TaxTMI 
TaxTMI 
2004 (10) TMI 261
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....ced business on 7th Dec, 1992 in the name of India Trident Maritime (India) (P) Ltd. with shareholding to the extent of 51 per cent held by ITS Investments (P) Ltd. and to the extent of 49 per cent by Mr. V.S. Puri on behalf of Samrat group. Subsequently, the name of the assessee-company was changed to NOL (India) (P) Ltd. and on 22nd Dec, 1997, it was renamed as APL(I) (P) Ltd. after the takeover of APL group by NOL group on 13th April, 1997. It may be mentioned that NOL group, in terms of shareholding, is held by Temasek group, which is a Government of Singapore body. 3. A search was conducted under s. 132(1) in the case of the assessee on 6th Nov., 1999 which resulted into issue of notice under s. 158BC of the IT Act, in response to which return of income for the block period was filed on 4th July, 2000 declaring nil undisclosed income. During the course of search proceedings, a large number of vouchers for cash payments to dock workers were found. It was noted that these vouchers were internally prepared and the employee of the assessee-company who had prepared these vouchers himself signed as recipient of the amount. It was claimed by the assessee that these cash payments h....
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....e payments made to JNPT labour. So, in absence of any evidence to substantiate the claim of the assessee, such expenses have to be treated as bogus and disallowed. (b) Neither the recipients of these amounts nor their confirmations have been produced with respect to these payments. So, the question about quantum can never be answered in the absence of any concrete independent evidence. (c) The port authorities have not given any approval or sanctions for such type of payments to their employees. So, the question of their confirming of such expenses does not arise. (d) Payer is not aware of as to whether the recipients are showing such receipts in their return of income. (e) Even if we hypothetically assume that these payments have been made, then the question comes about legality of these payments. These payments have neither legal sanction nor approved by JNPT or respective ports. So can any payment, to a person employed with Government of India or its affiliates (bodies, trust, etc.) to carry its normal duties more effectively/efficiently be called legal payment? Aren't such payment against public policy? The only answer to these questions ....
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....oney' had not been paid to the dock workers, it would have resulted in further substantial expenditure at the cost of the assessee-company in the form of charges payable to JNPT for allowing detention of ships at the port. It is, therefore, submitted that the 'speed money' has to be paid for quick loading and unloading of ships. It is contended that payment of 'speed money' is a widely prevailing practice at various ports in the country including JNPT and such payment is a legitimate business expenditure. It is submitted that even newspaper reports from time-to-time confirm the practice of payment of 'speed money'. He has invited our attention to the news report in the Economic Times dt. 17th Dec, 1996, a copy of which has been filed. In this report, it is confirmed that the practice of payment of 'speed money' to dock workers is an accepted fact at JNPT. In the detailed report, even the rates at which such payments have to be made are indicated. The learned counsel for the assessee specially invited our attention to these rates as published in the Economic Times, which are as under: No. of containers Amount per box (Rs.) No. of import c....
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....sue is fully covered by the aforesaid finding of the Tribunal in similar facts and circumstances. The view adopted by the Tribunal in the above case for the asst. yr. 1987-88 was followed by other Benches of the Tribunal vide their orders as under: (i) Order dt. 19th Dec., 2001 in ITA No. 9205/Bom/1991 (asst. yr. 1988-89) and ITA No. 8826/Bom/1992 (1989-90) (ii) Order dt. 2nd March, 2000 in ITA No. 4807/Bom/1994 for the asst. yr. 1991-92. 7. The learned counsel for the assessee also placed reliance on the following decisions: (i) Sreevidya Family Trust vs. Asstt. CIT (1995) 78 Taxman 289 (Coch)(Mag) (ii) CIT vs. Arumugham Chettiar (1980) 125 ITR 753 (Mad) Shri Y.P. Trivedi has invited our attention to the ratio of the Madras High Court decision in the case of Arumugham Chettiar, which is reproduced below from the headnote: "The assessee, a registered firm carrying on business as stevedoring contractors to some companies at the Madras port, made payments of commission or mamool to the crew of the various ships calling at the port. It claimed that such payments were inevitable in this line of business as the captain of-the ship had t....
