TaxTMI 
TaxTMI 
2021 (4) TMI 1249
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....of the assessee that assessee while doing his 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 subst....
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....easures, etc. Therefore, it was necessary for the Appellant to incur the aforesaid 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) ....
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....ment by Finance (No.2) Act, 2014 there was no restriction as to the allowability of CSR expenditure incurred wholly and exclusively for the purposes of the business as deduction in computing the taxable business income. From the above provision 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 sec....
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....s. 5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act expenditure incurred wholly and exclusively for the purposes 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 th....
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....t above a threshold. If such expenses are allowed as deduction, it will result in subsidizing the amount of one-third of such expenses by Govt. by way of tax expenditure. The provisions of section 37(1) provide that deduction for any expenditure which is not mentioned specifically in 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 ....
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....e recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social 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 r....
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.... less.] (8) The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions.] [(9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under subsection (1) for 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 wat....
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....Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).] (x) rural development projects] [(xi) slum area development. 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....
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....lizers & Chemicals Ltd., 422 ITR 164 (Guj). In that case, the following question was before the Hon'ble High Court :- "Whether in the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in deleting disallowance u/s 37(1) of the Act in respect of expenses being contribution/donation to educational institutions, trust, local bodies?" 18. The Hon'ble Gujarat High Court held as under:- "8.10 We have also noted that the amendment in the scheme of section 37(1) is not specifically stated to be retrospective 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 restrict....
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....y, we are of the opinion that the expenditure incurred is wholly and exclusively for the purpose of business of assessee and has to be allowed as business expenditure. Accordingly, this ground of appeal is allowed. 21. The next ground in these appeals is with regard to additions on account of withheld amount by MC towards Reclamation & Rehabilitation of mining area as per the direction of Hon'ble Supreme Court vide order dated 18.4.2013. 22. The facts are that the AO noted that in the P&L Account assessee claimed major indirect expenses on Afforestation & Environmental 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,....
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....ted 3.7.2019. (7) Moti Lal Chhadami Lal Jain v. CIT [1991] 190 ITR 1 (SC) (8) CIT v. Sunil J. Kinariwala [2003] 259 ITR 10 (SC) (9) Poddar Projects Ltd. v. CIT, 28 taxmann.com 94 (Cal) (10) CIT v. A. Tosh & Sons (P) Ltd. [1987] 166 ITR 867 (Cal) (11) F.R. Sabu P Thomas v. UOI, 2015-TIOL-514-HC-Kerala-IT (12) CIT v. DTTDC Ltd. [2013] 350 ITR 1 (Del) (13) Shroff Eye Centre v. ACIT in ITA No.1560/Del/2012 (14) DCIT v. Sri T. Jayachandran [2018] 406 ITR 1 (SC) (15) A F Ferguson & Co. v. ACIT, Mumbai 2011-TIOL-604-ITATMUM. (16) RSM & Co. v. ACIT, 125 ITD 243 (Mum) 24. The ld. AR submitted that 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 entitle....
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.... Poddar vs. CIT (2019) 412 ITR 529 (Kar); Girish Bansal v. UOI (2016) 384 ITR 161 (Delhi); Y. Rathiesh vs. CIT, (2015) 372 ITR 73 (AP); Raja Malwinder Singh vs. CWT [2011] 334 ITR 115 (P 86 HI; Azimganj Estates (P.) Ltd. vs. CIT, [2015] 372 ITR 243 (Cal)(Mag.); 27. Without prejudice to the above, it was submitted that Explanation 2 to section 37 introduced by Finance Act, 2015 barring the allowability of CSR applies only to the companies and not to other assessees. 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. It is pertinent to note that the Appellant being an individual the restriction imposed under Explanation 2 to section 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 ....
