2008 (10) TMI 298
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....me is computed under section 115JA." ITA No. 2002/Ahd./2001 "1. The ld. CIT(A) has erred in law and on facts in allowing the expenditure of Rs. 1,56,44,614 as revenue expenditure which being pre-operative expenses was capital in nature and was rightly so held by the Assessing Officer. 2. The ld. CIT(A) has erred in law and on facts in holding that the interest of Rs. 14,64,58,864 was allowable under section 36(1)(iii) of the Income-tax Act although the same represents preoperative expenses and was capital in nature. 3. The ld. CIT(A) has erred in law and on facts in directing the Assessing Officer not to charge interest under section 234C when the income is computed under section 115JA. 4. The ld. CIT(A) has erred in law and on facts of the case in allowing the claim of the assessee of not reducing the 90 per cent of gross interest received of Rs. 22,94,13,676 while working out the export profit under section 80HHC for the purpose of finding out the book profit under section 115JA." Initially reference was made by the taxpayer to Hon'ble President, ITAT for constitution of a Special Bench due to conflicting decisions of the ITAT on the following issue:- "Allowability under s....
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.... 63,40,773 ------------------------------------------------------ 2. Computer software expenses 0.23 5,38,267 ------------------------------------------------------ 3. Public relation expenses/ 4.25 4,43,130 Cultural programme expenses ------------------------------------------------------ 4. Quota expenses 8.60 14,44,621 ------------------------------------------------------ 5. Sales promotion expenses 10.78 1,10,33,611 ------------------------------------------------------ 6. Fixed deposit expenses 184.80 1,37,51,366 ------------------------------------------------------ 7. Exhibition expenses - 6,86,140 -------------....
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.... Rs. 1,27,33,092 and Rs. 185.93 lakhs in the P&L account of the respective assessment years, the ld. CIT(A) was not justified in allowing the deduction for the entire expenditure. In this connection, the ld. DR relied upon the decision of Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802. 7. On the other hand, the ld. AR on behalf of the taxpayer while rebutting the contentions of the ld. DR, relied upon the decisions of the Hon'ble Supreme Court in the cases of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and Tuticorin Alkali Chemicals &Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) and pointed out that the nature of expenditure is irrelevant. As regards expenses relating to fixed deposits, ld. AR relied upon the decision of Hon'ble Madras High Court in the case of CIT v. Southern Petrochemical Industries Corpn. Ltd. [2008] 301 ITR 255 and pleaded that out of total fixed deposits of Rs. 29 crores, Rs. 27 crores were for the period less than one year. He further contended that expenditure incurred in redeeming debts is always allowable while the fixed deposits can always be prematurely encashed. In respect of decision....
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....h. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression "asset or advantage of an enduring nature" was evolved to emphasise the element of a sufficient degree of durability appropriate to the context." 9. Moreover, the deferred revenue expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnitude of the expenditure involved. For the purpose of allowability of any expenditure under the Act, what is material is the classification between the capital and revenue and the same does not recognise of any concept of deferred revenue expenditure. That is why Assessing Officer himself allowed the amount debited in the profit and loss account. In a number of judgments viz. Amar Raja Batteries Ltd. v. Asstt. CIT [2004] 91 ITD 280 (Hyd.), Jt. CIT v. Modi Olivetti Ltd. [2005] 4 SOT 859 (Delhi), Asstt. CIT v. Medicamen Biotech Ltd. [2005] 1 SOT 347 (Delhi), Hero Honda Motors Ltd. v. Jt. CIT [2005] 3 SOT 572 (Delhi) and Charak Pharmaceuticals v. Jt. CIT [2005] 4 SOT ....
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..... Another argument by the ld. DR is the variation and dichotomy between the accounting treatment of such expenditure in the books of account and its claim under the Act. As far as the entries in the books of account are concerned, it is well-settled that they do not clinch the issue either way, and are not determinative of the allow ability or otherwise of the expenditure. The decisions of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. and in the case of CIT v. Indian Discount Co. Ltd. [1970] 75 ITR 191 (SC) are clear on the issue. The accounting entries in the books of account are occasioned by a diverse set of considerations and issues such as compliance with statutory laws and mandatory accounting standards/principles and of course management decisions as to the treatment of a particular item which can be guided by considerations of reported profitability earning per share, impact on share prices etc. The Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. also affirmed the above view by observing that: "whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which t....
