TaxTMI 
TaxTMI 
2021 (4) TMI 1249
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....is busines undertook social activities which may directly or indirectly help his business. The ld. AR submitted that incurring of the expenditure has facilitated to carry on its day to day business activity and such contribution was allowed as expenditure u/s. 37 of the Income-tax Act, 1961 [the Act]. 4. It was submitted that there are certain obligations on the mining companies to improve the living conditions of local communities in order to reduce negative impacts of mining projects on the local community by taking sufficient precautionary measures. the business of the Appellant is closely associated with the society. As the Appellant is into mining, it has to enjoy goodwill of the people in the area in which it operates. It was submitted that an assessee while doing his business may also undertake some social activities which may directly or Indirectly or even remotely help his business. Reliance is placed on the decision of the Hon'ble Karnataka High Court in CIT v. Karnataka Financial Corporation [2010] 326 ITR 355 (Kar. - HC). The relevant extract reads as under: "5. The appeal is admitted to consider the following substantial questions of law : "(i) Whether the appella....
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.... expenses in order to gain the goodwill of the local community. The Appellant is engaged in the business of mines on the land leased by the government, consuming enormous amount of natural resources in the surrounding area. Any support or contribution given by the Appellant for the welfare of the said locality is to be regarded as expenditure incurred wholly and exclusively for the purposes of the business. The Appellant incurred expenditure as part of 'Corporate Social Responsibility' in order to support the social cause by providing financial assistance/ aid to the people residing around the Appellant's mining area. The assessee has incurred this expenditure so as to win the goodwill of the local community. Thus, it was submitted that the said expenditure is an admissible business expenditure under section 37 of IT Act. He relied on the following case laws:- (1) Sri Venkata Satyanarayana Rice Mill Contractors Co. [1997] 223 ITR 101 (SC) (2) CIT v. Infosys Technologies Ltd. [2014] 360 ITR 714 (Kar) (3) Mysore Kirloskar Ltd. v. CIT [1987] 30 Taxman 467 (Kar) (4) CIT v. Madras Refineries Ltd. [2004] 266 ITR 170 (Mad) (5) CIT v. Cheran Transport Corpn. Ltd. [1996] 2....
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....sion it is evident that the Explanation refers to CSR as referred in section 135 of Companies Act, 2013. Thus, the said restriction is applicable only to Companies and not to others. Therefore, the Appellant being an individual the restriction imposed under Explanation 2 to section 37 is not applicable in the instant case. Therefore, it is submitted that the impugned expenses incurred for the purpose of business are an admissible expenditure under Section 37. 8. On the other hand, the ld. DR submitted that the finance minister has announced some tax incentives in the Budget to encourage companies to participate in 'Swachh Bharat Abhiyan' and 'Clean Ganga campaign'. It is announced that the donations (other than the corporate social responsibility or CSR contributions) made to 'Swachh Bharat Kosh' (both by resident and non-resident) and Clean Ganga Fund (by resident) shall be eligible for 100 per cent deduction under section 80G of the Income Tax Act. As per the CSR provisions, Companies have been mandated to spend 2 per cent of their three-year average net profit on CSR under the Companies Act, 2013. The companies are also required to disclose the CSR activ....
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....es of the business is only allowed as a deduction for computing taxable business income. CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. As the application of income is not allowed as deduction for the purposes of computing taxable income of a company, amount spent on CSR cannot be allowed as deduction for computing the taxable income of the company. Moreover, the objective of CSR is to share burden of the Government in providing social services by companies having net worth/turnover/profit above a threshold. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure. The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allow....
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....n section 30 to 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purpose of carrying on business or profession. As CSR expenditure being application of income is not incurred for the purpose of carrying on of business, such expenditure cannot be allowed under the provisions of section 37 of the Act. Therefore, in order to provide certainty on this issue, the said section 37 has been amended to clarify that for the purpose of sub-section (1) of section 37 any expenditure by an assessee on the activities relating to CSR referred to in section 135 of the Companies At, 2013 should not be allowed as deduction under sub-section 37. However, CSR expenditure which is of nature described sections 30 to 36 of the Act, shall be allowed as deduction under this section, subject to fulfillment of conditions, if any, specified therein. But this amendment takes effect from 1.4.2015 and will be applicable in relation to AY 2015-16 and subsequent years. 12. Now the issue before us is whether the department is justified in invoking this Explanation 2 to section 37 to disallow above expenditure incurred by the assessee. Explanation (2) to section 37 reads as foll....
