TaxTMI 
TaxTMI 
2024 (7) TMI 832
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....i, dated 22.03.2002. 1.2. In ITA Nos.337 & 286/MUM/2005, Order No.CIT(A)- I/IT/343/02-03 dated 19.08.2004 (for AY 2000-01), arising out of assessment orders passed u/s. 143(3) of the Act by ACIT, Circle-1(1), Mumbai, dated 28.01.2003. 1.3. In ITA Nos.287 & 724 /MUM/2005, Order No. No.CIT(A)- I/IT/319/03-04 dated 13.09.2004 (for AY 2001-02), arising out of assessment orders passed u/s. 143(3) of the Act by ACIT, Circle-1(1), Mumbai, dated 31.12.2003. 2. In all the six appeals, common issues are raised by both assessee and Revenue in their respective appeals. However, there are certain grounds which are specific to the respective appeal. Since common issues are involved, we take up all the six appeals together to pass a consolidated order. To draw the facts, we take up appeal in ITA No.7447/Mum/2004 for Assessment Year 1999-2000 as the lead case. Our observations and findings in this appeal shall apply mutatis mutandis to the other appeals in ITA Nos.286 & 287/Mum/2005 for Assessment Year 2000-01 and 2001-02 in respect of the common issues. Similarly, for the appeals by the Revenue, we take ITA No.7532/Mum/2004 for Assessment Year 1999-2000 as the lead case. Our observations....
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....ng officer ('AO') without considering in its correct perspective, the factual and legal contentions raised by the appellant. 2.2 The Id. CIT(A) further erred in excluding the following amounts in computing the profits eligible for deduction under section 36(1) (viii): (i) Income from housing finance for residential purpose for a period of less than 5 years. (ii) Income from housing finance for non-residential purpose. (iii) Income earned on temporary deployment of funds in investments, which are statutorily required to be made in the business of housing finance. 2.3 The Id. CIT(A) erred in not appreciating that having regard to the nature of the business of the appellant, the following amounts are to be considered as an integral part of the main business of housing finance eligible for deduction under section 36(1)(viii) of the Act: (i) interest on inter-corporate deposits (ii) interest on deposits and investments (iii) interest on investment application amounts, discount on Treasury Bills and Commercial paper (iv) Profit on sale / redemption of debentures / securities (v) Incidental c....
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....o capital gains tax under section 45 of the Act." 5. From the above grounds, we take note of the effective issues arising for our consideration as under: a) Whether the Appellant would be entitled to deduction in respect of provision for exchange loss on foreign currency borrowings arising on account of revaluation of the said borrowings at the year-end (refer Ground Nos. 1.1 to 1.3 of the Concise Grounds of Appeal); b) Whether in arriving at the quantum of deduction available to the Appellant under section 36(1)(viii) of the Income-tax Act ('the Act') the Appellant is justified in taking into consideration: (i) income by way of interest on loans given for residential purposes for period less than 5 years; (ii) income by way of interest on loans for non-residential purposes; and (iii) income by way of interest / discount etc. from temporary deployment of funds in treasury operations (refer Ground Nos. 2.1 to 2.3 of the Concise Grounds of Appeal) c) Whether the deduction allowable for interest paid on foreign currency borrowings and provision for contingencies should also be allocated as deductible against income which is alle....
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....nbsp; IDBI Deposits 92,632,663 Interest on Bank Deposits 362,033,725 4 Interest on Investments Debentures 774,655,522 Government Securities 127,946,436 5 Other Interest Income Investment Application Money 1,225,179 Discount of Treasury Bills 3,632,144 6 Lease Rentals -- 7 Dividend Income -- 8 Profit on Sale of Investment Profit on redemption of Debentures/Govt. Securities 6,748,846 Profit on sale of Debentures/Govt. Securities 1,926,284 9 Other Income Incidental Charges 3,587,016 Gross Total Income 13,454,112,251 Overall Ratio of Housing finance (%) 76.76 Income from Housing Finance (Excluding Dividend & Capital Gains)(%) 83.30 Other Income (%) 16.70 TOTAL - (%) 100 APPORTIONMENT OF PROFIT BEFORE TAX Gross Income 13,454,112,251 Less: Other Depreciation (Allocated in the ratio 81.59 : 18.41) 63,307,993 ....
