AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2017 (10) TMI 1380
X X X X Extracts X X X X
X X X X Extracts X X X X
....lding which is not permissible in law? 2. Whether on the facts circumstances of the case the Tribunal was justified in allowing the claim of depreciation @ 60% on EDP Equipments treating the same as the computer equipments though depreciation is permissible only @ 15% because EDP equipments are physical structures not computers. 3. Whether in the facts and in circumstance of the case the Tribunal was justified in law in deleting specific disallowances under section 43B(f) being provision for leave encashment? 4. Whether on facts and circumstance of the case Tribunal was justified in law in deleting the disallowance of Rs. 1,45,25,700/- u/s 14A read with Rule 8D through the assessee failed to prove that the investment in Mutual Fund was not having any nexus with the funds on which interest was paid by the assessee?" 2. Appeal No. 124/2010 Admitted on 10.08.2011 "(i) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in allowing the claim of respondents for capitalising the expenditure incurred for the period of prior to incorporation and existence of business? (ii) Whether in the facts and circumstances of the case Hon'ble ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ciation in the revised return with the intention to evade payment of duty deliberately? 2. Whether the order passed by learned Tribunal can be said to be sustainable as due to the fact of para-phrasing of the order passed by the CIT(A) and it does not show that the Tribunal has applied its mind?" 7. Appeal No. 17/2011 Admitted on 10.08.2011 "(i) Whether on the facts and circumstances of the case the Hon'ble ITAT was justified in allowing the claim of depreciation of public roads, treating the same as building? (ii) Whether Hon'ble ITAT was justified in allowing the claim of depreciation at the higher rate of 60% classifying the plant and machinery as EDP Equipment as computer equipment instead of plant and machinery entitle for 15% rate?" 4. The facts of the case are that case of the assessee was picked up for scrutiny assessment and the assessment under section 143(3) of the Income-tax Act, 1961 was framed vide order dated 29th March, 2013. While framing the assessment, the Assessing Officer made various disallowances and additions on account of depreciation of Rs. 29,71,10,536/- claimed on road and depreciation of Rs. 15,08,068/- claimed on EDP Equipments, disallow....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... From examination of depreciation chart it is noted that assessee has claimed depreciation of Rs. 29,71,10,536/@10% on account of road, treating the same as building. During the course of the assessement proceeding, it was asked to the assessee as to why the depreciation claimed at road should not be disallowed by the following decision of the Apex Court in the case Indore Municipal Corporation (2001) (247ITR803). 5. Depreciation on tolling & HTMS Machines (EDP Equipments) :- The assessee has claimed depreciation of Rs. 15,08,068/- on the W.D.V of certain equipments shown as EDP euipments (Electronic data processing equipments). The rate of depreciation has been applied at 60%, by treating these equipments equivalent to Computer and Software. It is pertinent to mention here that in the original return file for the assessment year 2006-07 these machinery had been shown under normal Plant & Machinery block. However, in the revised return filed for A.Y. 2006-07, equipments amounting to Rs. 9,54,15,351/- out of the same was placed under the 60% depreciation block by showing these as EDP equipments. 5.1 He contended that the view taken by the AO is required to be upheld and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rendered by him as the Central Government may, by notification in the Official Gazette, specify having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of such agreement. 5.3 He contended that the interpretation which has been put forth by the tribunal is contrary to the Act and the same is required to be quashed and set aside. 5.4 He has further taken rescue to Sec. 32 and explanation 1 of Section 32 of the IT Act as well as definition of Sec.2 Sub Section (2) which reads as under: 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks,licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) in the case of assets of an u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed. Explanation.