Income Tax Appellate Tribunal - Mumbai
Bombay Gas Co. Ltd. vs Dy. Cit on 24 August, 2004
Equivalent citations: [2005]1SOT35(MUM)
ORDER
A.D. Jain, J.M. The assessee has raised the following effective grounds :
"I. 1. The learned CIT (A) erred in confirming the disallowance of Rs. 7,490 and Rs. 85,000 made by the DCIT. In respect of Registrars fees for formation of new company and legal expenses in connection with the amalgamation of Bombay Gas PLC with the appellant company respectively.
II. 1. The CIT (A) erred in confirming the action of the DCIT in not deciding upon the nature of the appellants income on the alleged ground that there is no requirement to do so because the expenditure claimed by the appellant was capital in nature and erred in holding that sub-letting of part of premises is not a business income.
III. 1. The CIT (A) erred in confirming the disallowance made by DCIT of Rs. 3,00,000 being 1/10th of the amount paid as compensation and brokerage on the alleged ground that payment was made to LIC (owner of the officer premises) mainly to give premises on sub-lease land, therefore, was capital-in-nature.
IV. 1. The CIT (A) erred in confirming the disallowing made by the DCIT in respect of irrecoverable bank deposits of Rs. 18,108 written off during the year.
V. 1. The CIT (A) erred in confirming DCITs action of rejecting appellant Companys claim for short-term capital loss on transfer of obsolete machinery of Rs. 31,521.
VI. The CIT (A) erred in confirming the disallowance made by the DCIT in respect of irrecoverable bank balance of Rs. 21,985 with London Branch charges to profit and loss account as bank charges.
VII. 1. The CIT (A) erred in confirming the disallowance under section 43B of the Act made by the DCIT of Rs. 14,326 being Employees Provident Fund contribution in respect of 1.67% (difference of 10% and 8.33%) for the period June 1989 to May 1990, on the alleged ground that the payment was not made in time.
VIII. 1. The CIT (A) erred in confirming the DCITs action of rejecting appellants claim for carry forward of unabsorbed depreciation for assessment years 1988-89 to 1990-91 amounting to Rs. 6,89,389 on the alleged ground that there is no valid return filed for those years.
2. At the out set, the learned counsel for the assessee submitted that he is not pressing ground Nos. 4 to 6. Rejected as not pressed.
3. Apropos ground No. 1, this deals with disallowance of Rs. 7,490 on account of Registrars fees for formation of new company and Rs. 85,000 on account of legal expenses in connection with the amalgamation of Bombay Gas PLC with the assessee-company respectively.
4. The claim for the amount of Rs. 7,490 has not pressed and is rejected as such.
5. Regarding the legal expenses of Rs. 85,000, the learned CIT(A) upheld the disallowance in view of the decision of the Honble Bombay High Court in the case of Godfrey Phillips India Ltd. v. CIT (1994) 206 ITR 231 (Bom).
6. Before us, the learned counsel for the assessee has placed reliance on the decision of the Supreme Court in the case of CIT v. Bombay Dyeing & Mfg. Co. Ltd. (1996) 219 ITR 521 . Finding that amalgamation was necessary for the efficient conduct of the business, the Tribunal, in that case, held that the amount paid to the solicitors firm, was revenue expenditure. The High Court rejected the application to direct reference. This was upheld by the Honble Supreme Court, holding that expenses incurred towards professional charges, of the solicitor firm for the services rendered in connection with the amalgamation was in the course of carrying on of the assessees business and, deductible as a revenue expenditure. Respectfully following the said Supreme Court judgment, this issue is decided in favour of the assessee. Ground No. 1 is, therefore, parity accepted.
7. Ground No. 2 and 3 deal with the non-adjudication of the assessees income from sub-letting of premises, holding the expenditure claimed to be capital and disallowing the amount of Rs. 3 lakhs written off during the year, being 1/10th of the aggregate of the amount paid as compensation of Rs. 2,50,000 and brokerage of Rs. 5 lakhs. During the year under consideration, the assessee gave its rented premises on leave and licence. For this, it paid an amount of Rs. 25,00,000 to LIC (original tenant), as compensation for repairs, renovation and sub-letting of the portion of the premises and an amount of Rs. 5 lakhs as brokerage to M/s. Eureka Enterprises. The State Bank of India was inducted in the premises. The assessee spread over the entire expenses of Rs. 30,00,000 over a period of 10 years and clairned Rs. 3 lakhs expenses against the income from subletting. This expenditure was held by the assessing officer to be capital in nature on the ground that the payment given was made to the LIC, mainly, to give the premises on sub-letting and that as per the provisions of the Rent Act, once a person grants sub-letting of the premises even if the nomenclature be of leave and licence, the licence acquires the status of "Statutory tenant" and cannot be evicted even after 10 years and that therefore, the expenditure incurred is a one time expenditure for granting the tenancy, having the nature of capital expenditure.
