2009 (11) TMI 661
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....re wrong and contrary to the facts of the case, the provisions of the Income-tax Act, 1961 and the Rules made thereunder." 3. Ground No. 2 of the assessee's appeal reads as under :- "2.(a)On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in confirming the action of Assessing Officer of treating interest income amounting to Rs. 83,89,178 as "Income from other sources" as against "Business income" and the reasons assigned by him for doing so are wrong and contrary to the facts of the case, the provisions of the Income-tax Act, 1961 and the Rules made thereunder. (b)On the facts and in the circumstances of the case and in law, the authorities below ought to have netted off the interest paid against the interest income, and not doing so is wrong and contrary to the facts of the case, the provisions of the Income-tax Act, 1961 and the Rules made thereunder." 4. At the time of hearing before us, it was pointed out by the learned counsel that this issue is considered by the ITAT, in assessee's own case, for the assessment year 2000-01, in which the ITAT set aside the matter back to the file of the Assessing Officer. He....
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....ssels sold during the year on the ground that they have been sold within 8 years from the end of previous year in which they have been acquired even though the period of holding required is 3 years for this assessment year and the reasons assigned for doing so are wrong and contrary to the facts of the case, the provisions of the Income-tax Act, 1961 and the Rules made thereunder. (b)The lower authorities failed to appreciate that as per the amended clause (c) of sub-section (3) of section 33AC with effect from 1-4-2004, the period of retention was reduced from 8 years to 3 years and, hence, there was no violation of conditions laid down in that section. (c)On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in confirming disallowance of Rs. 25,00,000 in respect of sale of vessel to DB Girdhari even though no deduction under section 33AC was ever claimed by the appellant in any of the earlier years." 9. At the time of hearing before us, it is submitted by the learned counsel that the assessee derives income from shipping business. During the accounting year relevant to assessment year under appeal, the assessee sol....
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....The provision of sub-section (2) and sub-section (3) of section 33AC, which is with regard to the utilization of reserve and the prohibition with regard to sale of ship acquired by utilizing the reserve, reads as under :- "33AC. Reserves for shipping business.-(1) ****** (2) The amount credited to the reserve account under sub-section (1) shall be utilized by the assessee before the expiry of a period of eight years next following the previous year in which the amount was credited- (a)for acquiring a new ship for the purposes of the business of the assessee; and (b)until the acquisition of a new ship, for the purposes of the business of the assessee other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. (3) Where any amount credited to the reserve account under sub-section (1)- (a)has been utilized for any purpose other than that referred to in clause (a) or clause (b) of sub-section (2), the amount so utilized; or (b)has not been utilized for the purpose specified in clause (a) of sub-section (2), the amount not so utilized; or (c)has been utilized for the purpose of acquiring a ....
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....hips would be applicable. It is a settled law that the law as applicable on the first day of the assessment year is to be applied for determining the income of the previous year. The Hon'ble jurisdictional High Court in the case of Orkay Silk Mills (P.) Ltd. (supra) held as under :- "That it is well-settled that though the subject of charge under the Income-tax Act is income of the previous year, the law to be applied is that in force in the assessment year unless otherwise stated or implied. Therefore, for determining the liability of the assessee-company in respect of the income of the amalgamating company for the previous year ending 30-6-1975, the law applicable on the first day of the assessment year 1976-77, i.e., 1-4-1976, would apply and not the law applicable during the previous year." [Emphasis supplied] Similar view is taken by the Hon'ble Apex Court in the case of Karimtharuvi Tea Estate Ltd. (supra), wherein Their Lordships held as under :- "It is well-settled that the Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment of that year. Any amendments in the Act which come into force after the first day of Ap....
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....f the amounts of paid-up share capital and general reserve, then no deduction under section 33AC is allowable. As per the Assessing Officer, the total of paid-up share capital and general reserve is negative and, therefore, the assessee is not entitled to deduction under section 33AC at all. The above view of the Assessing Officer was based upon the following findings :- (a)Preference share capital is not part of paid-up share capital. (b)General reserve is to be reduced by :- (i)Amount transferred from capital redemption account to profit and loss account; and (ii)Amount transferred from section 33AC reserve utilized account to profit and loss account. 14. In respect of all the above three points, the learned counsel argued at length, which are summarized as under :- (a)Preference share capital - It is submitted by the learned counsel that proviso to section 33AC uses the words "paid-up share capital" and not the "equity share capital". That preference share capital is also part of share capital. In support of this contention, he referred to sections 80, 85 and 86 of the Companies Act, 1956, as well as Schedule VI of the Companies Act, 1956. He submitted that section 85 of t....