-For the purposes of this proviso,- (a) the expression "commercial vehicle" means" heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller"; (b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor cab", "tractor" and "road roller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988): Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent of the amount ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this Table] (1) Buildings which are used mainly for residential purposes except hotels and boarding houses (2) Buildings other than those used mainly for residential purposes and not covered by sub-items (1) above and (3) below (3) Buildings acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infrastructure facilities under clause (i) of sub-section (4) of section 80-IA (4) Purely temporary erections such as wooden structures III. Machinery and Plant (6) Machinery and plant, used in weaving, processing and garment sector of textile industry, which is purchased under TUFS on or after the 1st day of April, 2001 but before the 1st day of April, 2004 and is put to use before the 1st day of April, 2004 [See Note 8 below this Table] 5.6 He has also taken us to the note which is appended thereto which reads as under:- 8. "TUFS" means Technology Upgradation Fund Scheme announced by the Government of India in the form of a Resolution of the Ministry of Textiles vid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE Class of asset Depreciation allowance as percentage of- (i) actual cost in the case of ocean-going ships; (ii) written down value in the case of any other asset Remarks 1 2 3 I. BUILDINGS- 1. General rate 5 "Buildings" 2. Special rate in respect of factory buildings (excluding offices, godowns, officers' and employees' quarters, roads, bridges, culverts, wells and tube wells) 10 100 - Include roads, bridges, culverts, wells and tubewells.] 3.] Purely temporary erections such as wooden structures 4.] In respect of any structure or work in or in relation to a building referred to in subsection (1A) of section 32,- (a) where such structure is constructed or such work is done by way of renovation or improvement to any such building (b) where the structure is constructed or the work is done by way of extension to any such building The percentage specified against sub-item [1, 2 or 3] as may be appropriate to the class of building in or in relation to which the renovation or improvement is effected; The percentage specified against sub-item....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount of cost of construction of metal roads on trenching grounds - Hence, this Appeal - Whether, judgment of High Court was liable to be set aside - Held, roads were constructed to approach about 500 trenches for dumping waste and night soil in trenches and transporting processed manure - There was no other construction except roads- Therefore, it could not be said that roads by themselves would constitute buildings." 5.13 He contended that the construction of road will not be completed as envisaged by the Supreme Court while interpreting the judgment referred above. 6. Mr. Ranka, Sr. Counsel for the respondent while reiterating the facts has contended that regarding question no.1 for capitalizing the expenditure incurred for the period prior to incorporation of Rs. 5.15 Crores, a consortium consisting of (i) GVK International NV, a limited liability Company incorporated in Netherlands Antilles, having its registered office at Chughubiweg 17, Curacao, Netherlands, Antilles, and Indian Office at Kohinoor Road No.1, Bajara Hills, Hyderabad, India (hereinafter referred to as 'GVK') and (ii) M/s. Leighton of Australia, through their Indian subsidiary Leinghton Contractors (India)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ithin six months after the date of signing of the Concession Agreement with NHAI or in any case before the final closure of the project. The said amount was to be paid by GVK through Special Purpose Vehicle (SPV) to be formed by the Consortium for the implementation of the project. 6.2. It is contended that the Government of India in the Ministry of Surface Transport (hereinafter referred to as "MOST") had authorized NHAI for the strengthening of existing 2- Lanes from Km. 273/500 to 363/885 on the Jaipur-Kishangarh Section of the National Highway No. 8 ("NH-8") in Rajasthan, India and construction and widening thereof to six lanes and its operation and maintenance through a concession on Build, Operate and Transfer ("BOT") basis and has by its Notification No. RW/NH-37011/34/97- do-I DATED July 7, 1998 issued pursuant to Section 11 of the National Highways Authority of India Act, 1988 vested the said stretch of NH-8 in NHAI as set forth in the said Notification dated July 7, 1998. NHAI had accordingly invited proposals for short listing of bidders for the aforesaid under its Notice inviting Proposals No. NHAI/12011/17/97-PI dated May 3, 2000 ("the Tender Notice"), inter alia, f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... consortium, based on the field work done and preparation of tender forms and incidental ancillary ground/research work done by Novapan, submitted the tender. After evaluation of the bids so received NHAI accepted the bid of the consortium and issued its letter of acceptance NO.NHAI/12011/17/97PI/IX/495 dated March 1, 2002 ('LOA') to the consortium requiring inter alia, the execution of the Concession Agreement within 45 days of the date thereof. The Concession Agreement could be entered into only on account