Income Tax Appellate Tribunal - Chandigarh
Dcit, Chandigarh vs M/S Ind Swift Ltd., Chandigarh on 11 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND
SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No.531/Chd/2014
Assessment Year: 2008-09
M/s I nd Swift Ltd. Vs. The Addl. CI T
Plot No. 781, I ndustrial Area Range I
Phase II Chandigarh
Chandigarh
PAN No. AAACI 6100L
ITA No.631/Chd/2014
Assessment Year: 2008-09
The DCI T Vs. M/s I nd Swift Ltd.
Central Circle II 781, I ndustrial Area
Chandigarh Phase II , Chandigarh
(Appellant) (Respondent)
Assessee By : Shri. T.N. Singla
Revenue By : Sh. Ravi Sarangal
Date of hearing : 03/07/2017
Date of Pronouncement : 11/08/2017
ORDER
PER B.R.R. KUMAR A.M. These cross appeals has been filed by the Assessee and the Revenue against the common order of Ld. CIT(A), Chandigarh dt. 21/03/2014.
2. The Assessee has raised the following grounds of appeal:
1. That the order of Learned C.I.T. (Appeals) is bad, against the facts & Law.
2. That the Learned Commissioner of Income Tax (Appeals) has wrongly confirmed the disallowance of seed marketing expenses amounting to Rs2,21,20,823/-.
3. That the Learned Commissioner of Income Tax (Appeals) has wrongly confirmed the disallowance of expenses amounting to Rs. 15,59,261/- u/s 40(a)(ia) of the Income Tax Act, 1961.
4. That the Learned Commissioner of Income Tax (Appeals) has wrongly confirmed the disallowance of software expenses of Rs.7,31,354/-.2
5. That the Learned Commissioner of Income Tax (Appeals) has wrongly confirmed the disallowance of deduction u/s 80IB on other income amounting to Rs. 2,07,67,638/- related to business of the assessee.
6. That the Learned Commissioner of Income Tax (Appeals) has wrongly confirmed the disallowances of liabilities amounting to Rs.41,32,947/-
while calculating tax payable u/s 115JB.
7. That the appellant craves leave to add, alter, amend or withdraw any ground of appeal before the appeal is finally heard and disposed off.
3. The Revenue has raised the following grounds of appeal:
1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the expenses under the heads Directors Salary, Seed Marketing Expenditure and R & D expenses should be allocated in sales ratio rather that profit ratio even though the Assessing Officer had reallocated these expenses after observing the shortcomings in the accounts drawn up by the assessee."
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing relief to the assessee even though the Assessing Officer has only made the adjustment as per Explanation (1)(f) of section 115JB of the Income Tax Act, 1961."
4. Firstly we shall deal with the appeal of the assessee relating to ITA No. 531/Chd/2014.
5. Ground No. 2: is against the disallowance of seed marketing expenses amounting to Rs. 2,21,20,823/-.
6. Brief facts of the issue are that the appellant had claimed expenditure of Rs. 6,61,10,339/- on account of 'seed marketing expenses' in the computation of income. The Assessing Officer noticed that the appellant had debited an amount of Rs. 4,39,89,516/- on account of 'seed marketing expenses' to the profit and loss account, which was added back to the computation of income. The Assessing Officer questioned the appellant about the claim of Rs. 6,61,10,339/- on account of seed marketing expenses and the appellant had submitted that the said expenses were incurred on day to day administration of new branches and the same had been debited to the profit & loss account under the head 'seed marketing expenses'. The appellant had relied upon the judgements of Hon'ble ITAT, Chandigarh in the case of M/s Glaxo Smithkline Consumer Healthcare Ltd. (112 TTJ 94), of Hon'ble Delhi High Court in the case of Jai Parabolic Springs Ltd (172 Taxman 258) and of Hon'ble Gujarat High Court in the case of M/s Core Health Care Ltd. (14 DTR 332). The Assessing Officer has elaborately discussed these judgements in the assessment order and has 3 inferred that none of these judgements are applicable to the issue in question in the case of the appellant. The amount has been disallowed by the Assessing Officer by following the decision of Hon'ble ITAT, Ahmedabad in the case of M/s Amtrex Appliances Ltd. (94 TTJ 396).
7. During the course of proceedings before the Ld. CIT(A) , the Ld. Counsel for the appellant has relied upon same judgments as were quoted before the Assessing Officer.
8. Ld. CIT(A) had considered the submission of the Ld. Counsel and upheld the addition made by the Assessing Officer on account of 'seed marketing expenses' of Rs. 6,61,10,339/- . The net effect of disallowance on account of 'seed marketing expenses' is of Rs. 2,21,20,823/-.
9. Before us the Ld. AR submitted that this matter has been covered in the assessee's own case in the earlier appeals for the assessment year 2005-06 in ITA Nos. 530/Chd/2014 and 511/Chd/2009 and 428/Chd/2011. The issue was adjudicated vide Para No. 10 to 13 in ITA No. 530/Chd/2014, the relevant para of the order is extracted hereunder:
"10 After considering the rival submissions we find that allowability of expenditure does not depend on the provision of the IT Act, 1961 and other principles laid down under this Act by various judicial pronouncements and it does not depend on items which has been treated by a particular assessee. Reference may be made to Satluj Cotton Mills Ltd V CIT. 116 ITR 1 (S.C).
11 What is required for liability of expenditure is to be seen whether the nature of expenditure is of revenue or capital. This issue came up before the Hon'ble Delhi High Court in case of CIT V Jai Parabolic Springs Ltd (supra). In that case the assessee filed return of income declaring a net loss at Rs. 440,,36,000/- for the assessment year 1990-91. The loss was computed at Rs. 427,63,353/- inter alia by making several additions and disallowances. The assessee incurred an expenditure of Rs. 19,48,125/- as expenditure on account of customer introduction charges which were debited as "deferred revenue expenses" in the balance sheet. -The expenditure was written off over a period of five years starting from the assessment year 1 990-91 and accordingly the assessee claimed reduction of RS. 389,625/- in the return. The claim was allowed by the Assessing Officer. In appeal before the Ld. CIT(A) the assessee claimed an additional ground that the entire deferred revenue expenses were deductible in the assessment year in appeal. The appeal was allowed The Tribunal restored the matter to the Assessing Officer. The Assessing Officer allowed only a reduction of Rs. 389,625/- and disallowed the claim of Rs. 1 5,58,500/- on the ground that this was not claimed by the assessee in its return of income in the assessment year 1990-91. The Ld. CIT(A) held that the Assessing Officer erred in disallowing the expenditure on the sold ground that no claim for deduction of the amount was made in the return of income. This order was confirmed by the Tribunal.
