TaxTMI 
TaxTMI 
1998 (6) TMI 569
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....d to disallowance of part of deduction claimed under section 80M of the Income-tax Act, 1961 out of dividend income. The assessee during the relevant period received dividends from Indian companies and returns from UTI amounting to Rs. 28.64 crores and distributed dividend approximately Rs. 25.11 crores. In its return of income, the assessee claimed deduction of the last mentioned sum in accordance with provisions of section 80M of the Act. 4. The Assessing Officer , on scrutiny of accounts, found that the assessee claimed deduction of Rs. 59.93 crores as interest paid on borrowings utilised for purposes of business. This was besides interest of Rs. 92.96 crores capitalised in books of accounts but claimed deductible in the return under section 36(1)(iii) of the Act. The assessee claimed that funds were, on which interest of Rs. 59.93 crores was claimed, raised by way of issue of bonds and debentures. As required by various regulations, commitment made while raising funds, such funds were to be utilised for objects specified. Pending utilisation, as a matter of commercial prudence the assessee-company invested funds in securities as permitted by agreements are rules. 5. On cl....
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....ssessee's profits in the year under consideration before depreciation amounted to Rs. 203 crores. It was Rs. 160 crores last year. He filed before us position of funds and profits in different years. Thus, the profits and known funds were sufficient to cover the investment. Shri Dastur argued that the Assessing Officer while computing business income of various units, allowed deduction of Rs. 59.93 crores. The Assessing Officer then, on estimate basis, through erroneous formula allocated Rs. 6.94 crores to borrowed funds utilised in investments and reduced dividend income and deduction under section 80M. This was done on the ground that the assessee had a common bank account wherein all profits, sale receipts, etc. were credited and amounts withdrawn for making various investments. The Assessing Officer failed to appreciate that in such a situation as per principles laid down by the Calcutta High Court in the cases of Woolcombers of India Ltd. v. CIT (1982) 134 ITR 219 (Cal), Rackitt & Colman of India Ltd. v. CIT (1982) 135 ITR 698 (Cal) and Indian Explosives Ltd. v. CIT (1984) 147 ITR 392 (Cal) and approved by Hon'ble Supreme Court in the case of East India Pharmaceutical ....
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....we do not see any justification for allocating Rs. 6.94 crores as expenditure relatable to dividend income. The assessee has placed sufficient material on record to show that its income in the year under consideration (sales approximately Rs. 1,745 crores profit approximately 203 crores) as also Rs. 106 crores of last year, and its own funds of Rs. 903 crores far exceeded the investments giving dividend income. The borrowed funds on which interest of Rs. 59.93 crores was paid, were admittedly taken for purposes of business and the Revenue has led no material to show that those funds were diverted and utilized in investments. Even the Assessing Officer allowed above interest against business income but subsequently allocated a part of its Rs. 6..94 crores towards dividend under the head `other sources' on the presumption that proportionate borrowed funds could be taken as utilised for earning dividend income. Having regard to the principles laid down by the Calcutta High Court in the cases of Woolcombers of India Ltd. v. CIT (supra); Reckitt & Colman of India Ltd. v. CIT (supra) and other authorities and position of deposits out of profit and own funds in the common account bein....
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.... learned counsel in this Court, it would not be appropriate for this Court to look into the additional papers produced by the assessee for entertaining the contention and answering the same." 12.It is clear from the above that the Hon'ble Supreme Court has noted the decision of the Calcutta High Court in the case of Woolcombers of India Ltd. v. CIT (supra) but did not consider applicability of above decisions to the facts of the case before them as no such arguments were advanced before the Tribunal or before the High Court. Having regarded to the position of assessee's funds, no presumption would be drawn that borrowed funds were utilised for making investment in securities on which dividend was earned and, therefore, allocation of part of interest for earning dividend was unjustified. 13. The learned Departmental Representative was also not justified in relying on the decision of the Madras High Court in the case of Mir Mohd. Ali v. CIT (supra) which in fact supports the case of the assessee. 14. The alternative contention of the assessee that all debentures and bonds on which interests of Rs. 59,93 crores was claimed, were specifically floated for purposes of bu....
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.... apportionment of Rs. 6.94 crores towards earning of dividend income and consequent reduction of exemption under section 80M were not justified. The entire interest of Rs. 59.53 crores was to be allowed out of business income. Consequently, deduction claimed by the assessee under section 80M was to be allowed as claimed. The Assessing Officer is directed to revise the assessment accordingly. 15. The next ground of appeal (No. 2) relates to disallowance of claim made under section 36(1)(iii) of the Income-tax Act. The assessee had issued non-convertible and partly convertible debentures to raise finance for its two cement units at Raipur and Sambhupura and a steel unit "Vikrant Ispat" at Salav. Interest on above borrowings amounting to Rs. 92.95 crores was capitalised in its books of account but claimed as a deduction in the return. The Assessing Officer disallowed interest as, according to him, the three units had not commenced business. He also rejected the assessee's contention that the three units constituted "same business" carried on by the assessee as there was a common management, common funds, interlacing, inter-connection, inter-dependence, etc. of all units of the ....
