IB, for the assessment years such industrial undertaking is eligible to claim a deduction of hundred per cent of the profits and gains under sub-s. (4) or sub-s. (5) of s. 80-IB; or (vi) the amount of profits derived by an industrial undertaking from the business of developing, maintaining and operating any infrastructure facility as defined in the Explanation to sub-s. (4) of s. 80-I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ating to prior period are required to be made below the line and, hence such entries cannot be counted for the purpose of arriving at the book profit. While rejecting the claim of the assessee, the AO has mainly made the following observations: "I. The AO has got the right to verify the correctness of the P&L a/c drawn by the assessee. II. Although the Companies Act does not contain any specific/mandatory provisions regarding the circumstances in which the assessee can change its method of providing depreciation, yet the said change must be bona fide. The AO holds that in the present case, there were no bona fide reasons for the appellant-company to change its method of depreciation in case of its cold rolling mills alone and that the entire exercise in that regard has merely been a camouflage. III. There was no mandatory requirement for the appellant-company to change its method of calculating depreciation with retrospective effect. The Companies Act does not contain any specific/mandatory provisions prescribing that depreciation relating to earlier years on account of change of method has to be necessarily a charge to profit of the year in which the change was effecte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing increases and reductions as provided for in the Explanation to s. 115J. The AO does not have the jurisdiction to go behind the net profits shown in the P&L a/c except to the extent provided in the Explanation. The use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in s. 115J was made for the limited purpose of empowering the AO to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the AO has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinised and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-s. (1A) of s. 115J does not empower the AO to embark upon a fresh enquiry in regard to the entries made in the books of account of the company." 3....