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....ss viz., Income from leasing finance. Ld. Assessing officer based on the revised allocation of income between the verticals of business arrived at the revised ratio (excluding capital gain and dividend) at 66.25 : 33.75. The way in which the AO has allocated various expenses is described as under: (i) In the computation of income from business eligible for deduction under section 36(1)(viii) of the Act, the AO has reduced the entire interest on foreign currency borrowings and provision for contingencies as expenditure incurred for earning of income from long term housing finance i.e., the eligible business. (ii) AO has allocated depreciation on leased assets solely to the income from leasing (iii) AO has allocated interest expenditure (other than foreign currency borrowings) to income from housing business and other income in the ratio of 66.25 : 33.75 (iv) AO has allocated other expenses to income from housing business and other income in the ratio of 80:20. 8.3. Ld. Assessing Officer accordingly altered the allocation of expenses made by the assessee to re-compute the income from housing finance business @ Rs. 111,94,30,835/-. He thus, disal....
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....o-ordinate Bench in assessee's own case (supra), we note that the facts and circumstances are similar in the present case before us and there is no material change in the applicable of law. The said order has extensively dealt with all the issues before us as stated above and has considered the submissions made by the ld. Counsel of the assessee as well as the ld. CIT, DR. We do not find anything more to add on to the elaborate discussions made therein and the findings so arrived at. The relevant observations and findings are extracts below for ready reference which squarely applies in the present case before us, to deal with the issues raised in ground no.2.1 to 2.4. "17. The ld AR argued that considering the language of section 36(1)(viii) of the Act, a distinction has to be made between the concept of profits derived from providing long term finance and profits derived from the 'business of' providing long term finance. It is an undisputed position that the Assessee is carrying on the eligible business, and therefore the test is to be applied is whether the immediate source of the aforesaid three categories of receipts under consideration is the said eligible business o....
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....ation and consequently, income from loans for a period less than five years, or for non-residential purposes or from treasury operations should also be regarded as fulfilling the requirements of profits derived from the business of providing long term finance. The ld AR also placed reliance on the following decisions where subsidies, interest income etc., have been considered as "profits derived from business of the undertaking," and submitted that the same analogy should hold good for the impugned incomes in assessee's case - (i) CIT vs. Meghalaya Steels Ltd. 383 ITR 217 (ii) CIT vs. Jagdishprasad M. Joshi 318 ITR 420 (iii) Tema Exchangers Manufacturers Pvt. Ltd. vs. ACIT being Order dated 18.07.2018 in ITA No. 415 of 2004 (iv) CIT vs. Shree Balaji Alloys 287 CTR 459 (v) Continental Construction Ltd. vs. CIT 195 ITR 81 (vi) ACIT vs. Nahavasheva International Container Terminal Pvt. Ltd. in Order dated 28.09.2018 in ITA No. 2935/Mum/2012 20. The ld AR drew attention to the cases where exemption under section 10(23FB) of the Act has been extended to interest and other income arising from temporary deployment of funds....
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.... eligible and the non-eligible business. Further, other expenses have been allocated by the AO on an adhoc basis in the ratio of 80:20 towards income from housing finance and income other than from housing finance. After re-characterizing the income between eligible business and ineligible business activities, the AO has determined the ratio of such revenue as 64.99 : 35.01. The ld AR in this regard submitted that allocation of such cost should also be made in the ratio as finally determined consequent to findings given by the Tribunal on re-characterisation of income into eligible and ineligible business. 23. The Ld.DR submitted a detailed written submission and the same is taken on record for adjudication. The brief of the key arguments of the ld DR are as given below - (1) The Finance Act, 1995 has amended Section 36(1)(viii) to limit the deduction to 40% only in respect of income derived from providing long-term finance for the activities specified in section 36(1)(viii). Now, income arising from other business activities or from sources other than business shall not be taken into account for computing deduction under section 36(1)(viii). 'Long term finance' w....