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.... AIR 1970 SC 1626. A copy of the judgment has been filed. In this case, it was held by the Hon'ble Supreme Court that the dock labour workers could not be considered to be the employees of the Dock Labour Board. Shri. Y.P. Trivedi concluded his arguments by forcefully submitting that the learned CIT(A) was wholly unjustified in confirming the uncalled for addition made by the AO. 9. Shri K.L. Maheshwari, the learned CIT-Departmental Representative supported the orders of the Revenue authorities. He invited our attention to the statements of the concerned persons recorded during the course of search and also subsequently during the course of assessment proceedings, relevant portion of which have been reproduced by the AO at pp. 2 to 5 of his order. It is contended that during the course of search, the concerned persons were confronted by the officers of the IT Department with the vouchers, it was categorically submitted by them that these payments cannot be verified with reference to any relevant evidence and they also surrendered and offered the amount as assessee's income, Shri Maheshwari submitted that it is the onus of the assessee to establish beyond any doubt that a....
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....n board the ship. Machineries like cranes, forklift, loaders, etc., are also required, depending on the nature of cargo. Besides, expenditure like port/customs overtime charges, launch hire charges, barge hire charges are also incurred by the stevedoring agent. For performing the stevedoring work, a license is required from the port authorities. The stevedoring agents are required to hire gangs of labour from the Dock Labour Board to lift the cargo from the ship to the jetty, or vice-versa. Labour charges are paid at prescribed rates to the Dock Labour Board. Since the cargo is to be loaded/unloaded quickly to avoid demurrage charges, generally some additional payments are also made as 'efficiency money' to the labour gangs for extra and speedy work. Such payments are against the provisions of the Dock Labour Board Act, applicable to different ports, and are, therefore, not recorded. Instead, other bogus/inflated expenditure are debited to cover up the same." 11. Shri Maheshwari also relied on the Andhra Pradesh High Court decision in the case of CIT vs. Transport Corporation of India Ltd. (2002) 177 CTR (AP) 55 : (2002) 256 ITR 701 (AP). Drawing support from this case, ....
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.... to procure business was not deductible under s. 37." 13. We have given a very careful consideration to the rival submissions made before us by both the parties and have gone through the facts as also the precedents cited before us. In our view, nothing much turns on the statements recorded during the course of the search. We have gone through the statements and we find that the persons categorically confirmed that payment of 'speed money' was required to be made for efficient conduct of the work of loading and unloading ships and such payment was actually made. During the course of interrogation, it was not admitted at any point of time that the payment was not genuine or it was bogus and was not incurred. However, it is true that the amount was offered as assessee's income on the ground that the cash payments were not in accordance with the rules and regulations. In our view, this issue has to be decided after taking an overall view of the entire facts and circumstances and not merely on the strength of statements recorded during the course of search. From the reports published in reputed and leading national dailies like Economic Times and The Hindu as also from t....
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....yments are in cash and acknowledgement from the actual recipients are not available even in a single case. The Andhra Pradesh High Court, in the case of Transport Corporation of India Ltd observed that if the vouchers are signed only by the employees of the assessee and not by the actual recipient, any number of such vouchers could be produced by the assessee to defraud the Revenue. In the present case, the details of such payment have been duly recorded which are compiled at pp. 127 to 153 of the paper book. In respect of each payment, there is a voucher wherein the details of import and export, number of containers, rate at which the payment is calculated, etc. have been mentioned. However, as mentioned above, 5 per cent has been added and Rs. 500 have been further added in respect of each shift. The assessee, apparently, is not in a position to establish that actually the payment has been made to the extent indicated in these vouchers. Considering the totality of facts and circumstances and the various cases cited before us and also the Tribunal's decision in the case of NDSTC, in our view, it would be fair and reasonable to disallow, on estimate basis, 25 per cent of the ex....