12 On above facts it was held by the Hon'ble Court as under:
4"Held, dismissing the appeal that there was no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arose in the matter and for the just decision of the case. There was no infirmity in the order of the Tribunal."
Similar view was taken by Hon'ble Madras High Court in case of CIT V.. Sakthi Soyas Ltd (supra) and Hon'ble Gujarat High Court in case of DCIT V. Core Healthcare Ltd (supra) 13 Identical issue had arisen before the Chandigarh Bench of the Tribunal in case of Glaxo Smith Kline Consumer Healthcare Ltd V. ACIT (supra) and head note of the decision reads as under:
"Business expenditure - Capital or revenue expenditure -Promotional and trade marketing expenses - These expenses were incurred by the assessee on existing products which included cost of presentation items, gifts, etc. given to customers, expenditure on advertisement, etc. - This is in actuality discount in-kind allowed to the customers and expenditure on advertisement of existing products - Even if it is conceded that such expenditure results in enduring benefit to the assessee the enduring benefit is not in the capital field but is in the revenue field - Therefore promotion and trade marketing expenses are allowable as revenue expenditure."
Therefore it is clear that once the nature of expenditure is revenue then same has to be allowed even if same has not been claimed fully in the books of account. Therefore we set aside the order of the CIT(A) and direct the Assessing Officer that these expenses should be allowed on principle. However, since nature of expenditure has not been examined during assessment proceedings and the same requires examination for which the Ld. Counsel had no objection. Accordingly we set aside the order of the CIT(A) and direct the Assessing Officer to allow these expenses after verifying the genuineness and nature of the same."
Therefore following above paras we decide the issue in favour of the assessee and set aside the order of the Ld. CIT(A) and remit the same to the file of AO with a direction to examine the genuineness and nature of the expenditure and then allow the same if the same are genuine and are of revenue nature.
10. In the result, this ground of appeal is allowed for statistical purposes.
11. Ground of appeal No. 3 is against the disallowance of Rs. 15,59,261/- u/s 40(a)(ia) of the Income Tax Act, 1961 (hereinafter referred to as 'Act).
12. Brief facts of the issue are that the appellant had not deducted tax at source on payment of interest of Rs. 15,59,261/- on vehicle loans and so the Assessing Officer disallowed this amount u/s 40(a)(ia) of the Act.
13. During the course of proceedings before the CIT(A), the Ld, Counsel for the appellant has submitted that the disallowance was wrongly made, since the impugned amount had already been paid. It has also been contended that the deduction of tax was not possible, since fixed EMIs had to be deposited with the companies. The CIT(A) has confirmed the addition.
14. Ld. DR for the Revenue was heard 5
15. This matter has been covered in the assessee's own case in the earlier appeals for the assessment year 2005-06 in ITA Nos. 530/Chd/2014 and 511/Chd/2009 and 428/Chd/2011. The issue was adjudicated vide Para No. 10 to 13 in ITA No. 530/Chd/2014, "28 We have considered the rival submissions carefully. We find that Hon'ble Gujarat High Court in case of CIT V. Sikandarkhan N. Tunvar & Ors, supra) has held that provisions of section 40a(ia) are applicable where the amount has been paid or remain payable. In contrast Hon'ble Allahabad High Court in case of CIT V. Vector Shipping Services (P) Ltd (supra), has followed the decision of Special Bench in case of Merilin Shipping & Transport V Addl CIT, 136 ITD 23 (Visakhapatnam)(SB). Both these decisions were considered by us in case of Hi Tech Foods V ITO (supra) and it was observed at para 22 to 27 as under:
"22 We have heard the rival submissions carefully and find that the decision of Special Bench has been specifically over ruled by Hon'ble Gujarat High Court by discussing the issue in detail in case of CIT V. Sikandarkhan N Tunwar and others (supra). We further find that in case of CIT V. Vector Shipping Services, the issue was different. In that case the question posed before the Hon'ble High Court reads as under:
"Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has rightly confirmed the order of the ld. CIT(A) and thereby deleting the disallowance of Rs. 1,17,68,621/- made by the Assessing Officer u/s 40(a)(ia) of the IT Act by ignoring the fact that the company M/s Mercator Lines Ltd. had performed ship management work on behalf of the assessee M/s Vector Shipping Services (P) Ltd and there was a Memorandum of Undertaking signed between both the companies and a s per the definition of memorandum of undertaking, it included contract also."
In that case some expenses were disallowed u/s 40(a)(ia) because not tax was deducted. On appeal the Tribunal found that the ld. CIT(A) has already given a finding that Mercator Lines Ltd. had deducted the TDS on salary paid on behalf of the assessee. under such circumstances the assessee was not required to deduct the TDS on reimbursement on salary being made by it to M/s Mercator Lines Ltd.
23 Hon'ble High Court has confirmed the decision of the Tribunal. Thus it is clear that Hon'ble Allahabad High Court was neither required nor has given detail reasons for approving the decision of Special Bench whereas Hon'ble Gujarat High Court has after detailed discussion, over ruled the decision of Special Bench.
