TaxTMI 
TaxTMI 
2007 (8) TMI 633
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....61 or any other enactment for the time being in force relating to tax on income, profits or gains, the National Dairy Development Board shall not be liable to pay income-tax or any other tax in respect of its income, profits or gains derived." 3. With effect from 1st April, 2003 the said s. 44 was omitted by the Finance Act, 2002 and the present assessment year chargeable to tax is asst. yr. 2003-04, the appeal of which is before us. 4. The first dispute is with regard to the addition of Rs. 1,05,27,02,724 on account of interest which was actually received during the year under consideration. The background of the addition is that though the board was not chargeable to tax, it was following hybrid system i.e., cash system for accounting the interest income and mercantile system for accounting expenditure upto financial year 2000-01. During the financial year 2001-02, the board had changed the system and henceforth accounting the income on accrual basis as against cash basis being followed in the earlier year. During the year under consideration i.e., financial year 2002-03 relevant to asst. yr. 2003-04, the same accrual system was continued. The change is stated to be in cons....
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....ded to the total income. Since the assessee has furnished inaccurate particulars of income, proceedings under s. 271(1)(c) of the Act are initiated." 5. The CIT(A) upheld the order of the AO by observing: "The above given instructions issued by the Central Government required the appellant to disclose specifically prior period items in the P&L a/c of the current financial year 2002-03, so that their impact on the profit and loss in the current previous year could be appropriately perceived. The appellant failed to mention such major part of its interest income (Rs. 1,05,27,20,724) which it had diverted to the prior year on accrual basis in the P&L a/c of the current year for ascertaining its impact on the income of the appellant in the current year. Thus, the appellant has faulted on various counts in presenting its accounts correctly. The appellant's contention that the appellant had every right to change its system of accounting from cash to mercantile cannot be disputed but doing it in the manner and in the circumstances as stated above, is hard to digest and makes it difficult to believe that the action of the appellant to change its method of accounting was a bona ....
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....ccounting w.e.f. 1st April, 1997, from which date the law laid down under s. 145 stood amended. But the appellant chose the option only in the post-enactment of Finance Act, 2002 that too retrospectively by passing the resolutions on 13th May, 2002 and 27th May, 2002. The change in the system of accounting from cash to mercantile authorized by the board resolutions dt. 13th May, 2002 and 27th May, 2002 for the period preceding 31st March, 2002 definitely gave a retrospective angle to the whole affair. The exercise resulted in the drastic jump in the interest income declared for the financial year 2001-02 vis-a-vis interest income declared for the financial year 2000-01. As against the interest income of Rs. 246 crores only declared in the financial year 2000-01, the interest income for the financial year 2001-02 jumped to Rs. 774 crores. In the given background, the whole exercise to adopt a different system of accounting was not transparent one, as it shifted the incidence of tax on interest amount of Rs. 1,05,27,20,724 to the tax-free time zone i.e. prior to 31st March, 2002 and accordingly, nullified the tax effect. Thus, in the circumstances, the AO was justified in bringing to....
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.... CTR (Guj) 365: [1986] 162 ITR 612 (Guj); (ii) The Calcutta High Court in the case of Reform Flour Mills (P) Ltd. v. CIT [1978] 114 ITR 227 (Cal); (iii) The Supreme Court in the case of Union of India & Anr v. Azadi Bachao Andolan [2003] 184 CTR (SC) 450: [2003] 263 ITR 706 (SC); (iv) The Punjab & Haryana High Court in the case of CIT v. Punjab State Industrial Development Corporation Ltd. [2002] 176 CTR (P&H) 434 : [2002] 255 ITR 351 (P&H); (v) The Calcutta High Court in the case of Snow White Food Products Co. Ltd. v. CIT [1983] 141 ITR 861 (Cal); (vi) The Madras High Court in the case of G. Padmanabha Chettiar & Sons v. CIT [1989] 77 CTR (Mad) 107 : [1990] 182 ITR 1 (Mad); (vii) The Gujarat High Court in the case of CIT v. Atul Products Ltd. [2001] 170 CTR (Guj) 371: [2002] 255 ITR 85 (Guj); and (viii) The Supreme Court in the case of United Commercial Bank v. CIT [1999] 156 CTR (SC) 380 : [1999] 240 ITR 355 (SC). 7. The learned Departmental Representative, on the other hand, supporting the orders of the Revenue authorities, submitted that s. 44 of the NDDB Act, 1987 exempts the assessee for non-payment of tax, which does mean that assessee was not an ass....