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....r the Reserve Bank of India (RBI) guidelines. It was claimed that these accounts are operated by the assessee only on behalf of the principals and the amount deposited therein are used only for meeting various expenditure on account of brokerage, FAC, THC and detention charges which are payable on behalf of the principals. This was a system followed by the assessee in the pre-merger period, i.e., before February, 1998. In the post-merger period, i.e., after February, 1998, the account of the principals including the bank balance held by the assessee on behalf of the principals formed part of the books of account of the assessee. However, at the end of the relevant year, the balance lying in these bank accounts are brought into the books of the assessee by crediting corresponding amounts as liability payable to the principals. The detention charges are collected from consignees where the containers are kept beyond the free period granted to them. These collections are made on slab system depending on the duration over and above the free period time. The AO found that as per the regulations and directions of the RBI, only the outstanding liabilities on account of detention charges ar....
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....d neither any amount was paid by the assessee to any brokers nor any part of it was remitted to the principals. As mentioned above, the details of the brokers to whom these amounts are claimed as payable are not available. Regarding such liability for brokerage, the AO drew following inferences: (a) Assessee is benefited since without paying any taxes it is able to have control over a big chunk of funds, which it is not required to pay to anyone i.e., neither the creditors (since they do not exist) nor the principals (since amount cannot be repatriated) and assessee can utilize the amount for its own benefit in the manner it likes. (b) The principals need not much bother about sending advance payments for meeting expenses in India, to the extent of such bogus expenses (lying unclaimed) shown as amounts payable to it. (c) None of them has to pay any tax on such receipts as principal (not liable to tax in India because of DTAA with Singapore) must have claimed it as expense in its own country and assessee has not routed it through its own books of account by claiming it as the liability of the principal towards its (principal's) creditors in India, whic....
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.... financial transactions vis-a-vis the principals, is only of agents and therefore the assessee-company is holding the surplus funds in a fiduciary capacity and such funds have been used by the assessee-company only on behalf of the principals. The assessee has not used any part of such liabilities for its own purposes and these are genuine liabilities payable to the principals. It is contended that the accounts of the assessee-company are annually audited and the auditors have never made any adverse comments about the outstanding liabilities. It is argued that since the assessee is only acting as an agent, its capacity is entirely fiduciary and for this proposition, reliance has been placed on the following judgments: (i) CIT vs. Tanubai D. Desai (1972) 84 ITR 713 (Bom); (ii) CIT vs. Sandersons & Morgans (1970) 75 ITR 433 (Cal); (iii) CIT vs. A. Tosh & Sons (P) Ltd. (1987) 59 CTR (Cal) 272 : (1987) 166 ITR 867 (Cal); (iv) CIT vs. M.L. Bhapkar (1993) 112 CTR (Bom) 105 : (1994) 207 ITR 464 (Bom); (v) CIT vs. D. Shankaraiah & Ors. (2001) 166 CTR (SC) 370 : (2001) 247 ITR 798 (SC); (vi) CIT vs. Devatha Chandraiah & Sons (1987) 61 CT....
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....respect of each principal. Only the remittable portion of detention charges can be credited to the collection account after determining the remittability of the same." Part of the detention charges have been allowed to be remitted by the RBI as per their letter dated 5th March, 1994. Therefore, such detention charges have been remitted to the extent allowed by the RBI. The learned counsel also submitted that any amount which is in the nature of liability originally cannot become trading receipt. For this proposition, he has relied on the Hon'ble Supreme Court decision in the case of Travancore Rubber & Tea Co. Ltd. vs. CIT (2000) 160 CTR (SC) 1 : (2000) 243 ITR 158 (SC). It is also contended that a genuine liability cannot be brought to the charge of tax under s. 41(1) as held by the Hon'ble Supreme Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. (1999) 152 CTR (SC) 46 : (1999) 236 ITR 518 (SC). For the same proposition, the learned counsel has relied on the Bombay High Court decision in the case of Mahindra & Mahindra Ltd. vs. CIT (2003) 182 CTR (Bom) 34 : (2003) 261 ITR 501 (Bom). The learned counsel also invited our attention to the contradiction in the AO&#....