24 In case of Sikandarkhan N Tunwar (supra) the assessee was engaged in the business of transport contractor and commission agent. During the scrutiny assessment it was noticed by the Assessing Officer that expenditure in the nature of payment made by the assessee to its sub-contractors to the tune of Rs. 8.74 crores. Since the assessee had admittedly not deducted the tax from such payments and individual payments to transporters exceeded limit of Rs. 20,000/- for a single trip and aggregated over Rs. 50,000/- in the year though the assessee had obtained form No. 15-I from such sub-contractors but the same were not furnished along with the particulars in Form 15-J to the CIT before due date and therefore, the expenditure on account of payment to sub-contractors was disallowed by invoking the provisions of section 40(a)(ia) of the Act.
25. On appeal the ld. CIT(A) confirmed this order.
26 When the matter traveled to the Tribunal the appeal of the assessee was allowed by relying on the decision of Merilyn Shipping Transporters V. ACIT (supra). The Tribunal held that the word "payable" used in Section 40(a)()ia) would make provision applicable only in respect of expenditure payable on 31st March of a particular year and such provision cannot be invoked to disallow the amounts which has already been paid during the year though the tax may not 6 have been deducted at source. Following specific question was posed before the Hon'ble High Court:
"In all these appeals the Tribunal has followed the decision of the Special Bench in the case of M/s Merilyn Shipping Transporters V. ACIT (supra) and deleted the disallowance on this limited ground. As in the present case, other Merilyn Shipping Transporters V. ACIT (supra) grounds of controversy between the parties with respect to allowability or otherwise of such expenditure was not examined by the Tribunal. For the purpose of these appeals, therefore, we frame following substantial question of law:
"1 Whether disallowance u/s 40(a)(ia) of the I.T Act could be made only in respect of such amounts which are payable as on 31st Mach of the year under consideration?
2 Whether decision of Special Bench of the Tribunal in the case of M/s Merilyn Shipping Transporters V. ACIT (supra) lays down correct law?"
27 Hon'ble Gujarat High Court after considering the submissions of both the parties referred to the provision of Chapter XVII A of the Act dealing with the Tax Deduction Provisions. After this reference was made to Section 40(a)(ia) through which it was provided that tax has not been deducted on certain payments and the same will not be allowable. The Hon'ble High Court discussed the implementations of this provision and decision of Special Bench in case of Merilyn Shipping Transporters V. ACIT (supra) and observed and held as under:
"17. In plain terms Section 40(a)(ia) provides that in case of any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor for carrying out any work on which tax is deductible at source and such tax has not been deducted or after deduction has not been paid before the due date, such amounts shall not be deducted in computing the income chargeable under the head Profits and Gains of Business or Profession irrespective of the provisions contained in Sections 30 to 38 of the Act. Proviso to Section 40(a)(ia), however, enables the assessee to take such deduction in subsequent year, if tax is deducted in such year or though deducted during the previous year but paid after the due date specified in sub-Section(1) of Section 139 of the Act.
18. In such context, therefore, the question arises whether under Section 40(a)(ia) of the Act disallowance of the expenditure payment of which, though required deduction of tax at source has not been made would be confined only to those cases where the amount remains payable till the end of the previous year or would include all amounts which became payable during the entire previous year.
19. Decision in the case of M/s. Merilyn Shipping & Transports vs. ACIT (supra) was rendered by the Special Bench by a split opinion. Learned Accountant Member who was in minority, placed heavy reliance on a decision of Madras High Court in the case of Tube Investments of India Ltd. and another vs. Assistant Commissioner of Income-Tax (TDS) and others reported in [2010] 325 ITR 610 (Mad). Learned Judge did notice that the High Court in such case was concerned with the vires of the statutory provision but found some of the observations made by the Court in the process useful and applicable. Learned Judge rejected the theory of narrow interpretation of term payable and observed as under:
12.4 In our considered opinion, there is no ambiguity in the section and term payable cannot be ascribed narrow interpretation as contended by assessee. Had the intentions of the legislature were to disallow only items outstanding as on 31st March, then the term payable would have been qualified by the phrase as outstanding on 31st March. However, no such qualification is there in the section and, therefore, the same cannot be read into the section as contended by the assessee.7
20. On the other hand, learned Judicial Member speaking for majority adopted a stricter interpretation. Heavy reliance was placed on the Finance Bill of 2004, which included the draft of the amendment in Section 40 and the ultimate amendment which actually was passed by the Parliament. It was observed that from the comparison between the proposed and the enacted provision it can be seen that the legislature has replaced the words amounts credited or paid with the word payable in the enactment. On such basis, it was held that this is a case of conscious omission and when the language was clear the intention of the legislature had to be gathered from language used. In their opinion the provision would apply only to amounts which are payable at the end of the year.
Having said so, curiously, it was observed that the proviso to Section 40(a)(ia) of the Act lays down that earlier year s provision can be allowed in subsequent years only if TDS is deducted and deposited and, therefore, Revenue s fear is unfounded as the provision of Section 40(a)(ia) of the Act covers the situation.
21. In the present case, we have no hesitation in accepting the contention that the provision must be construed strictly. This being a provision which creates an artificial charge on an amount which is otherwise not an income of the assessee, cannot be liberally construed. Undoubtedly if the language of the section is plain, it must be given its true meaning irrespective of the consequences. We have noticed that the provision makes disallowance of an expenditure which has otherwise been incurred and is eligible for deduction, on the ground that though tax was required to be deducted at source it was not deducted or if deducted, had not been deposited before the due date. By any intendment or liberal construction of such provision, the liability cannot be fastened if the plain meaning of the section does not so permit.
22. For the purpose of the said section, we are also of the opinion that the terms payable and paid are not synonymous. Word paid has been defined in Section 43(2) of the Act to mean actually paid or incurred according to the method of accounting, upon the basis of which profits and gains are computed under the head Profits and Gains of Business or Profession . Such definition is applicable for the purpose of Sections 28 to 41 unless the context otherwise requires. In contrast, term payable has not been defined. The word payable has been described in Webster s Third New International Unabridged Dictionary as requiring to be paid: capable of being paid: specifying payment to a particular payee at a specified time or occasion or any specified manner. In the context of section 40(a)(ia), the word payable would not include paid . In other words, therefore, an amount which is already paid over ceases to be payable and conversely what is payable cannot be one that is already paid. When as rightly pointed out by Counsel Mr. Hemani, the Act uses terms paid and payable at different places in different context differently, for the purpose of Section 40(a)(ia) of the Act, term payable cannot be seen to be including the expression paid . The term paid and payable in the context of Section 40(a)(ia) are not used interchangably. In the case of Birla Cement Works and another vs. State of Rajasthan and another reported in AIR 1994(SC) 2393, the Apex Court observed that the word payable is a descriptive word, which ordinarily means that which must be paid or is due or may be paid but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to due .