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....as income only when it is actually received. With the income of the NDDB now subject to tax, the above accounting policy was received. The income-tax guidelines stipulates that interest be recognized as income when due. We have also studied the guidelines issued by the Reserve Bank of India on income recognition, which also considered interest as income on accrual basis. It may be mentioned that the NDDB's statutory auditors have since long been commenting on the policy with regard to recognition of income on interest. Considering all the above, it is proposed to account for interest an accrual basis w.e.f. 1st April, 2001 in respect of all term loans, the repayment of which (including payment of interest due) is not in default for more than two quarters." 11. Another resolution ratifying the proposal dt. 27th May, 2002, reads as under: "To ratify the proposal approved by the Chairman, NDDB considering recognition of income on all loans on accrual basis with effect from the financial year 2001-02. The board vide resolution No. 06/65/09/2002-2003 approved recognition of interest income on project loans as revenue on accrual basis with effect from the financial year beginnin....
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....Revenue authorities that the income of Rs. 1,05,27,20,724 received by the assessee in the year under consideration would escape tax, are not fully correct in the sense that it is not the income of the year under consideration. It was the income of the earlier year, and in that year, the assessee was not liable to tax. As the assessee is following the system of accounting as accrual, such income cannot be assessed on cash basis when it had accrued in the earlier years. 14. The adoption of the system of mercantile for accounting for the income is a recognized method under the Accounting Standard issued under s. 145(2) of the Act. It is also as per the requirement of Accounting Standard issued by the ICAI. Therefore, the Revenue is not justified in stating that change was not bona fide. The Gujarat High Court in the case of CIT v. Ganga Charity Trust Fund (supra) held that there being no finding of fact that the switchover to the cash system of accounting in the previous year relevant to the asst. yr. 1972-73 was not bona fide and that this change lacked durability or regularity and was merely a stop-gap arrangement to avoid payment of tax. The assessee trust was entitled to switch....
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....ee had an intention to deliberately undervalue its stock so as to reduce its taxation. The new method which was adopted had been continuously followed in the subsequent years. The assessee had changed the method so as to see that the method adopted by the assessee was also as per the method adopted by other business units in the industry. In the subsequent years, the Revenue had not objected to the change made by the assessee in the method of stock valuation. Therefore, the Tribunal was right in confirming the order of the CIT(A) deleting the addition of Rs. 2,93,56,000 representing the alleged undervaluation of closing stock." Again it is, held by the Calcutta High Court in the case of Reform Flow Mills (P) Ltd. v. CIT (supra) that "It is settled law that a taxpayer is entitled to adjust his own affairs in such a way that his tax burden is thereby reduced. He is also entitled to adopt any lawful means for the aforesaid purpose. Sec. 145(1) of the IT Act, 1961, does not postulate any agreement or contract between any taxpayer and any person, whoever he may be, regarding the method of accounting to be employed by a taxpayer and also does not lay any embargo on his altering the metho....
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.... (-) 71,80,900 TOTAL., (-) 1,59,82,471 19. This interest is reduced from the project interest of Rs. 1,05,95,29,647. The assessee claimed that these are rectification entries due to error/omission and reallocation of receipts between interest and principal for the earlier years. The AO noted the admission of the fact by the assessee that whatever errors committed or made in accounting the interest income of the preceding years when the assessee was a non- taxable entity, the same are being corrected by reducing the current year's amount to this extent when the assessee has become taxable. Finding no valid reason for reducing the income, the AO, therefore, brought the same to tax. The assessee also submitted that the interest accrued on the standard loan in the earlier year was Rs. 1,04,43,72,332 as against Rs. 1,05,95,29,647 and the difference of Rs. 1,51,57,315 (i.e. Rs. 1,05,95,29,647 - Rs. 1,04,43,72,332) related to the earlier year and would not be assessable to tax, was also not accepted by the AO. 20. The CIT(A) upheld the addition by Observing as under : "I have considered the submissions, rejoinder of the appellant and the findings/comments of the A....
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....e simple reason that the appellant by its own admission had introduced mercantile system of accounting w.e.f. finance year 2001-02 onwards, therefore, in no way it can claim that the interest amount of Rs. 1,51,57,315 which pertained to the earlier years was accounted for in the current year. Further, during the year the appellant was not a public finance institution on which the RBI Prudential norms would apply for income recognition. As stated above, the appellant has not given any specific explanation for the individual substantial negative interest entries. Moreover, the interest income for which the said errors and omissions have been claimed pertain to the preceding years when the assessee was a non-taxable entity. Since such amounts were not charged to tax in earlier years, therefore, the appellant has no justification for claiming such errors and omissions pertaining to those exempt interest amounts in the current year against its taxable income. Further, there is no logic in the appellant's arguments that the disallowance of the claim of negative interest of Rs. 1,59,82,471 would amount to double addition to its income. As stated above the said amounts pertained to earlier....