of continuous output, assistance and efforts of Novapan. It was a condition imposed by NHAI to promote and incorporate limited liability Company in the form of a Special Purpose Vehicle (SPV) for executing the Concession Agreement. In the Memorandum and Articles of Association main object of this project has been specified and the Assessee Company has been constituted for the project. The consortium has promoted and incorporated the concessionaire as a limited liability Company to enter into the Concession Agreement pursuant to the LOA for undertaking, inter-alia, the design, engineering, financing, procurement, construction, operation and maintenance of the project highway, as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Company; (ii) The expenses pertained to years 1999 to 2000, before coming into existence or before being awarded the contract. 6.9 It is contended that Novapan is a public limited Company listed at the Bombay Stock Exchange. GVK Capital and finance is a Limited Company. The Assessee Company is not a shareholder of the said companies nor are the said companies shareholder of the Assessee Company. The ld. A.O. has not spelt out as to how the said companies are 'related concerns'. It is only a casual observation. He submited that no disallowance could be made on payment to the said companies when the said companies are distinct, independent, separate, have rendered services, have been assessed and have paid tax on such income. 6.10 He has contended that for the said services rendered by the said two companies over three years, no bid could have been successfully submitted by the consortium and Concession Agreement would not have been entered into between NHAI and the Assessee Company, resulting in the income under assessment. Hence, it was cost to be capitalized. The impugned expenditure is solely related to and was incurred for purposes of business. The liability was incurred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enditure is found to be of capital nature and the amount of Rs. 5,17,50,000/- i.e. Rs. 4,65,00,000/- and Rs. 52,50,000/- paid to Novapan Industries Ltd. and GVK Capital and Finance Ltd. respectively, by virtue of it being incorporated as a "Special Purpose Vehicle" and entrusting with the rights and obligations for a successful bid by the erstwhile consortium together with the liabilities is held to be the expenditure of capital in nature in the hands of the appellant company. 8.1 It is argued that Payees have been assessed on such payments. Creation of "SPV" was a condition precedent in Letter of Intent issued by NHAI. Memorandum contains the clause. Otherwise also the business/commercial rights acquired are "intangible assets" as contained in Section 32(1)(ii) of the Act. 9. With regard to Question No.2 for Capitalizing expenditure on tree cutting etc. of Rs. 4.11 Crores, It is contended that in terms of the agreement with the NHAI, the Assessee Company had to do the followings:- (i) Cleaning of the ground, cutting of trees, removal of stumps etc. of about 12,000 trees with girth above 300 mm and its removal from the project site. (ii) To demolish existing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lls and details being on record. 9.5. He pointed out the various works executed and paid to BSCPL which reads as under:- (i) Towards Scope detailed at 'a-f' above, Rs. 7,52,23,769. (ii) Towards KU-1 Merging Rs. 30,00,000. It is a new connecting 2 lane road for a small patch between the Project High Way 90.385 KM ending at Kishangarh and the start of the Road (NH-79) going to Nasirabad. It is totally different work unconnected with the work detailed at 'a-f' above. (iii) Towards construction of slip lane at Kishangarh Trumpet interchange Rs. 29,76,636/-, again unconnected with the work detailed at 'a-f' above. (iv) Towards false ceiling in Toll Plaza Building Rs. 2,02,858, which was not specified in the original scope of EPC Contract again unconnected with the work detailed at 'a-f' above. (v) Towards change of Roofing of Bus shelters across 90.385 KM Road, from asbestos to FRP sheets Rs. 8,83,840, again unconnected with the work detailed at 'a-f' above. 9.6 However, he contended that the Assessing Officer attributed the total amount of Rs. 8,22,87,103 paid to BSCPL towards Tree cutting, trumping and transportation and disallowed 50% i.e. Rs. 4,11,43,551/-. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m was of Rs. 8,22,87,103 for tree cutting, trumping and removal of debris etc. The AO disallowed 50% on ad hoc basis. The CIT (Appeals) found base of disallowance wrong. But he restricted the disallowance to Rs. 1,73,90,250. 10.4 It is further contended that the variation of price and the quantity in the work order and its schedules enclosed therewith have been properly explained by the assessee as the assessee had led evidence before the lower authorities to justify the payment for higher quantities from the work schedule as in a situation the assessee is placed particularly when due exercise with precision cannot be undertaken before making work schedules in view of wide stretch of work done across 90 Kms. and most difficult access to the existing houses, religious structures etc. to precisely measure the removable projects. 