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....ount, and also the sum of Rs. 16,75,99,000 transferred from section 33AC reserve utilized account to profit and loss account. He submitted that at page 20 of the assessment order, the Assessing Officer has given the complete chart with regard to preference share capital. As per his own total, the amount transferred from capital redemption account to profit and loss account was only Rs. 4,82,50,000. Rs. 7,13,50,000 was the amount for which capital redemption reserve was required to be created. He submitted that the above working by the Assessing Officer is absolutely incorrect and it is neither in conformity with the provisions of the Companies Law nor the Accounting Guidelines provided by the Institute of Chartered Accountants of India. That as per the Assessing Officer, the assessee's working in this regard since assessment year 1997-98 is incorrect. He stated that in all the preceding years the assessment was completed under section 143(3) and assessee's working of general reserve is accepted by the revenue. No infirmity therein was ever pointed out by the Assessing Officer. Neither any year's assessment was reopened under section 263. That the assessee's books of account are dul....
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....ection 143(3). The same are neither reopened under section 147 nor set aside under section 263 of the Act, and, therefore, the Assessing Officer, while completing the assessment of assessment year 2004-05, has no jurisdiction to examine/comment upon the matter which has taken place in the preceding years and accepted by the revenue. Even otherwise, the object of the placement is mentioned in wide term. Out of the proceed of preference shares, part was utilized for redemption of preference shares and part for long-term working capital needs. He also pointed out that during the year under consideration, the preference capital redeemed was only Rs. 96,00,000 for which redemption reserve was already created from time to time since issue of preference shares. That the balance in the capital reserve redemption account was Rs. 3,69,41,800 which was much more than preference shares redeemed during the year under consideration, therefore, no further reserve was required. He also pointed out that the Assessing Officer has relied upon clause (d) of section 80(1) of the Companies Act, and as per this clause; capital redemption reserve account is to be treated as paid-up share capital of the co....
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..... The learned counsel, therefore, concluded his argument with the submission that the Assessing Officer was not justified in denying the claim of deduction under section 33AC. It was also pointed out by the learned counsel that the learned CIT(A) not only upheld the order of the Assessing Officer in this regard, but he also expressed doubt about the overall eligibility of the appellant's claim for deduction under section 33AC of the Act. He observed that the assessee is not engaged in the business of operation of ships but only providing ancillary services. It is contended by the learned counsel that the Assessing Officer has never held that the assessee is not eligible to deduction under section 33AC; but while computing the deduction under section 33AC, he worked out the deduction to Nil. Therefore, the above observation by the CIT(A) was beyond the issue before him. It is submitted by the learned counsel that the assessee is in the same line of business since past several years and on the similar activity, it is being allowed deduction under section 33AC right from assessment year 1990-91. This position is noted by the Assessing Officer himself, at Page 27 of the assessment ord....
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....ation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount not exceeding fifty per cent of profits derived from the business of operation of ships (computed under the head "Profits and gains of business or profession" and before making any deduction under this section), as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account, to be utilized in the manner laid down in sub-section (2) : Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the aggregate of the amounts of the paid-up share capital, the general reserves and amount credited to the share premium account of the assessee, no allowance under this sub-section shall be made in respect of such excess : Provided further that for five assessment years commencing on or after the 1st day of April, 2001 and ending before the 1st day of April, 2006, the provisions of this sub-section shall have effect as if for the words "an amount not exceeding fifty per cent of profits", the words "an amount not exceeding t....
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....ed the working of the Assessing Officer. We have summarized the arguments of both the parties in the preceding paragraphs. The CIT(A) has not only confirmed the order of the Assessing Officer, but he also observed that the assessee is not eligible for deduction under section 33AC, as it is not in the business of operations of ships. We find this observation of the CIT(A) to be without any basis or material on record. In the assessment order, at page 27, the Assessing Officer has given the details of year-wise deductions allowed under section 33AC, to the assessee. As per the Assessing Officer, the assessee is being allowed deduction under section 33AC of the Act, since assessment year 1990-91. Admittedly, the nature of the business of the assessee in the year under consideration is similar to the business carried on by him in the preceding years. Moreover, in the year under consideration also the Assessing Officer has never held that the assessee is not in the shipping business. As per the Assessing Officer, the assessee is eligible to the deduction under section 33AC; but as per proviso to section 33AC(1), the deduction works out to be Nil. Therefore, he has not allowed any deduct....
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....apital, in addition to the preferential right to the repayment, on a winding up, of the amount specified in clause (b), it has a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid. (2) "Equity share capital" means, with reference to any such company, all share capital which is not preference share capital. (3) The expressions "preference share" and "equity share" shall be construed accordingly." "86. New issues of share capital to be only of two kinds.-The share capital of a company limited by shares shall be of two kinds only, namely- (a)equity share capital- (i)with voting rights; or (ii)with differential rights as to dividend, voting or otherwise in accordance with such rules and subject to such conditions as may be prescribed, (b)preference share capital." 16.4 From the above, it is evident that as per Companies Act, there are two kinds of share capital - one "preference share capital" and the other "equity share capital". Therefore, if the share capital is paid-up, whether prefe-rence or equity both will come under the category of paid-....