23. Despite this narrow interpretation of section 40(a)(ia), the question still survives if the Tribunal in case of M/s. Merilyn Shipping & Transports vs. ACIT (supra) was accurate in its opinion. In this context, we would like to examine two aspects. Firstly, what would be the correct interpretation of the said provision. Secondly, whether our such understanding of the language used by the legislature should waver on the premise that as propounded by the Tribunal, this was a case of conscious omission on part of the Parliament. Both these aspects we would address one after another. If one looks closely to the provision, in question, adverse consequences of not being able to claim deduction on certain payments irrespective of the provisions contained in Sections 30 to 38 of the Act would flow if the following requirements are satisfied:-
8(a) There is interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident or amounts payable to a contractor or sub-contractor being resident for carrying out any work.
(b) These amounts are such on which tax is deductible at source under Chapter XVII-B.
(c)Such tax has not been deducted or after deduction has not been paid on or before due date specified in sub-Section (1) of Section 39.
For the purpose of current discussion reference to the proviso is not necessary.
24. What this Sub-Section, therefore, requires is that there should be an `amount payable in the nature described above, which is such on which tax is deductible at source under Chapter XVII-B but such tax has not been deducted or if deducted not paid before the due date. This provision no-where requires that the amount which is payable must remain so payable throughout during the year. To reiterate the provision has certain strict and stringent requirements before the unpleasant consequences envisaged therein can be applied. We are prepared to and we are duty bound to interpret such requirements strictly. Such requirements, however, cannot be enlarged by any addition or subtraction of words not used by the legislature. The term used is interest, commission, brokerage etc. is payable to a resident or amounts payable to a contractor or sub-contractor for carrying out any work. The language used is not that such amount must continue to remain payable till the end of the accounting year. Any such interpretation would require reading words which the legislature has not used. No such interpretation would even otherwise be justified because in our opinion, the legislature could not have intended to bring about any such distinction nor the language used in the section brings about any such meaning. If the interpretation as advanced by the assessees is accepted, it would lead to a situation where the assessee who though was required to deduct the tax at source but no such deduction was made or more flagrantly deduction though made is not paid to the Government, would escape the consequence only because the amount was already paid over before the end of the year in contrast to another assessee who would otherwise be in similar situation but in whose case the amount remained payable till the end of the year. We simply do not see any logic why the legislature would have desired to bring about such irreconcilable and diverse consequences. We hasten to add that this is not the prime basis on which we have adopted the interpretation which we have given. If the language used by the Parliament conveyed such a meaning, we would not have hesitated in adopting such an interpretation. We only highlight that we would not readily accept that the legislature desired to bring about an incongruous and seemingly irreconcilable consequences. The decision of the Supreme Court in the case of Commissioner of Income-Tax, Gujarat vs. Ashokbhai Chimanbhai (supra), would not alter this situation. The said decision, of course, recognizes the concept of ascertaining the profit and loss from the business or profession with reference to a certain period i.e. the accounting year. In this context, last date of such accounting period would assume considerable significance. However, this decision nowhere indicates that the events which take place during the accounting period should be ignored and the ascertainment of fulfilling a certain condition provided under the statute must be judged with reference to last date of the accounting period. Particularly, in the context of requirements of Section 40(a)(ia) of the Act, we see no warrant in the said decision of the Supreme Court to apply the test of payability only as on 31st March of the year under consideration. Merely because, accounts are closed on that date and the computation of profit and loss is to be judged with reference to such date, does not mean that whether an amount is payable or not must be ascertained on the strength of the position emerging on 31st March.
25. This brings us to the second aspect of this discussion, namely, whether this is a case of conscious omission and therefore, the legislature must be seen to have deliberately brought about a certain situation which does not require any further 9 interpretation. This is the fundamental argument of the Tribunal in the case of M/s. Merilyn Shipping & Transports vs. ACIT(supra) to adopt a particular view.
26. While interpreting a statutory provision the Courts have often applied Hyden s rule or the mischief rule and ascertained what was the position before the amendment, what the amendment sought to remedy and what was the effect of the changes.
27. In the case of Bengal Immunity Co. Ltd. vs. State of Bihar and others reported in AIR 1955 SC 661, the Apex Court referred to the famous english decision in Hyden s case wherein while adopting restrictive or enlarging interpretation, it was observed that four things are to be considered, (1) what was the common law before making of the act (2) what was the mischief and defect in which the common law did not provide. (3) what remedy the Parliament had resolved and adopted to cure the disease and (4) true reason of the remedy.
28. In such context, the position prevailing prior to the amendment introduced in Section 40(a) would certainly be a relevant factor. However, the proceedings in the Parliament, its debates and even the speeches made by the proposer of a bill are ordinarily not considered as relevant or safe tools for interpretation of a statute. In the case of Aswini Kumar Ghose and another vs. Arabinda Bose and another reported in A.I.R. 1952 SC 369 in a Constitution Bench decision of (Coram:
Patanjali Sastri, C.J.), observed that:-
33. &..It was urged that acceptance or rejection of amendments to a Bill in the course of Parliamentary proceedings forms part of the pre-enactment history of a statute and as such might throw valuable light on the intention of the Legislature when the language used in the statue admitted of more than one construction. We are unable to assent to this preposition.
The reason why a particular amendment was proposed or accepted or rejected is often a matter of controversy, as it happened to be in this case, and without the speeches bearing upon the motion, it cannot be ascertained with any reasonable degree of certainty. And where the Legislature happens to be bicameral, the second Chamber may or may not have known of such reason when it dealt with the measure. We hold accordingly that all the three forms of extrinsic aid sought to be resorted to by the parties in the case mus be excluded from consideration in ascertaining the true object and intention of the Legislature.