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....nd accordingly, he brought to tax the interest amount of Rs. 3,02,48,447. 23. The CIT(A) held that it is only in the case of the EEC Project Implementation Agreement, there is a clear term that "any accruing interest will be used to finance additional activities within the scope of the projects of the special programme". No such specific clear term of utilizing such kind of interest appears to be available in cases of other projects and copies of other agreements were also not furnished. He observed that the assessee has filed an evidence in the form of a letter dt. 7th Feb., 2003 written to the Department of Animal Husbandry, Ministry of Agriculture, wherein, the assessee has made a reference of refunding of interest through a demand draft. An acknowledgement of refunding an amount of Rs. 31,11,214 through DD dt. 19th May, 2003 (under the scheme "Assistance to Co-operatives") has also been enclosed. He however, observed that no evidence in the form of any agreement has been furnished by the assessee, wherein, it has been specifically mentioned that interest on grants given for specific projects would be required to be refunded. No evidence pertaining to North Kerala Dairy Proje....
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....project fund account and carried directly in the balance sheet. The assessee is only acting as a nodal agency and the interest income ultimately has to go to the project/Government and the assessee is only supposed to utilize it either as per the directions given or refund it to the Government. Further, the same has to be utilized as per the agreements entered into before receipt of such income, and that in case of non-utilisation the same has to be refunded to the agencies. All these facts establish that such money and interest thereon never became the income of the assessee. It is a case where the income was diverted by an overriding title and it never reached the assessee. Even if the assessee collects such income it never was its income; it was not its income because such income was not collected as part of assessee's own income, but for and on behalf of agencies who have entrusted the assessee with the projects and given funds for the same. It was, in any case, to be refunded back. 25. It is stated that in respect of these project funds, the interest accrued thereon has to be utilized to finance additional activities within the scope of the project and cannot be used at the....
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....tives. 29. Insofar as North Kerala Dairy Fund is concerned, no details have been submitted by the assessee either before the AO or before the CIT(A) or even before us and, therefore, it cannot be said that the interest has not accrued to the assessee. The interest has also not been shown to have been paid to them. Under these circumstances, we uphold the orders of the Revenue authorities in assessing the interest relatable to this project. 30. As regards Bhuj Hospital, a letter dt. 16, Oct., 2001 is filed before us from the assessee to the Joint Secretary, PM Office stating the requirements for the project for the first quarter of Rs. 15. crores required to be released to NDDB at the earliest. Clause 4 of this letter states that on "the funds released will not be treated as loan/grant to the NDDB but to the authority in whom the ownership of the hospital will vest." Pursuant to this letter of the assessee, PM Office issued a cheque of Rs. 15 crores in favour of the assessee on 16th Oct., 2001. From this letter, the assessee submits that the interest was not to accrue to the assessee because it was not treated as a loan. The learned counsel for the Revenue, on the other han....
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....t of India and has diverted at source. 33. The fourth ground is addition of Rs. 44,99,03,516 being income not charged on doubtful loans. The facts of the case are that the assessee advanced money to certain corporations and an interest of Rs. 44.99 crores was due from them but since there was no certainty of recovery and claiming itself to be a public financial institution the assessee applied RBI Prudential norms for not accounting the accrued interest on the said principal amounts during the current year. The AO was of the view that since the RBI Prudential norms were applied by the assessee retrospectively by passing the board resolution on 31st July, 2003 (which is also the date of finalization of its accounts) and also that the assessee was not a public financial institution during the year, the RBI norms could not be applied. The assessee applied it only as a ploy to reduce its income. Accordingly, he added the sum to the income of the assessee. " 34. The CIT(A) confirmed the addition made by the AO by observing as under : "Since, the appellant is following mercantile system of accounting and the appellant can enforce the terms of agreements signed with cooperatives ....
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.... at all. In T.C.I. Finance Ltd. v. Asstt CIT [2005] 92 TTJ (Hyd) 238: [2004] 91 ITD 573 (Hyd), the facts were found different from the facts of the case under consideration as the assessee had a valid and legal right to enforce the recovery through Courts. 36. The assessee's submission that it had been granted status of public financial institution for which an application was made within the previous year relevant to the impugned assessment year, though actually notified on 23rd Feb., 2004 after the close of the year and therefore the RBI Prudential norms were applicable, was also rejected by the CIT by observing : "The appellant has also relied on the case of Marshall Sons & Co. v. ITO 88 Comp Cas 528 for the purpose of supporting its arguments that the gap between the date of application and the date of issue of notification is only a procedural matter, therefore, the date of application should be taken as the effective date for granting status of PFI to the appellant. On examination of the said case law cited by the appellant, it is observed that it pertains to the date of amalgamation between a holding and a subsidiary company. In the said case it has been held that the ....