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.... by the assessee constituted same business or not. In this connection, the learned counsel drew our attention to pp. 2 and 3 of the compilation `B' chart showing how important decisions are taken by management committee and the Board and implemented by heads of various departments. Shri Dastur invited our attention to decision of the company to raise funds for units by issuance of PCDs and NCDs and also Euro issue of Rs. 276.29 crores. Shri Dastur made prominent reference to profit appraisal report of IDBI of these units at pp. 247-248 of compilation wherein apart from outside borrowing, the internal accrual was taken at Rs. 132.58 crores, 130 crores and Rs. 137 crores for sponge iron plant, Raipur plant and Sambhupura plant, respectively. Reference was also made to common bank accounts with SBI and UCO at Bombay where receipts from all units and payments of all units were made. Thus, funds for all units were common. This was also clear from correspondence exchanged for raising cash credit limits from pp. 124-129 of compilation. Shri Dastur showed that employees were frequently transferred from one unit to the other and single officer like Mr. Bagrodia was controlling more than....
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....nd, therefore, it would be useful to refer to these tests considered by the Assessing Officer as under : A. Same business._The Assessing Officer held that as the assessee was carrying on diversified activities of manufacturing textile, staple fibre, cement, caustic soda, pulp iron, etc. at different places, the assessee was carrying different business activities and, therefore, not "same business". The assessee, on the other hand, contends that as setting up of cement plants and sponge iron plant is interconnected, interdependent and being controlled by same management, it is same business. The fact that for purposes of deduction under section 80HHC the assessee had to work out profit of each industrial undertaking separately, does not make any difference to its claim. In addition to the material referred to above, the assessee has also drawn our attention to the observations of Asstt. Commissioner dated 29th March, 1996, for the assessment year 1993-94 where the officer accepted that the assessee was carrying on the same business. In our opinion, merely because diversified activities are carried by the companies, it cannot be said that the different activities are not the "s....
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.... "own funds" and "borrowed funds" were employed for setting up and day-to-day running of various divisions/units. He held that where surplus funds were transferred inter se units or to the head office, interest was charged and separately accounted for in each unit. The assessee, on the other hand, contends that there are common funds and even for raising loans, the entire assets of the company are charged. The learned counsel drew our attention to project appraisal report carried by IDBI for financing the three projects. He also relied on p. 251 of compilation `B' to show internal funds to be utilised for setting up the units. Our attention was also drawn to common bank account with SBI and UCO. Funds needed at head office and at different units were inter se transferred frequently. Merely for accounting purposes and to know profitability of each unit, interest was charged on transferred amounts. But this in noway affected commonality of funds. In this connection, the following documents are further placed on record. (i) Letter for partly convertible debentures of Rs. 125 crores for sponge iron project. (ii) Letter of offer for non-convertible debentures for Rs. 115 crore....
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....ips of the Hon'ble Supreme Court stated as under : "We do not think it necessary to deal with the facts of each of the decisions for the aforesaid reason and also because the said question is essentially a question of fact. No single test can be devised as universal and conclusive. The question has to be decided on a consideration of all the relevant facts and circumstances. Some facts may tend one way and some other than other way. An overall view has to be taken and a conclusion arrived at. Even if it is found that one or two circumstances among the several circumstances relied upon are not relevant the finding of fact recorded by the Tribunal cannot be interfered with if there are other relevant circumstances which sustain the finding, as held by this Court in Shree Meenakshi Mills Ltd. v. CIT (1957) 31 ITR 28 (SC). In the present case, there are a number of other factors ‑ apart from what are pointed out as irrelevant (assuming for the sake of argument that they are irrelevant) _ to support the finding of the Tribunal." The above referred to observations are relevant for determining the issue before us. We do not feel it necessary to consider each of the decisio....
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....onge iron could not be produced at temperature less than 850 degree celsius and as above temperature was never obtained, the assessee could not and did not produce sponge iron. After examining Shri Tirumala and Shri Anil Kumar connected with production and maintenance of log books at the plant as also Shri Shenoy and Shri Chug and other people connected with management of production in the assessee's plant, the Assessing Officer concluded that the assessee fabricated evidence relating to production of sponge iron and hot briquetted iron (HBI). Accordingly to the Assessing Officer , above referred to employees admitted before him that no production of sponge iron was made and entries relating to production on the night between 30th and 31st March, 1993, were interpolated on 2nd April, 1993 or thereafter. The Assessing Officer also referred to documents seized from Davy Power Gas India Ltd. (DPGI) who were engaged for commissioning the plant, particularly the letter written to them by Shri P.K. Sen, Vice-President of Vikram Ispat on 30th March, 1993, stating as under : "Failure of the panel is one of the major reasons of our unsuccessful bid to commission the plant as planned.....