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.... akin to pre-paid expenses the same would be allowable over the period to which these relate proportionately, applying the matching principle. - In other cases where the same does not result in the creation of any capital asset or where the same is not allocable over defined future time periods there can be no case for amortising the same under the Act over the expected period over which the benefit is likely to arise therefrom since in such cases the expenditure is essentially revenue in nature but is amortised in the books only on account of some other considerations. 15. In view of the foregoing, we may now analyse the claim of expenditure in these two assessment years: (a) Corporate advertisement, Exhibition, Public relation expenses/Cultural programme expenses, quota expenses and sales promotion-The undisputed fact is that the expenditure relating to Corporate advertisement, Exhibition, Public relation expenses/Cultural programme expenses, quota expenses and sales promotion is in the revenue field. The only issue to be considered is whether the assessee can claim the entire expenditure in this year itself, even though it had written off this expenditure in the books over a ....
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....gest that with this expenditure, any asset, tangible or intangible, has been created. There is no evidence on record regarding accrual of any specific revenue in the years under consideration or subsequently over a defined period with the incurring of said expenditure. Assessing Officer himself admitted the portion of expenditure debited in the profit and loss account as revenue expenditure. In these circumstances, we do not find any justification to interfere with the findings of the ld. CIT(A). (b) Computer software-As regards expenditure on computer software, the relevant orders do not reveal the nature of expenditure on software. The ITAT Special Bench in the case of Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112 (Delhi) in their detailed judgment held that since software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where life of the computer software is shorter (say less than two years), it may be treated as revenue expenditure. It was further held that nature of advantage of computer software has to be seen in a commercial sense. If the advantage is in the capital field then the same would be capital e....
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....quisition of software, whether capital or revenue, we are of the view that these criteria need to be applied to determine the exact nature of expenditure incurred by the assessees in the present cases for acquiring different softwares. Since this exercise is required to be done in respect of each and every software independently having regard to the criteria laid down above, we are of the view that the matter needs to be restored back to the file of the Assessing Officer for doing such exercise. The Assessing Officer shall examine the question whether expenditure on computer software is capital or revenue in the light of the criteria laid down above after giving an opportunity of being heard to the assessees. If on such examination, the Assessing Officer comes to the conclusion that the expenditure is capital expenditure, then the question regarding allowing depreciation will be decided in accordance with the principles laid down in the subsequent paragraphs." Since in the case under consideration nature of software is not available on records nor any material has been placed before us in respect of nature of software(s) and expenditure incurred thereon, we are of the opinion that....
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....bserving so, the Supreme Court held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained and, therefore, the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business and was, therefore, allowable as a deduction. The Apex Court also held that obtaining capital by issue of shares is different from obtaining loan by debentures. ................. In CIT v. Investment Trust of India Ltd. [2003] 264 ITR 506 this Court held that the expenditure on advertisements in newspapers inviting fixed deposits from the public is allowable in the words: 'In view of the provisions contained in section 58A of the Companies Act, 1956, the assessee-company had to advertise the notice calling for deposits and if there was any breach, the assessee was liable to be proceeded against under the relevant provisions of the 1956 Act. Section 37(3A) was introduced to cu....
