Gujarat High Court
Commissioner Of Income Tax I vs Arvind Mills Ltd....Opponent(S) on 18 February, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/1108/2013 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 1108 of 2013
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COMMISSIONER OF INCOME TAX I....Appellant(s)
Versus
ARVIND MILLS LTD....Opponent(s)
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Appearance:
MR MR BHATT, LD.SENIOR COUNSEL WITH MRS MAUNA M BHATT,
ADVOCATE for the Appellant(s) No. 1
MR BS SOPARKAR, ADVOCATE WITH MRS SWATI SOPARKAR,
ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL
KURESHI
and
HONOURABLE MS JUSTICE SONIA
GOKANI
Date : 18/02/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue is in appeal against the judgment of the Incometax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as 'the Tribunal') dated May 31, 2013, raising the following questions for our consideration :
"(A) Whether the Appellate Tribunal is right in holding that the surplus arising on Page 1 of 10 O/TAXAP/1108/2013 ORDER sale of business undertaking is not taxable as capital gain without appreciating the findings in the Assessment order and despite the fact that the provisions of section 50 of the I.T. Act 1961 are applicable for computation of capital gain in case of depreciable assets ?
(B) Whether the Appellate Tribunal is right in relying on Supreme court decision in the case of PNB Finance Ltd. (307 ITR
75), the facts of which are distinctly different ?
(C) Whether the Appellate Tribunal is right in holding that entire upfront interest paid on debentures is allowable in the year of payment itself despite the fact that the assessee followed mercantile system of accounting and had not claimed the entire amount in the P&L account and the additional interest claim of Rs.24.76 Crores paid to ICICI was thus not allowable?
(D) Whether the Appellate Tribunal is right in ignoring Supreme Court decision in the case of Madras Investment Corporation Ltd. (225 ITR 802) which is directly applicable in this case and relied upon by the Assessing Officer ?Page 2 of 10
O/TAXAP/1108/2013 ORDER
(E) Whether the Appellate Tribunal has
erred in law and on facts in allowing deferred revenue expenditure of Rs.38.57 Crores as deductible despite the fact that the same were not claimed by the assessee in the P&L account and did not pertain to the year in question ?
(F) Whether the Appellate Tribunal is right in allowing deduction of Interest expenses for acquiring assets which were already capitalized by the assessee in its books of accounts and pertained to the period before the assets were put to use ?
(G) Whether the Appellate Tribunal is right in allowing the assessee's claim of Rs.3.17 Crores u/s 43B which relates to a liability which was no longer in existence at the time of amalgamation ?
(H) Whether the Appellate Tribunal has erred in overlooking the findings in the assessment order and also the fact that since the amalgamation was as per BIFR scheme, the BIFR clause based on the applicant's submission regarding benefits u/s 43B was binding on the assessee ?
(I) Whether the Appellate Tribunal has erred in law and on facts in deleting the Page 3 of 10 O/TAXAP/1108/2013 ORDER addition of expenses amounting to Rs.1.22 Crores which were allocated as per section 10B(6) to EOUs eligible for claiming deduction u/s 10B ?
(J) Whether the Appellate Tribunal has erred in overlooking the detailed findings in the Assessment order whereby it was evident that the assessee had debited lesser expenses in the account of eligible EOUs and excess expenses in its own accounts ?
2. Questions 'A' and 'B' pertain to capital gain sought to be taxed by the Revenue upon sale of a business unit of the respondentAssessee company.
The Assessing Officer called for details of the costs of acquisition of plant and machinery and other details such as written down value of such assets as on the date of sale of such machinery.
The Assessing Officer added the entire sale consideration for the purpose of computation of the capital gain on the ground that such details were not inconceivable, but were not provided.
3. The Tribunal ultimately ruled in favour of the assessee relying on the decision of the Supreme Page 4 of 10 O/TAXAP/1108/2013 ORDER Court in the case of PNB Finance Ltd. v. CIT, reported in (2008) 307 ITR 75 (SC).