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....med that plant was commissioned before 31st March, 1993. Apart from the above, the learned counsel for the assessee referred to material relating to sale of production, entries in excise register and certificate from excise and sales-tax authorities, certificate from insurance and other public authorities. Evidence relating to transportation of sold material was also referred to in support of above claim. 23.1. Shri Dastur further draw our attention to entries at p. 394 of the log book where 500 ton of raw material was introduced in the reactor in the night shift of 29th March, 1993. Reference was also made to consumption and use of gases. Shri Dastur accordingly argued that there was unassailable evidence of use of plant for production. This was not disputed even by the Revenue. Thus, test of setting up of plant was fully satisfied. He drew our attention to opinions of experts (p. 551 of the Paper-book) who confirmed that it was not necessary to have temperature of more than 800 deg. C to produce sponge iron. The desired reaction could take place between 500 and 570 deg. C. As per letter on p. 118 of the paper-book, the experts have stated that temperature, quality of raw mater....
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....d emphasised that Shri P.K. Sen was not cross-examined to challenge averments on oath. The report of the directors and as also evidence of excise authorities were also relied upon. 25. Shri Dastur also stated that there were factual errors in the order of the Commissioner (Appeals) at p. 136, para 37.10. The Commissioner (Appeals) has wrongly stated that technical literature has said that sponge iron could not be produced below 800 deg. C. The technical opinion, in fact, stated that sponge iron could be produced at temperature 570 deg. C. Likewise, certain facts were wrongly attributed to Shri Shenoy as is evident from his statement at p. 46 of the paper-book. It was wrong that details asked for were not furnished by the assessee, as stated by the Commissioner (Appeals) at p. 55 of his order. The amount spent on repairs in the next year was furnished. Shri Dastur also advanced an alternative argument that after amendment of section 32 and with introduction of scheme of depreciation on "block of assets", it is no longer necessary for the assessee to prove "user" of assets for claim of depreciation. In this connection, he read out relevant provision of section 32 and clause (6) of....
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.... the learned Departmental Representative, the assessee was required to show that metailisation achieved by it by 31st March, 1993, was not less than 92 per cent. Otherwise, plant cannot be said to be put to use. But facts on record i.e., log book and statements of shift-in-charge clearly showed that process gas heater (PGH) which costed Rs. 42,78,20,273 and on which depreciation of more than Rs. 8 crores was claimed was incomplete and not commissioned. The learned Departmental Representative submitted that the assessee had failed to show that computer had given wrong temperature readings and, therefore, it was necessary to correct them in the log book. It was a clear case of tampering with record to establish that hot briquetted iron (HBI) was produced. The learned Departmental Representative also drew our attention to the following decisions: (1) CIT v. Suhrid Geigy Ltd. (1982) 133 ITR 884 (Guj); (2) Addl. CIT v. Speciality Paper Ltd. (1982) 133 ITR 879 (Guj); (3) CIT v. Ramaraju Surgical Cotton Mills Ltd. (supra); and (4) Sir Shadi Lal Sugar & General Mills Ltd. v. CIT (supra) 27.1. It was claimed that the Revenue had made foolproof case and, therefore, the assesse....
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....atter. As a matter of fact, even earlier some ether obtained in June, 1961, was submitted to the same analyst and an identical conclusion had been reached by them. The position then is that in August, 1961, the plant had commenced operation but the end-product was sub-standard and hence obviously not marketable. It is in this context that Mr. Joshi on behalf of Revenue has urged that even in August, 1961, the business of the assessee could not be said to have been set up, although the plant was being worked, inasmuch as a proper standard marketable end-product had not been obtained. We are afraid that if this test as suggested by counsel is accepted, we would be taking an unrealistic view of the requirements of the statutory provisions. In each case the question as to when the business can be said to be set up will be required to be answered on the facts of that case, which facts have to be found by the Tribunal and indicated in the statement of case and the supplementary statement of case submitted to us. On the facts of the case as submitted to us by the Tribunal (which are binding on us and have not been challenged by either party) we think that the proper view to take would ....
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....n our opinion, the facts of the present case relating to setting up of business of production are akin to facts of the abovequoted cases and, therefore, the test referred to above is to be applied to determine whether business was set up by the assessee. We, therefore, deem it unnessary to refer to other cases cited on behalf of the parties. 29. As noted earlier, the Assessing Officer after examining log book, statements of Shri Tirumala and Shri Anil Kumar and documents impounded from the premises of DPGI, particularly letter dated 31st March, 1993, written by Shri Sen, concluded as under : "On 30th & 31st March, 1993, for the first time, an attempt has been made only to check whether the production unit that is the reactor is in a position to work or not. All the operations carried out on these two dates only amount to testing the various operations and parts of the reactor and reduction system and these were found to be defective, unworkable and even incomplete in terms of fabrication reference to the clear writing by the company to Davy Power Gas on 31st March, 1993 that there were designing defects in the plant hence they could not commission it. After realising this, th....