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....s amount cannot be used for any other purposes on behalf of the principals and it cannot be remitted to the principals. In the absence of details of the brokers, nothing can be paid to the brokers also. Thus, the assessee has derived this benefit which has to be brought to the charge of tax under s. 28(iv) of the IT Act. Shri Maheshwari contended that similar is the position regarding FAC and THC. He invited our attention to the letter from RBI, copy of which is compiled at pp. 202 to 205 of the paper book. Regarding detention charges, the learned CIT-Departmental Representative was fair enough to concede that to the extent such charges have actually been remitted to the principals, it cannot be said that the liability was bogus. Shri Maheshwari submitted that the learned CIT(A) has reduced the addition on account of detention-charges and has allowed relief to the assessee to the extent of Rs. 2,14,78,504 on the ground that the aforesaid amount was remitted to the principals. It is submitted that the relief allowed by the learned CIT(A) is the subject-matter of the Departmental appeal. It is contended that there is no discussion in the order of the learned CIT(A) to indicate that t....
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....r remitted to the shipowners. There was a clear finding that the amount of interest was still lying with the assessee. All these factors taken together clearly showed that the amount deposited in the bank belonged to the assessee and, therefore, the interest thereon also accrued to the assessee." 21. The learned counsel for the assessee, in his rejoinder, submitted that the various cases referred to by the learned CIT-Departmental Representative on the issue of cessation of liabilities are not applicable to the facts of the assessee's case for the simple reason that in those cases, the liabilities were liquidated and credited to the P&L a/c by the assessee. In the present case, the assessee has been all along showing these amounts as liabilities payable to the principals and the assessee has not appropriated any part of such liabilities for its own purposes. Such liabilities are independently and separately reflected in the books of account. It is also argued that further under s. 218 of the Indian Contracts Act, the assessee is bound to pay these liabilities to the principals as there is a legal and contractual obligation on the assessee. It is also submitted that the cases....
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....and character of the liabilities for payment of expenses, it would be fruitful to make a reference to the letter of the RBI. In this letter, it has been made clear by the RBI that under the extant regulations, resident Indians cannot make any payments on behalf of any non-residents and all expenditure incurred by local agent on behalf of the principals has to be met out of the funds provided by the principals in advance. Accordingly, the shipping companies have to keep their agents in adequate funds necessary to meet all the expenditure to be incurred in connection with their ships calling at Indian ports. The directions of the RBI with regard to JRC, FAC and inland haulage charges may be reproduced below from p. 2 of the RBI's letter: "These charges represent domestic land-based costs, including documentation and other handling charges payable to the local shipping agents as per Karmahom Conference guidelines, recovered from shippers/consignees. These need to be collected in such a way that no surplus remains in the hands of the shipping company or its agent. The question of surplus collection of such charges should not, therefore, arise. On the basis of statement of ....
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....s have revised the graded scale of collection charges thereafter and hence a small portion of charges collected m excess of the approved scale remains blocked The need for revision in the approved scale, if any, and the scale at which such charges could be allowed in future are being examined by the appropriate agency of the Government of India. Regrettably, therefore, RBI would not be in a position to consider deblocking of blocked excess collections till the issue has been decided at the Government level. ITM, have generally followed the correct procedure in submission of data in this regard and in case of doubt, have been seeking necessary clarifications by deputing their staff. It may, however, be mentioned that due to pressure of work as also oversight, on occasions, amount to be blocked are not correctly worked out resulting in releasing higher amounts for local use." From the above, it becomes clear that the liabilities fall into two distinct categories. Detention charges are not retained for disbursement of any expenses and these charges are allowed to be remitted by the RBI in part as per the guidelines of the RBI. On the other hand brokerage/THC/FAC are collec....
