TaxTMI 
TaxTMI 
2008 (3) TMI 694
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....ts and in the circumstances of the case, the learned CIT(A) has erred in upholding the addition of Rs. 1,06,146 made by the AO in respect of payment of interest under s. 201(1A) for delay in deposit of TDS while computing the book profit under s. 115JA of the IT Act, 1961." 3.1 The assessee company was carrying on the business of manufacturing and trading of pharmaceuticals/bulk drug. During the year under consideration, the assessee company showed total turnover at Rs. 1,114.56 crores. The AO after examining the various details of balance sheet and P&L a/c, filed along with the return, found that income computed under the provisions of s. 115JA of the IT Act, needed certain adjustments/disallowances. He, therefore, proceeded to consider the adjustments to book profits for the purpose of s. 115JA. 3.2 From the computation of income under provisions other than those under s. 115JA, the AO noticed that the assessee had disallowed interest of Rs. 1,06,146 paid under s. 201(1A) of the IT Act on account of delayed deduction/payment of tax at source, but this interest was not added to book profit for purposes of s. 115JA. After making reference to cl. (a) of Explanation to s. 115JA....
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....uch interest is part and parcel of the amount of tax paid or payable. 3.5 Before us, while challenging the findings of the learned CIT(A), the learned counsel for the assessee submitted that cl. (a) of Explanation to s. 115JA of the Act only provides for the addition of income-tax paid or payable or any provision thereof. According to the learned counsel appearing for the assessee, this clause does not provide for addition of interest paid under s. 201(1A) of the Act. The learned counsel further made reference to the definition of 'tax' given under s. 2(43) of the IT Act and submitted that as per this definition 'tax' means income-tax chargeable on income under the provisions of the Act. According to him, "TDS" is not income-tax but is tax deducted at source from the receipt of other person by the assessee and therefore does not fall in the meaning of the word 'tax' under s. 2(43). He further submitted that 'tax' does not include 'interest'. For supporting this preposition, he placed reliance on several authorities including the following : (i) Harshad Shantilal Mehta vs. Custodian & Ors. (1998) 231 ITR 871 (SC); (ii) Soma Sundarams ....
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....-tax is not mentioned in this section, this cannot be added under s. 115JA of the Act. It, therefore, came to the conclusion that the addition of interest on income-tax cannot be made. However, in the impugned order, the learned CIT(A) relied on the decision of Bharat Commerce & Industries Ltd. which was in the context of deduction as an expenditure for the purpose of earning any income or profit but not about the deemed income under s. 115JA, which provision has to be construed strictly. In that view of the matter, the learned CIT(A) is found to have committed an error. Having regard to the decision of Kerala High Court in Fertilizers & Chemicals Travancore Ltd. (supra), the action to increase the profit by the amount of interest paid to the IT Department while determining book profit cannot be upheld. Accordingly, ground of the assessee stands allowed. Since the charging of additional tax under s. 143(1)(a) would be consequential, this ground along with ground Nos. 1 and 2 stands allowed. 14. As regards charging of interest under s. 234B is concerned, various High Courts have held that the provisions of payment of advance tax are fully applicable to deemed income under s....
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....may be pointed out that the learned Departmental Representative has not been able to show any contrary authority. Hence, following the above authorities, we hold that the learned CIT(A) was not justified in upholding the addition of Rs. 1,06,146 made by the AO in respect of payment of interest under s. 201(1A) while computing book profit under s. 115JA of the IT Act. The issue is, therefore, decided in favour of the assessee. In the result, ground is allowed. 4. Ground Nos. A2 and B3 : These grounds relate to education (sic-deduction) under s. 80-IA. The assessee had claimed deduction in respect of Dewas and Ponta Sahib units as under : Dewas (Amount) Paonta Sahib (Amount) Duty drawback 6,39,214 57,759 Profit on sale of REP. Licenses 14,71,707 1,32,983 Total : 21,10,921 1,90,742 Deduction claimed @ 30 per cent Rs. 6,33,276 @ 100 per cent Rs. 1,90,742. 4.1 The AO did not allow deduction under s. 80-IA on the amount received as duty drawback and profit on sale of REP license under the normal provisions of the Act as well as under s. 115JA of the Act, while computing book profit on the ground that the same are not derived f....