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....ation or the public company to its P&L a/c for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier. Explanation.-For the purposes of this section,- (a) 'National Housing Bank' means the National Housing Bank established under s. 3 of the National Housing Bank Act, 1987 (53 of 1987); (b) 'public company' means a company,- (i) which is a public company within the meaning of s. 3 of the Companies Act, 1956 (1 of 1956); (ii) whose main object is carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes; and (iii) which is registered in accordance with the Housing Finance Companies (NHB) Directions, 1989 given under s. 30 and s. 31 of the National Housing Bank Act, 1987 (53 of 1987); (c) 'public financial institution' shall have the meaning assigned to it in s. 44 of the Companies Act, 1956 (1 of 1956); (d) 'scheduled bank' shall have the meaning assigned to it in cl. (ii) of the Explanation to cl. (viia) of sub-s. (1) of s. 36; (e) 'State financial corporation' means a financial corporation establish....
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....f original cost of assets. The AO, however, was of the view that besides reduction of the grants amount from the cost of assets, notional depreciation also should have been reduced as if the assessee had been a taxable entity and accordingly, had been allowed depreciation since the date of its inception. The assessee claimed that as per the provisions of s. 43(6) the WDV had to be computed by reducing the depreciation actually allowed against the cost of the assets and that there was no concept of mental calculations of the depreciation as having been allowed in the tax-free period. Therefore, the depreciation during the current year has to be computed on the original cost of the assets. The AO rejected the contention of the assessee, as in his view, the principle governing the depreciation allowance is the effective life of the depreciable assets and the expenditure incurred on its wear and tear for the period of its consideration and since the assessee had been using the assets in question for years, such assets must have depreciated greatly by their use and some of them might have reached the stage of being discarded, hence, in order to arrive at the correct income, normal wear,....
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.... has become a taxable entity due to omission of s. 44 of the NDDB Act. As a result, for the purpose of IT Act, the assessee had neither claimed nor been allowed any depreciation in the prior period. Therefore, during the first year of its taxability, the assessee has claimed the depreciation on the original cost of the assets as adjusted by the amount of grants received by it from the Government/agencies (for meeting a part or full cost of such assets). He sustained the addition made by the AO by observing as under: "The arguments of the appellant do have some force on plain reading of the provisions but when the Act has to be read as a whole with implied intentions of the legislation, then the literal meaning of the words alone do not suffice. The hidden real meaning has to be dug out for projecting a correct picture of the terms used in the provisions. For deciding the issue, it has to be kept in mind that the depreciation is a measure of computing the fruitful life span of an asset which has been subjected to wear and tear in normal course of its use. The object of providing for depreciation is to spread over the expenditure incurred on the asset over its effective life....
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....ected. Invariably, the correct WDV of an asset should be proportionate to its scrap value. That shows if the asset is on verge of being discarded on being consumed by its normal wear and tear over the years, then scrap value of such an asset in general, would also be low or negligible; correspondingly, its written down value (WDV) should also match the same levels. Therefore, taking the original cost of the asset as its WDV in such situation would lead to absurd results. Hence, WDV of an asset, whether used by a taxable entity or a non-taxable entity should be on par with each other. The same asset should be given the same treatment as far as determination of WDV is concerned. In other words likes should be treated alike. The WDV in both the cases should be based on the parameter of its wear and tear and not on the literal meaning of the term 'actually allowed' which leads to illusory perceptions. Since, such terms can be subjected to meaning more than one, therefore, legislation in its wisdom has started clarifying its intentions in the provisions like ss. 10A and 10B, under which an assessee is required to take into consideration, the wear and tear of an asset suffered during the....
