Income Tax Appellate Tribunal - Kolkata
Itc Limited, Kolkata vs Department Of Income Tax on 30 December, 2009
आयकर अपीलीय अधीकरण, बी " , कोलकाता,
अधीकरण Ûयायपीठ - "बी कोलकाता
IN THE INCOME TAX APPELLATE TRIBUNAL : "B" BENCH : KOLKATA
सम¢ ौी बी.
सम¢)
(सम¢ बी आर.
आर िमƣल,् Ûयायीक सदःय,
सदःय एवं ौी आकबर बाशा, लेखा सदःय,)
सदःय
[Before Hon'ble Sri B.R. Mittal, J.M. & Hon'ble Sri Akber Basha, A.M.]
आयकर अपील संÉया / I.T.A No. 475/Kol/2010
िनधॉरण वषॅ/Assessment Year : 2005-2006
ITC Limited, Kolkata -vs.- Deputy Commissioner of Income Tax,
(PAN : AAACI 5950 L) Circle-8, Kolkata
अपीलाथȸ /Appellant)
(अपीलाथȸ ू×यथȸ/Respondent)
ू×यथȸ
(ू×यथȸ
&
आयकर अपील संÉया / I.T.A No. 476/Kol/2010
िनधॉरण वषॅ/Assessment Year : 2005-2006
Deputy Commissioner of Income Tax, -vs. - M/s. ITC Limited, Kolkata
Circle-8, Kolkata
अपीलाथȸ /Appellant)
(अपीलाथȸ ू×यथȸ/Respondent)
ू×यथȸ
(ू×यथȸ
For the Assessee : Shri Rahul Krishna Mitra, A.R.
For the Department : Shri L.S. Negi, CIT, D.R.
आदे श/ORDER
Per Shri B. R. Mittal, Judicial Member/ ौी बी.
बी आर.
आर िमƣल िमƣल,् Ûयायीक सदःय :
These cross appeals are filed by the assessee and Department for assessment year 2005- 06 against the order of ld. Commissioner of Income-tax (Appeals)-VIII, Kolkata dated 30.12.2009 on the following grounds :-
ITA No. 475/Kol./2010 (Assessee's appeal) "Expenditure on staff welfare disallowed under section 40A(9) : Rs.9,00,111/- For that the learned CIT(A.) erred in disallowing the expenditure for staff welfare under section 40A(9).
For that the learned CIT(A.) failed to appreciate that genuine expenditure for staff welfare is fully allowable under the Income Tax Act.
Relief prayed :
The disallowance of Rs.9,00,111/- should be deleted".2 ITA Nos. 475/Kol./2010 & 476/Kol./2010
ITA No. 476/Kol./2010 (Departmental appeal) (1) That ld. CIT(A.) erred on facts and circumstances of the case and in law in holding that irrecoverable amount of Rs.3,93,303/- in the nature of security deposits and other deposits are revenue in nature..
(2) That ld. CIT(A.) erred on facts and circumstances of the case and in law in allowing assessee's claim of disallowance of Rs.1,02,700/- under section 14A of the Act without following the provisions of Rule 8D.
(3) That ld. CIT(A.) erred on facts and circumstances of the case and in law in holding that the assessee is entitled for deduction of 100 per cent of the profit of the power undertaking at Bhadrachalam when the concerned undertaking commenced operation in FY 1997-98.
(4) That ld. CIT(A.) erred on facts and circumstance of the case and in law in holding that income of Rs.65,55,048/- from sale of Clonal Plants, coconut and Sugarcane, etc. is in the nature of agricultural income and accordingly, the same is exempted.
2. The assessee vide letter dated 14.09.2010 has also taken an additional ground, which is as under :-
"That on the facts and circumstances of the case the ld. CIT(Appeals) may please be directed to reexamine the ground on disallowance of proportionate management expenses with respect to earning of exempted income under section. 14A read with Rule 8D aggregating to Rs.4,90,29,742/-, in light of the principles laid down by the recent decision of the Hon'ble Bombay high Court in the case of M/s. Godrej & Boyce Mfg. Co. Ltd. -vs.- DCIT (WP No. 758 of 2008), which was delivered subsequent to the disposal of the impugned appeal by the ld. CIT(Appeals), wherein it was held that Rule 8D is applicable prospectively on and from the assessment year 2008-09; and not retrospectively".