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....ned counsel for the assessee has also forcefully contended that s. 41(1) is not applicable and he has referred to the Supreme Court decision in the case of Sugauli Sugar Works (P) Ltd. and the Bombay High Court decision in the case of Mahindra & Mahindra Ltd. In our view, this issue cannot be decided having regard to the ratio in the case of Sugauli Sugar Works (P) Ltd. It has been contended by the learned CIT-Departmental Representative that the Supreme Court decision in the case of T.V. Sundaram Iyengar & Sons Ltd. has to be followed in preference to the case of Sugauli Sugar Works (P) Ltd. We find that this controversy was addressed by the Kerala (sic-Madras) High Court in the case of CIT vs. Sundaram Industries Ltd. (2002) 253 ITR 396 (Mad). The Kerala (sic-Madras) High Court discussed both the Supreme Court decisions and held that the judgment in the case of T.V. Sundaram Iyengar & Sons Ltd. was rendered by three-Judges Bench whereas the judgment in the case of Sugauli Sugar Works (P) Ltd. was rendered by two-Judges Bench. It was held that larger Bench decision must be followed in case of conflict. The learned counsel has relied on the Bombay High Court decision in the case of....
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....the above facts, s. 41(1) of the Act was not applicable." 27. In our view, the facts of the present case are completely different. It is true that s. 41(1) will not be applicable as the assessee-company has not claimed deduction in respect of this amount in any of the earlier assessment years or during the present block period. However, the character of the collection is completely different. Barring detention charges, all other collections were made for meeting expenses and, therefore, these collections arose during the normal course of the assessee's business activity. These collections were of revenue character right from the very beginning and they were not in the nature of capital receipts. At this stage, the ratio of the Supreme Court decision in the case of T.V. Sundaram lyengar & Sons may be reproduced below from the headnote. "If an amount is received in the course of a trading transaction, even though it is not taxable in the year of receipt as being of revenue character, the amount changes its character when the amount becomes the assessee's own money because of limitation or by any other statutory or contractual right. When such a thing happens, comm....
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....such amount have to be treated as assessable in the case of the assessee. In the case of K.C. Thapar & Ors., the Supreme Court observed that it cannot be laid down as a matter of law that any amount which was in any way not received as trading receipt can never become a trading receipt. In this case, the assessee carried on the business as del credere agent of collieries and also as an agent of the purchaser of coal. The assessee used to claim from the colliery companies the amount described as 'under charges'. These amounts were realized by the assessee even though not claimed by the purchaser. As and when demanded by the purchaser, the assessee used to pay off their claims on account of unloading of wagons. Every year, there was an excess of receipts over payments which was taken to the P&L a/c. The Supreme Court observed that the important features in this case were that the assessee collected the amounts as 'under charges' in advance even before any claim was lodged It realized the amount from the colliery companies not because of any demand was made, but in order to protect itself from the eventuality of any demand being made against it as a del credere agent. ....
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....ead note: "From a reading of s. 28 of the IT Act, it is clear that besides the profits and gains of business and profession carried on by the assessee at any time during the previous year, certain other benefits, etc., specified therein are also chargeable to income-tax under this head. Clause (iv) deals' with the value of any benefit or perquisite, whether convertible into money or not. The only condition for inclusion of the same in the chargeable income of the assessee is that it should arise from business or exercise of a profession. During the previous year relevant to the asst. yr. 1976-77, the assessee credited to its P&L a/c a sum of Rs. 63,379. This amount comprised a sum of Rs.7,429 deposited by the customers of the assessee in earlier years as advance for purchasing pumps. These parties never turned up to buy the pumps or claim refund. Another sum of Rs. 4,321 represented excess commission received from parties which those parties never claimed back. Another sum of Rs. 13,249 was collected by the assessee on behalf of its principals, who never claimed the same from the assessee. The balance represented savings from remittances received from the fore....