8. The learned CIT(A) upheld the assessing officers decision, holding that in his opinion, it was not incumbent on the assessing officer to discuss the nature of the income, for earning which, the expenditure had been incurred.
9. Before the CIT(A) the learned counsel for the assessee impugned this decision, submitting that the assessing officer should have considered the nature of the income in question. In the subsequent years, the assessees such claim has been accepted by the assessing officer. By not doing so for this year, upon having considered the totality of the circumstances, the assessing officer has erred in holding that the assessee has acquired benefit of enduring nature by making the payment and that, therefore, the expenditure is of capital nature. In view of this, estimates have to be made for gas sales in 1981, which are reflected under the head "sundry debtors" account. Reconciliation of such Gas Debtors balance of Rs. 25.28 lacs as on 31-3-1991 has not been made on the basis of the individual balances in the District-wise Gas Debtors Registers. These balances are also subject to confirmation. Attention has also been drawn to the Directors Report of the assessee-company, for the assessment year 1990-91. In the said report, it has been stated that :
"The position is unchanged except for the continued harassment being caused to the company by the purposeless litigation indulged in by an unrecognized union with negligible membership in spite of the fact that and overwhelming majority of the employees have reached a settlement with the company on all issues and which is now being implemented faithfully."
In this report, it has also been stated that :
"There is wide-spread awareness today of the role that piped gas distribution in this Metropolitan city can play in substituting the liquid petroleum fuels like Kerosene, LSHS, Fuel Oil and LPG and effect intrafuel substitution worth over Rs. 180 crores per year (per year). According to latest reports the project has been modified to substitute automotive fuel like diesel and petrol with compressed natural gas (CNG) to the extent of 65 million cubic meter of gas per year or 65,000 tonnes of automotive fuel with a replacement value of Rs. 36.00 crores.
In the techno-economic feasibility report of M/s. GAIL, (April 1989), the project cost has been estimated at Rs. 418 crores on the basis of 1988 prices; the upward revision to 1990 prices was around Rs. 500 crores. After devaluation of the rupee the project cost is now reported to be revised at $ 225 million or Rs. 611 crores".
The aforesaid factual extract has been pointed out to state that the assessee-company was going through a low point in its business activity. It was, therefore, that it decided to exploit its asset, i.e., premises, by letting it out. LIC was the tenant in the premises in question. The assessee sought permission from the LIC to allow the premises to be sub-let to SBI. For the said permission, the amount of Rs. 25,00,000 was paid to the LIC. State Bank of India was introduced to the assessee by M/s. Eureka for which Rs. 5 lakhs was paid as brokerage by the assessee. The assessee offered the income as business income, based on the theory of commercial exploitation of its assets, during the period of lull in the business. It has been submitted that the expenditure claimed is allowable expenditure. No enduring advantage has accrued to the assessee.
10. Our attention has further been drawn to the page 30 of the paper book which is the Leave and License agreement in question entered into between the assessee and the State Bank of India. As per this agreement, the State Bank of India has been allowed by the assessee to use a portion of the premises as a licensee, for a period of five years, with option of five years on the terms and conditions mentioned in the said agreement. In clause No. 9 of the said agreement, it has been, inter alia, mentioned that this agreement was to be a mere licence. The licensor was, at all times, to have free and unobstructed access to the said premises and the Licensor was to be deemed to be in possession thereof. The use and occupation of the premises by the Licensee was stated to be restricted for the purpose of using the same on the terms and conditions mentioned in the license agreement. Clause 27 of the agreement contains the termination clause. It states that if the licencee fails to pay the licensor the aforesaid monthly licence fee, monthly and/or at the rate and in the manner and within the time as aforesaid and/or commits any breach of the terms and conditions of the agreement, the Licensor is entitled to terminate the agreement.
11. On the other hand, the learned Departmental Representative has supported the orders of the taxing authorities and has submitted that for the reasons recorded therein the disallowance has rightly been made. The Licencee in question has been allowed to operate for 15 years. Therefore, an enduring benefit has accrued to the assessee. The expenditure, therefore, cannot be treated as revenue expenditure.
12. It is not disputed that the premises in question has been allowed to be used under the licence agreement, for 15 years [10 years-sic]. Enduring benefit has accrued to the assessee. Moreover, the Licensee is a statutory tenant and the eviction clause contained in the Licence agreement, would be of no help in case the licensee is sought to be evicted. Though the expenditure is a one time expenditure, it cannot by itself, be a conclusion of the nature thereof being capital. In the above facts, this expenditure has correctly been held to be capital expenditure.
13. In view of our finding that the expenditure incurred by the assessee is capital in nature, the question regarding amortization thereof, is rendered infructuous.
14. The assessees income from sub-letting of the premises, cannot be termed as "income from business or profession". It is an admitted case of the assessee that the premises were given on license, for exploiting the said asset commercially, during the period of lull in business. The assessees business is not of letting out the premises. Therefore, the income in question is capital in nature.