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....lowance of depreciation is contemplated in the section. The language of the section is very clear. In view of clear provisions of law, the logic, the intention of the law or irony interpreted by the AO, is not relevant. The WDV is the amount of cash (sic.-cost) of assets as reduced by allowance of depreciation actually allowed and it is so held in various cases relied upon the decisions in CIT v. Straw Product Ltd. [1966] 60 ITR 156 (SC); CIT v. Dharampur Leather Co. Ltd. [1966] 60 ITR 165 (SC); CIT v. Mahendra Mills [2000] 159 CTR (SC) 381 : [2000] 243 ITR 56 (SC); Madev Upendra Sinai v. Union of India [1975] 98 ITR 209 (SC). 43. It is a settled law when there is no ambiguity, literal interpretation should be made. The intention etc. would be relevant only if there is ambiguity in the provisions of law, which is not the case here. It is settled law. The Courts have, time and again, held that in absence of ambiguity literal interpretation should be made; namely, (i) Sarala Btrla v. CWT [1989] 75 CTR(SC) 194 : [1989] 176 ITR 98 (SC) and (ii) Gem Granite v. CIT [2004] 192 CTR (SC) 481: [2004] 271 ITR 322 (SC). Even otherwise it is submitted that depreciation, as held by the Suprem....
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....deemed allowance under the Act and, therefore, the WDV is to be ascertained by actual cost of the assets. As the income of the assessee was exempt until earlier year, no notional depreciation can be assumed and, therefore, it would be entitled to the depreciation on the original cost of the assets. We accordingly direct the AO to allow the depreciation in accordance therewith. 45. The sixth ground is against the disallowance of Rs. 9,90,00,000 made under s. 36(l)(viii) of the Act. The facts of the case are that the assessee claimed itself to be a provider of long-term finance for agricultural and industrial development and accordingly, claimed deduction of Rs. 9.90 crores under s. 36(1)(viii) of the Act, which is equivalent to the reserve created for the purpose. The AO declined the deduction in view of the fact that the notification was issued on 23rd Feb., 2004, notifying it as a public financial institution, a date which falls in the subsequent year. He also disallowed the claim by following the decision of Orissa High Court in the case of State of Orissa v. Ramchandra Chaudhary [1962] 46 ITR 246 (Ori) wherein it is stated that the activity of the dairy business cannot be ter....
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....rtment of Animal Husbandry and Dairying" in the Central Government and that by itself showed that its activities pertained to "Dairying' than the agricultural activities. Taking into consideration decisions in CIT v. R. Venkataswamy Naidu [1956] 29 ITR 529 (SC); CIT v. Kokine Dairy, [1938] 6 ITR 502 (Rang); The Producers Cooperative Distributing Society Ltd. v. Commr. of Taxation [1948] 16 ITR 87 (Supp) (PC); and State of Orissa v. Ramchandra Chaudhary (supra) he held that the dairy farming cannot be classified as an agricultural activity as well. The dairy co-operatives to whom the assessee had advanced loans could not be covered even as an industrial unit for the purpose of IT Act, though it might be claimed that they were covered as an industrial unit under some other statute like Industrial Development Regulation Act which basically pertained to the food processing industries. He also referred to the Supreme Court decision in the case of CIT v. Venkateswara Hatcheries (P) Ltd. [1999] 153 CTR (SC) 105: [1999] 237 ITR 174 (SC) and held that the definition of 'industry' assigned to "Dairying" under the food processing industries within the IDR Act cannot be imported for the purpos....
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.... capital is not there, the deduction cannot be availed and thus, the deduction can be availed even if there is no paid-up share capital and the maximum amount that can be transferred to the special reserve can very well be computed on the basis of the general fund which is a free fund and is in the nature of general reserve. 48. We have heard the parties and considered the rival submissions. As regards status of public financial institution as the assessee applied on 10th July, 2002, i.e., within the year under consideration and though the notification granting the status of public financial institution was granted to it on 23rd Feb., 2004 it would relate back to the date of application in view of the decision of Marshall Sons & Co. v. ITO (supra). The time taken by the Department of Company Law Affairs was beyond its control. In any case it is only a procedural delay and ministerial work and therefore, the date of application should be taken as the effective date for granting status of public financial institution. On this issue we do not agree with the CIT(A). We however find that the other conditions of s. 36(l)(viii) are not complied with by the assessee. The milk produced b....
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.... utilization report. Obviously, the above conditions laid down on the borrowers do not make the amount disbursed as expenditure. Accordingly it was in fact a conditional loan. 50. The CIT(A) sustained the addition made by the AO by observing as under: "I have considered the submissions/rejoinder of the appellant and the findings/comments of the AO. As stated above, the appellant has made disbursement to various co-operative unions and federations for implementing dairy development programme titled as "Perspective 2010 Plan" under the extended operation flood programme. The unions were required to submit regular audited fund utilization reports of the disbursed amounts. It is noticed that the aforesaid disbursements of the amounts by the appellant was done in the following categories: Category Particulars Funding pattern A Infrastructure facilities for procurement, processing & marketing. Loans/Grants B Productivity enhancement Loans/Grants C Quality and plant management Loans/Grants D Marketing development Loans/Grants E Institutional development Loans/Grants F. Notional Information Network Loans/Grants G Ma....