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.... for the purposes of incurring expenses during the course of its normal business activities as shipping agents. The assessee has not maintained any record or any details whatsoever about the persons to whom such liabilities are payable by way of disbursement of any expenses. These amounts can neither be credited to the account of the principals nor remitted to them nor used for any other purposes. The amounts are reflected in the account of the assessee and form part of its balance sheet on the liabilities side. These liabilities are, therefore, reflected in the assets of the assessee-company on the assets side of the balance sheet. Thus, the funds are under complete control of the assessee-company and can be used for its business purposes. The assessee-company cannot disburse these amounts for payment of expenses in future for the simple reason that no details are available regarding the persons to whom such payments are to be made. There are no vouchers or bills which have been raised by these persons which may be in assessee's possession on the basis of which the identity of such persons can be established. As mentioned above, the liability on account of brokerage has remain....
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.... of tax. Here, a reference may be made to the contention of the learned counsel for the assessee that in future the assessee may be compelled either to pay all the expenses or to remit the amount under the directions of the RBI. In our view, the issue is required to be decided on the basis of facts and circumstances which prevail at present. As mentioned above, the assessee has no details about the brokerage and other expenses which are payable and till today the RBI has not permitted for remittance of any amount to the principals. In any case, if at any time in future, the assessee is compelled to part with any portion of such liabilities, which has already been brought to the charge of tax in its hands, the assessee can claim deduction under the provisions of the IT Act, which may be duly considered by the IT authorities as per the provisions of law 33. The last ground raised by the assessee pertains to levy of surcharge on the tax determined as payable under s. 113 of the IT Act. The learned counsel for the assessee invited our attention to the provisions of s. 113, which is reproduced below: "The total undisclosed income of the block period, determined under s. 158B....
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.... No. 4075: 37. This appeal has been filed by the assessee against the order dt. 31st March, 2003 of CIT(A)-VIII, Mumbai. As per the revised grounds of appeal filed by the assessee under letter dt. 7th Oct., 2004, following issues are agitated by the assessee: 1(a) The learned CIT(A) erred in confirming the order of the AO and upholding the disallowance/additions in respect of unpaid liability payable to the principals and other disallowances based on surmises, conjectures and without proper appreciation of the facts and circumstances of the case and the submissions including legal submissions made to him from time-to-time and upon improper application of law. 1(b) The learned CIT(A) erred in disallowing Rs. 2,96,952 under s. 43B in respect of certain late payments to PF and ESIC and adding Rs. 2,72,921 in respect of income taxed under s. 2(24)(x) r/w s. 36(1)(va) of the IT Act in respect of employees' contribution to PF and ESIC as detailed hereunder: Sl. No. Particulars Amount added/disallowed (Rs.) 1. Disallowance under s. 43B of the Act (a) Delayed contribution of PF 2,19,180 (b) Delayed contribution ....
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....ew, s. 43B is not applicable at all and the assessee's claim has to be considered under s. 36(1)(va) and s. 2(24)(x) of the IT Act. Sec. 36(1)(va) reads as under: "Any sum received by the assessee from any of his employees to which the provisions of sub-cl. (x) of cl. (24) of s. 2 apply, if such sum is credited by the assessee to the employee's account in the relevant fund or funds on or before the due date. Explanation-For the purposes of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise." From the above, it is clear that if the payments are made beyond the due date prescribed under the relevant Act, such payments are not deductible by virtue of the provisions of s. 36(1)(va). Admittedly, these payments have been made beyond the prescribed time-limit. Therefore, the disallowance with regard to payment of employees' contribution is confirmed. 39. The next issue pertains to addition of Rs. 7,5....