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....e of Dr. T.A. Quereshi (supra). As held in CIT v. S.C. Kothari, 82 ITR 794 (SC). It is submitted that business losses should be allowable on ordinary commercial principles in computing profits. The aforesaid loss is not in the nature of expected loss but actual loss. Even the expected loss was allowable upto AY 2017-18. The Finance Bill 2018 proposes to restrict deduction towards expected loss only as per ICDS from AY 2018-19 onwards through proposed section 36(1)(xviii) read with section 40A(13). When the expected loss itself is allowable, deduction of actual loss cannot be denied. 32. The liability crystalizes as soon as the MC withholds 10% of sale proceeds for the purpose of transferring to SPV. Accordingly, the expenditure of Rs. 15,74,62,445/- claimed towards Reclamation & Rehabilitation of mining area as per the direction of Hon'ble Supreme. 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. Therefo....
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....nalty. In the instant case, no illegality has been noticed. Therefore, there is no question of SPV contribution being regarded as infraction of law. Even otherwise, it is submitted that the expression 'marginal illegality' has to be read with the expression 'no illegality'. The fact that 'marginal illegality' has been categorised along with `no illegality' suggests that 'marginal illegality' is also a case of `no illegality'. 'Marginal illegality' is thus equated with 'no illegality'. However, it is only one-wav movement, in as much as 'no illegality' cannot be equated with 'marginal illegality'. The term 'compensation' is monetary relief paid towards the damages or loss suffered by a person. 'Penalty' is a statutory liability imposed on wrongdoer for infraction of any statutory 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 ....
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....y 'A' mines is discussed. A-Category mines comprises (a) working leases wherein no illegality/marginal illegality have been found and (b) nonworking leases wherein no marginal/illegalities have been found. 41. Further, the ld. DR submitted that the sale of Iron Ore should be through e-auction and the same should be conducted by Monitoring Committee constituted by the CEC and the sale proceeds are to be retained / disbursed to mine owner based on certain conditions. The Hon'ble Apex Court in its order dated 23.09.2011 has described the modalities for the sale of iron ore and has clearly mentioned the procedure to be adopted for e-auction of iron ore and procedure for accounting of sale proceeds. The account of sale proceeds being maintained by the Government under double entry system of accounting which is duly being monitored by CEC. 42. According to the 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....
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....essee's business. He emphasized once again the judgement in the case of Maddi Venkataraman & Co. (P) Ltd vs. CIT (1998) 229 ITR 534 (SC). The fines/penalties paid for violating the law in the course of the conduct of business cannot be regarded as deductible expenditure, as the assessee is expected to carry on the business in accordance with law and not violation of law. In the instant case, the assessee has violated the law and has formed Illegal Mining Pits and Illegal Dumping of waste, whereby, the Hon'ble. Apex Court on the recommendation of CEC has directed to collect the amounts for violation of such law. The ld. DR supported the orders of lower authorities. 46. According to the ld. DR, Explanation (2) to section 37 is applicable to all the assesses including "individual" assesses and since Explanation 2 states that any expenditure incurred by 'an assessee' on the 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" includi....
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....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 to resume mining operations under Category 'B'. At this juncture, we also emphasise that, but for the intervention by Hon'ble Supreme Court, assessee would not have contributed 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. 7.8.14. Hon'ble Supreme Court has been very clear regarding the types of payments that needs to be recovered from lessee's under Category 'B', from the sale proceeds as well as otherwise. All the payments form part of R&R plan for recouping and rehabilitating the environment. Certain payments are onetime 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 incom....
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....14, order dated 4.11.2020 wherein the above decision was followed by Tribunal:- "7.10.1. Ld.Counsel again raised 3 prepositions before us in respect of the contribution made to SPV account from the sale proceeds. * Primarily he contended that there is diversion of income by overriding title to SPV account, and therefore such amount is not liable to tax in the hands of assessee. * Alternatively he submitted that the said sum may be treated as loss under section 28 while computing profit and loss under the head income from business and profession. Or * He submitted that it may be treated as an expenditure incurred by assessee for purposes of business. 7.10.2. On the contrary, Ld.CIT DR submitted that it is an application of income and therefore has to be disallowed in the hands of assessee. He submitted that Ld.AO in support of disallowing the claim of expenditure relied on following decisions: * CIT vs.KCP Ltd. reported in 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 & ....