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....High Court in the case of Britannia Industries Ltd. 278 ITR 546(sic) has held that the assessee is not eligible for deduction in respect of duty drawback and profit on sale of REP licenses. The observations of the Tribunal as contained in para 6 of the order are as under : "We have considered rival submissions. As rightly contended by learned Departmental Representative deduction under section to various business enumerated in sub-s. (3) to sub-s. (11). Since the assessee is claiming deduction under sub-s. (3) of s. 80-IA which provides that only the profits and gains derived from an industrial undertaking is eligible for deduction. In view of the decision of Hon'ble Supreme Court in the case of Sterling Foods (supra) and in the case of Ritesh Industries (supra), the amount received by way of duty drawback and profit on sale of REP licenses cannot be considered as 'profit derived from industrial undertaking'. Thus, this ground has to fail." 4.7 In the case of CIT vs. Ritesh Industries Ltd. (2004) 192 CTR (Del) 81: (2005) 274 ITR 324(Del), the Hon'ble Delhi High Court has categorically held that amount of duty drawback cannot be regarded as income derived....
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....198 CTR (SC) 313: (2005) 278 ITR 546(SC). However, since it is contended that the actual expense in this regard is only Rs. 7,55,408 and not Rs. 15 lacs, the AO is required to look into the matter and the disallowance should be only in respect of actual expenses as claimed while computing the total income and not on ad hoc basis." 5.2 As the issue stands covered against the assessee, respectfully following the order of the Tribunal, referred to above, the ground is rejected. 6. Ground No. 5 : Ground No. 5, originally raised by the assessee, is as under : "That on law, facts and in the circumstances of the case, the learned CIT(A) has erred in rejecting the claim of the appellant that contribution of Rs. 50 lacs each made to Ranbaxy Science Foundation and Ranbaxy Community Health Care Society is a business expenditure eligible for deduction under s. 37 of the Act." 6.1 Later on the Bench vide order dt. 15th Oct., 2007 allowed the aforesaid ground to be amended. The amended ground is as under : "That on law, facts and in the circumstances of the case, the learned CIT(A) has erred in rejecting the claim of the appellant that contribution of Rs. 50 lacs each ....
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..... However, it is noted that the contribution to RSF and RCHCS cannot be covered under s. 35/37 of the IT Act. These contributions have been made partly out of philanthropic considerations and it cannot be said that the appellant has derived any direct business advantage or commercial benefit out of such contributions. The benefit to the business of the appellant is only indirect. As such, it is held that the said contributions do not constitute expenditure laid out wholly and exclusively for the purpose of business carried on by the appellant. Accordingly, this ground of appeal is rejected." 6.4 The learned counsel for the assessee pointed out that during the relevant previous year, the assessee had contributed a sum of Rs. 50 lacs to RSF and Rs. 95 lacs to RCHCS, on which deduction at 50 per cent of the contribution was claimed under s. 80G of the Act. Subsequently vide cl. (3b) of the Notes forming part of computation of income, the said contribution was claimed to be allowable as 100 per cent deduction as revenue expenditure under s. 35 of the Act on the ground that the same was in the nature of research and development. It was pointed out that the contributions were made in ....
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.... with the carrying on of assessee's business or which results in benefit to the assessee's business is allowable as business deduction. The learned counsel also placed reliance on the following authorities to support his arguments : (i) Addl. CIT vs. Kuber Singh Bhagwandas (1979) 9 CTR (MP)(FB) 94 : (1979) 118 ITR 379 (MP)(FB); (ii) Mysore Kirloskar Ltd. vs. CIT (1987) 61 CTR (Kar) 265 : (1987) 166 ITR 836 (Kar); (iii) CIT vs. Kamal & Co. (1993) 113 CTR (Raj) 353 : (1993) 203 ITR 1038 (Raj); (iv) CIT vs. Cheran Transport Corporation Ltd. (1996) 134 CTR (Mad) 466 : (1996) 219 ITR 203 (Mad); (v) CIT vs. Madras Refineries Ltd. (2004) 266 ITR 170 (Mad); (vi) Addl. CIT vs. Rajasthan Spinning & Weaving Mills Ltd. (2004) 186 CTR (Raj) 117 : (2005) 274 ITR 463 (Raj); (vii) CIT vs. Rajasthan Spg. & Wvg. Mills Ltd. (2005) 198 CTR (Raj) 96 : (2006) 281 ITR 408 (Raj); (viii) CIT vs. Mahindra & Mahindra Ltd. (2006) 200 CTR (Bom) 28 : (2006) 284 ITR 679 (Bom); (ix) IAC vs. Nuchem Plastics Ltd. (1989) 35 TTJ (Del) 559; (x) Addl. CIT vs. Delhi Cloth & General Mills Co. Ltd. (1983) 144 ITR 280 (Del); (xi) Hindustan Petroleum Corporation Ltd. vs. Dy. CIT (200....