3. We first take up the appeal filed by assessee being I.T.A. No. 475/Kol./2010.
4. In respect of disallowance of Rs.9,00,111/- under section 40A(9) of the Act, the Assessing Officer has stated that as per Tax Audit Report, filed along with the return of income, the auditors have identified payments amounting to Rs.22,51,916/- as items of expenses covered by section 40A(9) of the Act. However, the auditors have mentioned that, the same is allowable in view of the decision of Hon'ble Kolkata High Court in the case of DCIT - vs.- Chloride Industries Limited [76 ITD 1]. The Assessing Officer has stated that the assessee filed details of payments. He has stated that on perusal of the details, it is observed that payments have been made to employees' welfare funds, staff clubs, employees' cooperatives and sports committees. The Assessing Officer after considering the provision of section 40A(9) 3 ITA Nos. 475/Kol./2010 & 476/Kol./2010 of the Act and also observing that the said payments are not covered under section 36(1)(iv) and (v) has disallowed the said amount of Rs.22,51,916/- and added to the income of the assessee. Being aggrieved, the assessee filed appeal before ld. CIT(Appeals).
5. Ld. CIT(Appeals) after considering the submission of the assessee and following order of first appellate authority in assessee's own case for assessment year 2004-05 dated 07.09.2009 worked out the disallowance of Rs.9,00,111/- and disallowed the same. It is relevant to state that ld. CIT(Appeals) has stated that expenditure on workmen welfare of Rs.9,31,805/- and expenditure of Rs.4,20,000/- on Tribeni Tissues Vidyapith is the expenditure on specific welfare schemes, which is allowable. Hence, the assessee is in further appeal for the balance confirmation of disallowance of Rs.9,00,111/-.
6. At the time of hearing, ld. AR referred page 5 of the paper book filed along with the letter dated 29.06.2010, which contains the break-up of the amount aggregating Rs.9,00,111/- and the nature of activities undertaken by the Clubs/ Association to whom the assessee made subscriptions. We consider it prudent to state the said details, filed by the assessee, which is as under :-
Sums paid towards employees welfare activities disallowed under section. 40A(9) Particulars Nature of Amount (in Rs.) Nature of activities undertaken by the payment clubs/ association ITC Staff Club Subscription 344,716 ITC Staff Club (At Chennai) was formed with the objective of providing recreational facilities to its members who are employees of the Company posted at Tiruvottityur, Chennai Tribeni Tissues Cooperative Stores Subscription 25,800 The employees of Ltd. Tribeni factory of the Company had created a cooperative stores to assist members in obtaining their requirements at reasonable rates and within proximity of the factory Tribeni Tissues Recreation Club Subscription 137,000 This club was formed for the exclusive use of 4 ITA Nos. 475/Kol./2010 & 476/Kol./2010 employees (including managers) to foster cordial social relations amongst the employees of the Tribeni factory & keep them happy.
ITC Ladies Social & Welfare Welfare 8,945 The Society was formed
Society Activities by the wives of the
employees of ITC
Limited to promote the
interest of the women
by creating forum and
carrying out welfare
activities. The amount
paid is for
reimbursement of
expenses incurred for
organizing a fete for the
members of the ITC
Ladies Social &
Welfare Society.
Tribeni Tissues Employees Subscription 100,100 This Club formed for
Recreation Club the exclusive use of the
unionized employees of
ITC Limited, Tribeni
factory to foster cordial
& cooperative spirit
amongst the employees
which will help to
maintain industrial
peace.
Tribeni Tissues Sports Club Subscription 100,000 This club was formed to
build up awareness
amongst the employees
of Tribeni factory and
their families regarding
the value of sports
which will chance their
quality of life and keep
them happy and
healthy.
Tribeni Tissues Management Staff Subscription 156,550 This club was formed
Club for the exclusive use of
the Management Staffs
of Tribeni factory and
their family members
for recreation which
will help to enhance
employer-employee
relationship.
Tribeni Tissues Mahila Samity Subscription 10,000 The association of the
wives of the managers
5 ITA Nos. 475/Kol./2010 & 476/Kol./2010
working in Tribeni
factory was established
as a forum to get-
together and do social
work with a feeling of
oneness with each
other. This helps to
maintain industrial
harmony and
cooperation. This
payment was for
advertisement in
souvenir published on
the occasion of an
annual fete being
organized by the ITC
Mahila Samity at the
Tribeni Mill colony.
Tribeni Tissues Natya Samaj Subscription 1,000 This samaj was formed
to give an opportunity
to the employees of
Tribeni factory to
develop or pursue their
dramatics literary
talents which will keep
them happy. This
payment was for
advertisement in the
souvenir which was
used for organizing &
drama for the
employees of Tribeni
factory.