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....Responsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years [or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount [and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year]. [Provided also that if the company spends a....
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....r constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company.] 14. Schedule VII to the Companies Act, 2013 is extracted hereunder:- "SCHEDULE VII (See Section 135) Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:- [(i) Eradicating hunger, poverty and malnutrition, [''promoting health care including preventive health care''] and sanitation [including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water. (ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects. (iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially ....
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....velopment. Explanation.- For the purposes of this item, the term `slum area' shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.] [(xii) disaster management, including relief, rehabilitation and reconstruction activities.]" 15. By going through the provisions of Explanation 2 to section 37, it is evident that the said Explanation refers to CSR expenditure as referred in section 135 of the Companies Act, 2013. Thus said restriction is applicable only to the companies, not others. 16. The ld. DR submitted that Explanation to s. 37 is applicable to assesses including individual assesses like the present assessee. We are not in agreement with the above contention of the ld. DR. While interpreting the word in the section, particularly in the Explanation 2 to s. 37, which are enacted under beneficial legislation, the basic principle that has to be kept in mind is the object and intention of the Legislature for enactment of the Act. If that is kept in mind, then strict technical interpretation of the terms used in the section, detrimental to the main object, can easily ....
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....and the said Explanation is inserted only with effect from 1st April 2015. In this view of the matter also, there is no reason to hold this provision to be retrospective in application. As a matter of fact, the amendment in law, which was accompanied by the statutory requirement with regard to discharging the corporate social responsibility, is a disabling provision which puts an additional tax burden on the assessee in the sense that the expenses that the assessee is required to incur, under a statutory obligation, in the course of his business are not allowed deduction in the computation of income. This disallowance is restricted to the expenses incurred by the assessee under a statutory obligation under section 135 of Companies Act 2013, and there is thus now a line of demarcation between the expenses incurred by the assessee on discharging corporate social responsibility under such a statutory obligation and under a voluntary assumption of responsibility. As for the former, the disallowance under Explanation 2 to section 37(1) comes into play, but, as for latter, there is no such disabling provision as long as the expenses, even in discharge of corporate social responsibility o....
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....ironmental expenses of Rs. 8,87,62,584 which contained a sum of Rs. 8,34,53,792 & Rs. 15,74,62,445 for the AYs 2015-16 & 2016-17 respectively towards 'Special Purpose Vehicle' (SPV) charges being 10% of the net sale of iron ore pad to the Monitoring Committee appointed by the Hon'ble Supreme Court. The said amount was paid to the Monitoring Committee as per the directions of the Supreme Court out of sale proceeds for the purpose of taking various ameliorative and mitigative measures as a compensatory payment towards damaged caused due to the environment and forest due to illegal iron ore mining activities done in Bellary, Chitradurga and Tumkur District. The AO observed that prima facie the said payment found to be in the nature of appropriation of profit and compensatory payment due to contravention of laws and hence he was of the view that such payment cannot be said to be incurred wholly and exclusively for the purpose of business within the meaning of section 37 of the Act. After considering the explanation filed by the assessee, the AO was of the view that the amount retained by CEC/Monitoring Committee as per the directions of the Supreme Court for the purpose of SPV is on ac....
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....t from all the aforesaid judicial pronouncements the following principles may be discerned:- * Where by the obligation, receipt is diverted before it reaches the assessee, it does not form 'income' of an assessee. * Where the receipt is required to be applied to discharge an obligation after it reaches the assessee, it forms 'income' of an assessee. * Nature of the obligation is the criteria to determine the receipt as 'income' or not. * When a third person becomes entitled to receive the amount under an obligation of assessee even before he could lay a claim to receive it as his income, there would be diversion of income by overriding title. * Where the obligation is self imposed or gratuitous, it is only a case of an application of income. * It is only such income which dissipates midway and will never reach the assessee that can be characterized as not income accruing or arising to an assessee and not because even though the assessee gets a right to claim that, the amount in reality does not reach the assessee for any reason. * To constitute diversion of income by overriding title, the obligation imposed should be absolute and not conditional. 25. The ld. AR submi....