29. In yet another Constitution Bench judgment in the case of A.K.Gopalan vs. State of Madras reported in AIR 1950 SC 27, it was observed as under:-
17.....The result appears to be that while it is not proper to take into consideration the individual opinions of members of Parliament or Convention to construe the meaning of the particular clause, when a question is raised whether a certain phrase or expression was up for consideration at all or not, a reference to the debates may be permitted.
30. In the case of Express Newspaper (Private) Ltd. and another vs. The Union of India and others reported in AIR 1958 SC 578, N.H.Bhagwati, J., observed as under:-
173. We do not propose to enter into any elaborate discussion on the question whether it would be competent to us in arriving at a proper construction of the expression fixing rates of wages to look into the Statement of Objects and Reasons attached to the Bill No.13 of 1955 as introduced in the Rajya Sabha or the circumstances under which the word minimum came to be deleted from the provisions of the Bill relating to rates of wages and the Wage Board and the fact of such deletion when the act came to be passed in its present form. There is 10 a consensus of opinion that these are not aids to the construction of the terms of the Statute which have of course to be given their plain and grammatical meaning ( See: Ashvini Kumar ghosh v. Arabinda Bose, 1953 SC R 1:(AIR 1952 SC
369) (Z24) and Provat Kumar Kar v. William Trevelyan Curtiez Parker, AIR 1950 Cal 116 (Z25). It is only when the terms of the statute are ambiguous or vague that resort may be had to them for the purpose of arriving at the true intention of the Legislature.
31. It can thus be seen that the debates in the Parliament are ordinarily not considered as the aids for interpretation of the ultimate provision which may be brought into the statute. The debates at best indicate the opinion of the individual members and are ordinarily not relied upon for interpreting the provisions, particularly when the provisions are plain. We are conscious that departure is made in two exceptional cases, namely, the debates in the Constituent Assembly and in case of Finance Minister s speech explaining the reason for introduction of a certain provision. The reason why a certain language was used in a draft bill and why the provision ultimately enacted carried a different expression cannot be gathered from mere comparison of the two sets of provisions. There may be variety of reasons why the ultimate provision may vary from the original draft. In the Parliamentary system, two Houses separately debate the legislations under consideration. It would all the more be unsafe to refer to or rely upon the drafts, amendments, debates etc for interpretation of a statutory provision when the language used is not capable of several meanings. In the present case the Tribunal in case of M/s. Merilyn Shipping & Transports vs. ACIT (supra) fell in a serious error in merely comparing the language used in the draft bill and final enactment to assign a particular meaning to the statutory provision.
32. It is, of course, true that the Courts in India have been applying the principle of deliberate or conscious omission. Such principle is applied mainly when an existing provision is amended and a change is brought about. While interpreting such an amended provision, the Courts would immediately inquire what was the statutory provision before and what changes the legislature brought about and compare the effect of the two. The other occasion for applying the principle, we notice from various decisions of the Supreme Court, has been when the language of the legislature is compared with some other analogous statute or other provisions of the same statute or with expression which could apparently or obviously been used if the legislature had different intention in mind, while framing the provision. We may refer to some of such decisions presently. In the case of Bhuwalka Steel Industries Ltd. vs. Bombay Iron and Steel Labour Board reported in AIR 2010 (Suppl.) 122, the Apex Court observed as under:-
"The omission of the words as proposed earlier from the final definition is a deliberate and conscious act on the part of the legislature, only with the objective to provide protection to all the labourers or workers, who were the manual workers and were engaged or to be engaged in any scheduled employment. Therefore, there was a specific act on the part of the legislature to enlarge the scope of the definition and once we accept this, all the arguments regarding the objects and reasons, the Committee Reports, the legislative history being contrary to the express language, are relegated to the background and are liable to be ignored.
33. In the case of Agricultural Produce Market Committee, Narela, Delhi vs. Commissioner of Income Tax and anr. reported in AIR 2008 SC(Supplement) 566, the Supreme Court noticed that prior to Finance Act, 2002, the Income Tax Act did not contain the definition of words Local Authority . The word came to be defined for the first time by the Finance Act of 2002 by explanation/ definition clause to Section 10(20) of the Act. It was further noticed that there were significant difference in the definition of term local authority contained under Section 3(31) of the General Clauses Act, 1987 as compared to the definition clause inserted in Section 10(20) of the Income Tax Act, 1961 vide Finance Act, of 2002. In this context it was observed that:-
1127. Certain glaring features can be deciphered from the above comparative chart. Under Section 3(31) of the General Clauses Act, 1897, local authority was defined to mean a municipal committee, district board, body of port commissioners or other authority legally entitled to the control or management of a municipal or local fund. The words other authority in Section 3(31) of the 1897 Act has been omitted by Parliament in the Explanation/ definition clause inserted in Section 10(20) of the 1961 Act vide Finance Act, 2002. Therefore, in our view, it would not be correct to say that the entire definition of the word local authority is bodily lifted from Section 3(31) of the 1897 Act and incorporated, by Parliament, in the said Explanation to Section 10(20) of the 1961 Act. This deliberate omission is important.