ITC Recreation Society Subscription 16,000 This society was formed
to prove recreational
facilities to the
employees of
Kidderpore factory
which helps to promote
cordial relations with
the employees and
maintain industrial
peace. This payment
was for advertisement
in souvenir of the
Society which was
published on the
occasion of the
"Annual Social" of the
Society.
Total 900,111
6 ITA Nos. 475/Kol./2010 & 476/Kol./2010
Ld. AR submitted that in the preceding assessment years, viz. assessment years 2002-03 and 2003-04, ITAT vide its order dated 18.06.2009 in ITA Nos. 245 & 246/Kol./2008 restored the matter to ld. CIT(Appeals) with a direction to decide the issue afresh as per law as the assessee failed to give details and no reasons were given by the authorities below. Ld. AR submitted that in the assessment year under consideration, the assessee filed all the details of the contributions made by it and the contributions were made to Schools and Workmen' Organization for their welfare activities due to business expediency. Ld. AR submitted that ITAT, Kolkata Bench in the case of Chloride Industries Limited (supra) has held that Staff Recreation Club and Staff Club were a part and parcel of the organization itself and they were given money by way of subsidy and accordingly following its earlier decision in the case of DCIT -vs.- A.P.E. Belliss India Limited in I.T.A. Nos. 527 to 537/Cal./1989 held that in such kind of contribution/ expenditure, provisions of section 40A(9) are not applicable and the claim is allowable under section 37(1) of the Act.
7. On the other hand, ld. D.R. supported the orders of the authorities below and submitted that similar claim of the assessee was not allowed by the Tribunal in the preceding assessment years of the assessee itself.
8. We have carefully considered the submissions of the ld. representatives of the parties and the orders of the authorities below. We have also gone through the details of the expenditure aggregating Rs.9,00,111 claimed by the assessee, the break-up of which has already been mentioned hereinabove. We observe that the assessee has made the contribution to Staff Club/ Recreation Club of its employees. On perusal of the details, it is observed that the said amounts were reimbursed by the assessee for salary of the staffs employed at the Club, maintenance of library at the Club, expenses for maintenance of indoor game section¸ expenses for conduct of sports competition and their families, reimbursement of expenses towards electricity, expenses incurred on providing cultural recreation to the members/ cultural events, expenses for organizing fete for the members/ families of assessee's employees, expenses incurred on organizing cultural events on different occasions, annual social meets of the employees/ their families, etc., except direct subscription made to one Cooperative Society of Rs.25,800/-. Considering the facts of the case, we do agree with the assessee that in the assessment year under consideration, the assessee has filed the details of the expenses 7 ITA Nos. 475/Kol./2010 & 476/Kol./2010 reimbursed to the Recreation Clubs/ Organizations/ Societies of the employees and their families and it was not an expenditure incurred by the assessee towards setting up formation or giving direct contribution to a fund, Trust, Company, Association of Persons, Body of Individuals, Society registered under Societies' Registration Act, 1860 (except to one contribution of Rs.25,800/- as mentioned hereinabove), but the reimbursement is of the expenditure actually incurred for the welfare activities of the employees and their families. Hence, we are of the considered view that the Staff Recreation Club and Staff Club for which the assessee has incurred the expenses are for the welfare of its employees due to business expediency. Staff Recreation Club and Staff Club are a part and parcel of the Organization itself. Considering the earlier decision of ITAT, Kolkata in the case of Chloride Industries Ltd. (supra) and also the fact that the assessee has given the break-up of the expenses incurred/ reimbursed, as mentioned hereinabove, we are of the considered view that the provisions of section 40A(9) of the Act are not attracted for a sum of Rs.8,74,311/- and the said expenditure is allowable under section 37(1) of the Act. Therefore, we allow Ground of appeal taken by the assessee in part by restricting the disallowance to Rs.25,800/- and by deleting the sum of Rs.8,74,311/- out of Rs.9,00,111/-.