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.... the flats from the developer for a period of more than 5 years cannot be the reason to claim deduction for the entire loan given to the developers since it is the individual loan transaction that needs to be looked into as to whether it is a long term loan given for more than 5 years or not. Therefore, the deduction claimed by the assessee with respect to loans given to developers for a period of less than 5 years cannot be in its entirety being claimed to be eligible for deduction under section 36(1)(viii). (7) The assessee's plea that the loans for non residential purposes are integral part of the loans given to developers engaged in the construction of residential projects which include commercial space like convenient shopping, cannot be considered for eligibility of deduction since the statute has clearly stated that the deduction is given for construction or purchase of houses of residential purposes and, therefore, the amount given for non residential purposes cannot be part of deduction claimed under section 36(1)(viii) of the Act. (8) The assessee claims that the purpose of other investments is to park temporary surplus. However this facts is not cle....
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....axmann. com 145 clearly interpreted that the subsidies were reimbursement of an element of cost, and the incentives though had the object to reduce the cost but were not in the nature of reimbursement of cost. Just as the incentives have independent source of income and are far removed from reimbursement of an element of cost, the income from treasury operations as in the case of assessee also have independent source and are not in the nature of reimbursement. (12) As per assessee's submission, it is mentioned that there is always a time gap between the reasons of the funds and the utilization in the activity of lending to the borrowers which shows that the source of such income (from interest on deposits and investments, profit on sale of investments, etc.) in no way can be said to be the income from long term finance business. The nexus is not direct but at the best, can only be said to be incidental. (13) The income from treasury operations in assessee's case has immediate source in deposits / debentures etc. where the funds have been deployed, and not from the housing loans for period more than 5 years. Similarly the income earned from housing loan < 5 yea....
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....ived from such business of providing long-term finance (computed under the head "Profits and gains of business or profession" before making any deduction under this clause)) carried to such reserve account Provided that the corporation or, as the case may be, the company is for the time being approved by the Central Government for the purposes of this clause Provided further that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid-up share capital and of the general reserves) of the corporation or, as the case may be. the company, no allowance under this clause shall be made in respect of such excess. Explanation. In this clause- (a) "financial corporation" shall include a public company and a Government company: (b) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) "Government company" shall have the meaning assigned to it in section 617 of the Companies Act. 1956 (1 of 1956).] (d) "infrastructure facility" shall have the meaning assigned to it in clause 23G) of section 10; (e) "long-te....
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....tion under section 36(1) (viii). The dispute here is whether the entire income from the business of long term finance should be considered for the purpose of section 36(1)(viii) or only that part of income which is earned from lending long term finance are eligible for deduction under section 36(1)(viii). The language of the legislature while quantifying the amount of deduction is "**** of the profits derived from such business of providing long-term finance" and whether this would mean the entire profits of the business of providing long-term finance is the issue here. 31. We notice that section 33AB of the Act which allows deduction to assessee carrying on business of growing and manufacturing tea in India uses similar wordings as under (a) a sum equal to the amount or the aggregate of the amounts so deposited: or (b) a sum equal to twenty per cent of the profits of such business (computed under the head "Profits and gains of business or profession" before making any deduction under this section), whichever is less: 32. The Hon'ble Calcutta High Court in the context of deduction allowable under the said section in the case of Goodr....
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.... Bill, 1995 and paragraph 26 of Circular No. 717 dated 14.08.1995 (pages 5 to 7 of the case law compilation), it has been clarified that the legislative intent behind the amendments brought in section 36(1)(viii) of the Act were to deny such deduction in respect of income arising from (a) other business activities or (b) from sources other than business. The income, on which deduction is claimed by the assessee, is not from other business activities but from the core business of long term finance and the source of income is the said business. The purpose for which the loans on which the impugned interest is earned are granted for construction or purchase of house and this fact is not disputed by the lower authorities. In view of these discussions in our considered view, the interest income earned from loans extended for construction or purchase of house for a period of less than 5 years should also be included in the profits for the purpose of deduction under section 36(1)(viii). Income from housing finance for non-residential purposes 35. The assessee has added a sum of Rs. 42,18,07,237 as part of income for the purpose of claiming deduction under section 36(1)(v....