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....art of his income but for and on behalf of the person to whom it was payable." Emphasis Supplied 7.10.5. 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) refer to and relied by Ld.CIT DR. 7.10.6. 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 in case of Samaj Parivartana Samudaya & Ors. Vs. State of Karnataka & Ors. (supra), as a precondition to resume mining operations 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 c....
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....ee categories viz., Category "A", "B" and "C" and that the assessee is falling in Category-B in respect of Donimali Complex and that in their order, the Apex Court observed that before consideration of any resumption of mining operations by Category-B leaseholders, each of the lease holder must pay compensation for the areas under illegal mining pits outside the sanctioned area at the rate of Rs. 5 Crs per hectare and for illegal overburden for at the rate of Rs. 1 Cr per hectare. Further, A.O. observed that the said direction of the Apex Court was subject to the final determination of the notional loss caused by the illegal mining and illegal use of the land; and that the Hon'ble Supreme Court had directed that each of the leaseholder should pay a sum equivalent to 15% of the sale proceeds of its iron ore sold through the Monitoring Committee. In accordance with the said direction, the assessee made payment of Rs. 337.13 Crs towards contribution for the Special Purpose Vehicle and the sum of Rs. 68.66 Crs towards penalty / compensation for encroachment of the mining area beyond the sanctioned / leased area. The A.O. observed that the total of the above payment of Rs. 405.79 Cr....
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....so the decision of the Hon'ble Calcutta High Court in the case of ShyamSel Ltd vs. DCIT (72 Taxmann.com 105) (Cal.). On going through the said decisions, we find that the Hon'ble Calcutta High Court has considered the case of an assessee who failed to install Pollution Control Device within factory premise within prescribed time and that the assessee had to pay Rs. 12.50 lakh for compensating damage to environment and the same was recovered by State Pollution Control Board on the principle of 'polluter pays' and the A.O. had treated it as penalty and did not allow the same as business expenditure. The Hon'ble High Court had taken note of the fact that the assessee's business was not illegal and that compensation was paid because of its failure to install pollution control device within prescribed time and therefore, such payment was undoubtedly for the purpose of business and in consequence of business carried on by the assessee and was thus covered by section 37 of the Act. For coming to this conclusion, Hon'ble High Court has also considered the judgment of the Hon'ble National Green Tribunal in the case of State Pollution Control Board vs. Swastik....
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....mpensation for mining in the areas outside the sanctioned area allotted to it and that 10% of sum is to be transferred to SPV and the balance 10% is to be reimbursed to the respective lessees, according to us, proves that it is a payment made as 'compensation' for extra mining, without which the assessee could not have resumed its activities. Therefore, we are inclined to accept the contention of the assessee that it is compensatory in nature and is a 'business expenditure' and is allowable u/s 37(1) of the Act. Thus, Grounds No.2 and 3 raised by the assessee are allowed." 7.10.9. We also notice that the co-ordinate Bangalore bench of Tribunal has also considered identical issue in the case of Ramgad Minerals & Mining Ltd (ITA No.1270 & 1271/B/2019 dated 04-112020) being Category 'B', an identical addition made by Ld.AO was held to be allowable as expenditure with following observations:- "7.8.9. In present appeals, only issue raised for our consideration is in respect of 15% contribution made to SPV for assessment year 2013-14 and 2014-15; and issue in respect of R&R expenses incurred during assessment year 2013 - 14. First of all, we summarise ob....
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....gory 'A' mines, there was marginal illegality found by CEC, because of which 10% of contribution was attributed out of sale proceeds to the SPV. 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 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 applied the principle correctly and some, not. But we do not propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as its income. Obligations, no doubt, there are in every case, but it is the nature....