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....was disallowed and depreciation was allowed on the amount of interest capitalized. 18. On appeal, the ld. CIT(A) while relying upon his own order dated 18-9-2000 for the assessment year 1996-97 allowed the claim of the taxpayer. 19. Before us, both the parties agreed that the issue is now settled by the decision of the Hon'ble Supreme Court in the cases of Dy. CIT v. Core Health Care Ltd. [2008] 298 ITR 194 and Dy. CIT v. Gujarat Alkalies & Chemicals Ltd. [2008] 299 ITR 85. 20. We have heard the rival contentions and gone through the facts of the case. The issue regarding claim for deduction of interest on borrowed funds has now been settled by the decision of the Hon'ble Supreme Court in the aforesaid case of Core Health Care Ltd., wherein it was held:- "In the case of Challapalli Sugars Ltd [1975] 98 ITR 167 this Court observed that interest paid on the borrowing utilised to bring into existence a fixed asset which has not gone into production, goes to add to the cost of installation of that asset. It was further observed that if the said borrowing was not "for the purpose of business" inasmuch as no business had come into existence, it must follow that it was made for the pu....
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....hat the Assessing Officer was not justified in making disallowance of Rs. 1,56,76,000 in respect of borrowings utilised for purchase of machines. Accordingly, the above question is answered in favour of the assessee and against the Department." 21. The aforesaid decision has subsequently been followed in Jt. CIT v. United Phosphorous Ltd. [2008] 299 ITR 9 (SC), Asstt. CIT v. Arvind Polycot Ltd. [2008] 299 ITR 12 (SC) and CIT v. Ishwar Bhuvan Hotels Ltd. [2008] 215 CTR (SC) 14. 22. In the light of these decisions of the Apex Court, we hold that the Assessing Officer was not justified in making disallowance of interest of Rs. 20,72,33,895 for the assessment year 1997-98 and Rs. 14,64,58,864 for the assessment year 1998-99. There being no infirmity in the findings of ld. CIT(A), we uphold his orders for these two years. Thus, ground No. 2 in the appeals for the assessment years 1997-98 and 1998-99 is dismissed. 23. Ground No. 3 in the appeals for the two assessment years relates to levy of interest under section 234C of the Act while computing income in terms of provisions of section 115JA of the Act. While determining income in terms of provisions of section 115JA of the Act, inte....
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....'ble Supreme Court in the case of CIT v. Kwality Biscuit Ltd. [2006] 284 ITR 434, the Hon'ble Madras High Court held as under:- "Further, as pointed out by the learned senior standing counsel for the revenue, the Bombay High Court in CIT v. Kotak Mahindra Finance Ltd. [2004] 265 ITR 119 and the Punjab and Haryana High Court in CIT v. Upper India Steel Mfg. & Engg. Co. Ltd. [2005] 279 ITR 123 also considered the judgment of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519 and held that where there is non-payment or short payment due to the computation of income under section 115J of the Act, interest can be levied under sections 234B and 234C of the Act and dissented from the view taken by the Karnataka High Court in Kwality Biscuits Ltd.'s case [2000] 243 ITR 519. Even though it is brought to our notice that the decision of the Apex Court in CIT v. Kwality Biscuits Ltd. [2006] 284 ITR 434, confirming the decision of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519, we find that the Apex Court has only dismissed the appeal. It is a settled law that dismissal simpliciter would not be a declaration of the law and it would not be ....
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....ainst this judgment by the revenue before the Apex Court has been dismissed and the said decision is reported in [2006] 284 ITR 434. It is reported therein that from the decision of the Karnataka High Court to the effect, inter alia, that interest is not leviable under sections 234B and 234C of the Income-tax Act, 1961, in the case of an assessment of a company on the basis of book profits under section 115J, since the entire exercise of computing income under section 115J can only be done at the end of the financial year, and the provisions of sections 207, 208, 209 and 210 cannot be made applicable until and unless the accounts are audited and the balance-sheet prepared. The department preferred appeals to the Hon'ble Supreme Court and the Hon'ble Supreme Court dismissed the appeals. 6. Since the decision of the Karnataka High Court has been approved by the Hon'ble Supreme Court, we decide this question in favour of the assessee and against the revenue. We are of the view that the Tribunal has correctly decided the issue and held that interest under sections 234B and 234C is not chargeable when income is computed under section 115J of the Act. 7. This appeal is accordingly dism....