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....per cent redeemable cumulative preference shares of aggregate face value of Rs. 5 crores. After going through the contents of the letter issued by General Insurance Corporation we noted that proceeds of the preferential shares shall be utilized by company for the purpose of meeting the long-term working capital. The company was required to furnish Auditor's certificate to the above effect to General Insurance Corporation and subsidiaries annually. In the same letter at page 2 in clause F it has been provided that company shall create Preference Shares Redemption Reserve by transferring to it suitable amounts every year out of profits of the company so as to redeem the preference shares at the date of the maturity. The learned Departmental Representative, on the other hand, strongly relied upon the orders of the authorities below. (7) After considering rival submissions and perusing the material on the record, we find that the Assessing Officer and CIT(A) were not justified in rejecting the claim of the assessee by following the decision of the Supreme Court in case of Brooke Bond India Ltd. 225 ITR 798 . The facts before the Hon'ble Supreme Court were distinguishable to the facts ....
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....e, the above decision of ITAT would not support the case of revenue for holding that preference share capital is not part of share capital. As per Companies Act, 1956, there are two types of share capital - "preference" and "equity". The Legislature has also used the words "paid-up share capital" and not "equity share capital". Therefore, whatever is the amount of either preference or equity share capital, which is actually paid-up, would be considered for the purpose of proviso to section 33AC(1). In view of above, in our opinion, the Assessing Officer was not justified in excluding the preference share capital while considering the paid-up share capital for the purpose of computing deduction under section 33AC. 16.6 Regarding amount transferred from capital redemption account - The Assessing Officer has given the working of preference share capital issued, redeemed and redemption reserve created for various years by the assessee. These details, as given at pages 20 and 21 of the assessment order, read as under : FY Preference capital issued Preference capital redeemed Redemption out of fresh issue of capital Capital redemption reserve required to be created Net Reserve Cre....
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...., as per the provisions of Companies Act, 1956, as well as, as per section 44AB of the Income-tax Act, 1961. The audit report and balance sheet of the assessee is also placed before the Registrar of Companies. Neither the Auditor has made any adverse remark with regard to the balance sheet prepared by the assessee nor the Company Law authorities have ever pointed out any defect in the accounts of the assessee. He has also stated that the assessments of almost every preceding years were completed under section 143(3), in which deduction under section 33AC has been allowed. The above assessment has not been reopened either under section 147 or under section 263 of the Act. Therefore, the Assessing Officer, making the assessment for the assessment year 2004-05, can examine and comment upon the facts and figures relevant to the assessment year under consideration only and not earlier years. 16.7 The above submission has not been controverted before us. We entirely agree with the submission of the assessee's counsel and hold that while making the assessment for the assessment year 2004-05, the Assessing Officer was not justified in examining the matters relating to preceding assessment....
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....95.13 75.00 0 120.13 1999-2000 1602.10 75.00 1356.97 95.13 2000-01 1602.10 75.00 0 20.13 2001-02 1627.10 210.00 0 -164.87 2002-03 1025.85 182.50 24.63 -973.25 2003-04 1287.24 96.00 261.39 -1069.25 Total 713.5 1675.99 From the above, it is evident that out of Rs. 16,75,99,000, only the sum of Rs. 2,61,39,000 was credited from section 33AC reserve utilized account to general reserve account in the year under consideration. Whether the Assessing Officer can make adjustment in the reserve of earlier years, has already been dealt with by us while considering the preference shares capital redemption reserve account and for the detailed discussion hereinabove, we hold that while making the assessment for assessment year 2004-05, the Assessing Officer is not entitled to make adjustment in the amount of general reserve already accepted in the earlier years. At the cost of repetition, we may mention that the assessments of earlier years have been completed under section 143(3), which have become final and, therefore, the Assessing Officer is not entitled to tinker with the figures of earlier years....
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.... Corpn. (India) (P.) Ltd. (supra), the Hon'ble jurisdictional High Court held as under :- ". . . allowing the petitions, (i) that the specific case of the assessee was that as against the credit of Rs. 16,25,00,000 in the "section 80HHD reserve account", during the assessment years from 1989-90 to 1999-2000, a sum of Rs. 10,50,71,000 had been utilized for the purposes specified in section 80HHD(4). This had not been doubted or found to be incorrect. Thus, it was established by the assessee that after crediting a sum of Rs. 16,25,000 to the "section 80HHD reserve account", it had utilized a sum of Rs. 10,50,71,000 for the purposes specified in section 80HHD(4). As a result, the assessee could draw a sum of Rs. 10,50,71,000 from the "section 80HHD reserve account" which had become a free reserve and could utilize it for any purpose as the assessee deemed fit and proper. . . .". [Emphasis supplied] In the case of Shree Shantinath Silk Mills (supra), the ITAT, Ahmedabad Bench, held as under :- ". . . Once the amount of investment allowable reserve had been utilized for purchase of new plant and machinery within the prescribed period, it was thereafter impossible to say that the same....