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....essary 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, therefore, reject observations of authorities below that, such sum having contributed by assessee fall within ambit of explanation 1 to section 37 (1) of the Act." 7.10.10. We note that the CEC, vide its report dated 3-2-2012 and 13-32012 made recommendations with regard to setting up of SPV, transfer of funds collected from all lease holders under various heads, manner of utilisation of said funds etc., to Hon'ble Supreme Court, which is incorporated in Paragraph 7 at Page 164 to 171 as under:....
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....acts, it cannot be said that these amounts are penal in nature. We notice that the Hyderabad bench of Tribunal in the case of NMDC Ltd (supra) and Co-ordinate bench of Bangalore Tribunal in Ramgad Minerals (supra) came to the same conclusion. We note that in NMDC case (supra), Hon'ble Hydrabad Tribunal followed decision of Hon'ble Kolkatta High Court in the case of ShyamSel Ltd (supra) and State Pollution Control Board vs. Swastik Ispat (P) Ltd (supra), wherein identical types of payments made to remedy the river pollution caused by the parties were held to be compensatory in nature. Hence the provisions of Explanation 1 to sec.37 will not apply to these payments. We also note that Hon'ble Supreme Court at page 171 observed that, these payments are necessary to be made by the mining lease holders. Hence there is merit in the submission of Ld.Counsel that, without making these payments, assessee could not have resumed the mining operations. Hence, these expenses are incidental to carrying on the business and hence allowable u/s 37(1) of the Act. 7.10.13. Based on above discussions and analysis, we are of opinion that contribution to SPV being 10%/15% of sale proceeds, u....
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....ssessee, 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 14. In the present facts of the 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 to resume mining operations under Category 'B'. At this juncture we also emphasise that, but for the intervention by Hon'ble Supreme Court, assessee would not have contributed 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. 15. Hon'ble Supreme Court has been very clear regarding the types of payments that needs to be recovered from lessee's under Catagory 'B', from the sale proceeds as well as otherwise. All the payments forms part of R&R plan for recouping and rehabilitating the environment. Certain payments are one time payment and some others are recurring depending upon the sale of iron ....
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....n'ble Supreme Court in case of CIT vs Sitaldas Tirathdas (supra). 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 applied the principle correctly and some, not. But we do not propose to examine the correctness of the decisions in the light of the facts in them. In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as its income. Obligations, no doubt, there are in every case, but it is the nature 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 payme....
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.... 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 10%/15% of sale proceeds, under category A/B, cannot be treated as penal in nature. We, therefore, reject observations of authorities below that, such sum having contributed by assessee do not fall within ambit of explanation to section 37 (1) of the Act. 8.12.7. Based on above discussions and analysis, we are of opinion that contribution to SPV being 10%/15% of sale proceeds, under category A/B, is to be allowable expenditure for year under consideration." 19. Facts leading to the disallowance is in the present case is similar and identical to the facts in the case of Veerbhadrappa Sangappa & Co. (Supra), we note that same is the view taken by Co-ordinate Bench in case of M/s Ramgad Minerals & Mining Ltd. (Supra). 20. Respectfully following the view taken in above decisions and based on the above discussions and analysis, we are of the opinion that 15% contribution to SPV retained by the monitoring committee on behalf of assessee deserv....
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...., towards implementation of 20 point programme as per specific directions of the Government though voluntary in nature and not forced by any statutory obligation, is allowable as business expenditure. Merely because an expenditure is in the nature of donation, it does not cease to be an expenditure deductible under s. 37(1)." 9.7 The Commissioner of Income tax had mentioned in his order that "the Apex Court (313 ITR 334 SC) CIT Vs Madras Refineries Ltd., while hearing the allowability of CSR expenses observed that neither the High Court nor the Tribunal concerned had given specific finding to the effect that the said CSR expenditure is allowable as business expenditure ". In the above mentioned case, the Apex court has not given any decision on merits of the case. It had only given an observation and remitted the issue back to the Tribunal to give specific finding to the effect that the said CSR expenditure is allowable as business expenditure. 9.8 Since, the assessee had incurred CSR expenses to comply with the directions of Govt. of India, following the above observations made by High Court of Kerala and ITAT, Mumbai Bench, the expenditure incurred is i....