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.... the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the same order and at times the orders are quite brief. Nevertheless, the order shows the exercise of appellate jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court." In the light of the said decision, the ld. AR argued that the decision of the Hon'ble Supreme Court in Kwality Biscuits Ltd.'s case, is binding and no interest could be changed under section 234C of the Act. 26.2 Continuing, the ld. AR further argued that since determination of book profits in terms of provisions of section 115JA of the Act is fictional, interest on the said fictional income cannot be levied. On the other hand, the ld. DR contended that in that case no interest can be levied on the income assessed in terms of provision of sections 68, 69 and 2(22)(e) of the Act and therefore, the logic of the ld. AR cannot be accepted. 26.3 The ld. AR further relied upon the decisions of the ITAT Delhi Benc....
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....the provisions of section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956) which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation.-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year pre-paied under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed; or (f) the amount or amounts of expenditure relatable to any income to which any of the provision....
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....sment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.-For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or (viii) the amount of profits eligible for deduction under section 80HHC, computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in sub-sections (4) and (4A) of that sections; (ix) the amount of profits eligible for deduction under section 80HHE, computed under sub-section (3) of that section. (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A. (4) Save as otherwise provided in this section, all other provisions of this Act sh....
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....all, in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable." 29. As is evident from the aforesaid provisions of sections 207 to 209 of the Act, every assessee has to pay advance tax on his 'current income' if liability for such tax exceeds Rs. 5,000 'Current income' has to be determined in accordance with provisions of section 209 of the Act. The provisions of section 209(1) of the Act stipulate that the assessee shall estimate his current income for the relevant financial year. In terms of provisions of section 209(2) of the Act, such current income can be last assessed income or returned income, whichever is higher. In terms of these provisions, for determining liability on account of advance tax, first step is that current income has to be estimated. Section 209 deals with the computation of....
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....le Karnataka High Court in the aforesaid case of Union Home Products Ltd. The Hon'ble Bombay High Court in Umesh S. Bangera v. Union of India [2004] 268 ITR 405, also concurred with the decisions in the cases of Union Home Products Ltd. and Sant Lal. In the light of these decisions it is evident that the provisions contained in sections 234A, 234B and 234C of the Act are certainly not penal provisions but are compensatory in nature for breach of civil obligations. These provisions have been introduced to eliminate the subjective discretion of the tax authorities, ensuring uniform treatment to similarly situated persons. The provisions are mandatory and the levy thereunder is automatic, the moment it is proved that a default has been committed within the comprehension of any one of the provisions in question. In Anjum M.H. Ghaswala's case, the nature of these provisions was examined by the Apex Court and it was held that interest leviable under sections 234A, 234B and 234C of the Act was mandatory in nature. At page 13, the Apex Court has observed as under:- "Sections 234A, 234B and 234C in clear terms impose a mandate to collect interest at the rates stipulated therein. The expres....
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....ld not be attracted in cases where a company is assessed on the income computed under section 115JA of the Act. As already observed, the levy is automatic without any notice to the assessee. 34. The ld. AR on behalf of the taxpayer vehemently placed reliance on the decision of the Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd., in the context of provisions of section 115J of the Act, which was later affirmed by the Hon'ble Supreme Court in Kwality Biscuits Ltd.'s case. Hon'ble Supreme Court held in their decision that- "The appeals are dismissed." 35. Earlier, the Hon'ble Karnataka High Court in the aforesaid decision while accepting the claim of the assessee, observed:- "Under section 115J, where the total income of the company is less than 30 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 30 per cent of such book profit. It is thus, by way of deeming fiction that this income has been considered to be deemed income. The profit and loss account has to be prepared in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act. In....