15. Therefore, ground Nos. 2 and 3 are rejected.
16. Coming to ground No. 7, Rs. 14,326 was disallowed under section 43B, on the ground that the payment was not made in time. During the year, the assessee had made provision of Rs. 14,326, difference in contribution from June 1989 to May 1990. This contribution was made in May 1990. The assessing officer observed that as per-CWT Circular dated 6-6-1989 under the Employees Provident Fund and Miscellaneous Provisions Act, employees contribution to Provident Fund was enhanced from 8.33% to 10%. This enhancement was in respect of 98 Industries. The assessee-company made representation to the Regional Provident Fund CIT, stating that they did not fall under any of the said 98 Industries. However, they were given to understand that if they fail to comply with the enhanced rate, a show cause notice would be issued. Therefore, the assessee-company paid the aforesaid amount and, accordingly, made the claim that since the payment had been made in accordance with the demand raised by the Provide it Fund CIT, the same should be allowed. Rejecting the assessees contention, the assessing officer observed that the payment was not in time, although the circular was issued on 6-6-1989. The assessees further contention that liability arose only when the Provident Fund people communicated to the assessee-company, vide their letter dated 10-5-1990, was also not accepted by the assessing officer, observing that there was earlier, communication of 6-6-1989 in the shape of CBDT Circular. The learned CIT (A) confirmed the assessment order on the issue.
17. At page 60 of assessees paper book, the letter from the office of the Regional Provident Fund CIT, has been attached. A copy of the notification dated 17-5-1989, issued by the Ministry of Labour, Government of India, enhancing the rate of contribution from 8.33 per cent to 10 per cent in respect of 98 industries, as specified in the schedule annexed to the notification, was enclosed therewith. The establishments exempt under section 17 of the Employees Provident Fund Act. The establishment exempt under section 18 of the EPF Act, 1952, the establishments granted relaxation under rule 79 of the EPF Scheme, 1952, and the establishments whose employees are granted exemption 7 under rules 27-27A of the EPF Scheme, 1952, were advised to amend their rules and deduct the PF contribution at the rate of 10% with effect from 1-6-1989, if the establishment falls under the said scheduled industry.
18. It. is not denied that the assessee does not fall within the 98 industries. It is also not denied that payment of Provident Fund amount was made within the year. Such demand does not attract the penal provisions of section 43B of the Act, as has been held in the case decided by the Bornbay Tribunal which has been upheld by Honble Bombay High Court in the case of CIT v. Maharashtra Sale Seeds Corpn. Ltd. IT Appeal No. 14 of 2000, dated 25-1-2000), wherein, in an identical situation, the appeal filed by the revenue has been dismissed by Honble Bombay High Court by observing as under :
"The assessee made payment of contribution to the employees provident fund under the Provident Fund Act within the grace period. Under the Provident Fund Act the penalty is contemplated for delay in making the payment. The assessing officer disallowed the contribution paid by the assessee on the ground that the grace period is contemplated not by the Act but by the circular issued by the department/officer, RPFC. The Tribunal deleted the disallowance by observing that the assessing officer was not justified in disallowing the payments of provident fund although the same was made within the grace period. We do not find any, substantial question of laws arising in the present case. The Tribunal has correctly come to the conclusion that the amount was paid within the grace period provided for under the directions issued by the RPFC under section 38 of the said Act, 1952."
19. Therefore, ground No. 7 is accepted.
20. Ground No. 8 relates to the assessees claim for carry forward of unabsorbed depreciation for assessment years 1988-89 to 1990-91 amounting to Rs. 6,89,389. Such claim was rejected by the assessing officer for the reason that no valid return was filed by the assessee for these assessment years.
21. The learned CIT(A) upheld the assessing officers decision.
22. The stand of the assessee is that the provisions of section 80 regarding disallowance of carry forward of unabsorbed loss in the case of belated return applied to claim for carry forward and set off under section 72(1) or 73(2) or 74(1) or 74(3) or 74A(3) only. The carry forward and set off of unabsorbed depreciation is governed by the provisions of section 32(2) of the Income Tax Act. As per this section, unabsorbed depreciation is carried forward and added to the depreciation for the following year. The total amount of depreciation thus arrived at is deemed to be the depreciation of the following years. Therefore, there was no reason to disallow the carry forward of the unabsorbed depreciation for assessment years 1988-89 to 1990-91.
23. It is settled law that any claim legally due to the assessee, even if not made, has to be allowed. The assessees having not filed returns for assessment years 1988-89 to 1990-91, is of no consequence. Depreciation cannot be thrust on the assessee. Unabsorbed depreciation is to be carried forward to the following years. It has rightly been contended that section 80 has only a limited application as submitted. Otherwise, under section 32(2), unabsorbed depreciation is to be carried forward. Therefore, ground No. 8 is accepted.
24. Resultantly, appeal is partly allowed.