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....diture of such a nature cannot but be, 'a concrete expression of care and concern for the society at large and an expenditure to discharge the responsibilities of a 'good corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill'. [Para 9] Just because the expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it could not cease to be a business expenditure. Therefore, the authorities below indeed erred in law in declining deduction of the expenditure incurred on 20Point Programme which was, beyond dispute or controversy, at the instance of the Government, and was to discharge the assessee s obligations towards society as a responsible corporate citizen. [Para 10]" 52. Now the applicability of Explanation 1 to section 37 is already covered by the above decisions as it was held that the expenditure is allowable as business expenditure. In view of this, we are of the opinion that the AO cannot disallow expenditure by invoking Explanation 1 to section 37 of the Act. ....
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....ncome and allow set off of losses from F&0 derivative against business income of mining; and there cannot be estoppel against assessee and the claim should be allowed in accordance with law, which was rejected by the lower authorities. He submitted that the CIT(Appeals) on the erroneous premise that the Appellant has accepted/agreed the additions made by the AO during the assessment proceeding. The CIT(A)'s view that the assessee has not made out a case that the addition was not made on agreed basis is perverse as there is no whisper in the impugned assessment order as regards the agreed addition. The Appellant cannot be expected to prove the negative. Reliance is placed on the following decisions which have held that an assessee cannot be expected to prove the negative:- CIT v. T. Ahobala Rao, 221 Taxman 39 (Kar) K.P. Varghese v. ITO, 7 Taxman 13 (SC) CIT v. Divine Leasing & Finance Ltd. 299 ITR 268 (Del) CIT v. Kapsons Associates, 381 ITR 204 (P&H) CIT v. Bhartesh Jain, 310 ITR 82 (Del) 58. It was further submitted that the decisions on which the CIT(A) relied in the impugned order to reject the assessee's contentions do not have an....
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....F&0) are types of derivatives available for the trading in India in recognized stock exchange. They are special contracts whose value derives from an underlying security. The lower authorities having not disputed the genuineness of the transaction in F & 0 derivative, the lower authorities are not justified in failing to treat the income/ loss from trading in F & 0 derivative as business income/ loss. The AO has treated similar activity for the preceding previous year 2015-16 as trading under similar circumstances. The appellant only continued the aforesaid activity during the impugned previous year. Therefore, it is axiomatic that the activity of the appellant remains trading activity even for the current year. 63. He further referred to the provisions of section 43(5) of the Act. Section 2(ac) of the Securities (Contracts) Regulation Act, 1956 and drew attention to Memorandum to Finance Bill, 2005 and Circular No.3/2006 dated 27.2.2006 and Circular No.14/2006 dated 28.12.2006. He submitted that section 43(5) of the Act was amended by the Finance Act, 2005. Prior to amendment, section 43(5) defined 'speculative transaction' to mean a transaction in which a contract for the purc....