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....37 is not applicable in the instant case. There is no restriction as to the allowability of CSR expenditure incurred wholly and exclusively for purposes of the business as deduction under section 37 computing the taxable business income in the hands of an assessee other than Company. 28. Thus, it is submitted that the amount expended towards Corporate Social Responsibility for the purpose of business is an admissible expense for the impugned assessment year. Accordingly, 10% of the sale proceeds deducted by MC towards SPV is allowable under Section 37(1). 29. Without prejudice to the above, the amount deducted by MC represents business loss. The sum retained by MC represents a loss in so far as the assessee is concerned and is deductible under section 28 itself while computing his profits and gains from business. There is no dispute with respect to MC remitting 90% of the total sale proceeds from the stock taken control after deducting 10% as compensation for rehabilitation of mining area. It is to be noted that the assessee suffered a loss of 10% of the stock as a result of taking control over the physical stock and the same is claimed as business loss in computing the business ....
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....me. Court is wholly and exclusively for the purpose of business. It is submitted that the direction of Hon'ble Supreme Court is the law of the land and is deemed to statutory direction. There is no possibility to sell the iron-ore without deduction of 10% of sale proceeds as per the directions of Hon'ble Supreme Court. Therefore, the deduction of 10% of sale pr6ceeds is wholly for the purpose of business. 33. It is submitted that deduction made by MC towards SPV for the purpose of restoration of environment from the lessees is based on the principle of "polluter pays principle" as held in the case of Shyam Sel Ltd vs DCIT [2016] 72 taxmann.com 105 (Calcutta). Therefore, the deduction of 10% is revenue expenditure entitled for deduction under section 37(1) of the Act. 34. As regards treating the forfeited sale proceeds as expenses incurred towards infraction of law invoking Explanation 1 to Section 37(1) of Rs. 15,74,62,445/-, it was submitted that assessee's lease was placed in the 'Category A of clean lease' and therefore, there is absolutely no illegality associated with the Appellant's business. The Hon'ble Supreme has directed the CEC to deduct 10% of ....
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....utory provision. 37. the Hon'ble Supreme Court has cautiously used the word 'compensation' in place of `compensation/penalty' which suggests that the impugned payments are compensatory in nature. It is submitted that the imposition of compensation is emanating from the order of the Hon'ble Supreme Court and the same is not due to infraction or violation of any provision of law. It may be noted that the Hon'ble Supreme Court in its order has not referred any specific provision under the statute for imposition/ determination of quantum of compensation. The said compensation is determined based on the recommendation report of the CEC. 38. It is submitted that the compensation is charged in order to reclamation and rehabilitate the eco-system due to extensive mining activity. The Hon'ble Supreme Court based on the recommendation of CEC regarding the extent of damaged caused to eco-system, fixed the quantum of compensation towards R & R plan and the same is not based on violation of law. 39. It is submitted that the asse has not indulged in any offence which was prohibited by law. Subject to the payment of compensation towards R & R plan, the lease holders....
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.... ld. DR, the Hon'ble Supreme Court India in SLP No. 7361/2010 dated 29.07.2011 had banned the activity of mining of in the districts of Bellary, Tumkur and Chitradurga of Karnataka districts. In compliance with the orders of the Hon'ble Supreme Court, mining activity had been suspended by the assessee since January, 2012. Further, the Iron Ore held in the stock was not permitted to be sold by the assessee. However, subsequently on 03.09.2012, the Hon'ble Supreme Court had lifted the ban and permission was given for resumption of mining operation in mines. 43. The ld. DR submitted that it is a General rule that, if an assessee is penalized under one Act, he cannot claim that the amount to be set off against his income under another Act, because that will be frustrating/defeating the entire object of penalizing under the other Act. If the assessee resorts to unlawful means to augment his profits or reduce his loss, then the expenditure incurred for these unlawful activities cannot be allowed to be deducted whether the business is lawful or otherwise. Even if the entire business of the assessee is illegal and income is sought to be taxed by the assessing the expenditure i....