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....rmined under section 115J and; secondly, that a hardship is caused to the assessee because the liability to pay tax on the book profits is determined only at the end of the financial year. The Hon'ble Court held that when a deeming fiction is brought under the statute, it is to be carried to its logical conclusion, but without creating further deeming fiction; so as to include other provisions of the Act, which are not specifically made applicable. 37. However, the Hon'ble Gauhati, Madras, Madhya Pradesh and Mumbai High Courts which took a view that even in cases covered by section 115J of the Act, the assessee's are liable to pay advance-tax. In the case of Assam Bengal Carriers Ltd. v. CIT [1999] 239 ITR 862, the Hon'ble Gauhati High Court observed as under:- "Section 207 of the Act envisions that tax shall be payable in advance, during any financial year on current income in accordance with the scheme provided in sections 208 to 219 (both inclusive) in respect of the total income of the assessee that would be chargeable to tax for the assessment year immediately following that financial year. Section 215(5) of the Act spelled out what is the 'assessed tax', i.e., the tax deter....
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..... Holiday Travels (P.) Ltd. [2003] 263 ITR 307 observed as under:- "It is true that for the applicability of section 115J of the Act, the starting point is the profit and loss account for the relevant previous year which should be drawn in accordance with the provisions of the Companies Act and to the net profit as shown in the profit and loss account, certain amounts which are found in the Explanation to section 115J are added to arrive at the book profit. There is no doubt that the entire exercise under section 115J of the Act is required to be made and can be made only on the basis of the net profit arrived at on the basis of the profit and loss account. However, the question remains whether it is not possible for the assessee to estimate the profit of the current year. It is axiomatic that all assessees who are chargeable to income-tax are required to estimate current income and nay advance tax on the current income. The companies have all along been estimating current income prior to the insertion of section 115J of the Act and paying the advance tax on the current income. It is significant that the company assessees have been estimating the total income after providing for t....
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....revenue and against the assessee and the appeal is allowed." 42. As is evident from the aforesaid decisions, in respect of levy of mandatory interest under sections 234B and 234C of the Act even in the context of provisions of section 115J of the Act, Hon'ble Gauhati, Madras, Madhya Pradesh and Bombay High Courts have taken a consistent view in favour of the revenue. Only Hon'ble Karnataka and Gujarat High Court took a contrary view. On a perusal of decision of Hon'ble Karnataka High Court in Kwality Biscuits Ltd.'s case, Hon'ble High Court, inter alia, held that when a deeming fiction is brought under the statute, it is to be carried to its logical conclusion, but without creating further deeming fiction, so as to include other provisions of the Act which are not specifically made applicable. In the case under consideration, the provisions of section 115JA specifically stipulate in sub-section (4) that all other provisions of the Act shall apply. Thus, even in terms of the aforesaid decision of the Hon'ble Karnataka High Court, interest under sections 234B and 234C of the Act is leviable, since now the deeming provisions itself stipulate applicability of provisions of sections 23....
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....e case of Kwality Biscuits Ltd. themselves held that when a deeming fiction is brought under the statute, it is to be carried to its logical conclusion, but without creating further deeming fiction, so as to include other provisions of the Act, which are not specifically made applicable. In the context of levy of interest under sections 234B and 234C of the Act in the case under consideration, provisions of sub-section (4) of section 115JA specifically stipulate applicability of all other provisions of the Act. Thus, the said decision in a way supports the case of revenue in the case under consideration. As is apparent, the aforesaid decision in the case of Kwality Biscuits Ltd. and Associated Crown Closures (P.) Ltd. were not rendered in the context of provisions of section 115JA of the Act nor the relevant decisions of Hon'ble Apex Court, holding levy of interest under sections 234A, 234B and 234C of the Act mandatory, were brought to the notice of their Lordships. In this context Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 observed:- "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of ....
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....t require any opportunity to be given to the assessee. Section 4 of the Act envisages charge to tax the income at any rate or rates which may be prescribed by the Finance Act every year and section 207 deals with liability for payment of advance tax and section 209 deals with its computation based on the rates in force for the financial year, as are contained in the relevant Finance Act. 45. In our opinion, all other provisions of Act including the provisions relating to payment of advance tax are applicable even when the income is computed under section 115JA of the Act. Section 115JA has a specific provision in the shape of sub-section (4) which reads as under:- "Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company, mentioned in this section." It is well-settled that all words of a statute are to be given effect, and the Legislature is presumed not to use words that are superfluous or redundant. It is also in consonance with the principle of harmoniously interpreting to make the statute workable and giving a meaning to all the provisions of the statute without making anyone of them redundant. If the interpre....