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....T, unreduced iron supplied by Vikram Ispat in the range of 10-20 tons, will not make any difference. So, sale invoices, excise gate passes, delivery orders, transport receipts, etc., cannot alter the fact that sponge iron was not produced by the assessee's plant till 31st March, 1993. Even in case of despatching unreduced raw material discharged from the assessee's plant, all above documentation will be the same except the nomenclature. 7. Senior General Manager (Marketing) termed the initial sale as "as is where is basis" which is possible only when buyers can inspect the material. But there was no material even as per the assessee's record was available before the morning of 31st March, 1993." 29.4. The following reflects conclusion of the Assessing Officer : "To sum up, documents gathered and enquiries conducted lead to the conclusion that in the last days of March, 1993, only testing of parts and plant was going on and at that stage itself plant was found to be incapable of puttig into use. No finished products also as claimed by the assessee, were generated." Thus, in the view of the Assessing Officer , the plant was not put to use. The assessee was acc....
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....to have set up Vikram Ispat unit, the first unit of its kind in the world manufacturing hot briquetted iron (HBI) using HYL technology. The know-how design of the plant was supplied by Davy International and job of mechanical erection of the plant was entrusted to DPGI. The assessee has placed on record certificates that each of the parts like reformer section, carbon dioxide removal section, the process gas heater and all the utility items were set up much before 31st March, 1993. We find that there is no dispute on this as even the Revenue authorities in the impugned order has stated that plant and its various parts were tested by the assessee on 30th/31st March, 1993. There is further no dispute that Davy International vide its letter dated 22nd March, 1993, had given clearance to the assessee to go ahead with start up of the plant. The main controversy between the parties is that the assessee claimed to have produced 630 tons of sponge iron whereas the Revenue, on the other hand, has held that the assessee had no intention even to commence production on the above dates but had desired to test the plant. In arriving at the above conclusion, the Revenue authorities has held that ....
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....l take from 90 per cent or more metailisation if reactor plenum temp. is 550, 650, 750 and 850, respectively. Ans. It will depend upon several aspects like the reducibility of the used raw material and also the chemical process gas composition. The reduction normal time could be as follows : Temp. Time 850 1 hr. 750 1.2 hr. 650 1.7 hr. 550 2.2 hr. Q. 56. In your letter dated 20th April, 1995 you mentioned that for producing DRI at lower temprature you require to have more gas flow. You mentioned at 930 deg. C. process gas flow may be 1800 NM3/T. Please mention the required process gas flow temprature at: 850 deg. C, 750 deg. C, 650 deg. C and 550 deg. C. Ans. In my letter I was referring to a particular case for that case the flow may be Temp. Process gas flow/Ton 850 2500 750 3100 650 3700 550 4,300" 30.3.It is clear from the above that reaction took place even at temperature as low as 550 deg. C. That reduction reaction would take place at lower temperature is impliedly accepted in the question but it would require higher gas flow per ton. We were not shown any document or question chal....
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....ation is not to be accepted and letter is to be treated as admission on the part of the assessee made in a normal course, the Assessing Officer misread the letter as in the letter it is clearly stated "bid to commission the plant as "planned". This letter clearly reflects the intention of the assessee to commission the plant before the end of the financial year. We do not know how from the above letter an inference that the assessee only made an attempt to check whether production unit could be drawn. The above conclusion of the Assessing Officer is thus not justified and is against the document relied upon by him. The Commissioner (Appeals) also at p. 157 concluded "all this indicates that there was no intention of even trial production." Another letter seized from DPGI dated 14th April, 1993, is from Forster Wheeler to DPGI wherein it is mentioned that it was quite dangerous to operate the plant with large number of leaking gas walls. The Commissioner (Appeals) writes at p. 161 as under : "This letter is dated 14th April, 1993, therefore, this problem must have been intimated to him much before that, most probably before 31st March, 1993. Therefore, this is a direct evidence o....