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....e activities relating to corporate social responsibility referred to in Section 135 of the Companies Act, 2013, shall not be deemed to be an expenditure incurred by the assessee for the purpose of business or profession. According to the ld. DR, the words mentioned in Explanation 2 is "the assessee" including individual or company. 47. We have heard both the parties and perused the material on record. The allowability of this impugned expenditure came up for consideration before the coordinate Bench in the case of Ramgad Minerals & Mining Ltd. in ITA Nos.1270 & 1271/Bang/2019, order dated 4.11.2020 for the assessment years 2013-14 & 2014-15 wherein it was held as under:- "7.8.12. On careful reading of decision of Hon'ble Supreme Court dated 18/04/2013, it is clear that 15% contribution to SPV account was guarantee payment for implementing of R & R plan, which would be deducted from sale proceeds. This was one of the conditions for resuming mining operations under Category 'B'. We refer to and rely on observations by Hon'ble Supreme Court in case of CIT vs Sitaldas Tirathdas reported in (1961) 41 ITR 367. Hon'ble Supreme Court laying down following principal referred to various r....
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....ime payment and some others are recurring depending upon the sale of iron ore sold in the name of each licensee or depending on the need for rehabilitation. 7.8.15. In our view, contributing 15% to SPV account on account of Category 'B', would be application of income, and therefore, should be considered as expenditure incurred for carrying out its business activity. This we hold so, for the reason that, contributions determined by Hon'ble Supreme Court are in the nature of guarantee payment necessary for resuming mining activity. We also note that, alleged sum in these grounds are for implementation of R&R Plans in respective sanctioned lease areas held by assessee, where illegal mining activities or which were used for illegal overburden dumps, roads, offices etc., beyond sanctioned lease area were carried out. Here, we also note that, Hon'ble Supreme Court directed CEC to refund any leftover guarantee money, after completion of implementation of R& R plan, subject to satisfaction of CEC and approval by Hon'ble Supreme Court. For this peculiar reason, amount so contributed towards SPV being 15% of sale proceeds, under Category B, cannot be treated as penal in nature. We, theref....
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.... 245 ITR 421(SC) * G.Padnabha Chettiyar & Sons vs.CIT reported in 182 ITR 1(Mad) * ReformFlour Mills Pvt.Ltd Vs.CIT reported in 132 ITR 184,196(Cal) * CIT vs.A.Krishnaswamy Mudaliar & Ors reported in 53 ITR 122(SC) We note that these decisions are on the accrual of income, which has been considered by us in forgoing paras. We have already held that entire income accrued to assessee while deciding grounds 2.1 &2.2. In the issue of contribution towards SPV, one has to consider its correct nature. In our opinion these decisions do not assist revenue in any manner. 7.10.3. On careful reading of decision of Hon'ble Supreme Court in case of Samaj Parivartana Samudaya & Ors. Vs. State of Karnataka & Ors. (supra), it is clear that 10%/15% contribution to SPV account was guarantee payment for implementing of R & R plan, which would be deducted from sale proceeds. This was one of the conditions for resuming mining operations under categories 'A' and 'B' respectively. 7.10.4. With this background, we once again refer to and rely on observations by Hon'ble Supreme Court in case of CIT vs Sitaldas Tirathdas (supra). Hon'ble Supreme Court laying down following principal referred to v....
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....ons under Category 'A and 'B'. At this juncture we also emphasise that, but for the intervention by Hon'ble Supreme Court, assessee would not have contributed 10%/15% to SPV account for implementation of reclamation and rehabilitation scheme on its own, as there was no statutory requirement to do so under relevant statutes that regulate mining activities. 7.10.7. In our view contributing 10%/15% to SPV account on account of Category 'A'/ 'B' respectively, would be application of income, and therefore should be considered as expenditure incurred for carrying out its business activity. This we hold so, for the reason that, contributions determined by Hon'ble Supreme Court are in the nature of guarantee payment necessary for resuming mining activity. We also note that, alleged sum in these grounds are for implementation of R&R Plans in respective sanctioned lease areas held by assessee, where illegal mining activities or which were used for illegal overburden dumps, roads, offices etc., beyond sanctioned lease area were carried out. Here, we also note that, Hon'ble Supreme Court directed CEC to refund any leftover guarantee money, after completion of implementation of R& R plan, sub....