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.... of business income for the purpose section 36(1)(viii). The assessee being in the business of lending long term finance for residential purpose raises funds from organizations and financial institutions in India and utilizes the same for lending. At any point in time there is always surplus fund mobilized by the assessee for the reason that the disbursement of loan takes place in tranches and also that the assessee cannot raise a loan only when the requirement to lend arises. These surplus funds are parked by the assessee in investments in order to off set the interest income earned against the interest cost incurred. The assessee also raises funds from public deposits and as per the Guidelines issued by National Housing Bank, the Assessee is mandatorily required to invest a certain percentage of deposits raised in the approved Government securities which yields interest income. Therefore it was argued by the Id AR that there is a first degree nexus between the interest income earned and the business of long term finance for residential purposes. The concept of "income derived from" in contrast to other related concept like "income attributable to" has been a subject matter of dis....
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....ess of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression "attributable to". Since we are directly concerned with the expression "derived from", this judgment is relevant only insofar as it makes a distinction between the expression "derived from", as being something directly from, as opposed to "attributable to", which can be said to include something which is indirect as well. 18. The judgment in Sterling Foods case (supra) lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. This Court has stated that there should be a direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental. It therefore found, on the facts before it, that by reason of an export promotion scheme, an assessee was entitled to import entitlements which it could thereafter sell. Obviously, the sale consideration therefrom could not be said to be directly from profits and gains by the industrial undertaking but only attributable to suc....
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....en held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of the business of the assessee. 20. Liberty India's case (supra) being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed. Also, the object behind DEPB entitlement, as has been held by this Court, is to neutralize the incidence of customs duty payment on the import content of the export product which is provided for by credit to customs duty against the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived fro....
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..... Bandhypadhyay submitted that it is not a profit derived from the undertaking. The benefit under section 80IC could not therefore have been granted. He also relied on a judgment of the Supreme Court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking. We have not been impressed by the submissions advanced by Mr. Bandhyopadhyay. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme (DEPB). Both the incentives considered by the Apex Court in the case of Liberty India could be availed after the manufacturing activity was over and exports were made. But, we are concerned in this case with the transport and interest subsidy which has a direct nexus with the manufacturing activity inasmuch as these subsidies go to reduce the cost of production. Therefore, the judgment in the case of Liberty India v. Commissioner of Income Tax has no manner of application. The Supreme Court in....
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....e cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable." (Paras 14 and 15) 25. The decision in Sahney Steel and Press Works Ltd.'s case (supra) dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and finished goods; subsidy on power consumed by the industry; and exemption from water rate. It was held that such subsidies were treated as assistance given for the purpose of carrying on the business of the assessee. 26. We do not find it necessary to further encumber this judgment with the judgments which Shri Ganesh cited on the netting principle. We find it unnecessary to further substantiate the reasoning in our judgment based on the said principle. 27. A Delhi High Court judgment was also cited before us being Dharam Pal Prem Chand Ltd.'s case (supra) from which an SLP preferred in the Supreme Court was dismissed. This judgment also concerned itself with Section 80-IB of the Act, in which it was held that refund of ....
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....ion or purchase of houses in India for residential purposes. In this regard it is relevant to look at the ratio laid down by the Hon'ble Supreme Court in the case of Meghalaya Steels Ltd (supra) while considering the distinction between the expression "derived from" and "attributable to" where it is held that "derived from" as being something directly from, as opposed to "attributable to", which can be said to include something which is indirect as well. Therefore the test for eligibility for deduction is to be the first degree/direct nexus between the income earned and the business of the assessee. The nature of business of the assessee is lending money for construction/ purchase of residential houses which is funded by raising loans from institutions and there is bound to be a time gap in terms funds mobilised and utilised. The assessee is using the idle funds of housing finance business in temporary investments and it is established that the source of investment from which the impugned income is derived is from the housing finance business of the assessee. Therefore the deployment of surplus funds by the assessee in short term investments with an intention to reduce the burd....