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.... far as contractual obligation of Davy Power Gas India Ltd. with respect to these main parts are concerned, it was over on 28th March, 1993. However, their persons continued to remain at sight to complete rest of the section like Briquetting, Turbo Generator till their mechanical completion. 5. You meant to say that PGH, Reactor and Reduction circuit work certified by DPGI as commissioned and handed over by them to Vikram Ispat on 28th/29th March, 1993. Ans. I do not meant to say that Reduction Reactor was fabricated at BHPV works in Pieces brought and assembled by BHPV under supervision of DI/DPGI. As regards to processes, PGH its equipments supplied by Foster Wheeler UK/USA. These were assembled at site under the supervision of Foster Wheeler & Davy International Engineer they were assisted by DPGI Engineers. These were mechanically completed on 28th/29th March and were process commissioned under the supervision DI/Foster Wheeler Engineers. Q. 6. You mentioned in answer to question Nos. 5 & 6 and 8 of statement dated 21st September, 1995 that there is no certificate or correspondence made by DI/or by Vikram Ispat to Davy International and that you do not have any other r....
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....above said test in the circumstances of the case is not satisfied and, therefore, we are of the view that it will be safe to rely upon the oral statements of the employees. Besides, Shri Anil Kumar specifically stated that they were not competent to speak on the aspect of technical process involved. These people also issued contradictory statement and gave affidavit retracting earlier statements. Certain portion of statement do not match with the position established through documentary evidence. For all these reasons, we exclude oral statements of the employees except those made on 15th April, 1993, and other claims not contradicted or challenged by the Revenue. 30.9. The Assessing Officer also took into account distinction between primary and secondary evidence and applied test not known under the Indian Evidence Act. From a conclusion that no production was made on 30th/31st March, 1993, he held that sale could not be made and accordingly excise register and other documents produced, labelled as secondary evidence, were fictitious. We have already held that there is sufficient material on record to prove that production did take place on 30th/31st March, 1993. Having regard t....
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....s developed has been placed by the assessee on record, but from above it does not follow that plant was not set up before 31st March, 1993. It is well known that every plant has teething troubles and earlier production given is not of standard quality or marketable. But from above, it cannot be said that plant has not been set up. The setting up of a business is a stage prior to commencement of business. Therefore, when machinery has been fully installed and is ready to produce and on operation reasonable production is made the business must be taken to be set up. The machinery have been put to business use. Thus, on the basis of voluminous evidence on record, we hold that the business of the assessee was set up on 30th March, 1993, and it was entitled to depreciation on plant as also of business loss amounting to Rs. 27.54 lakhs. We order accordingly. 31. Ground No. 4 is for the levy of interest under section 234B of the Act. Assessee's contention is that there is no default in payment of tax as per the income declared in the return. The income was enhanced due to additions and disallowances for which no interest is leviable, in view of the decision of the Patna High Court ....
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....epreciation on intake well, telpher and lagoon tank came up before the Tribunal in earlier year and the assessee's claim was accepted by following the decision of the Andhra Pradesh High Court in the case of CIT v. Warner Hindustan Ltd. (1979) 117 ITR 15 (AP), Orissa High Court decision in the case of CIT v. Electrosteel Castings Ltd. (1981) 130 ITR 25 (Ori), Bombay High Court decision in the case of Siemens India Ltd. v. CIT (1996) 217 ITR 622 (Bom) and the Tribunal's decisions in Income-tax Appeal No. 7397/Bom/1988, dated 25th March, 1997 for assessment year 1973-74 for intakewell, in Income-tax Appeal No. 2890/Bom/1988, dated 4th January, 1996 for assessment year 1972-73, for telpher in Income-tax Appeal No. 250/Indore/1976-77 order, dated 10th May, 1953 for assessment year 1968-69 by applying the functional test. To quote from the Tribunal order for assessment year 1973-74 : "We have heard the parties to the dispute and considered their rival submissions. The Andhra Pradesh High Court in CIT v. Warner Hindustan Ltd. (1979) 117 ITR 15 (AP) had an occasion to consider a similar claim and had held that the definition of `plant' in section 43(3) of the Act is of wide....
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....employees working in the factory there. Their letting was for the benefit of the employees. The rent has been assessed by the Assessing Officer himself under the head `business', the question of allowance of depreciation on the shops , therefore, should not have arisen. It may be stated that upto assessment year 1988-89, the Department itself has accepted the Commissioner (Appeals)'s order allowing such claim. We accordingly direct the Assessing Officer to allow the depreciation. As regards depreciation on guest house/rest house, we find that in assessee's own case for 1973-74 in Income-tax Appeal No. 7397/Bom/1988, dated 25th March, 1997, the matter was decided in its favour by observing as under : "Depreciation, in view of the Bombay High Court decision in Century Spinning & Manufacturing Co. Ltd. v. CIT (1991) 189 ITR 660 (Bom) and of the Tribunal in Hindustan Lever Ltd. v. IAC (1996) 56 TTJ (Bom) 598 : (1996) 58 ITD 555 (Bom) is allowable deduction irrespective of the provisions of section 37(4) of the Act because of the non obstante clause which prohibits the allowance of the expenditure which are covered by section 37(1) or (2) of the Act. Depreciation is not a....