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.... of the mining area beyond the sanctioned / leased area. The A.O. observed that the total of the above payment of Rs. 405.79 Crs was punitive in nature and accordingly sought to disallow the same by issuance of a show-cause notice. ............... 4. The A.O. however did not accept the assessee's explanation and held that the assessee, being a Category-B leaseholder, has been directed to make the payment for infringement of MMDR Act and other allied laws. Therefore, he observed that the payment of Rs. 405.79 Crs is punitive in nature and brought it to tax. ................. 10. Thus, from the table reproduced above, it is seen that the assessee has been classified as Category-'A' whereas the Assessing Officer has considered the assessee as Category-'B' company. The Hon'ble Supreme Court has clearly indicated that Category-A comprises of (i) 'working" leases' wherein no illegality / marginal illegality have been found and (ii) 'non-working leases' wherein no marginal / illegalities have been found, whereas CategoryB comprises of (i) mining leases wherein illegal mining is 10% to 15% of the sanctioned lease areas. However, CEC had recom....
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....of the Hon'ble National Green Tribunal in the case of State Pollution Control Board vs. Swastik Ispat (P.) Ltd wherein at para 38 of the judgment the Tribunal held as under:- "Being punitive is the essence of 'penalty'. It is in clear contradistinction to 'remedial' and / or 'compensatory'. 'penalty ' essentially has to be for result of a default and imposed by way of punishment. On the contrary, 'compensatory' may be resulting from a default for the advantage already taken by that person and is intended to remedy or compensate the consequences of the wrong done. For instance, if a unit has been granted conditional consent and is in default of compliance, causes pollution by polluting a river or discharging sludge, trade affluent or trade waste into the river or on open land causing pollution, which a Board has to remove essentially to control and prevent the pollution, then the amount spent by the Board, is thus, spent by encashing the bank guarantee or is adjusted thread and this exercise would fall in the realm of compensatory restoration and not a penal consequence. In gathering the meaning of the word 'penalty' in reference....
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.... assessment year 2013 - 14. First of all, we summarise objections of Ld.AO as in respect of SPV expenses as under:- (a) This is one of the objections of the AO that the SPV Expenses is not allowable because it is not compensation but it is penal in nature for contravention of law as observed by him in para 4.3 of the assessment order for AY:2013-14. (b) Second objection of the Ld.AO is contained in para 4.9 of the assessment order for AY:2013-14 and as per the same, this is the objection of Ld.AO that the said SPV is nothing but CSR Expenses only and therefore not allowable. (c) Third objection of Ld.AO is also contained in para 4.9 of the assessment order for AY:2013-14 and as per the same, this is the objection of the Ld.AO that the said SPV is not allowable u/s 37 (1) as it was not incurred by the assessee wholly and exclusively for the purpose of business. (d) In para 4.8 of the assessment order for AY:2013-14, Ld.AO is stating this that SPV rate is 10% in category 'A' Mines but 15% in Category 'B' Mines and this extra 5% in Category 'B' Mines is for various violations and illegal mining and even after this observation, he finally held in the same para that whole SPV Ex....
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....e of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to pay out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Whereby the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee the same consequence in law does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another portion of one's own income which has been received and essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable." Emphasis Supplied 7.8.13. In the present case, we note that 15% of sale proceeds was payable to SPV account after it accrued to assessee and the fact that, assessee was obliged to part with such portion of income, by virtue of directions of Hon'ble Supreme Court, as a precondition ....
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....hicle (SPV) under the Chairmanship of Chief Secretary, Government Karnataka and with the senior officers of the concerned Departments of the State Government as Members may be directed to be set up for the purpose of taking various ameliorative and mitigative measures in Districts Bellary, Chitradurga and Tumkur. The additional resources mobilized by (a) allotment/ assignment of the cancelled mining leases as well as the mining leases belonging to M/s. MML, (b) the amount of the penalty/ compensation received/ receivable from the defaulting lessee, (c) the amount received/ receivable by the Monitoring Committee from the mining leases falling in "Category- A" and "Category-B", (d) amount received/ receivable from the sale proceeds of the confiscated material etc., may be directed to be transferred to the SPV and used exclusively for the socio- economic development of the area/local population, infrastructure development, conservation and protection of forest, developing common facilities for transportation of iron ore (such as maintenance and widening of existing road, construction of alternate road, conveyor belt, railway siding and improving communication system, etc.). A detailed....