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.... the court has not given any specific finding with regard to the correctness of the claim of interest on temporary deployment of funds to be part of deduction claimed u/s. 36(1)(viii). Therefore we applying the ratio of the Hon'ble Supreme Court in the case of Meghalaya Steels Ltd (supra), we hold that the income earned by the assessee from deployment of surplus funds on a short term basis is to considered as derived from the business of providing long-term finance for construction or purchase of houses in India for residential purposes since there is a direct nexus between the income earned and the business of the assessee. Accordingly the same shall be included for the purpose of claiming deduction u/s. 36(1)(viii). 43. The AO is directed to re-compute the income eligible for deduction u/s. 36(1)(viii) afresh in accordance with the directions given in this order and allow the deduction accordingly. 9.3. Thus, following the above appellate order for AY 1998-99 in assessee's own case, it is held that for Assessment Year 1999-2000, there being no material change in facts and applicable law, the disallowance made by the ld. Assessing Officer is to be allowed after rec....
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....6 10.1. It was submitted that the dividend yielding investments are financed from internal accruals and not out of borrowed funds. According to the assessee, investments are out of its share-holder funds and not out of the borrowings. 10.2. Before us, ld. Counsel for the assessee pointed out that this issue has been dealt with by the Co-ordinate Bench in assessee's own case for Assessment Year 1998-99 (supra) whereby disallowance of interest cost was deleted since investments were made out of own funds. For disallowance of other expenses, ld. Assessing Officer was directed to re-allocate administrative expenses based on actual ratio of the investment yielding exempt income to the total average assets for the year under consideration. From perusal of the said appellate order (supra), we note that the issue has been dealt by the Co-ordinate Bench on identical fact pattern, there being no material change in law. The observations and findings arrived at by the Co-ordinate Bench in this issue is extracted as under: '44. The assessee had claimed exemption under section 10(33) of Rs. 40,89,24,273/- u/s. 10(33) against the dividend income earned. The Assessing Officer called....
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.... contention Dividend Rs. In Crores Allocation of Interest Cost 17,772,398.572 17.91% Owned funds (Share Capital & Reserves 81,333,981,107 18.47% Borrowed funds - Housing 63,150,553.399 63.62% Borrowed funds-Others (total of Loan Funds) 99,256,933,078 100.00% Investment Cost Cost of shares yielding Dividend exempt u/s 10(33) (as pr statement given by Treasury) 39,61,553,158 Total interest Cost (as per Sch 10) 9,828,050,523 Less Interest cost towards housing 2,107,553,996 7,720,497,557 Prop. Cost of invst. made out of borrowed funds 2,520,471,533 Prop.interest cost 308,141,271 46. With regard to the other expenditure, the CIT(A) confirmed the stand taken by the Assessing Officer. Accordingly, the CIT(A) gave partial relief to the assessee with regard to the exemption under section 10(33) of the Act. 47. The Ld.AR in this regard invited our attention to paragraphs 7.45 and 7.46 at pages 33 and 34 of the assessment order passed by the AO, wherein, while dealing with section 36(1)(viii) of the Act, the AO has held that the entire borrowings of the Assessee have been utilised f....
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....r has applied an adhoc percentage of 80% to housing finance and balance 20% is allocated among other verticals of business in their income ratio. In this regard we issue a direction to the AO re-allocate administrative expenditure' based on the (actual ratio of the investments yielding exempt income to the total average assets for the relevant financial year and consider the same for the purpose of exemption u/s. 10(33)." 10.3. Following the aforesaid order of the Co-ordinate Bench in assessee's own case on identical issue, we also hold that no interest cost need to be adjusted against the dividend income for the purpose of exemption u/s. 10(33). Also, with regard to allocation of other expenses, we direct the ld. Assessing Officer to reallocate the same based on actual ratio of the investments yielding exempt income to the total average assets for the relevant financial year and consider the same for the purpose of exemption u/s. 10(33). Accordingly, ground no.3 is partly allowed. 11. On the fifth issue, relating to disallowance u/s. 14(A) in respect to income-tax free bonds and section 10(23) bonds, we note that this issue has also been dealt with by the Co-ordinate Ben....