34. The Apex Court in the case of Greater Bombay CO-operative Bank Ltd. vs. M/s. United Yarn Tex.Pvt.Ltd & Ors. reported in AIR 2007 SC 1584, in the context of question whether the Cooperative Banks transacting business of banking fall within the meaning of banking company defined in the Banking Regulation Act, 1949, observed as under:-
59. The RDB Act was passed in 1993 when Parliament had before it the provisions of the BR Act as amended by Act No.23 of 1965 by addition of some more clauses in Section 56 of the Act. The Parliament was fully aware that the provisions of the BR Act apply to co-operative societies as they apply to banking companies. The Parliament was also aware that the definition of banking company in Section 5(c) had not been altered by Act No.23 of 1965 and it was kept intact, and in fact additional definitions were added by Section 56(c). Co-operative bank was separately defined by the newly inserted clause (cci) and primary co-
operative bank was similarly separately defined by clause (ccv). The Parliament was simply assigning a meaning to words; it was not incorporating or even referring to the substantive provisions of the BR Act. The meaning of banking company must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. It would have been the easiest thing for Parliament to say that banking company shall mean banking company as defined in Section 5(c) and shall include co-operative bank as defined in Section 5(cci) and primary co-operative bank as defined in Section 5(ccv). However, the Parliament did not do so. There was thus a conscious exclusion and deliberate commission of co-operative banks from the purview of the RDB Act. The reason for excluding co-operative banks seems to be that co- operative banks have comprehensive, self-contained and less expensive remedies available to them under the State Co-operative Societies Acts of the States concerned, while other banks and financial institutions did not have such speedy remedies and they had to file suits in civil courts.
35. In the case of National Mineral Development Corporation Ltd. vs. State of M.P and another reported in AIR 2004 SC 2456, the Apex Court observed as under:-
29. The Parliament knowing it full well that the iron ore shall have to undergo a process leading to emergence of lumps, fines, concentrates and slimes chose to make provision for quantification of royalty only by reference to the quantity of lumps, fines and concentrates. It left slimes out of consideration. Nothing prevented the Parliament from either providing for the quantity of iron ore as such as the basis for quantification of royalty. It chose to make provision for the quantification being awaited until the emergence of lumps, fines and concentrates. Having done so the Parliament has not said fines including slimes . Though slimes are not fines the Parliament could have assigned an artificial or extended meaning to fines for the purpose of levy of Royalty which it has chosen not to do. It is clearly suggestive of its intention not to take into consideration slimes for quantifying the amount of royalty. This deliberate omission of Parliament cannot be made good by interpretative 12 process so as to charge royalty on slimes by reading Section 9 of the Act divorced from the provisions of the Second Schedule. Even if slimes were to be held liable to charge of royalty, the question would still have remained at what rate and on what quantity which questions cannot be answered by Section 9.
36. In the case of Gopal Sardar, vs. Karuna Sardar reported in AIR 2004 SC 3068, the Apex Court in the the context of limitation within which right of preemption must be exercised and whether in the context of the relevant provisions contained in West Bengal Land Reforms and Limitation Act, 1963 applied or not, observed as under:-
8....Prior to 15-2-1971, an application under Section 8 was required to be made to the Revenue Officer specifically empowered by the State Government in this behalf. This phrase was substituted by the phrase Munsif having territorial jurisdiction by the aforementioned amendment. Even after this amendment when an application is required to be made to Section 8 of the Act either to apply Section 5 of the Limitation act or its principles so as to enable a party to make an application after the expiry of the period of limitation prescribed on showing sufficient cause for not making an application within time. The Act is of 1955 and for all these years, no provision is made under Section 8 of the Act providing for condonation of delay. Thus, when Section 5 of the Limitation Act is not made applicable to the proceedings under Section 8 of the Act unlike to the other proceedings under the Act, as already stated above, it is appropriate to construe that the period of limitation prescribed under Section 8 of the Act specifically and expressly governs an application to be made under the said section and not the period prescribed under Article 137 of the Limitation Act.
37. In our opinion, the Tribunal committed an error in applying the principle of conscious omission in the present case. Firstly, as already observed, we have serious doubt whether such principle can be applied by comparing the draft presented in Parliament and ultimate legislation which may be passed. Secondly, the statutory provision is amply clear.
38. In the result, we are of the opinion that Section 40(a)(ia) would cover not only to the amounts which are payable as on 31th March of a particular year but also which are payable at any time during the year. Of course, as long as the other requirements of the said provision exist. In that context, in our opinion the decision of the Special Bench of the Tribunal in the case of M/s. Merilyn Shipping & Transports vs. ACIT(surpa), does not lay down correct law.
39. We answer the questions as under:-
Question (1) in the negative i.e. in favour of the Revenue and against the assessees.
Question (2) also in the negative i.e. in favour of the Revenue and against the assessees. "
Thus it is clear that Hon'ble Gujarat High Court has considered all aspects of the issues raised in the decision of Special Bench in case of Merilyn Shipping Transporters V. ACIT (supra). We further find that that even Hon'ble Calcutta High Court has overruled this decision in case of CIT Vs. Cresent Export Syndicate. Moreover Chandigarh Bench of the Tribunal consistently has been following the decision of Hon'ble Gujarat High Court in case of CIT V. Sikandarkhan N Tunwar and others (supra) as well as the decision of Hon'ble Calcutta High Court in case of CIT Vs. Cresent Export Syndicate (supra). "
25 Now the question arises whether dismissal of SLP by Hon'ble Supreme Court in case of CIT V. Vector Shipping Services (P) Ltd (supra) would change the above legal position. We are afraid the answer is "No". The Hon'ble Supreme 13 Court had itself considered the issue in case of V.M. Salgaocar and Bros. Pvt Ltd V. CIT, 243 ITR 383. It was observed by the Court on this issue as under:
""Different considerations apply when a special leave petition under article 136 of the Constitution is simply dismissed by saying " dismissed", and an appeal provided under article 133 is dismissed also with the words "the appeal is dismissed." In the former case it has been laid down by this court that when a special leave petition is dismissed this court does not comment on the correctness or otherwise of the order from which leave to appeal is sought. But what the court means is that it does not consider it to be a fit case for exercise of its jurisdiction under article 136 of the Constitution. That certainly could not be so when an appeal is dismissed though by a non-speaking order. Here the doctrine of merger applies. In that case, the Supreme Court upholds the decision of the High Court or the Tribunal from which the appeal is provided under clause (3) of article 133. This doctrine of merger does not apply in the case of dismissal of a special leave petition under article 136. When an appeal is dismissed the order of the High Court is merged with that of the Supreme Court. We quote the following paragraph from the judgment of this court in the case of Supreme Court Employees' Welfare Association v. Union of India, AIR 1990 Hon'ble Supreme Court 334; [1989] 4 SCC 187 (at page 344 of AIR 1990 S.C):
"22. It has been already notice that the special leave petition filed on behalf of the Union of India against the said judgments of the Delhi High Court were summarily dismissed by this court. It is now a well settled principle of law that when a special leave petition is summarily dismissed under article 136 of the Constitution, by such dismissal this court does not lay down any law, as envisaged by article 141 of the Constitution, as contended by the learned Attorney-General. In Indian Oil Corporation Ltd. v. State of Bihar [1987] 167 ITR 897; [1986] 4 SCC 146; AIR 1986 Hon'ble Supreme Court 1780, it has been held by this court that the dismissal of a special leave petition in limine by a non-speaking order does not justify any inference that, by necessary implication, the contentions raised in the special leave petition on the merits of the case have been rejected by the Supreme Court. It has been further held that the effect of a non-speaking order of dismissal of a special leave petition without anything more indicating the grounds or reasons of its dismissal must, by necessary implication, be taken to be that the Supreme Court had decided only that it was not a fit case where special leave should be granted. In Union of India v. All India Services Pensioners' Association [1988] 2 SCC 580; AIR 1988 Hon'ble Supreme Court 501, this court has given reasons for dismissing the special leave petition. When such reasons are given, the decision becomes one which attracts article 141 of the Constitution which provides that the law declared by the Supreme Court shall be binding on all the courts within the territory of India. It, therefore, follows that when no reason is given, but a special leave petition is dismissed simpliciter, it cannot be said that there has been a declaration of law by this court under article 141 of the Constitution."