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....der consideration. Thus, alternative plea raised by assessee in ground 2.3.6 and 2.3.7 does not arise. In any event, such payment cannot be considered to be loss in the hands of assessee. Accordingly we allow grounds 2.3.8-2.3.9 and dismiss grounds 2.3.1-2.3.7." 49. The above two decisions of the Tribunal were followed by the coordinate Bench of the Tribunal in the case of Muneer Enterprises in ITA No.696/Bang/2018 dated 9.3.2021 for the AY 2013-14 wherein it was held as follows:- "13. On careful reading of decision of Hon'ble Supreme Court dated 18/04/2013, it is clear that 15% contribution to SPV account was guarantee payment for implementing of R & R plan, which would be deducted from sale proceeds. This was one of the conditions for resuming mining operations under Categories 'B'. We refer to and rely on observations by Hon'ble Supreme Court in case of CIT vs Sitaldas Tirathdas reported in (1961) 41 ITR 367. Hon'ble Supreme Court laying down following principal referred to various rulings that illustrated aspects of diversion of income by overriding title. "These are the cases which have considered the problem from various angles. Some of them appear to have appl....
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....ing 15% to SPV account on account of Category 'B', would be application of income, and therefore should be considered as expenditure incurred for carrying out its business activity. This we hold so, for the reason that, contributions determined by Hon'ble Supreme Court are in the nature of guarantee payment necessary for resuming mining activity. We also note that, alleged sum in these grounds are for implementation of R&R Plans in respective sanctioned lease area held by assessee, where illegal mining activities or which were used for illegal overburden dumps, roads, offices etc., beyond sanctioned lease area were carried out. Here, we also note that, Hon'ble Supreme Court directed CEC to refund any leftover guarantee money, after completion of implementation of R& R plan, subject to satisfaction of CEC and approval by Hon'ble Supreme Court. For this peculiar reason amount so contributed towards SPV being 15% of sale proceeds, under Category B, cannot be treated as penal in nature. We, therefore, reject observations of authorities below that, such sum having contributed by assessee fall within ambit of explanation to section 37 (1) of the Act. 17. The decisions relied upon by Ld....
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....eceived and essence applied. The first is a case in which the income never reaches the assessee, who, even if he were to collect it, does so, not as part of his income but for and on behalf of the person to whom it was payable." Emphasis Supplied 8.12.4. Applying, thin line of difference interpreted by Hon'ble Supreme Court to present facts, we are of the opinion that, contribution to SPV account, cannot be considered to be diversion of income. This is because, we have already held while deciding ground 2.1 and 2.2 hereinabove, that entire sale proceeds accrued to assessee, and it is only due to direction of Hon'ble Supreme Court that such amount was contributed to SPV account, for which assessee was to authorise CEC/MC in relevant paragraph 11(III) referred to and relied by Ld.CIT DR. 8.12.5. In the present facts of the case, we note that 10%/15% of sale proceeds was payable to SPV account, after it accrued to assessee, and the fact that, assessee was obliged to part with such portion of income, by virtue of directions of Hon'ble Supreme Court, as a precondition to resume mining operations under Category 'A and 'B'. At this juncture we also emphasise that, but for the i....
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....on the direction of the Government of India and identical issue has been decided by the coordinate Bench of the Tribunal in case of M/s. HLL Lifecare Ltd. vs. ACIT in ITA No.123/Coch/2017 for AY 2012-13 order dated 11.06.2018 with the following findings :- "9.5 The CSR expenses has been incurred as per the directions of Government of India. The Hon'ble Kerala High Court in the case of Travancore Titanium Products Ltd. (supra) had held that a Government Undertaking is duty bound to comply with Governmental orders. The relevant findings of the Hon'ble jurisdictional High Court reads as follows :- "Being a company under the control of the Government, it is bound to comply with all the Government orders and the Board of Directors itself is constituted with the Government secretaries and other nominees as members. Therefore, the claim of deduction has to be considered with reference to the peculiar circumstances of the company which has no discretion in regard to the payment of the service charges to the government as it is bound to comply with the government orders. So much so, we are of the view that the parameters applicable in the case of a private company that too wit....