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....owance made in this respect. Accordingly, ground no.4 is allowed. 12. Now we take up sixth issue in respect of addition made on account of receipt of non-compete fees of Rs. 5 crores treated as revenue receipt by the ld. Assessing Officer. This issue is specific to Assessment Year 1999-2000 in ITA No.7447/Mum/2004. In the course of Assessment, ld. Assessing Officer noted that assessee has received an amount of Rs. 5 crores as non-compete fees from General Electric Capital Corporation (GECC) vide non-compete agreement dated 05.03.1999. Ld. Assessing Officer called for explanation as to why this receipt should not be brought to tax. In this connection, assessee made a detailed submission bringing out the terms and conditions of the said agreement to justify that it is a capital receipt not chargeable to tax. Assessee contended that vide this non-compete agreement, GECC was to restrain assessee from carrying on certain business activity. Under this agreement, assessee was not required to perform any positive activity or render any service. This receipt by the assessee for undertaking the restraining obligations could not be stretched as to pertaining to performance of any other dut....
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....reby covenants, undertakes and agrees that except with the prior written consent of GE Capital HDFC shall not, for a period of three (3) years from the Closing Date: (a) be involved as a consultant, promoter, significant investor or partner or franchisee or direct sales associate with any Person, for the purposes of undertaking the Restricted Business in India; or (b) be involved in setting up a joint venture or other similar arrangement in India for undertaking the Restricted Business in India with any foreign or domestic Person; or (c) knowingly solicit or entice or endeavour to solicit or entice away from CCFSL of knowingly employ or aid or assist any other Person or Persons in employing or otherwise retaining the services of any employees of CCFSL; or Provided nothing contained in this Section 4.1, shall restrict HDFC or its Promoted or Co- promoted Companies in its/their normal course of business (a) to provide or avail any financial facility including but not limited to term lending, inter-corporate deposits, commercial paper, bills discounting, securitization of assets, portfolio buy-outs from or to any Person, and (b) from undertaking Restricted B....
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....3-04. It is only vide Finance Act, 2002 with effect from 1-4- 2003 that the said capital receipt is now made taxable [See: Section 28(va)]. The Finance Act, 2002 itself indicates that during the relevant assessment year compensation received by the assessee under non-competition agreement was a capital receipt, not taxable under the 1961 Act. It became taxable only with effect from 1-4-2003. It is well- settled that a liability cannot be created retrospectively. In the present case, compensation received under Non- Competition Agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide section, 28(va) and that too with effect from 1-4-2003. Hence, the said section 28(va) is amendatory and not clarificatory Lastly, in CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 it was held by this Court that if a contract is entered into in the ordinary course of business, any compensation received for its termination (loss of agency) would be a revenue receipt. In the present case, both CIT(A) as well as the Tribunal, came to the conclusion that the agreement entered into by the assessee with Ranbaxy led to loss of source of business, that p....
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....ading structure of his business, nor deprive him of what in substance is his source of income, termination of a contract being the normal incident of the business, and such cancellation leaves him free to carry on his trade, the receipt is revenue: whereby the cancellation of an agency, the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt. Hon'ble Court in the set of facts of this case, agreed with the High Court that what was received by the assessee was income and not capital. 14.2. It was also contended by the ld. CIT, DR that assessee was carrying on the business of consumer financing since 1993 through CCFSL hence it is not the case of loss of source of income. 14.3. In the rebuttal, ld. Counsel for the assessee pointed out that the decision of Gillanders Arbuthnot & Co. Ltd. (supra) has been dealt by the Hon'ble Supreme Court in its later decision of Shivraj Gupta (Supra) in para 6 and 7 whereby it has been observed that High Court misinterpreted the judgment in Gillanders A....