It was, therefore, contended that once this court in Civil Appeal No. 424 of 1999, has dismissed the appeal it has upheld the order of the High Court in the case of the assessment year 1980-81 and it cannot take a different view for the assessment year 1979-80. There appears to be substance in the submission of the assessee. "
From above it becomes clear that after an SLP is dismissed in limine or simplictor as such then it cannot be said that the Hon'ble Supreme Court has commented on the merits of the issue. It is a simple case of rejection of prayer for entertaining the SLP. The same view was taken by the Hon'ble Supreme Court again in case of Kunhayammed and others V State of Kerala and another, 245 ITR 360 (S.C). Head Note reads as under:
"Article 136 of the Constitution of India confers a special jurisdiction on the Supreme Court which is sweeping in nature. It is a residuary power in the sense that it confers an appellate jurisdiction on the Supreme Court subject to special leave being granted in such matters as may not be covered by the preceding articles. Even in the field covered by the preceding articles, jurisdiction conferred by article 136 is available to be exercised in an appropriate case. It is an 14 untrammeled reservoir of power incapable of being confined to definitional bounds; the discretion conferred on the Supreme Court being subjected to only one limitation, that is, the wisdom and good sense or sense of justice of the judges. No right of appeal is conferred upon any party; only a discretion is vested in the Supreme Court to interfere by granting leave to an applicant to enter in its appellate jurisdiction not open otherwise and as of right.
The jurisdiction conferred by article 136 is divisible into two stages; the first stage is up to the disposal of the prayer for special leave to appeal; the second stage commences if and when the leave to appeal is granted and the petition for special leave to appeal is converted into an appeal.
While hearing the petition for special leave to appeal, the Supreme Court is called upon to see whether the petitioner should be granted such leave or not. While hearing such petition the Supreme Court does not exercise its appellate jurisdiction; it merely exercises its discretionary jurisdiction to grant or not to grant leave to appeal If the petition seeking grant of special leave is dismissed, it is an expression of opinion by the Supreme Court that a case for invoking the appellate jurisdiction of the court was not made out.
An order refusing special leave to appeal may be by a non speaking order or by a speaking order. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in the place of the order under challenge. All that it means is that the Supreme Court was not inclined to exercise its discretion so as to allow the appeal being filed. Whatever be the phraseology employed in the order of dismissal, if it is a non-speaking order, i.e., it does not assign reasons for dismissing the special leave petition, it would neither attract the doctrine of merger so as to stand substituted in the place of the order put in issue before it, nor be a declaration of law by the Supreme Court under article 141 of the Constitution for there is no law which has been declared.
If the order refusing special leave to appeal is a speaking order, i.e., it gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of article 141 which will obviously be binding on all courts and Tribunals in India and certainly the parties thereto. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would be binding on the parties and the court, tribunal or authority whose order was under challenge, in any proceedings subsequent thereto, on the principle of judicial discipline, the Supreme Court being the apex court of the country. The declaration of law will be governed by article 141 but, the case not being one where leave is granted, the doctrine of merger dos not apply. "
From above it becomes clear that if an SLP is dismissed then it cannot be said that the Hon'ble Supreme Court has laid down any law. Now in the present case the SLP in case of CIT V Vector Shipping Services (supra) following order has been passed by the Hon'ble Supreme Court :
"Heard Mr. Mukul Rohtagi, Ld. Attorney General, for the petitioner Delay in filing and refilling special leave petition is condonedSpecial leave petition is dismissed"
Therefore it is a case of simple dismissal of SLP and cannot be said to have laid down any law. In view of this discussion and the earlier discussion we have preferred to follow the decision of Hon'ble Gujarat High Court in case of CIT V. Sikandarkhan N. Tunvar & Ors, (supra) instead the decision of Hon'ble Allahabad High Court in case of CIT V Vector Shipping Services (supra), we decide this issue against the assessee and confirm the order of Ld. CIT(A)."
16. Following the above we decide this issue against the assessee.
1517. Ground No. 4 is against the disallowance of software expenses amounting to Rs. 7,31,354/-.
18. Brief facts of the issue are that the appellant had debited an amount of Rs. 10,44,792/- to the profit & loss account under the head 'miscellaneous expenditure written off on account of software development expenses. The Assessing Officer has treated the expenditure as capital expenditure and allowed depreciation @ 60%, resulting into addition of Rs. 7,31,354/-.
19. During the course of proceedings before the CIT(A), the Ld. Counsel for the appellant submitted that these expenses are of revenue nature, since the softwares have short life of 2-3 years.