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....his year the entire salary of Rs. 25,000 is disallowed. As regards Smt. Taramani Mandelia Rs. 24,180 is disallowed. The Tribunal in assessment year 1972-73 order dated 4th January, 1996, allowed only a sum of Rs. 15,900 out of Rs. 21,900. As regards Smt. Induben I. Parekh, a sum of Rs. 9,504 out of Rs. 47,520 and the entire payment of Rs. 6,612 to Smt. Sumitradevi Mandelia was disallowed. In assessment year 1972-73, the Tribunal allowed a sum of Rs. 27,000 out of Rs. 33,000 and the entire payment to Sumitradevi was allowed. In view of the aforesaid, we hold that 25 per cent salary in the case of the first three ladies alone should be disallowed and the balance amount be allowed as per the Tribunal order in assessment year 1972-73 and Department's own view upto 1986-87. We direct accordingly. 38. Ground No. 8 is against the disallowance of 50 per cent of the entertainment expenditure on account of tea, coffee, snacks and soft drinks of Rs. 33,21,596 incurred on customers/suppliers, Rs. 4,38,464 on company's guests and Rs. 1,28,794 on statutory/internal/cost auditors. After the insertion of Explanation2 to sub-s. (2A) to the expenditure by an assessee on hospitality of eve....
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....inion, have no bearing on the issue. In the case of Mohan Meakin Breweries Ltd. (supra) the Himachal Pradesh High Court was considering the inclusion of hotel bills, travelling and taxi expenses and presentation items for the assessee's guests, suppliers and customers and expenditure incurred on eating facilities incurred by the assessee to its customers and in that context their Lordships held that the legislature instead of using the word entertainment or business expenditure, has used a much wider compendious phrase like "expenditure in the nature of entertainment expenditure" and, therefore, it is this wide phrase which deserves consideration. This expression in the opinion of their Lordships would take within its scope not merely what can strictly be regarded as entertainment expenditure proper but also the expenditure of allied nature partaking of some, though not all, of the characteristics of entertainment expenditure. Presentation articles in this case as aforesaid are in the nature of diaries, dry fruits, calendars, etc. which are given in the normal course of business and not with any intention of entertaining the guests, customers or other business associates. This ....
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..... (i) B.K. Dalmia 95,868 (ii) C. Kochukrishnan 95,868 (iii) R.M. Saboo & others 8,24,872 42. We have heard the parties and considered the rival submissions. The expenditure incurred by Sri S.K. Jain, Sri K.C. Jhanwar and Shri K.P. Venkatesh as in S. Nos. 1 & 3 of the chart is incurred for joint venture project in chemicals setting up an alluminium plant in Australia and a carbon black plant in Egypt. The expenditure in our opinion was, therefore, rightly disallowed as capital expenditure as it has no relation to the carrying on of the business by the assessee. At S. No. 2 was included a sum of Rs. 95,868 incurred by B.K. Dalmia and an equivalent amount by Sri Kochukrishnan. This was in connection with attending a conference at Bangkok to strengthen the working of the companies. As this expenditure was for the strengthening of the work of the company it cannot be said to be capital in nature. It is accordingly allowed. The balance expenditure of Rs. 8,24,872 under Item No. 2 was incurred in connection with acquisition of sick mill in South Africa, Zimbabwe, Tanzania and Kenya and this is evident from a report of visit as given at p. 91 of the paper- bo....
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....re or participation in the operations and running of SPM. In the context of company's requirement of imported pulp/pulpwood, we, based on the aforesaid information, contacted NDC and they gave us an appointment for mutual discussions. Accordingly the undersigned had preliminary discussions with NDC during the period from 12th July, 1992 to 15th July, 1992 regarding the take over of SPM. (4) Kenya (16th July, 1992 to 17th July, 1992) The undersigned visited Kenya from 16th July, 1992 to 18th July, 1992. While at Kenya, the undersigned visited the Pan African Mills at Webuye. Discussions were also held with prominent industrialists to explore the possibilities of taking over sick industrial units. The undersigned returned India on 17th July, 1992. Sd/- R.N. Saboo Senior Executive President." The expenditure there are not incurred for carrying on the business of the assessee but to acquire a new business and, therefore, cannot be allowed as an expenditure of revenue in nature. The disallowance of Rs. 8,24,872 is accordingly upheld. 43. As regards the expenditure of Shri Jajoo and family the disallowance is made on the ground that assessee has not submitted ....