4. In such decision in the case of such sale finding that there was inability to fix compensation relating to each item of the machinery, the Apex Court followed the decision in the case of Artex Ltd. v. CIT, reported in 227 ITR 260 and came to the conclusion that since computation machinery had failed, there would be no question of arriving at a figure of capital gain and resultantly, no tax can on such head be levied.
We are conscious that in such decision, the Court was interpreting the provisions pertaining to the capital gain contained in Incometax Act, 1961, prevailing prior to April 01, 2000. In the present case, we are also concerned with the assessment year 199697 and the similar provisions on all material counts were in force.
Such question is, therefore, not required to be considered.
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5. Questions 'C' and 'D' pertain to interest of Rs.24.76 crore paid by the assessee to the ICICI Bank Ltd. on debentures with maturity value of three years. The stand of the Revenue was that such interest liability should be spread over the entire period of debentures and cannot be claimed by way of deduction during the year under consideration. The Tribunal, however, noticing that such interest liability arises out of the agreement between the parties and was actually discharged during the previous year relevant to the year under consideration, allowed the same.
Such question in a separate order passed today in Tax Appeal No.1106 of 2013, we have not entertained making the following observations :
"6. Admitted facts are that the respondent assessee issued debentures with 18 months maturity in favour of Citi Corp. Investment Limited and agreed to pay interest on such debentures upfront. The assessee actually did pay such interest also. Such being the facts, we do not see any distinction between this case and the case considered by the High Court in the case of Mohit Marketing Page 6 of 10 O/TAXAP/1108/2013 ORDER vs. CY.CIT(supra). It was also the case where the assessee had issued debentures for the period of six years but paid interest at the rate of Rs.62/ per debenture having face value of Rs.100/ upfront. The assessee in the said case claimed deduction of such interest payment under section 36(1) (iii) of the Income Tax Act,1961. The High Court allowed the claim holding that the payer company having satisfied all the conditions necessary for invoking section 36(1)(iii) of the Act was entitled to deduction of interest paid while computing its income from profits and gains of business. One more ground adopted by the Court for allowing the claim of the assessee was that the assessee company while issuing debentures entered into a contract with the debenture holders as per which said interest was payable upfront. In absence of the Revenue's case that such contract was sham or not acted upon, the terms of the contract need not be rewritten by the Revenue. The decision of Supreme Court in the case of Madras Industrial Investment Corporation(supra) was also noticed. In this context it was observed as under : "13. The Apex Court decision in the case of Madras Industrial Investment Corporation Limited (supra) cannot be Page 7 of 10 O/TAXAP/1108/2013 ORDER pressed into service by Revenue because, admittedly, the Court was called upon to decide the controversy in light of the provisions of Section 37(1) of the Act. Section 37(1) of the Act specifically states that any expenditure (not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession' if it is laid out or expended wholly and exclusively for the purposes of business. Therefore, once it is shown that an expenditure is of the nature described in any of the specified Sections i.e. Sections 30 to 36, the same cannot fall within Section 37(1) of the Act. In the circumstances, the assessee's claim being under Section 36(1) (iii) of the Act, there is no question of applying principles on the basis of which deduction of an expenditure is permissible under provisions of Section 37(1) of the Act."
Page 8 of 10O/TAXAP/1108/2013 ORDER
7. Facts are similar. In our opinion, the ratio of the decision in the case of Mohit Marketing (supra) would apply. Tax Appeal is, therefore, dismissed."
6. Question 'F' pertains to the claim of deduction of interest for acquiring assets, which were capitalised by the assessee in the books of accounts. Admittedly, the borrowing was for acquisition of assets and interest expenditure was incurred on such borrowings. In that view of the matter, in view of the decision of the Supreme Court in the case of Deputy Commissioner of Incometax v. Core Health Care Ltd., reported in 298 ITR 194, the interest was allowable. Such question is, therefore, not considered.
7. Tax Appeal is ADMITTED for consideration of Questions 'E', 'G' and 'I'.
8. Question 'H' is covered in Question 'G' and Question 'J' is covered in Question 'I' and, therefore, such questions are not separately referred to.
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(AKIL KURESHI, J.)
(MS SONIA GOKANI, J.)
Aakar
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