20. Ld. CIT(A) confirmed the addition and directed to allow depreciation @ 60% .
21. Before us the Ld. AR prayed that the software expenses having short life of 2 to 3 years should be treated as Revenue expenditure and be allowed.
22. On the fact of the issue after the introduction of new Appendix-1 applicable from AY 2006-07 onwards the software development expenses have to be treated as capital expenditure and depreciation of 60% is allowable. Since it is a matter of factual issue no interference is called in the order of the Ld. CIT(A).
23. Ground No. 5 deals with disallowance of deduction under section 80IB of the Act.
24. Brief facts of the issue are that, in all, the appellant had eight units, out of which deduction u/s 80IB was claimed in Parwanoo Unit II & Jammu Unit and u/s 80IC in Baddi Unit III. The appellant had allocated the expenses in sales ratio of various units. The Assessing Officer reallocated the expenses on the profit ratio and recomputed deduction to be allowed u/s 80IB/ 80IC. Finally, he disallowed the excess deduction claimed u/s 80IB/ 80IC of Rs. 14,10,12,246/-.
25. The Assessing Officer also noticed that the appellant had claimed deduction u/s 80IB/ 80IC on other incomes of Rs. 2,07,67,638/-. He disallowed the claim of deduction u/s 80IB/ 80IC on this income.
1626. During the course of proceedings before the CIT(A), the Ld. Counsel for the appellant submitted that the Assessing Officer has wrongly allocated the expenses on profit ratio basis.It has, inter-alia, been submitted that the issue of allocation of expenses has been decided in favour of the appellant in A.Y. 2007-
08.
27. We have heard Ld. Representatives of both the parties and perused the material placed on record.
28. Regarding disallowance of deduction u/s 80IB on other income of Rs. 2,07,67,638/-, the Ld. Counsel has submitted as under:
"The Learned Assessing Officer has wrongly disallowed deduction u/s 80IB on other incomes amounting to Rs.2,07,67,638/- out of which major part is related to the business of the assessee. The assessee has earned this income from the business itself and hence deduction u/s 80IB should be allowable as these income are derived from eligible business. The salary in lieu of notice is Rs.80,243/- which was received from the workers who left the job during the year for the excess expenditure incurred for them. Then . there is income from insurance claims against loss of raw material of Rs. 1,67,16,005/- which relates to the business of the assessee. There is also interest received from related parties amounting to Rs.10,61,968/-. There is interest income from FDR of Rs.53,472/- which were given as guarantee for L.C. and other bank facilities and hence are for the business of the assessee, There is also an income Dividend of Rs.l 1,56,404/-included in other income which is already an exempt income u/s 10(34)."
29. This matter has been dealt in the case of the assessee in the AY 2006-07 and Hon'ble ITAT Chandigarh vide order dt. 10/11/2009 in ITA No. 729/Chd/2009 wherein it was adjudicated that the expenses were to be attracted on the basis of sales ratio which is an acceptable accounting standard applicable to computation of income of various units. Respectfully following the earlier decision of Hon'ble ITAT on the issue it is held that impugned expenses have to be allocate in the sale ratio and AO is directed accordingly.
30. Regarding disallowance of deduction u/s 80IB/80IC on other incomes, it is seen that the other incomes relate to dividend, interest on FDRs given as guarantee, interest received from related parties, insurance -claims and salary of the workers who left the job. None of these incomes relate to manufacture or production of industrial undertaking and so deduction u/s 80IB/80IC on these other incomes is not allowable in view of judgement of Hon'ble Supreme Court in the case of M/s Pandian Chemicals Ltd (262 ITR 278), since for allowability of deduction u/s 80IB/ 80IC, the immediate source of income should be manufacturing or production and it should have direct nexus with the industrial undertaking. During the year the assessee has also received insurance claim of 17 Rs. 1,67,16,005/-. Keeping in view the judgment of M/s Pandian Chemicals Ltd (262 ITR 278), we restore this matter to the file of the Assessing Officer to examine and allow if the other income has a direct nexus with the manufacture or production of the industrial undertaking.
31. This ground of appeal is allowed for statistical purposes.
32. Ground No. 6 relates to confirming of the disallowances of liabilities of Rs. 41,32,947/- for calculation under section 115JB.
33. During the year the Assessing Officer has added back an amount of Rs. 41,32,957/- for calculation of the book profits under section 115JB of Income tAx Act. This amount consists of following:
provisions for bad debts Rs. 20,32,95/ Gratuity Payable Rs. 1,00,000/- Provision for leave encashment Rs. 20,00,000/- Total Rs. 41,32,957/- 34. Ld. CIT(A) upheld the addition.
35. Before us the assessee argued that there were actual bad debts written off of Rs. 20,32,957/- in P& L Account and Assessing Officer wrongly added back this amount. He further submitted that Gratuity of Rs. 1.00 Lacs has already been paid to LIC and Leave Encashment of Rs. 518946/- has already been paid.
36. In view of the judgement in the case of M/s Beardsell Ltd. these amounts have to be considered while computing the tax liability under section 115JB. The matter is being referred back to Assessing Officer to verify the exact amounts already paid and provisions made.
The Assessing Officer is accordingly directed to give benefit of payments made while computing the profits under section 115JB.
37. This ground is treated as allowed for statistical purposes.
38. Now we shall deal with the appeal of the Revenue in ITA No. 631/Chd/2014.
1839. The ground No. 1 of the appeal has already been dealt in relation to the ground no. 5 of the assessee's appeal wherein the principle was laid to apportion the expenditure in the ratio of sales.
40. The ground No. 2 of the appeal has already been dealt in relation to the ground no. 6 of the assessee's appeal wherein the matter was sent back to the file of the Assessing Officer for examination and verification.
41. In the result appeal of the Assessee is partly allowed whereas the appeal of the Revenue is allowed for statistical purposes.
Order pronounced in the open court.
Sd/- Sd/- (DIVA SINGH) (B.R.R.KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 11/08/2017 AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR