TaxTMI 
TaxTMI 
2010 (3) TMI 895
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....d to it for a fresh consideration. From the Minutes of the Order, copy of which is available, it is seen that in the first para, four issues raised by the assessee have been set out as under:- "(a )Whether the Tribunal erred in dismissing the appellant's appeal regarding the claim of deduction of Rs. 269.13 lakhs as consideration paid for transfer of license/s for manufacturing sugar? (b )Whether the Tribunal erred in holding that the appellant is not entitled to deduction of Rs. 160 lakhs paid to Bank of Madura as expenses either by way of interest paid to Bank of Madura or by way of expenditure incurred in connection with the transfer of Plant & Machinery? (c)Whether the Tribunal erred in confirming the levy of interest under section 234B on the ground that the same is mandatory without considering the fact that the appellant was not liable to pay advance tax within the meaning of either section 208 or 210 of the Income-tax Act, 1961? (d )Whether the Tribunal erred in not considering and thereby erred in disallowing the claim of the appellant for a sum of Rs. 92,61,767 (Rupees ninety two lakhs sixty one thousand seven hundred and sixty seven only) as expenditure incurred in c....
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....n. For all other issues taken by the assessee in its appeal, the original order passed by the Tribunal on 18-8-2003 is, therefore, valid, which are not specifically referred to in the present order. 5. Issue (a) is about deduction of Rs. 269.13 lakhs. Issue (b) is against now allowing deduction of Rs. 1.60 lakhs paid to Bank of Madura. Briefly stated the facts of these issues are that the assessee was engaged in the business of manufacturing sugar. Its unit was in operation from 1984-85, thereafter, it was closed and no manufacturing activity of sugar was undertaken. The last income-tax return filed by the assessee related to assessment year 1984-85. No returns for assessment years 1985-86 till 1994-95 were filed as the control of the company, during this period vested with the Court Receiver appointed by the Hon'ble Bombay High Court at the behest of Bank of Madura which had filed a suit against the assessee for recovery of its outstanding dues. The Government of Maharashtra while implementing its scheme to start closed private sugar factories in the State by way of co-operativisation of the sugar factories permitted M/s. Ninaidevi Sahakari Sakhar Karkhana Limited (NSSK) to purch....
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.... 6.00 9. Laboratory 0.84 10. Spare machinery 11.19 11. Workshop, Fabricators Shop Foundry 3.73 12. Lifting tools & Tackles tools, implements, etc. 0.79 13. Miscellaneous items 1.48 14. Technical Library 0.15 15. Stores material 60.60 16. Sub-total 1 to 15 349.73 17. Additional Extra Equipments 1.40 17A. Sub-total (16+17) 351.13 18. Deduction of Cost of equipments required 37.00 19. Deduction of cost in view of shifting 45.00 20. Net value of shifting (17A - 18 - 19) 269.13 6. By considering para 6 of the valuation report dated 12-7-1993, the Assessing Officer found that para 6.8(m) clearly mentioned that the valuer had not considered the cost of license for valuing the plant and machinery. In this background of facts it was opined that the sum of Rs. 3.51 crores was only towards consideration for sale of plant and machinery without any value of license being included therein. It was, therefore, held that neither the valuation report on the basis of which the value of plant and machinery was arrived at included any license value nor the Government order mentioned the same being included in the consideration of Rs. 351.13 lakhs. The Assessing O....
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....rted by an overriding charge as the Government vide its Resolution dated 14-12-1994 instructed the payment of said sum to the Bank of Madurai Limited towards their arrears directly by NSSK. Relying on certain Court decisions the assessee claimed that there was diversion of income to this extent as such amount of Rs. 160 lakhs did never reach the assessee. The Assessing Officer did not accept this contention on the ground that the Bank had created charge on the plant and machinery and spares for securing repayment of its dues. As the assessee was the absolute owner of the plant and machinery on the date of agreement and NSSK paid the dues of Rs. 160 lakhs to Bank on behalf of the assessee, the Assessing Officer held that there was no diversion of income by overriding title. Resultantly, the Assessing Officer computed short-term capital gain on sale of plant and machinery by invoking the provisions of section 50 at Rs. 2,63,20,003, short-term capital gain on miscellaneous items at Rs. 2.47 lakhs and long-term capital gain on sale of store material at Rs. 17,81,683 totalling to Rs. 2,83,48,686. 7. In the first appeal, the learned CIT(A) noted that it was not a case of sale of an und....
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....strial license had no cost of acquisition and the said sum of Rs. 100.53 lakhs was consideration for the transfer of industrial license. The other contention of the assessee claiming deduction of Rs. 160 lakhs in the computation of capital gain towards the amount paid directly by NSSK to Bank of Madura on the ground of the diversion of income by overriding title was also not accepted in view of the judgment of the Hon'ble Supreme Court in V.S.MR. Jagadishchandran (Decd.) v. CIT [1997] 227 ITR 240 . 8. We have heard the rival submissions at length in the light of the material placed before us and the precedents relied upon. From the facts recorded above it is clear that the agreement was entered into between the assessee-company and NSSK pursuant to the scheme of the Government of Maharashtra for starting closed private sugar factories by way of co-operativisation of sugar factories. Copy of the said agreement dated 8-9-1995 is available at pages 160 to 180 of the paper book. Clause (vi) of this agreement states that permission was granted to NSSK for purchasing manufacturing rights together with its stores, spares, licenses and registration along with the liabilities as specified ....