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....observed as under:- "It had been held by the Karnataka High Court in the case of Mysore Kirloskar Ltd. v. CIT [1987J 166 ITR 836/ 30 Taxman 467. that while 'the basic requirements for invoking sections 37(/) and 80G are quite different', but nonetheless the two sections are not mutually exclusive. Thus, there are overlapping areas between the donations given by the assessee and the business expenditure incurred by the assessee. In other words, there can be certain amounts. though in the nature of donations, and nonetheless, these amounts may be deductible under section 37(1) as well. Therefore, merely because the expenditure in question was in the nature of donation, or, as per the words of the Commissioner (Appeals), 'prompted by altruistic motives', it did not cease to be an expenditure deductible under section 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 section 37(/), then the right of the assessee to claim the whole of it as a deduction under section 37(1) cannot be declined. What is....
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.... incur this kind of expenditure and the assessee incurred this expenditure without any statutory obligation under the Companies Act and it is incurred wholly and exclusively for the purpose of business. 54. Being so, in our opinion, the assessee being an individual and not a company, it is not governed by Section 135 of the Companies Act, 2013 and the impugned expenditure incurred by the assessee is not in the nature of CSR expenditure as mentioned in that section and it cannot be disallowed by invoking the provisions of Explanation 2 to section 37 of the I.T. Act. Accordingly, we allow this ground of appeals of the assessee. 55. The next ground in ITA No.315/Bang/2020 is with regard to treating loss from derivatives - F&O of Rs. 9,43,60,600 as assessable under the head 'capital gains' instead of business loss thereby not allowing set off of the same. 56. The ld. AR submitted that the lower authorities were of the view that assessee has agreed to the additions made by the AO during assessment proceedings, when no such acceptance/ consent has been given by the assessee. Relying on Apex Court judgment in M/ s Goetze (India) Ltd. V. CIT 284 ITR 323 (SC), the lower authorities obser....
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....O) 9,43,60,600 Short Term Capital Loss 4,54,72,306 Total 13,98,32,906 60. The assessee inadvertently declared the loss of F&O transaction as capital loss in his return. Having realized the mistake, the assessee made a claim during the assessment proceedings to treat the loss from F&O transaction as business loss. In this regard, it was submitted that assessee is trading in F&O derivative through Karvy Stock Broking Ltd. and booked a loss of Rs. 9,43,60,600 during the year. Trading in F&O derivatives being non-speculative, any profits or gains arising therefrom has to be taxed under the head 'business income'. He referred to section 28 of the Act and submitted that in order to construe that an income under the head profits & gains of business or profession or capital gains, the intention of the parties and the systematic way of dealing in order to make profit are to be seen. In this regard, reliance was placed on the following decisions:- Raja Bahadur Kamakhya Narain Singh v. CIT, 77 ITR 253 (SC) Janab Abubucker Salt v. CIT, 45 ITR 37 State of Gujarat v. Raipur Mfg. Co. Ltd., 19 STC 1 (SC) Tash Investment (P.) Ltd. v. ACIT 106 taxmann.com 190 (Ahd.Trib) Maanraj Tradi....
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....on which it is carried out on a recognized stock exchange. It was submitted that F&0 transaction being non-speculative transaction is to be treated as normal business transaction. In this regard reliance was placed on the following decisions, wherein the courts have considered the F & 0 transactions in derivatives as regular business transactions and not speculative transactions:- Snowtex Investment Ltd. v. CIT, 414 ITR 227 (SC). Deepak Sogani vs. DCIT, [2016] 68 taxmann.com 332 (Mum) [Para 6, 10]; DCIT vs. Aishwarya & Co. (P.) Ltd., [2015] 60 taxmann.com 258 (Chennai) [Para 7 & 8]; Asian Financial Services Ltd. vs. CIT, [2016] 240 Taxman 192 (Cal) [Para 11]; DCIT vs. Paterson Securities (P.) Ltd. [2010] 127 ITD 386 (Chennai) [Para 3,4]; R.B.K. Securities (P.) Ltd. vs. ITO [2008] 118 TTJ 465 (Mum) [Para 4 & 5]; DCIT vs. Madanlal Ltd. [2012] 51 SOT 188/21 taxmann.com 444 (Ko1.)(URO) [Para 4, 5] CIT vs. SSKI Investors Services (P.) Ltd. [2008] 113 TTJ 511 (Mumbai) [Para 3]; Rikeen P. Dalal vs. DCIT, [2014] 62 SOT 49 (Mum)(URO.) [Para 2 & 6]; 64. Therefore, it was submitted that trading in F & 0 derivative is taxable under section 28(i). The same is not a speculativ....