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....ised the mistake he made a claim during the assessment proceedings with a plea to treat the loss from F & 0 transaction as business loss. 66. The CBDT Circular casts obligation on the Assessing Officer to assist the assesses in every reasonable way in the matter of claiming any relief and should not take advantage of ignorance of the assessee. In this regard a reference is made to Circular No. 14 (XI-35) of 1955 dated 11.04.1955. He submitted that the Courts have held that there cannot be any estoppel against assessee and claim should be allowed in accordance with the provisions of law and cited the following decisions:- CIT v. Shree Rama Multi Tech Ltd., 403 ITR 426 (SC) CIT v. K. Venkatesh Dutt, 319 ITR 331 (Kar) Alapati Venkataramiah v. CIT, 57 ITR 185 (SC) CIT v. C. Parakh & Co. (I) Ltd., 29 ITR 661 (SC) CIT v. Bharat General Reinsurance Co. Ltd., 81 ITR 303 (Del) CIT v. Rewari Central Co-op. Bank Ltd., 263 ITR 598 (P&H) CIT v. S.E. Railway Employees Co-op. Credit Society Ltd., 390 ITR 524 (Cal) CIT vs. M.R.P. Firm [1965] 56 ITR 67 (SC); Sanchez Capital Services (P.) Ltd vs ITO 26 Taxmann.com 61....
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....of the assessing officer and not the appellate authority. For the proposition that the assessee can raise fresh claim before the appellate authorities, reliance was placed on the following decisions:- Bhandari Metals v. State of Karnataka, 2004 SCC Online Kar 142 (Kar) CIT v. Mahalaxmi Textile Mills Ltd., 66 ITR 710 (SC) CIT v. Mitesh Impex, 367 ITR 85 (Guj) CIT v. Indian Express (Madurai) P. Ltd., 140 ITR 705 (Mad) CIT v. Grasim Industries Ltd., 2016-TIOL-292-HC-MUM-IT (Bom) 70. Therefore, it was submitted that the lower authorities have erred in wrongly applying the ratio of Goetze case and denying the claim of Appellant. 71. As regards, principles of consistency, the ld. AR submitted that the lower authorities were not justified in taking double in as much as they treated income from derivatives - F&0 as business income for the AY 2015-16, and as capital loss for the impugned AY 2016-17. The lower authorities ought to have followed the principles of consistency year on year when there is no change in facts and circumstances. 72. It is submitted that for the AY 2015-16 the Appellant had originally declared the income fro....
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....372 ITR 73 (AP) Raja Malwinder Singh v. CWT, 334 ITR 115 (P&H) Azimganj Estate (P) Ltd. v. CIT, 372 ITR 243 (Cal) CIT v. Sridev Enterprises, 192 ITR 165 (Kar) CIT v. Excel Industries, 358 ITR 295 (SC) CIT v. Plaza Hotels (P) Ltd. 107 taxmann.com 287 (Bom) BSNL v. UOI, 3 SCC 1 CIT v. Punjab Agro Industries Corporation Ltd. (P&H) CIT v. JPS Associates, 228 Taxman 367 Pr. CIT v. Quest Investment Advisors (P) Ltd. 409 ITR 545 (Bom) 74. The ld. AR further submitted that trading in F&O derivative being nonspeculative transaction any loss arising from the said trading is entitled for set off against the income from another source under the same head. A reference is made to section 70 which provides set off of loss from one source against income from another source under the same head of income. He reiterated that the income/ loss arising from F&O derivative is taxable under the head 'Profit and Gains of Business or Profession'. As submitted earlier, trading in F&O derivative is not speculative as per section 43(5). It is submitted that the instant case is covered by section 70 and not by section 73....
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....T v. Escorts Ltd., 330 ITR 435 (Del), it was held that the principle of res judicata did not apply to income tax proceedings, the revenue cannot be allowed to change its view with regard to fundamental aspect of a transaction taken in earlier assessment year, unless it is able to demonstrate any change in the circumstances in the subsequent assessment year. It was held that as a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. Similar view has been taken by the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT, 193 ITR 321 (SC) wherein it was held as follows:- "16. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that ....
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....el in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quit apart from it, it was incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it could not confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. Therefore the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953-54. It could not, therefore, be taxed in the assessment year 1958-59." (ii) The Hon'ble Bombay High Court in the case of Nirmala L. Mehta vs. A. Balasubramaniam, C.I.T. (2004) 269 ITR 1 (Bom) held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence ca....