TaxTMI 
TaxTMI 
2021 (6) TMI 202
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....d for creating any capital asset but was used to pay salary to the director." 3. "On the facts and the circumstances of the case and in law, the learned CIT(A) erred in relying on the case law in the case of CIT vs. Deutsche Post Bank Home Finance Ltd. [2012] 209 Taxman 313 (Delhi) as the case law applies to money received from holding company to recoup losses and not applicable to money received for paying salary of directors in contravention of the company act, 2013." 4. "On the facts and the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of loss on forward contracts of Rs. 74,306/-without appreciating the facts that no benefit of adjustment of income or gain on account of mark to market losses or gain will be given as per the CBDT instruction No.3/2010." 3. Apropos ground No.1 Brief facts on the issue are that provision for leave salary was disallowed by the Assessing Officer by holding that the leave salary is contingent in nature. The Assessing Officer observed that the leave salary may or may not be encashed by the employees in future date as some of the employees may actually take leave. Hence he made the disallowance of the....
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....ecided in favour of the appellant and the disallowance of leave salary of Rs. 30.02.616/- is deleted. 5. Against the above order revenue is in appeal before us. 6. Having heard both the parties and perused the record, we find that the issue is duly covered in favour of the assessee by the decision of ITAT referred by the Ld.CIT(A) as above. No contrary decision was brought to our notice. Hence, we are uphold order of Ld.CIT(A). 7. Apropos ground No. 2 and 3 Brief facts on this issue are that the assessee company was required to make payment to its Directors. Due to the constraints of provisions of Companies Act with regard to managerial remuneration it could not pay more than Rs. 48 lakhs. Hence, it received a grant of Rs. 2,27,74,314/- from its holding company M/s Grasim Industries Ltd. It had adjusted the remuneration paid Rs. 2.76 crores against it. It only claimed the balance Rs. 48 lakhs remuneration paid by debit to the P&L account. However in computation of income it reduced the entire remuneration from its income without offering the grant as income. During the course of assessment proceedings, the Id Assessing Officer asked the assessee as to why not the grant should ....
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.... return. This observation was made despite noting that the grant was claimed as exempt and its utilisation was claimed by the assessee as its deduction from taxable income. 10. Ld.CIT(A) referred to following decisions:- i. Hon'ble Supreme court in Siemens Public Communication Network (P.) Ltd. Vs. CIT[2017] 390 ITR 1 (SC) ii. Hon'ble Delhi High Court in CIT v Deutsche Post Bank Home Finance Ltd. [2012] 209 Taxman 313 (Delhi) 11. Referring to the above decision Ld.CIT(A) deleted the disallowances holding as under:- "8.9 Thus, Courts have held that if the grant from holding company was to recoup losses and safeguard their interest in the subsidiary, it ought to be taxed as a capital receipt. In the present case, although the appellant company is not making a loss, the grant was used to meet the operational expenses of the appellant company. The grant was towards ensuring that business is continued and to ensure survival of business. Thus, the grant was to safeguard the holding company's interest in the appellant company. As per Schedule XIII of the .Companies Act 1956, the appellant could pay a maximum remuneration of Rs. 48 lakhs to its Director. Hence, the appellant ....
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....tted that in the case laws referred by learned CIT(A), the holding company was giving amount to its subsidiary companies i.e. the assesse's who were loss making companies. Hence, the amount was received for the survival of the companies and recovery of loss. He submitted that in the present case assessee has made a profit of Rs. 12.77 crores and hence facts are different. 15. Learned Counsel of the assessee submitted that the amount was received from the holding company to pay director remuneration as the assessee was not in a position to pay in excess of Rs. 48 lakhs as per the provisions of the Companies Act. He further submitted that the Assessing Officer has treated the same as income taxable under section 56 without specifying any section. That section 56 of the Act as it stood for assessment year did not contain any provision to tax capital grant. That section 56 was amended by the Finance Act w.e.f. April, 2017. It inserted sub-section 56(2) thereby widening the scope of income from other sources from A.Y. 2013-14 and the law as it stood during the year the same was not within the ambit of section 56. Furthermore, he placed reliance upon the Hon'ble Supreme Court decisi....
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.... the provisions of the Companies Act, assessee company could pay only Rs. 48 lakhs. The remuneration payable was Rs. 2.76 crores. So assessee received fund from the holding company to pay the balance i.e. Rs. 2.27 crores. The assessee accounted for the amount so received as grant and debited the remuneration paid against the said grant. Only the balance i.e. income of the remuneration paid over grant received was claimed in the profit and loss account. Thus the debit to profit and loss account was only Rs. 48 lakhs remuneration paid. However in computation of income it reduced the directors remuneration paid out of the grant as its deduction from profit. Thus it has deducted Rs. 2.27 crores remuneration paid out of grant from total income without offering the equivalent grant as income. Thus without taking credit of the sum received the company deducted the payment out of it from its income. 19. We find that the aforesaid conduct is unsustainable. The contention of the assessee is that the said sum was received from holding company to enable it to pay directors remuneration beyond the limits prescribed by the Companies Act. Hence, the same is not an income but a capital grant. Thi....
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....iew of the matter in our considered opinion CIT(A) has completely erred in this regard. The amount received from the holding company cannot be allowed to be treated as exempt if the utilisation out of it is allowed as deduction from the total income chargeable to tax. The assessee cannot treat the grant as its not taxable income and at the same time claim utilisation out of it as a deduction from total income. Hence, we are of the considered opinion that the sum of Rs. 2.27 crores has been rightly brought to tax in as much as its utilisation as remuneration has been claimed and allowed as deduction. The effect of this addition/disallowance is assessee's dubious act of not having claimed the expenditure/utilisation of grant ostensibly though profit and loss account but claiming it though deduction in computation of income surreptitiously is nullified. Hence, we set aside the orders of learned CIT(A) and allow the Revenue's appeal on aforesaid reasoning. 21. Apropos ground No.4 In this case, the appellant entered into export sale transportations for sale of yarn/fabrics/textiles. As per the contracts, it was to receive a sum in US dollars on a future date. In order to safeguard itse....