TaxTMI 
TaxTMI 
2018 (10) TMI 589
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....18:- 1. Whether under the facts and circumstances of the case and in law the Ld. ITAT has not committed grave legal error in not appreciating that the investment made in the 100% subsidiary companies was out of commercial expediency warranting no interest disallowance? 2. Whether under the facts and circumstances of the case the Ld. ITAT has not legally erred in upholding disallowance on account of interest expenses holding the investments in subsidiary companies and mutual funds to be out of borrowed funds? 3. Whether under the facts and circumstances of the case the Ld. ITAT has not erred in holding that the education cess is a disallowable expenditure u/s 40(a)(ii) of the Act? 4. Whether under the facts and circumstances of the case the Ld. ITAT was justified in not allowing deduction on account of Capital expenses claimed against the sale of mining rights and not reducing the short-term capital gains as directed by Ld. ITAT in Appellant's own case for A.Y.2004-05? In D.B. ITA No.68/2018:- 1. Whether the Tribunal was legally justified in allowing the deduction of Rs. 86,08,460/- to the assessee against the sale proceeds of mi....
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....". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the year 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided. 4.2 He has relied on the following decisions:- (i) In Municipal Corporation of City of Thane vs. Vidyut Metallics Ltd. & ors. (2007) 8 SCC 688, it has been held as under:- 14. So far as the proposition of law is concerned, it is well-settled and needs no further discussion. In taxation-matters, the strict rule of res judicata as envisaged by Section 11 of the Code of Civil Procedure, 1908 has no application. As a general rule, each year's assessment is final only for that year and does not govern later years, because it determines the tax for a particular period. It is, therefore, open to the Revenue/Taxing Authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or ....
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....ess, profession "or vocation in accordance with the provisions of Section 10 of the Act. 6. The road cess and public works cess are to be assessed on the annual net profits under Sections 72 to 76 of the Cess Act 1880. The net annual profits have to be calculated on the average of the net profits for the last three years of the mine or the quarry and if the annual net profits of the property cannot be ascertained in the aforesaid manner then it is left to the Collector to determine the value of the property first in such manner as he considers expedient and determine 6 per cent on that value which would be deemed to be the annual net profits. The Cess Act of 1930 Mows the same pattern so far as the ascertainment of annual net profits is concerned. These profits arrived at according to the provisions of the two Cess Acts can by no stretch of reasoning be equated to the profits which are determined under Section 10 of the Act. It is not possible to see, therefore, how Section 10(4) could be applicable at all in the present case. Thus on the language of the provisions both of the Act and the two Cess Acts the applicability of Section 10(4) cannot be attracted. But ev....
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.... under the head "profits and gains of business or profession". Section 30(b)(ii) is equivalent to Clause (ix) of Section 10(2) of the Act. Section 40(a)(ii) corresponds to Section 10(4) of the Act. It is significant that in spite of the decision of the Privy Council in Gurupada Dutta's case(1) the Parliament did not make any change in the language of the provisions corresponding to Section 10(4). It can, therefore, legitimately be said that the view of the Privy Council with regard to the true scope and ambit of Section 10(4) of the Act was accepted. We are unable to concur in the reasoning or the conclusion of the Calcutta High Court in Commissioner of Income tax, West Bengal, v. West Bengal Mining Co. (2) in which it was held that the two cesses being related to profits would attracts. 10(4) of the Act. (iii) In Installment Supply (P) Ltd. & ors. vs. The Union of India (UOI) & ors. (1962) 2 SCR 644, it has been held as under:- 19. There is another answer to the point of res judicata raised on behalf of the petitioners, relying upon the decision of the Punjab High Court in Installment Supply Ltd., New Delhi v. State of Delhi MANU/PH/0068/1956. It is well s....
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....f mining rights. However there is no finding given by AO. As the order of ITAT was dated 28.07.2011 [after expiry of time for file revised Written] the Assessing Officer should have considered the issue, which he failed to do therefor the same is being considered by me. The Hon'ble ITAT has directed that in case the AO comes to conclusion that the capital expenses amounting to Rs. 1,73,53,860/- included in the cost of mining rights i.e. non-tangible assets then such cost may be considered to be deducted against the sale of mining rights in the assessment year 2009-10. Therefore the assessee was asked to furnished details of these expenses which were included in the mining rights. The assessee submitted that amount of Rs. 87,45,400/- were paid to M/s ANS construction for dismantling of existing structure, fencing of boundary, construction of temp. site office and security in plant area. Firstly from the above nothing could be concluded [no details were produced], secondly it's connection to mining was not proved. From the details already in the order of ITAT it can be concluded that of Rs. 8608460/- related to deep excavation and road wor....
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.... of or otherwise on the basis of any such profits or gains. It is evident that nowhere in the said section it has been mentioned that education cess is not allowable. Education cess is neither levied on the profits or gains of any business or profession nor assessed at a proportion of, or otherwise on the basis of, any such profits or gains. (2) That in CBDT Circular No. 91/58/66 ITJ (19), dated May 18, 1967 it has been clarified that the effect of the omission of the word "cess" from section 40(a)(ii) is that only taxes paid are to be disallowed in the assessment for the years 1962- 63 onwards. Thus, as per the said circular, Education cess cannot be disallowed; there cannot be a contradiction as the circulars bind the tax authorities. (3) That education cess cannot be treated at par with any "rate" or "tax" within the meaning of section 40(a)(ii) especially when the same is only a "cess" as may also be seen from the speech of the hon'ble Finance Minister while placing before the Parliament the budget for the year 2004-05 ([2004] 268 ITR (ST.) 1,6). "Education. 22. In my scheme of things, no issue enjoys a higher priority than providing....