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....contention that even in the eventuality of such grants/disbursements coming back to the appellant, the expenditure so claimed against such disbursements could always be reversed in view of the provisions of s. 41(1) of the Act is not tenable because such provisions can be exercised for loss, expenditure or trading liability incurred by an assessee and in the instant case the very foundation of the term is disputed. As per the established principles of accounting the Act requires the balancing of profits and expenditure of an enterprise so that entries made on one side as income receipts are properly balanced by the expenses against them on the other side. Since, grants do not form part of the income receipts of the appellant, therefore, disbursement against them cannot be allowed as expenditure. It is on record that the grants received by the appellant from the Government or agencies are invariably credited directly to the respective project accounts or to the concerned funds. Thus, such grants received are not taken to the income and expenditure accounts of the NDDB. The appellant is a nodal agency through which such grants are disbursed to the ultimate beneficiaries. Since,....
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....ies for fulfilling its objectives i.e. , economic development of rural masses and improving their quality of life through co-operatives' efforts as detailed in Chapter IV of the NDDB Act. The word "grant" means monetary aid or an act of providing subsidy. When it is given in fulfilment of the activities defined under the NDDB Act, it amounts to an expenditure incurred. The word "grant" used in the agreement actually refers to an expenditure and an allowable deduction under s. 36(1)(xii) of the Act while computing its income for the assessment year under consideration. The learned counsel then referred to Explanatory Notes on the provisions of the Finance Act, 2003, relevant extract of which reads as under: "31.1 Entities that are created under an Act of Parliament have the basic object and function of carrying on developmental activities in the areas as specified in the said Acts. By the Finance Act, 2001 and Finance Act, 2002, tax exemption of certain bodies set up through an Act of Parliament was withdrawn. Subsequent to the removal of the tax shield, a doubt has arisen that some of the activities having no profit motive being carried on by such entities cannot be said to b....
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....onditions or failing in achievements, grant amount in the agreement thereof shall become interest-free loan or 6 per cent interest-bearing loan, is submitted as not warranted. Such conditions are meant to ensure timely utilization of grant and to ensure that the grant is utilized for objectives for which it is given and in order to prevent misuse. Therefore, merely attaching suitable conditions would not change the nature of 'grant'. Further, the penal clause relation to conversion of grant into a loan was also to ensure compliance and there has been no occasion so far to invoke in any of the cases and in fact no "grant" given has been converted into "loan" on account of violation of terms by any beneficiary. Details of grants disbursed for last ten years were given to AO. 54. It is also submitted that AO is wrong in holding it to be a loan. There is a clear distinction between the loan and such grant. Even in the IT Act, certain benefits are given putting certain conditions or restrictions, like ss. 32A, 54 and 54EC, wherein conditions are imposed about utilization of reserves or not selling of the property. These conditions are imposed with an intention that when certain tax b....
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.... an event, is not an expenditure as held by the Supreme Court in Indian Molasses Co. (P) Ltd. (supra) and Indian Carbons Ltd. (supra). In the case of CIT v. N.C. John & Sons, (supra) also it is observed that in order to constitute expenditure the payment has to be made irrevocably and there should not be any possibility of money forming once again a part of the funds of the assessee. As stated above, the assessee has disbursed the grants to the co-operative unions on certain conditions. Such disbursements of grants are subject to conversion into loans on the happening or non- happening of contingency which is not entirely certain. Further, the amounts so disbursed do not go out of the coffers of the appellant irretrievably and absolutely. An expenditure may cover a liability which has accrued and to be discharged at a future date but not a contingent liability to be discharged on a future date as observed in Madras Industrial Investment Co. Ltd. (supra). 59. The assessee is nodal agency through which such grants are disbursed to the co-operative unions, the ultimate beneficiaries. As observed by the CIT(A) it is on record that the grants received by the assessee from the Governm....