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....in source behind these two institutions, which have been created for promotion of its own business and for the larger objective to promote research work and for updating the knowledge in the field of medical science. The assessee company, therefore, is directly concerned with the activities of these two organizations, although the organizations have a separate entity of their own. It is true that these organizations have been exempted under s. 11 or under s. 80G but the fact remains that the assessee company is incurring heavy expenditure in maintaining these institutions for its own business purposes and is being directly benefited by their activities. The provisions made by the assessee company cannot be said merely for carrying out philanthropic objects, rather the contributions are directly aimed for promoting business of the assessee company and also for advertising its name because various conferences and workshops are conducted under the banner of the Ranbaxy Laboratories (P) Ltd. Thus, on examination of the nexus between the activities of the foundation and society and those of the assessee company, following facts emerge : (1) The assessee has the main hand in establish....
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....nder s. 256. The Hon'ble High Court answered the questions referred in favour of the assessee. The Hon'ble High Court, however, disallowed deduction by coming to the conclusion that the payment of this amount was opposed to public policy. The Hon'ble Supreme Court, after making reference to various decisions, allowed the claim of the assessee by observing as under : "From the aforesaid discussion it follows that any contribution made by an assessee to a public welfare fund which is directly connected or related with the carrying on of the assessee's business or which results in benefit to the assessee's business has to be regarded as an allowable deduction under s. 37(1) of the Act. Such a donation, whether voluntary or at the instance of the authorities concerned, when made to a Chief Minister's Drought Relief Fund or a District Welfare Fund established by the District Collector or any other fund for the benefit of the public and with a view to secure benefit to the assessee's business, cannot be regarded as payment opposed to public policy. It is not as if the payment in the present case had been made as an illegal gratification. There is no l....
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....e Tribunal for decision afresh in the light of the observations contained in the judgment." 6.12 In the case of Mahindra & Mahindra Ltd. vs. CIT (2003) 182 CTR (Bom) 34: (2003) 261 ITR 501(Bom), the Hon'ble Bombay High Court allowed deduction of expenditure incurred by the assessee in making initial contribution to the approved superannuation fund to an educational society, which was running school for children of employees, as business expenditure under s. 37. It was held that the amount should be allowed as business expenditure because it was incurred predominantly for staff welfare. 6.13 The decision in the case of Mahindra & Mahindra (supra) was further followed by the Hon'ble Bombay High Court in the case of CIT vs. Mahindra & Mahindra Ltd. (supra). 6.14 In the case of CIT vs. Chemicals & Plastics India Ltd. (supra), the assessee claimed deduction in relation to contribution to the Madras Chamber of Commerce as business expenditure. The assessee was one of the members of the chamber. It was contended that the maintenance of the trade chamber was for the furtherance of the business interest of the constituents of the chamber, hence the payment had to be treated....
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....;prompted by altruistic motives', it did not cease to be an expenditure deductible under s. 37(1). In the case of Mysore Kirloskar Ltd. (supra), the High Court had observed that even if the contribution by the assessee is in the form of donations, but if it could be termed as expenditure of the category falling in s. 37(1), then the right of the assessee to claim the whole of it as a deduction under s. 37(1) cannot be declined. What is material in this context is whether the expenditure in question was necessitated by business considerations or not. Once it is found that the expenditure was dictated by commercial expediencies, the deduction under s. 37(1) cannot be declined (para 7). In the instant case, the expenditure on 20-point programme was incurred in view of specific directions of the Government of India. It could not but be the business interest of the assessee to abide by the directions of the Government of India which also owned the assessee. Further, the expenditure incurred for the implementation of 20-point programme was solely for the welfare of the oppressed classes of society, for which even the Constitution of India sanctions positive discrimination an....