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.... is Rs. 0.90 and if education cess were to be deductible from profit, such profit (after such deduction) would become Rs. 99.1 (100-0.9) which would again necessitate recomputation of Income-Tax which would now be 30% of Rs. 99.1 i.e. Rs. 29.73 and also recomputation of Education cess which would be Rs. 0.89. The vicious circle of such recomputation would continue, which is why legislature in its wisdom has not allowed deductibility of amounts calculated at a proportion of profits. 4. Mechanism of recovery of unpaid Education cess: In case of unpaid education cess, Assessing Officer will raise demand of Income Tax and convey the same to 'assessee' vide notice of demand u/s 156. In case, the said demand is not paid during the notice period of 30 days of service of notice u/s 156, interest on such demand is chargeable u/s 220(2). In addition, the assessee is also liable for imposition of penalty u/ s 221. The wordings of sec 221(1) are as follows: "When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under subsection (2) of secti....
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....subsidiary of the assessee. It would be pertinent to note here that the dividend from this company would not be exempt u/s 10(34). The Chambal Infrastructure Ventures Limited as a Special Purpose Vehicle and wholly owned subsidiary of the assessee i.e. a 100% subsidiary. This subsidiary is engaged in development and setting up of power projects. As desired by your goodself, please find enclosed herewith copy of relevant bank accounts reflecting above investment (Page no.3 to 12). Further, this is to submit that the investment have been made out of the internal of the Company." Reliance is also placed on the judgment of the Hon'ble Supreme Court in the case of S.A. Builders Vs. CIT 288 ITR 1 (S.C.) observing that assessee is required to prove commercial expediency to make interest free advances investments in order to justify its claim for interest on borrowed funds. There is clear cut, direct and proximate nexus between interest bearing borrowed funds and nil income earning investments made by assessee. Further, the assessee has failed to prove that there was any commercial expediency to make investments in above said subsidiary companies. The as....
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....e intended to check the claim of allowance of expenditure incurred towards earning exempted income in a situation where an Assessee has both exempted and non-exempted income or includible or nonincludible income. While there can be no scintilla of doubt that if the income in question is taxable and, therefore, includible in the total income, the deduction of expenses incurred in relation to such an income must be allowed, such deduction would not be permissible merely on the ground that the tax on the dividend received by the Assessee has been paid by the dividend paying company and not by the recipient Assessee, when Under Section 10(33) of the Act such income by way of dividend is not a part of the total income of the recipient Assessee. A plain reading of Section 14A would go to show that the income must not be includible in the total income of the Assessee. Once the said condition is satisfied, the expenditure incurred in earning the said income cannot be allowed to be deducted. The Section does not contemplate a situation where even though the income is taxable in the hands of the dividend paying company the same to be treated as not includible in the total income of ....
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....d as exempt income u/s 10(35) of the Act. The investments in the Mutual Funds were made out of the surplus short term funds available within the business during that period. There were no specific/direct borrowings for the investment. The copy of the bank statements reflecting entries relating to investment in the Mutual Funds were duly submitted during the course of assessment proceedings. A copy of the same is also annexed herewith at Annexure 5. As surplus fund were invested in the Mutual Funds, the appellant did not incur any interest expenditure relating thereto. The investment in Mutual Funds was based on the availability of surplus fund. The assessee would never borrow at prohibitive interest rates and invest to earn a meager 9% odd. It is further submitted that the major investment in the Mutual Funds were made during December 2008 to March 2009 from the HDFC Bank Account and the bank has charged cash credit interest of only Rs. 3,87,800/- during the period from December 2008 to March 2009. However, the L'd Assessing Officer calculated notional interest based on the period of holding of the security without considering the actual interest paid during the relevant p....
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....sufficient for our purposes that the institution has been held to be religious and that aspect is no more in dispute in view of the frame of the question. 3. Smith Kline amp; French (India) Ltd. and Ors. vs. Commissioner of Income Tax [1996 ]219ITR 581 (SC ) 7. We are unable to see as to how these observations help and assessee herein. Firstly, it may be mentioned, Section 10(4) of the 1922 Act or Section 40(a)(ii) of the present Act do not contain any words indicating that the profits and gains spoken of by them should be determined in accordance with the provisions of the Income Tax Act. All they say is that it must be a rate or tax levied in the profits and gains of business or profession. The observations relied upon must be read in the said context and not literally or as the provisions in a statute. But so far as the issue herein is concerned, even this literal reading of the said observations does not help the assessee. As we have pointed out hereinabove the surtax is essentially levied on the business profits of the company computed in accordance with the provisions of the Income-tax Act. Merely because certain further deductions (adjustments) are....
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....s Private Limited vs. Commissioner of Central Excise, Guwahati AIR 2017 SC 5299 21. Even otherwise, we are of the opinion that it is more rational to accept the aforesaid position as clarified by the Ministry of Finance in the aforesaid circulars. Education Cess is on excise duty. It means that those Assessees who are required to pay excise duty have to shell out Education Cess as well. This Education Cess is introduced by Sections 91 to 93 of the Finance (No. 2) Act, 2004. As per Section 91 thereof, Education Cess is the surcharge which the Assessee is to pay. Section 93 makes it clear that this Education Cess is payable on 'excisable goods' i.e. in respect of goods specified in the first Schedule to the Central Excise Tariff Act, 1985. Further, this Education Cess is to be levied @ 2% and calculated on the aggregate of all duties of excise which are levied and collected by the Central Government under the provisions of Central Excise Act, 1944 or under any other law for the time being in force. Sub-section (3) of Section 93 provides that the provisions of the Central Excise Act, 1944 and the Rules made thereunder, including those related to refunds and duties etc....