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....e eighth ground is against the disallowance of Rs. 5,61,56,408 towards contribution made to NDDB Employee's Group Gratuity Funds- cum-Life Assurance Scheme of LIC claimed under s. 43B of the Act. The assessee has claimed deduction of Rs. 5,61,56,408 on account of payment of gratuity. The gratuity trust was originally approved under the IT Act vide order dt. 19th Oct., 1972 issued by the CIT, Gujarat. The contribution was covered by a policy of the LIC and the premium payable on the policy was required to be contributed by the NDDB. However, consequent to the amendment of the Gratuity Act revising the monetary ceiling limit from Rs. 1 lakh to Rs. 3.5 lakhs the assessee amended the deed and was required to seek approval of the deed of variation. It was submitted for approval only on 23rd Sept., 2003 i.e. much after the close of the financial year 2002-03. Since the gratuity trust was not approved during the financial year as per the deed of variation, the AO concluded that contributions made to the gratuity fund amounting to Rs. 5,61,56,408 were not made to an approved fund and accordingly, by invoking provisions of s. 40A(7), he disallowed the claim. 64. The CIT(A) sustained the ....
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....onding to Payment of Gratuity Act the change was made in s. 10(10) of the IT Act increasing the limit to Rs. 3.5 lakhs and as per the provisions of s. 14 of the Gratuity Act, 1972, the other trusts cannot have terms less beneficial to the employees. Therefore, once the changes were made in the Gratuity Act, the assessee was supposed to make payment to retiring employees on such enhanced amount despite lower amount prescribed under its existing scheme as approved by the CIT. The deed of variation was made on 27th March, 2003. It was given retrospective effect from 24th Sept., 1997, the variation was from gratuity from lower of the 15 months' salary or Rs. 50,000 to lower of the 12 months' salary or Rs. 3,50,000. It was intimated to the AO on 23rd Sept., 2003. Schedule IV Part C r/w s. 4(1) and (2) does not cast any obligation for fresh approval of the revised deed. It is automatically approved. In any case it was approved by the CIT on 24th Oct., 1972 w.e.f. 1st Nov., 1971. The assessee further submitted that in terms of s. 43B(b) of the Act, any contribution to gratuity fund is allowable on actual payment basis, and pending approval to deed of variation do not make the fund unrecog....
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....ons of earlier years are as under: Short provisions of earlier years Amount (Rs.) Remarks Paid to sales-tax office Bhavnagar 1994-95 assessment for BVP Unit, Bhavnagar 6,59,882 Sales-tax demand for the year 1994-95 on account of Form No. 11 not collected and Form No. C rejected and therefore, turnover was taxed at higher rate. It may be noted that the demand order is passed on 11th Sept., 2002 and the amount is paid on 22nd Dec, 2002. Copy of order and tax paid challan are attached. Paid to sales-tax office, Bhavnagar, 1994-95 assessment for BVP Unit, Bhavnagar 19,80,212 Sales-tax demand for the year 1994-95 on account of purchase being considered from unregistered dealer and taxed accordingly. It may be noted that the demand order is passed on 11th Sept., 2002 and the amount is paid on 22nd Dec, 2002. Copy of order and tax paid challan are attached. IDMC godown rent paid for the year 2001-02 79,200 The bill (debit note) No. 20092 dt. 31^st March, 2002 was received in NDDB for payment on 22nd July, 2002 and payment for the same was released vide voucher No. 2427 dt. 21st Aug., 2002. Copy of voucher and debit note is attached. Refund of interes....
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....anized sector, and since, the rent amount is significant, therefore, the parties are expected to have signed some sort of lease agreement for the said rent amount. Invariably, such rent agreements do contain specific terms regarding the dates on which the rent would become due and payable. Thus, in view of such rent agreement having been signed between the appellant and the owner, there would be a logical presumption that the liability towards rent must have been crystallized during the year relevant to the asst. yr. 2002-03 itself. Hence, since the' liability had got crystallized in the immediate preceding year, therefore, same cannot be allowed in the current year. The appellant has claimed refund of interest to Pune Milk Union amounting to Rs. 51,781 which pertains to the interest charged during the year 2001-02. No clear evidence as to how the said liability for refund towards excess interest charged during the prior period 2001-02 got crystallized during the current year has been furnished. There is also no evidence of making the payment in this respect to the Pune Milk Union. In the absence of satisfactory explanation and documentary evidence, the said claim is rejec....
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....it can be said that the liability was determined and crystalised in the year in question on the basis of maintaining accounts on the mercantile basis. The assessee, thus, pleaded that it followed mercantile system of accounting and the liability was crystalised during the year under consideration and accordingly debited to income and expenditure account and claimed as such should be allowed as deduction. The learned counsel for the Revenue supported the orders of the Revenue authorities. 70. We have heard the parties and considered the rival submissions. The assessee as stated above is following mercantile system of accounting and therefore what arise as a liability in the impugned year alone can be allowed. The short provisions pertained to the godown rent payable to IDMC for the year 2001-02 amounting to Rs. 79,200. In view of such rent agreement having been signed between the assessee and the owner, the liability towards rent crystallized during the year relevant to the asst. yr. 2002-03 itself. Therefore the liability which got crystallized in the immediate preceding year cannot be allowed as a deduction in this year. The CIT(A) is right in holding that same cannot be allowe....