10.5 He also contended that the expenditure was part of the project and work had to be executed. It was approved by NHAI also. Hence it is appreciation of evidence on material on record. It is a question of fact. Onus stands discharged. 10.6 He relied on the judgment in Addl. C.I.T. Vs. Noor Mohd. & Co. and Others (1974) 97-ITR- 705. 11. With ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and resultant less to company is recovered from the Toll Collector. (c) Vehicles without paying Toll: Vehicles exempt under the concession agreement are photographed and documents collected by Toll Collector are also processed and reports generated. (d) Reparting: Various contractual reports under the concession agreement and reports required for internal monitoring and decision making are also generated. 11.2. He further invited our attention towards Highway Traffic Management System (HTMS) which lays down as under:- (a) Computers and data processing is extensively used for Emergency Communication by road users across 90 Kms. Highway (45 emergency call boxes connected to Computer) and a Central Server for Accident and incident management. (b) At two locations the data relating to weather, wind speed, visibility etc is compiled and transferred to the computers in the Control Room. (c) Electronic Variable Message Display Boards are installed at 6 locations (12 Boards), which are remotely operated and controlled through computers, by processing and displaying pre-stored data/messages. (d) The communication network across 90 Kms....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ownership and making income of such assessee as income from house property liable to be taxed in their hands though they might not be having any legal title as contained in the Transfer of Property Act. He contended the the ld. A.O. has ignored the change in law from 1.4.1988 and the philosophy contained in the amendments/insertions. 12.1 He invited our attention to the concession agreement on the followings points:- • Article 3.1 - exclusive right, license and authority during the subsistence of the agreement; • Article 3.2 - the concession granted shall entitle to enjoy, to develop, design, engineer, finance, procure, construct operate and maintain the project Highway during the concession period. • Article 6 & 7 - concession fee and excess revenue sharing. • Article 10 - obligations of NHAI Article 10.1 (i), (ii) - Access to site and peaceful use. Article 18 - Operation and Maintenance, • Article 32 - Termination. • Article 32.5 - NHAI shall take possession and control of the project, any materials, construction plant, implements, stores etc. • Article 33 - Divestment of rights and inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e two owners of the property simultaneously and in the same sense of the term. The intention of the legislature in enacting sec. 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not sub serve the legislative intent'. (Emphasis supplied). 12.5 It is contended that the ld. AO has also referred to the Explanation 1 below sec.32 (1) of the Act but has not given due weight to the expression 'other right of occupancy'. Hence mere occupancy makes entitled to depreciation. Though the assessee was not a lessee but was a licensee with right to possess, built, operates earn income and to transfer the asset so built in favor of NHAI on the expiry of the specified period. He contended that on termination even transfer deed has to be executed by the assessee in favor of NHAI because the ownership over the project built/constructed by the assessee vests in the assessee, not in NHAI and the assessee would be divested by proper d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... said ratio is inapplicable. In that case there was no other construction except the roads. Further in that decision, he submitted that the note to the schedule was not considered / as it did not exist during the year in question. He contended that admittedly, the ownership over the asset would be required to be transferred by the appellant company to NHAI by documentation and thereafter the appellant company shall be divested of its ownership without any consideration. It may further be mentioned that if the concession agreement is terminated by NHAI before the specified period, the appellant company shall become entitled to receive its value/compensation. 13. He contended that the decision of the Hon'ble Supreme Court in the case of Indore Municipal Corporation vs. CIT (Supra) would not be in conformity with the amended law. He further submitted that the appendix 1 applicable for assessment year 1984-85 to 1987-88 did not mention in the notes that building includes roads, bridges, culverts, wells and tube wells. In the latter appendices which is applicable from assessment year 1988-89 to 2002-03 and 2005-06 and the latest appendices which is applicable for the A.Y. 2006-07. He....