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....derstand as to what the Commissioner (Appeals) wants to say. When the purpose was to export the fibre the expenditure is a revenue expenditure irrespective of the fact whether the export was from the existing business or from the expansion of the old business. The reasons given for the disallowance, in our opinion are not justified. The disallowance is accordingly deleted and the claim of the assessee is allowed. The ITO is, therefore, directed to allow the expenditure of Rs. 80,885. 46. As regards the travelling expenses by Shri C. Crasta, R.S. Rathod, Z.A. Helmot, Mr. A.V. Birla and Mrs. Birla, no arguments have been advanced by the assessee to demonstrate as to how the expenditure was incurred for the purpose of business or was an allowable deduction. The disallowance on account of travelling expenditure in these cases is accordingly upheld. 47. The next ground (ground No. 11) is with regard to disallowance out of legal and professional expenses of the following expenditure : Rs. "Land matter (disputing claim for higher compensation) 38,870 Rock garden & DG set (in factory run on leave and licence basis) 1,750 Agreement for office premises (o....
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....ion 43B of Rs. 1,39,73,985 claimed by various divisions of the assessee. The disallowance is bifurcated as under : In clause of section 43B Amount (Rs.) (a) 53,72,870 (b) 1,13,875 (c) 17,95,417 (d) 66,91,823 1,39,73,985 The assessee has not disputed the disallowance under clause (a) of Rs. 53,72,870. This disallowance is accordingly upheld. As regards the disallowance under clauses (b), (c) and (d) of section 43B of the assessee's contention is that these liabilities have not become payable during the year and, therefore, in view of the Andhra Pradesh High Court's decision in the case of Srikakollu Subbarao & Co. . v. Union of the India . (1988) 173 ITR 708 (AP) the disallowance cannot be made under section 43B of the Act. According to the Assessing Officer whether the amount has become payable or not, the disallowance is to be made under section 43B of the Act by virtue of the provisions of Explanation 2 to section 43B. This Explanation was introduced by the Finance Act, 1989, with retrospective effect from 1st April, 1984, to nullify the decision of the Andhra Pradesh High Court and it reads as under : "Explana....
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.... as to whether the sum was payable during the year or not. It only decided that the contribution to PF or superannuation fund, etc are allowable only if they are paid within the due date under the Act, or the Rules or the orders governing such contributions. We accordingly hold that Explanation 2 to section 43B does not govern the payment of the sums referred to in clauses (b), (c) and (d) thereof and they should be considered in the light of the Andhra Pradesh High Court's decision supra. We direct accordingly. 50. Next ground No. 13 is against the disallowance under section 43B for the interest payment liability of Rs. 20,18,996 and electricity duty and interest of Rs. 3,40,466 on the surface rent, aggregating to Rs. 23,59,662 and ground No. 18 is again against the disallowance under 43B for the liability of royalty and interest thereon aggregating to Rs. 1,25,30,502. Assessee's contention as regards the interest for late payment of duty is that it is not a duty covered by clause (a) of section 43B. It is an interest and, therefore, disallowance thereof by invoking the provisions of section 43B is not warranted. The disallowance of interest on outstanding surface rent ....
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....lty is not price and it is held to be a tax and such a cess on the royalty would be a tax. Consequently the Tribunal was wrong in concluding that section 43B was not applicable to the unpaid liability towards royalty payment, in allowing the claim of the assessee." 52. The learned counsel for the assessee submitted that royalty and tax are two separate things and are separately dealt with under the Income-tax Act and one has to see the context in which the decision was rendered, before applying the same to the facts of a particular case. He referred to the decision of the Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC). He also referred to the decision of the Tribunal reported in the case of Asstt. CIT v. Raasi Cements Ltd. (1993) 47 ITD 610 (Hyd) and the decision of the Tribunal in the case of IAC v. Dalmia Cement (B) Ltd. (1991) 37 ITD 335 (Del). He vehemently submitted that the two decisions of the Supreme Court relied upon by the Madhya Pradesh High Court in dealing with an issue under section 43B are not applicable. In the case of India Cement Ltd. (supra), before the Supreme Court the facts were that the assessee-company, a pub....
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....rights is not a tax on land but a payment for use of land but these observations are in connection with Entry 49 List II which deals with a tax on land. But so far as nature of royalty is concerned it is clearly rules to be a tax by the Constitution Bench, and that is the reason why the Constitution Bench reached the conclusion that any cess on the royalty would be a tax. It would be beyond legislative competence of the State legislature as Entry 50 in List II would be of no avail once the Parliament has occupied the field by enacting the Act, especially section 9 thereof. The view of the Constitution Bench that royalty is a tax as found in para 34 of the report can also be supported from other paragraphs of the report. In para 23 of the report while agreeing with Mr. Nariman that royalty which is indirectly connected with land cannot be said to be a tax directly on land as a unit, it has been observed that no tax can be levied or leviable if no mining activities are carried on. Hence it is manifest that it is not related to land as a unit which is the only method of valuation of land under Entry 49 of List II but is relatable to minerals extracted. Royalty is payable on a proporti....