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..... These were claimed placing reliance upon the decision of the Supreme Court in the case of Empire Jute Mills Ltd. v. CIT [1980] 17 CTR (SC) 113 : [1980] 124 ITR 1 (SC), Madras High Court decisions in the cases of CIT v. Asher Textiles Ltd. [2000] 158 CTR (Mad) 409 : [1999] 240 ITR 483 (Mad) and CIT v. Jawahar Mills Ltd. [1997] 142 CTR (Mad) 68 : [1997] 226 ITR 230 (Mad). The AO disallowed the claim of the assessee treating it as capital in nature and after allowing depreciation thereof at 10 per cent. 72. The CIT(A) allowed a part as revenue expenditure and upheld the other part as capital by observing as under : "I have considered the submissions/rejoinder filed by the appellant and also the findings/comments of the AO and observe that expenses of Rs. 3,04,603 which pertain to ceiling board material, wall paneling and partitions in the second floor of the office building, have been incurred for creating assets of enduring nature. Therefore the expenses are clearly capital in nature and as such cannot be allowed as revenue expenditure. The second amount of Rs. 3,35,065 has been claimed for replacing existing damaged table tops, paintings of frames and polishing beside fix....
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....s paid to meet the deficit between actual expenses incurred by the staff club and contribution received by the club from its members and the expenses were incurred through club instead of incurring them directly and therefore,the same is not subject to the provision of s. 40A(9). 75. The CIT(A) confirmed the addition by observing that the expenses incurred by way of reimbursement to the employee's recreation club are not wholly and exclusively incurred for the purpose of business of the assessee and also the provisions of s. 40A(9) making it very clear that any payment or contribution made by an employer on behalf of the employees to any fund, trust, society, association or person etc. would not be an allowable expense except the payment made for expenses provided for under s. 36(1)(iv) and (v) i.e. towards contribution made to provident fund, gratuity fund and approved superannuation fund. 76. We have heard the parties and considered the rival submissions. In our opinion the CIT(A) is right in disallowing the claim of the assessee. Provisions of s. 40A(9) are very clear in providing that any payment or contribution made by an employer on behalf of the employees to any fund, ....
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....nder: "I have considered the submissions of the appellant and the findings of the AO and observe from the above given details of delayed contributions that all payments made upto 17th Sept., 2002 amounting to Rs. 14,940 are within the grace period permitted by notifications issued under the Provident Fund Act (with the exception of the payment made against item No. 2 of Rs. 2,088 for which the due date was 15th Sept., 2002 and the date of payment is 3rd Oct., 2002). The rest of the payments including the payment of Rs. 2,088 mentioned above totalling Rs. 8,550 have been made beyond the permissible grace period. Accordingly out of the addition of Rs. 23,490 the addition of Rs. 14,940 is deleted and the balance is confirmed." 79. We have heard the parties and considered the rival submissions. We find the order of the CIT(A) in accordance with the provisions of law as it stood at the relevant time. Reliance on the amendment in the second proviso to s. 43B cannot be of any help to the assessee and the matter now stands covered against the assessee by the decision of Madras High Court in CIT v. Synergy Financial Exchange Ltd. [2006] 205 CTR (Mad) 481: [2007] 288 ITR 366 (Mad) wher....
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....47 under s. 80G of the Act to the appellant." 82. The learned counsel of the assessee submitted that the Kutch Nav Nirman Abhiyan, a NGO to whom donation was made is recognized as per s. 80G of the Act. In order to ensure proper utilization the NGO was required to submit fund utilization report periodically. Pending receipt of such fund utilization report the amount given to such NGO has been retained as advance as on 31st March, 2003. Since, it was a donation that is to be allowed as a deduction in the year of payment it has to be allowable as a deduction. The said NGO has already submitted bills for Rs. 48,04,204 during financial year 2003-04 which has been adjusted against Rs. 51,26,305 lying in advance account as on 31st March, 2003 and the balance amount of Rs. 3,22,101 had been utilized subsequently and the NGO was to submit the utilization report for the same. It may be observed that major portion of the donation given has been already utilized. Alternatively it is claimed that without prejudice to the above, the assessee submits that the AO be given direction to allow the deduction under s. 80G in respect of the amount lying in the advance account as on 31st March, 2003 ....