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....(A) also rejected the claim on the ground that it has not been quantified by the assessee. 7.2 At the time of hearing, it was pointed out by the learned counsel for the assessee that in earlier year i.e. asst. yr. 1991-92 in assessee's own case the Tribunal has confirmed the order of the learned CIT(A) in setting aside the issue and in directing the AO to consider the claim of the assessee. Both the sides agreed before us that the same course should be adopted in this assessment year also. It could not be pointed out as to what happened to the directions of the Tribunal and what is the final outcome. Since position could not be ascertained and further since neither the AO nor the learned CIT(A) have considered the relevant facts nor carried out further examination or inquiry we consider it proper to restore the matter back to the file of AO to decide the issue afresh after examining all relevant aspects and as per law, of course, after providing opportunity of being heard to the assessee. Consequently, order of the learned CIT(A) is set aside and the ground is allowed for statistical purposes. 8. Ground No. 7 : This ground is as under : "That on law, facts and in....
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....ove. ITA No. 4251/Del/2002 (Revenue's appeal) : 10. Ground No. 1 : This ground is as under : "On the facts and in the circumstances of the case, the learned CIT(A) has erred : In holding that the provision for bad and doubtful debts amounting to Rs. 2,29,42,638 is not includible in the computation of book profit under s. 115JA and in deleting the same." 10.1 In its P&L a/c, the assessee had debited a sum of Rs. 2,29,42,638 in respect of 'provision for bad and doubtful debts and advances'. This amount was disallowed and added by the assessee in normal computation but the same was not added to the book profit for the purpose of s. 115JA. The AO was of the view that as per cl. (c) of Explanation to s. 115JA, the book profit is to be included by the amount set aside to provisions made for meeting liabilities other than ascertained liabilities. After making reference to the reply of the assessee, the AO held that in view of cl. (c) of Explanation to s. 115JA, provision for bad and doubtful debts shall be added to book profit for the purpose of s. 115JA. 10.2 In appeal, the assessee made following submissions before the learned CIT(A) : ....
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....ity but in fact the same was for diminution in value of asset. The same is therefore not an item permitted under the said Explanation. (h) It is respectfully submitted that the Hon'ble Supreme Court of India in the case of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521: (2002) 255 ITR 273(SC)'has confirmed your appellant's stand. Further, the Hon'ble Bombay High Court in the case of CIT vs. Echjay Forgings (P) Ltd. (2001) 166 CTR (Bom) 100: (2001) 251 ITR 15(Bom) and Delhi Tribunal in the case of Steel Authority of India Ltd. vs. Dy. CIT (2001) 70 TTJ (Del)(TM) 849: (2001) 76 ITD 69(Del)(TM) have held that while computing book profit under s. 115J, adjustment for provision of bad and doubtful debts is not permitted. (i) Therefore, the addition to the book profit on account of bad and doubtful provision may kindly be deleted." 10.3 The learned CIT(A) found force in the submission and allowed the claim by deleting the addition. His observations are as under : "I have carefully considered the issue. As per Sch. VI of the Companies Act a provision for doubtful or bad debts has to be deducted while preparing the accounts. Hence the provis....
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.... to s. 115JA. The Hon'ble High Court while dismissing the appeal, held as under : "Held, dismissing the appeal, that there was no reason why a bad and doubtful debt claimed by the assessee could not be treated as an ascertained liability. If the debts that were bad and doubtful should have been written off, then cl. (c) of the Explanation to s. 115JA would become completely inoperative and otiose, which was not the intention of the legislature." 10.7 In view of the above, the issue is decided in favour of the assessee. Ground fails. 11. Ground Nos. 2 and 3 : These grounds are as under : "On the facts and in the circumstances of the case, the learned CIT(A) has erred : 2. In directing to include duty drawback of Rs. 57,759 in the income of Poata Sahib Unit and to allow deduction under s. 80-IA on the same. 3. In directing to include duty drawback of Rs. 6,96,973 in connection with profit on sale of REP license and to allow deduction under s. 80-IA on the same." 11.1 The issue stands covered by the order of the Tribunal for asst. yr. 1996-97 in the case of assessee itself. Therein the Tribunal has followed the ratio of decision of Delh....