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..... We are in agreement with the ld. Counsel for the submissions made by him before us which are narrated in the above paragraphs. Further, in this respect, we have perused the relevant clause of the non-compete agreement which is extracted above. We also note that it is only w.e.f. 01.04.2003 vide Finance Act, 2002 that the said capital receipt is brought to tax through section 28(va). The said section is held to be prospective since it is mandatory and not clarificatory in nature. We have also taken note of the exception 1 to section 27 of the Indian Contract Act, 1872, in respect of agreement in restraint of trade which otherwise is to be treated as void. In the present case, the agreement is in respect of transfer of business requiring certain pre-conditions to be fulfilled subject to which a restrain is put on the assessee in the form of negative covenant. The restriction in the agreement is with regard to restricted business which also has been defined in the said agreement. Assessee has received the amount for undertaking the restraining obligation and therefore it cannot be treated as business income in the year under consideration which is much prior to the amendment brought....
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....ed. In the first appeal, after considering the submissions made by the assessee, ld. CIT(A) held this claim of expenditure as capital in nature. He observed that price difference for the concession is granted to the employees by the employer to purchase the shares of the employer by the employees which is nothing but the concession relating to the purchase price of the shares. Since the shares are capital asset, therefore any expense incurred to procure capital asset is in the nature of capital expenditure. He thus, confirmed the stand taken by the ld. Assessing Officer in this respect. 21. Before us, ld. Counsel for the assessee submitted that this issue is no longer res integra and has been elaborately dealt with by the Hon'ble High Court of Karnataka in the case of CIT vs. Biocon Ltd. [2021] 40 ITR 151 (Kar) wherein it has held that discount on issue of ESOPs is allowable as a deduction u/s. 37(1) as primary object is not to waste capital but to earn profits by securing consistent services of employees. Ld. Counsel for the assessee in this respect referred to the substantial questions of law before the Hon'ble Court held in favour of the assessee which squarely covers....
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....e judicial precedents referred before us. Considering the facts on record and the judicial precedents discussed above, we find that the issue is covered by the aforesaid judicial precedents in the case of Biocon ltd. and PVR ltd. (supra) in favour of the assessee. Respectfully following the same, the ground taken by the assessee in this respect is allowed. 24. In the result both the appeals of the assessee in ITA No.286 & 287/Mum/2005 are partly allowed. 25. Now we take up appeals filed by the Revenue for three Assessment Years before us in ITA No. 7532/Mum/2004, 724/Mum/2005 and 337/Mum/2005. 25.1. Grounds taken by the Revenue in ITA No.7532/Mum/2004 for Assessment Year 1999-2000 are reproduced as under: "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance made on account of expenditure claimed as entertainment expenses of Rs. 41,03,281/-." 2. "On the facts and in the circumstance of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made on account of expenditure claimed towards maintenance of Guest House amounting to Rs. 33,12,188/-." 3. "On the facts and in th....
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....appeal before us. Learned DR of the revenue relied upon the order of Assessing Officer while learned counsel for the assessec relied upon the order of learned CIT(A). As sub-section (4) of section 37 has been omitted w.e.f. 1.4 1998, the guest house expenses have to be considered under the general provision of section 37(1) and it has to be seen whether the said expenses were wholly and exclusively for the purposes of business The assessee is in the business of financing. We observe that the Assessing Officer has not given any reasons for coming to the conclusion that they are not allowable u/s 37(1). No addition could be made without a specific finding as to the reasons for such disallowance. Therefore, we are not inclined to interfere with the order of learned CIT(A). This ground of the appeal is therefore rejected 4 As regard Ground No. 2, Assessing Officer noticed that the assessee had incurred Rs. 36,86,515/ towards entertainment expenditure but did not provide for the disallowance of the same in spite of the omittance of section 37(2) w.e.f 1.4.98 and the allowability or otherwise of the same is governed by the general provisions of section 37(1) of the Act. The Asse....