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....b initio that the entire sum of Rs. 351.13 lakhs was towards license is absolutely without any foundation in view of specific clauses of the agreement that state that the said consideration is for its plant and machinery, stores, spare parts and license. Except for making bald submission, the learned A.R. could not produce any evidence to indicate that the said consideration of Rs. 351.13 lakhs was towards license only and plant and machinery along with other items of stores were given as charity or gift to NSSK. In view of the fact that the said sum of Rs. 351.13 lakhs has been arrived at by the Government Valuer on the basis of valuation of items of plant and machinery etc., as extracted above, the contention of the learned A.R. that the entire sum of Rs. 351.13 lakhs be treated as consideration for sale of license is patently without any substance. 11. We find that the item-wise valuation for items of plant and machinery and stores has been given by the Government Valuer, which has been extracted above from pages 3 and 4 of the assessment order. It is seen that out of Rs. 351.13 lakhs being the items representing total from Sr. Nos. 1 to 17, deduction has been allowed at Rs. 82....
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.... such license, there cannot be charged to tax any capital gain on this account. 13. The next grievance of the assessee is that the sum of Rs. 160 lakhs directly paid by NSSK to Bank of Madurai be excluded from the sale consideration as that never became the income of the assessee as it stood diverted of overriding title and hence should be ignored for the purpose of calculating capital gain. We do not find any merit in this submission made on behalf of the assessee for the reason that the said sum of Rs. 160 lakhs was paid by NSSK to Bank of Madurai for and on behalf of the assessee in full and final settlement of the amount due to the bank over the period of time. It was, in fact, a liability of the assessee which was discharged by making direct payment through NSSK instead of routing it through the assessee. The said payment to the bank is only application of income not a charge on income. The assessee was the owner of plant and machinery along with stores which were taken over by NSSK for the stated consideration. The payment to Bank and sale consideration of its asset are entirely two distinct transactions having no relation with each other except for the fact that there was a....
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....laimed by the assessee. 15. Now comes the question of computation of capital gain. It is seen that the Assessing Officer himself computed a sum of Rs. 17,81,683 as long-term capital gain on sale of store materials. No argument has been advanced against this finding given by the Assessing Officer, which needs to be upheld. In view of this line of action followed by the Assessing Officer, the sale consideration as attributable to store materials, which was considered by the Assessing Officer for calculation of long-term capital gain, is required to be reduced from the total sale consideration for the purpose of computing capital gain on the transfer of plant and machinery and miscellaneous assets. It is seen that the Assessing Officer applied the provisions of section 50 for computing short-term capital gain on the sale of company's plant and machinery and miscellaneous items. The learned CIT(A) upheld the application of section 50. The learned Counsel for the assessee contended that the provisions of section 50 were not applicable in the instant case as the business ceased to be operative with effect from 1984 and no depreciation was allowed for the assessment years thereafter. As ....
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....ect from assessment year 1988-89, but it nowhere states that the existing assets should be ignored and excluded from the ambit of block of assets. It is austere that if prior to 1-4-1988 there were certain items of plant and machinery or other items of assets, they shall have to be considered with effect from 1-4-1988 as block of asset or machinery in respect of which the same percentage of depreciation is provided. It is not as if only the asset purchased after 1-4-1988 shall constitute part of block of assets and the existing asset on that date shall be allowed depreciation as per the old provisions. This position becomes more clear when we look at the provisions of section 50 according to which where any capital asset forming part of block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922, the provisions of sections 48 and 49 shall apply subject to the modifications as set out in this section. The very reference to the capital asset on which depreciation has been allowed under the Indian Income-tax Act, 1922 also for computing the capital gain on the transfer of depreciable asset fairly indicates that this section....
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....ck of assets and short-term capital gain is to be computed in respect of such depreciable assets, naturally such interest can neither increase the w.d.v. at the beginning of the year in the block of assets nor can be considered as the cost of assets acquired during the year. Moreover there is no relation of such interest with the purchase price of the assets constituting block of assets. However, the decision taken by the Tribunal vide its earlier order dated 18-8-2003, on this issue shall apply and resultantly, the assessee will be entitled to claim deduction of Rs. 92.61 lakhs as revenue expenditure against the business of trading/dealing in shares continued in the instant year from which the trading profit of Rs. 1,06,196 was earned. 18. The last issue (c) is against the levy of interest under section 234B. The learned A.R. contended that the assessee was not liable to pay advance tax within the meaning of section 208 or 210 on the ground that it filed a return of loss. He relied on the judgment of the Hon'ble Supreme Court in the case of CIT v. Kwality Biscuits Ltd. [2006] 284 ITR 4341 in which it has been held that interest is not leviable under sections 234B, 234C etc., wher....