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....ands Research Laboratories Ltd. for asst. yrs. 1995-96 and 1996-97. 12.2 The learned Departmental Representative has challenged this finding of the learned CIT(A) by placing reliance on the order of the AO. 12.3 On the other hand, the learned counsel for the assessee placed reliance on the order of the learned CIT(A). He also made reference to the decision of the Tribunal Mumbai dt. 9th Jan., 2006 in the case of Crosslands Research Lab. Ltd. for asst. yr. 1995-96. The learned counsel for the assessee also placed reliance on the ratio of decisions in the cases of CIT vs. Bansal Credits Ltd. (2003) 179 CTR (Del) 23: (2003) 259 ITR 69(Del); and CIT vs. M.G.F. (India) Ltd. (2006) 206 CTR (Del) 92: (2006) 285 ITR 142(Del). 12.4 We have carefully considered the relevant material on record and the rival submissions. The Hon'ble jurisdictional High Court of Delhi in the case of CIT vs. Bansal Credits Ltd. (supra) has, inter alia, held that assessees which were engaged in the business of leasing out commercial vehicles, were entitled to depreciation at the higher rate of 40 per cent as provided in Item III(2)(ii) of Part A of Appendix I to the IT Rules, 1962. The same view has ....
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....on of the CIT(A) in the case of CRL, the amount received towards principal amounting to Rs. 61,95,562 cannot be taxed. The interest income on the transaction has already been subjected to tax. Accordingly, the addition of Rs. 61,95,562 is deleted." 13.4 The learned CIT(A) has made reference to the decision of the Tribunal in the case of Crosslands Research Lab Ltd. for asst. yr. 1995-96 dt. 9th Jan., 2006 rendered in ITA No. 1479/Mum/1999, a copy of which is available at pp. 44 to 48 of the paper book. 13.5 After going through the entire material on record, we are of the opinion, that the AO was not justified in making addition on protective basis as has been done by him. On the other hand, the approach of the learned CIT(A) is fully justified that only interest component of the lease rental can be brought to tax and not the portion of the principal amount. Accordingly, we uphold the order of the learned CIT(A) on the issue in question and reject ground No. 5 taken by the Revenue. 14. Ground No. 6 : This ground is as under : "On the facts and in the circumstances of the case, the learned CIT(A) has erred : in directing the AO to exclude miscellaneous rece....
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....tion provides that the sale of scrap should be included in the total turnover. Clause 'total turnover' has been defined by way of an Explanation in cl. (ba) of the Explanation below sub-s. (4B) of s. 80HHC. It is explained that the amount of total turnover shall not include freight or insurance attributable to the transport of the goods beyond the Custom station. However, no material is available in the scheme of the Act as to whether such turnover should also include amount realized on sale of scrap or not. It is accepted fact that the assessee is not engaged in the business of sale of scrap. The scrap is generated in the manufacturing process of manufacturing utensils. This is a common business phenomenon in any manufacturing activity. The assessee is not accepted to sell even such scrap outside India where otherwise he is carrying on business as 100 per cent exporter. The Hon'ble Supreme Court observed in the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309: (1975) 98 ITR 167(SC) that the words 'sales', 'turnover', and 'gross receipts' are commercial terms and they have to be construed in a commercial sense and in accordance with gene....
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....er side. The learned CIT(A) therefore substituted purchase price at Rs. 15,63,000 as against Rs. 1,00,03,200. It was submitted before the learned CIT(A) by the assessee that CRL had accepted the order of the learned CIT(A) finally and deposited tax on the disallowance on account of differential cost price. It was pointed out that during the year under appeal, the assessee had received lease rent of Rs. 27,60,000 from KDL on the leased asset. Before the AO, the assessee had claimed that only proportionate lease rent should be taxed at Rs. 4,31,250 (15,63,000/1,00,03,200 x 27,60,000). It was submitted that balance of Rs. 23,28,750 be excluded, since the lease rental was linked to the cost of assets. The learned CIT(A) accepted this contention of the assessee and directed the AO to include only (Rs.) 4,31,250 in the taxable income and to exclude Rs. 23,28,750. His observations are as under : "I have considered this issue. It is noted that the appellant has accepted the order of CIT(A) confirming the action of AO in taking the purchase price of barrels at Rs. 15,63,000 as against Rs. 1,00,03,200. Hence the claim of the appellant that the portion recorded towards principal shou....