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....ically flew from the earlier paragraphs of the judgment referred to by us hereinabove." These two decisions were followed by the Madhya Pradesh High Court in the case of Gorelal Dube (supra) and the disallowance of royalty was upheld under section 43B, it being tax as held by the aforesaid two decisions of the Supreme Court. There is no contrary decision on this issue of any High Court. The decision of Madhya Pradesh High Court being the solitary decision on the issue and being based on the two judgments of the Supreme Court, wherein it was held that royalty was a tax, the provisions of section 43B in our opinion were rightly applied by the Departmental authorities and no interference in their order is called for. The disallowance is accordingly upheld. 53. Next ground (No. 14) is with regard to upholding the disallowance of Rs. 36,03,003 claimed by the assessee as project expenses. These expenses are incurred by the assessee in various divisions and the major expenditure is in the chemical division of the assessee, which amounts to Rs. 28,75,826. It consists of retainership fee, application fee, advertisement expenditure, market survey, project profiles, etc. other office ex....
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....of manufacturing fertilisers it could not be said that expenses for obtaining such a project report was a part of expenses incurred by the assessee for running its business. It was clearly an expenditure incurred for ascertaining whether to acquire a new asset of some durability for the purposes of profit. As regards the market survey expenditure their Lordships remanded the matter with an observation that if it related to the existing as well as the new unit, then the expenditure would be revenue in nature and the same was exclusively to determine the marketability of triple super-phosphate the (new product), the expenditure would be capital in nature. In these circumstances in our opinion the expenditure was rightly upheld to be capital in nature. However, the assessee's request is that the expenditure of Rs. 4,02,000 included in the aforesaid sum was incurred in respect of the projects materialisted upto 31st March, 1997, the same may be capitalised and added to the cost of the assets for the purposes of allowing depreciation, etc. We direct accordingly. 55. Next ground (No. 15) is with regard to the disallowance of various business expenditure of Rs. 1,96,000 the details....
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.... the running of the business of the assessee. The disallowance is accordingly upheld. Addition of Rs. 1,000 on telephone registration expenses has not been pressed. It is accordingly rejected. The last item of expenditure of Rs. 5,000 being the payment to Sangeet Kalamandir has not been shown to have any connection with the carrying on of the business of the assessee. It is accordingly upheld. 56. Next ground (No. 16) is with regard to disallowance on literary held to journalists of Rs. 27,475. The claim of the assessee is that the help to the journalists was helpful for the expediency of the business of the assessee. But nothing has been established as to how the cordial relations with the journalists are going to help the business of the assessee. In the absence of any material on record the expenditure cannot be allowed as a deduction and it was rightly disallowed by the Departmental authorities. The ground is accordingly rejected. 57. Next ground (No. 17) if for the disallowance of the claim of the assessee for sundry expenses of Rs. 2,35,196 which were in the nature of contribution to local organisations. The expenditure consists of the amount contributed to various asso....
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....er is called for. The disallowance is according upheld. 60. Next ground (No. 21) is disallowance of commission/brokerage of Rs. 11,89,563 for want of confirmation, the details of which are as under : "10 ^_Commission confirmation not filed of Rs. Winner Impex (P) Ltd. Bombay 1,16,462 Bimber Sanyasi Grunlesi 3,17,146 Bromiden Silver & Co. 1,33,038 Itouchu Corpn. Japan 4,66,197 Texliuama Hernaker & KG 1,56,720 11,89,563 The disallowance was upheld by the Commissioner (Appeals) observing that the Assessing Officer was doubtful about the payment of commission and brokerage and, therefore, he wanted to conduct further enquiries to prove the genuineness of such payments and for that purpose he called for the confirmatory letters from the parties to whom the commission and brokerage was paid. Assessee failed to produce such evidence and, therefore, by implication the assessee-company accepted that the payment was not genuine. Assessee 's contention is that it had furnished necessary evidence before the Commissioner (Appeals) which was contained in pages starting from 127 to 232 of the compilation filed be....
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....of taxability of interest under the Income-tax Act. Finding that a sum of Rs. 4,51,950 was the refund which related to interest earlier charged under section 215 was out of Rs. 17,20,134 assessed in assessment year 1988-89, the amount of Rs. 4,51,950 was not assessable in the year under consideration. 62. We have heard the parties and considered the rival submissions. These refunds have been granted to the assessee in the year under consideration and, therefore, they would partake the character of income of the assessee. If however, any refund has been found to be not refundable to the assessee and consequently the interest granted is withdrawn, the same would not partake the character of income. We accordingly direct the Assessing Officer to reduce from the taxability of the aforesaid interest granted to the assessee, the amount which has been withdrawn subsequently. We direct accordingly. 63. Next ground (No. 23) is with regard to disallowance of the claim of the assessee under section 80HHC of the Act on the ground that the assessee had not filed the required form for the company as a whole as against the certificate filed by the assessee in respect of each unit having exp....