X X X X Extracts X X X X
X X X X Extracts X X X X
....swered unless it is first determined whether these two amounts were held by the assessee on capital account or on revenue account or to put it differently, as part of fixed capital or of circulating capital. We would have ordinarily, in these circumstances, called for a supplementary statement of case from the Tribunal giving its finding on this question, but both the parties agreed before us that their attention was not directed to this aspect of the matter when the case was heard before the Revenue Authorities and the Tribunal and hence it would be desirable that the matter should go back to the Tribunal with a direction to the Tribunal either to take additional evidence itself or to direct the Income Tax Officer to take additional evidence and make a report to it, on the question whether the sums of Rs. 25 lakhs and Rs. 12,50.000/- were held in West Pakistan as capital asset or as trading asset or in other words, as part of fixed capital or part of circulating capital in the business. The Tribunal will, on the basis of this additional evidence and in the light of the law laid down by us in this judgment determine whether the loss suffered by the assessee on remittance of the two....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n in other appeals, which are heard together along with the appeal of the assessee, and the further fact that assessee's appeal is not disposed of before July 15, 1972 would not take the case of the assesses out of the purview of Motion 5. We would, therefore, hold that the case of the assessee in civil appeal No. 1784 is covered by Section 5 of the amending Act. 3. Calcutta Company Ltd. vs. The Commissioner of Income Tax, West Bengal (12.05.1959 - SC), (1959) 37-ITR-1 (SC) 29. The High Court in disallowing the claim of the appellant in the present case only considered the provisions of s. 10(2)(xv) of the Act and came to the conclusion that on a strict interpretation of those provisions the sum of Rs. 24,809 was not an allowable deduction. Its attention was drawn by the learned Counsel for the appellant to the provisions of s. 10(1) of the Act also but it negatived this argument observing that under the Indian Act, the profits must be determined by the method of making the statutory deductions from the receipts and any deduction from the business receipts, if it was to be allowed, must be brought under one or the other of the deductions mentioned in s. 10(2) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er such Acts would be completed by the time bonus has to be paid. Therefore, the Tribunal would not have before it the taxable income assessed by the Incometax Officer and other such officers. If the unions' contention were to be right, there would be two or more parallel authorities working under this Act and the Income-tax Act and other such Acts who would have to assess taxable income and the tax payable thereon, before all of whom the employer would have to prove his taxable income. Prima facie, it would seem that the Bonus Act could not intend an enquiry into the actual taxable income worked out under all the elaborate provisions relating to deductions, allowances, reliefs, rebates, etc., provided by the Income-tax Act and other such Acts. This is particularly so as in each bonus dispute the Tribunal not equipped with the detailed knowledge of all such Acts would have to undertake an enquiry into the various deductions, rebates, reliefs, etc., claimable by the employer under those Acts. The fact that payment of bonus cannot brook delay without causing hardship to labour would seem to militate against the possibility of such prolonged enquiries. 36. The key to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....profits of the employer are taxed under the Income-tax Act and other such Acts during the accounting year in question. That is the reason why section 6(c) has the words "is liable for " and the words "income, gains and profits". These words do not, however, mean that the Tribunal while computing direct taxes as a prior charge has to assess the actual taxable income and the taxes thereon. How can the Tribunal arrive at the amount of bonus to be paid to labour without first estimating the amount of taxes and deducting it from the gross profits and thus ascertaining the available surplus ? If it were to reverse the process and first deduct bonus and ascertain the tax amount, it would have to do so on a somewhat ad hoc figure thus bringing about the same result deprecated by this court in decisions referred to above. This and the other difficulties already pointed out must lead to the result that the Tribunal must estimate the amount of direct taxes on the balance of gross profits as worked out under sections 4 and 6, but without deducting the bonus, then work out the quantum of taxes thereon at rates applicable during that year to the income, gains and profits of the employer and afte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of depreciation amount, the Tribunal will ascertain the amount afresh after giving the parties opportunity to lead such evidence as they desire and taking that amount and the amounts of development rebate and of the provision for gratuity in the light of this judgment, the Tribunal will adjust its award and arrive at the quantum on bonus payable to the workmen. 