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.... payable by way of advance tax in respect of income chargeable under section 115JB as introduced by the Finance Act, 2000, and consequently the provisions of sections 234B and 234C for interest on defaults in payment of advance tax and deferment of advance tax would also be applicable where the facts of the case warrant." 47. Similarly Hon'ble Punjab & Haryana High Court in CIT v. Upper India Steel Mfg. & Engg. Co. Ltd. [2005] 279 ITR 123, in the context of levy of interest under sections 234B and 234C of the Act while determining income in terms of provisions of section 115JA of the Act, held- "We fully concur with the view expressed in the aforesaid judgments. The Madras High Court has correctly pointed out that for the purpose of payment of advance tax, all assessees including companies, are required to make an estimate of their current income. Even before the introduction of the provisions of section 115J of the Act, companies had been estimating their total income after providing deductions admissible under the Act. In fact, all assessees who maintain books of account have to undertake this exercise for the purpose of payment of advance tax. If a profit and loss account can ....
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....e Act, the Assessing Officer noticed that the taxpayer did not reduce book profits by 90 per cent of gross interest receipt of Rs. 22,94,13,876 and the taxpayer adopted the book profit as a base for arriving the deduction on account of export profit as against the business profits computed under the Act. Inter alia, the taxpayer relied upon the CBDT Circular No. 559, dated 4-5-1990. Accordingly, after considering the submissions of the taxpayer, the Assessing Officer reduced 90 per cent of the aforesaid gross amount of interest while working out book profits in terms of provision of section 115JA of the Act. 51. On appeal, the taxpayer contended before the ld. CIT(A) that the Assessing Officer was not justified in reducing the book profits by the interest received of Rs. 22.94 crores. Even if interest income has to be excluded, it is net interest and not the gross interest which should be deducted from the profit to be deducted under section 115JA of the Act. In this connection, the ld. AR relied upon the following decisions:- (i) Order of CIT(A)-V, Ahmedabad dated 4-9-1998 in the case of Jindal Worldwide Ltd. For assessment year 1995-96 in appeal No. CIT(A)-V/DC.SR.2/49/97-98 wh....
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....duction under section 80HHC is in that way given out of gross total income in a case falling under MAT. This in turn means that section 80HHC should be computed on the adjusted book profit. Sections 115J, 115JA and 115JB come into operation, as the regular profits has been substituted by the book profit. Once the substitution is over, there is no way to go back to the normal computation process of statutory profit, which has already been overwhelmed by sections 115J, 115JA and 115JB. This reconciles the alleged incompatibility pointed out by the revenue that the deduction available to an assessee under Chapter VI-A is subject to section 80AB. Therefore, we find that the deduction under section 80HHC in a case of MAT assessment is to be worked out on the basis of the adjusted book profit and not on the basis of the profit computed under the regular provisions of law applicable to the computation of profit and gains of business or profession." 55. Regarding netting off, the aforesaid decisions relied upon by ld. DR were considered in the case of Shri Ram Honda Power Equipment and were dissented from The Hon'ble Delhi High Court, while approving the decision in case of Lalsons Enter....
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....ness" for the purposes of section 80HHC(3):- (a) 90 per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28 i.e., export incentives; (b) 90 per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (c) profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. (viii) The word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross interest". Therefore, in deducting such interest, the Assessing Officer will take into account the net interest i.e., gross interest as reduced by expenditure incurred for earning such interest. The decision of the Special Bench of the Income-tax Appellate Tribunal in Lalsons [2004] 89 ITD 25 (Delhi) to this effect is affirmed. In holding as above, we differ from the judgments of the Punjab and Haryana High Court in Rani Paliwal [2004] 268 ITR 220 and the Madras High Court in Chinnapandi [2006] 282 ITR 389 and affirm the ruling of the Special Bench, of the Income-tax Appellate Tribunal in Lalsons [2004] 89 ITD 25 (Delhi). (ix) Where, as a result of the co....