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....hat the CIT(Appeals) was not justified in failing to appreciate that the Appellant is permitted to make a new or fresh claim during the Appellate proceeding and the same is not barred by the decision of the Hon'ble Supreme Court in Goetze (India) Ltd., vs. CIT [2006] 284 ITR 323 (SC). It is not the case of the assessee that he had not declared the loss arising from trading of F&O derivative in the original return of income. The said loss was declared in the original return under the head capital gain instead of business income. The decision of the Hon'ble Supreme Court in Goetze (India) Ltd. (supra) is not applicable to the instant case for the reason that in the said case the assessee had not claimed the deduction in original return or revised return to claim deduction. But in the instant case it is not so, the assessee had declared the income/loss from F&O derivatives as capital gain instead of business income. Thus it is a case of claim under wrong head of income. For this proposition, the assessee also placed reliance on the following decisions:- Raghavan Nair v. ACIT, 402 ITR 400 (Ker) Wipro Ltd. v. DCIT in ITA No.879/2008 dated 25.3.2015 Karnataka High Court CIT v. ....
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.... as on 01.04.2015. It has been held that the treatment whether the capital asset or stock in trade cannot be varied from one year to another year without change in facts in the following decisions:- Venkatesh Satyaraj v. DCIT, 88 taxmann.com 915 (Mum Trib.) Pr.CIT v. Ramniwas Ramjivan Kasat, 410 ITR 540 (Guj) Dr. Jaykumar Chhaganlal Shah v. DCIT, 2016-TIOL-1507-ITAT-AHM Smt. Sujatha Kapadia v. CIT v. JCIT, 55 taxmann.com 474 Madhuraj Foundation, 175 TTJ 25 (Chd. Trib) Shibani S. Bhojwani v. DCIT, 35 taxmann.com 35 (Mum Trib) ACIT v. Harbilas Cold Storage & Food Products, 12 taxmann.com 36 (Lucknow) 73. The ld. AR submitted that the there is no change in facts and circumstances with respect to trading in F & 0 derivative. The AO has not brought any material to show change in circumstance in the impugned year. The inconsistent approach of the AO in assessing income from F & 0 derivative as business income in the AY 2015-16 and as capital loss in AY 2016-17 is not permissible when there is no change in fact and circumstance of the case. The said action of the AO is against the principles of consistency and the AO is not permitted to blow hot and cold at the same time. R....
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....tive as capital loss in his return. The assessee having realized the mistake made a claim during the assessment proceedings to treat the loss on F&O derivative as business loss. The assessee established that assessee is engaged in trading of F&O on a systematic basis and it being non-speculative, any profit and gain arising from the said transaction to be treated under the head business income. More so, similar activity was carried out in the previous AY 2015-16 which was treated as business income of assessee and the same activity has been continued during the present assessment year. Therefore, the activities remained trading activity even in the current assessment year to be considered as business activity of assessee and loss on such activity to be considered as business loss to be set off. 78. We have carefully gone through the assessment order dated 20.12.2017 for the AY 2015-16. In that assessment year as per discussion in para 7, 7.1, 7.2 & 7.3 of the assessment order, the income from F&O derivatives transaction treated as business profit at Rs. 28,43,021. When the AO had accepted the income from trading in F&O derivatives as business income in earlier year, specifically i....
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....he said Circular:- " Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a tax payer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assesses on whom it is imposed by law, officers should - (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs". 82. It is pertinent to mention the ratio laid down by the various Courts which are as under:- (i) The Hon'ble Delhi High Court in t....