5. Bharat Earth Movers vs. Commissioner of Income Tax, Karnataka (09.08.2000 - SC), 245-ITR-428 4. The law is settled if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in present though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 5. In Metal Box Company of India Ltd. v. Their Workme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....discharged at a future date. There may be some difficulty in the estimation there of but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. 7. Applying the above said settled principles to the facts of the case at hand we are satisfied that provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. 6. M/s. Madras Industrial Investment Corporation Ltd. vs. The Commissioner of Income Tax, Tamil Nadu-I, Madras (04.04.1997 - SC), 225-ITR-802 The department disallowed this expenditure. Upholding the claim of the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 9. Commissioner of Income Tax, Chennai vs. Bilahari Investment (P) Ltd. (27.02.2008 - SC) 299-ITR-1 16. In the judgment of the Bombay High Court in Taparia Tools Ltd. (supra) it has been held that in every case of substitution of one method by another method, the burden is on the Department to prove that the method in vogue is not correct and it distorts the profits of a particular year. Under the mercantile system of accounting based on the concept of accrual, the method of accounting followed by the assessees is relevant. In the present case, there is no finding recorded by the AO that the completed contract method distorts the profits of a particular year. Moreover, as held in various judgments, the Chit Scheme is one integrated scheme spread over a period of time, sometimes exceeding 12 months. We have examined computation of tax effect in these cases and we find that the entire exercise is revenue neutral, particularly when the scheme is read as one integrated scheme spread over a period of time. 17. As stated above, we are concerned with assessment years 1991-1992 to 1997-1998. In the past, the Department had accepted the completed contract method an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....antile system of accounting, income and outgo are accounted for on the basis of accrual and not on the basis of actual disbursements or receipts. For the purposes of computation of profits and gains of business and profession, the IT Act defines the word 'paid' to mean 'actually paid or incurred' according to the method of accounting on the basis of which the profits or gains are computed. 60. Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees State Insurance Scheme, etc., for long periods of time, extending sometimes to several years. For the purpose of their Income Tax assessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand, they dispute the liability and do not discharge the same. For some reason or the other undisputed liabilities also are not paid. To curb this practice, it is proposed to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force (irrespective of whether s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e avails the leave earned by him or her. That, in our view, could not have any nexus with the original enactment. An employer is entitled to deduction for the expenditure he incurs for running his business which includes payment of salary and other perquisites to his employees. Hence, it is a trading liability. As such he is otherwise entitled to have deduction of such amount by showing the same as a provisional expenditure in his accounts. The legislature by way of amendment restricts such deduction in case of leave encashment unless it is actually paid in that particular financial year. The legislature is free to do so after they disclose reasons for that and such reasons are not inconsistent with the main object of the enactment. We are deprived of such reasons for our perusal. Mr. Banerjee, appearing for the Revenue, could not enlighten us on that score. We also do not find such enactment consistent with the original provision being Section 43B which was originally inserted to plug in evasion of statutory liability. The apex Court considered the situation in the case of Bharat Earth Movers (supra), when Clause (f) was not there. The apex Court, considering all aspects as disclo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the case of Bharat Earth Movers (supra). 11. Commissioner of Income Tax vs. Siwakami Mills Ltd. (04.02.1997 - SC) 4. The question is regarding the deduction of interest on deferred payment and guarantee commission paid to the bank. The High Court followed its earlier decision in Sivakami Mills Ltd. v. CIT : [1979]120ITR211(Mad) and answered the question in favour of the assessee. "we may observe that the various decisions bearing on capitalisation of business expenditure have arisen in the different contexts of determining what the actual cost to any given assessee was of items of depreciable machinery, plant, etc., acquired by him. Such expenditure considered for capitalisation might itself be expenditure of a capital nature or it might be expenditure of a revenue nature. In either case, it would be subject to the principles enunciated in the decisions aforesaid. But those principles have no direct bearing on the question of a claim for a straightforward allowance as an expenditure of a revenue nature in the computation of business profits. Nor is it the law that only those expenses which cannot be capitalised can come in for straight deduction as re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to school and, therefore, it is not a capital expenditure and by incurring this expense the assessee acquired a right from the school for its workmen's children for first point of departure and never the last point of arrival at the mills gate thereby the mill-men's children got first preference in getting into bus, leaving and reaching home in time. This benefited in turn the assessee and has to be, therefore, treated as business expenditure." 5. The motivation of expenditure incurred for acquiring the bus and surrendering it to school has not been found to be other than what has been stated by the assessee i.e., to say the expenses were incurred for the benefit of welfare of the children of staff/workmen of the company as a part of employees' welfare expenses incurred for the purpose of securing healthy services for staff members. Applying the test indicated by this Court in the order referred to above, it is not difficult to reach to the conclusion that the Tribunal was right in holding the expenses to be incurred wholly and exclusively for the purpose of assessee's business and since the assessee has not acquired any asset, it is not capital expenditure....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s power under Section 263 solely on the ground that in the books of accounts it was mentioned as "goodwill" and nothing else. As has been held by the Apex Court in Malabar Industrial Co. Ltd. (supra), Max India Ltd. (supra) and Commissioner of Income Tax v. Vimgi Investment P. Ltd. : [2007] 290 ITR 505 (Delhi) once a plausible view is taken, it is not open to the Commissioner to exercise the power under Section 263 of the Act. 14. M/s Mysore Minerals Limited, M.G. Road, Bangalore vs. The Commissioners of Income Tax, Karnataka, Bangalore (01.09.1999 - SC), 239-ITR-775 14. In our opinion, the term owned as occurring in Section 32(1) of the Income -Tax Act, 1961 must be assigned a wider meaning. Any one in possession of property in his own title exercising such dominion over the property as would enable other being excluded therefrom and having right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title may not have been executed and registered as contemplated by Transfer of Property Act, Registration Act etc. 'Building owned by the assessee' the expression as occurring i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng Board in favour of the assessee, but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee where after the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. It is common knowledge, under the various scheme floated by bodies like housing boards, houses are constructed on large scale and allotted on part payment to those who have booked. Possession is also delivered to the allottee so as to enable enjoyment of the property. Execution of document transferring title necessarily follows if the schedule of payment is observed by allottee. If only the allottee may default the property may revert back to the Board. That is a matter only between the Housing Board and the allottee. No third person intervenes. The part payment made by allottee are with the intention of acquiring title. The delivery of possession by Housing Board to allottee is also a step towards conferring ownership. Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....' so as to entitle the assessee a higher rate of depreciation. 18. Commissioner of Income Tax vs. Noida Toll Bridge Co. Ltd. (08.11.2012 - ALLHC), (2013) 255 CTR 88 21. The depreciation represents the diminution in value of a capital asset when applied to the parties of making profit or gain. The object is to get the true picture of the real income of the business. The respondent-assessee is engaged in the business of constructing roads and bridges. Under the concession-agreement the land is provided on lease initially for a period of 30 years which can be extended. The respondent-assessee company is a special purpose vehicle, engaged in the business of building, infrastructure/roads to generate revenues by collecting tolls to meet the cost of constructions and to earn profits. The construction of road on the leased land is the capital asset of the company, which remains under its ownership for the concession period. The respondent-assessee exercises its full ownership rights on the road which include charging of tolls which is ordinarily a sovereign function. The operation, maintenance and use of the road during the concession period is with the respondent as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation to by way of renovation, extension or for improvement to the building, then the provisions of the Income-tax Act, will apply as if the said structure or work is a building owned by the assessee. Explanation-I may apply to renovation or extension or improvement to the building; the object is to extend the application of depreciation, it such buildings which are not owned by the assessee but in which the assessee holds a lease or other right of occupancy. The present case stands on a better footing, in which the land is held on lease and the road as capital asset has been built on it with exclusive ownership of the road, and the bridge in the assessee-company for the concession period, and which also includes the right to collect lolls and to regulate use of the bridge. Section 32 would, therefore, apply for the purpose of providing depreciation to be worked out in accordance with the law. For removal of doubts the legislature has provided that the building includes roads in Note (1) to Appendix-I providing for the table of rates at which the depreciation is admissible. 19. Commissioner of Income Tax vs. V.G.P. Housing (P.) Ltd. (04.08.2014 - MADHC), 368 ITR 565 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies relating to monies transferred from the assessee-company to the firm. No material has been placed before us, except the said statement made by the learned counsel for the assessee. In any event, that is an issue which has to be decided on facts by the competent authority, by considering the materials that may be produced by the assessee in contradiction to the stand taken by the Department on the basis of the statement made by one of the directors of the assessee. 7.7. In such view of the matter, we hold that the issue relating to deleting the addition on account of drawings of directors should be considered by the Assessing Officer on the merits based on materials to be produced by the assessee. Only to determine this issue, the matter is remanded to the Assessing Officer. 20. Commissioner of Income Tax vs. Jawahar Kala Kendra (18.09.2014 - RAJHC), 362 ITR 515 It was held that Although the claim of depreciation was disallowed by AO and partly allowed by CIT(A) but possession over the property was being enjoyed by assessee and no claim of reclaiming the assets had been made by the State Government subsequent to transfer of the assets to assessee. Mere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct, Registration Act, etc. . . . . . . 6. It is well settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not sub serve the legislative intent. Thus the principle has been settled by the Supreme Court and on the application of the aforesaid principle the answer in the present case to the question raised is self-evident on the facts found by the Tribunal. We, therefore, declined to require the Tribunal to refer the aforesaid question of law to this court notwithstanding that it is being a question of law. 14. We have heard counsel for the parties. 14.1 The interpretation which has been put forward by the counsel for the department that the National Highway is not road, in that view of the matter, the same will not be governed by the Schedule....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of the AO. The ld. CIT(A) has recorded the fact that the AO has disallowed the claim as per provisions of section 43B(f) of the Act and it has been struck down by the Hon'ble Calcutta High Court. In our considered view, the ld. CIT(A) was not justified and acted this issue is set aside. The AO is directed to delete the disallowance in the light of judgment of Hon'ble Calcutta High Court rendered in the case of Exide Industries Ltd. & Others vs. Union of India & Others (supra). Ground no. 1 and 1.1 are allowed. 16.1 We are in complete agreement with the view taken by the tribunal. 17. Regarding issue no.4, the Tribunal observed as under: 6.1. The ld. Counsel for the assessee has reiterated the submissions as made in the written submissions. The ld. Counsel has drawn our attention to page 9 of his written submission where it has tabulated the details related to Own Funds, Borrowed funds & Investment made in mutual funds starting from A.Y. 2005-06. The ld. Counsel submitted that the requirement for this disallowance under section 14A is that first the Assessing Officer has to determine as to whether the assessee has incurred expenditure direct or indirect in rel....