9. As mentioned hereinabove that the assessee has also taken the additional ground.
10. Relevant facts are that the Assessing Officer observed that the assessee earned exempted income of Rs.142,85,05,284/- from investment in tax-free Bonds and Dividend. The assessee submitted at the time of assessment proceedings, the expenditure of Rs.1,02,700/- attributable to earning exempted income. Assessing Officer stated that the figure given by assessee is highly unrealistic. Assessing Officer disallowed the proportionate management expenses amounting to Rs.4,91,32,442/- under section 14A of the Act. The assessee filed appeal before the first appellate authority. However, at the time of hearing of the appeal, the assessee withdrew the ground by letter dated 10.11.2009 and ld. CIT(Appeals) confirmed the action of the Assessing Officer. The assessee has now filed an appeal stating that the assessee withdrew the above ground in view of the decision of ITAT, Special Bench, Mumbai in the case of ITO -vs.- Daga Capital Management Pvt. Ltd. [312 ITR 1 (AT)] vide which it was held that Rule 8D is retrospective in nature for the purpose of working out disallowance under section 14A of the Act. Ld. AR submitted that the said decision of ITAT, Special Bench has 8 ITA Nos. 475/Kol./2010 & 476/Kol./2010 been overruled by Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. -vs.- DCIT [328 ITR 81 (Bom.)] and it has been held that Rule 8D is prospective and is applicable from assessment year 2008-09. He submitted that the assessee did not press this ground before ld. CIT(Appeals) due to a valid reason and on account of the above decision of the Hon'ble Bombay High Court, the assessee has taken up this ground. He submitted that the assessee could take the ground before the Tribunal even if it was not taken before the authorities below and relied on the decision of the Hon'ble Apex Court in the case of National Thermal Power Corpn. Limited -vs.- CIT [229 ITR 383]. Ld. AR also referred the decision of the Hon'ble Madras High Court in the case of CIT -vs.- Tamilnadu Tourism Development Corporation Limited [139 ITR 146] and submitted that the admission of additional ground by the Tribunal was confirmed by the Hon'ble High Court. Ld. AR submitted that the matter could be restored to ld. CIT(Appeals) for his fresh consideration.
11. On the other hand, ld. D.R. submitted that the decisions cited by the assessee are not applicable to the facts of the case. He submitted that Assessing Officer did not disallow by applying Rule 8D while considering the exempted income of the assessee. He further submitted that the assessee voluntarily did not press the above ground. He submitted that the assessee could not agitate the same issue in further appeal once, he had accepted the disallowance made by the Assessing Officer. Ld. DR submitted that if the assessee is allowed to re-agitate the same issue for which he agreed to before the lower authorities, there could be no end.
12. We have carefully considered the submissions of the ld. representatives of the parties and the orders of the authorities below. We have also considered the cases cited by ld. A.R. in support of his submission. Considering the facts of the case that the Assessing Officer made proportionate disallowance while considering the exempted income of the assessee in the assessment year under consideration for the purpose of section 14A of the Income Tax Act, he did not consider Rule 8D of the Income Tax Rule. We agree with ld. AR that Rule 8D is not applicable to the assessment year under consideration. It is also a fact that the assessee did not press for this ground before ld. CIT(Appeals) and admitted the disallowance made by the Assessing Officer. Therefore, the plea taken by ld. A.R. that the assessee did not dispute this ground because of Rule 8D and the decision of Special Bench, ITAT, Mumbai in the case of Daga Capital Management Pvt. Ltd. has no substance. There is no such submission of the 9 ITA Nos. 475/Kol./2010 & 476/Kol./2010 assessee before ld. CIT(Appeals) that the assessee did not to want agitate the matter in view of the decision of ITAT, Special Bench, Mumbai. It is observed that the assessee, for the reasons best known to him, accepted the disallowance made by the Assessing Officer under section 14A of the Income Tax Act. Considering the above facts, we agree with ld. D.R. that cases relied upon by ld. A.R. are not applicable to the facts of the case before us. On considering the facts, we observe that it is not a legal issue, which the assessee has agitated before us. On the other hand, the assessee wants to re-agitate the issue which had been settled at the end of ld. CIT(Appeals) by accepting the disallowance made by Assessing Officer. We agree with ld. D.R. that if the assessee is allowed to re-agitate the same issue, which has been conceded by the assessee before the authorities below, there is no end to a dispute. Considering the above facts, we reject the additional ground taken by the assessee.
13. Now we take up the appeal filed by the Department being I.T.A. No. 476/Kol./2010.
14. The assessee had written off bad advances, deposits of Rs.46,64,381/-. Assessing Officer has stated that following items are not revenue in nature :-
Party Name Amount Assessee's comment on nature of amount which is written off Akbarally Esufally Estates 3,17,520/- Security Deposit Miscellaneous 25,783/- Represent deposits made to various parties between 1956 to 1992 for which receipts are not available and despite best efforts the amounts is not recoverable from parties and hence, written off Sudhir Chandra Malakar 50,000/- Deposit TOTAL 3,93,303/-
Thus Assessing Officer treated the said amount aggregating Rs.3,93,303/- as capital in nature and added to the total income of the assessee. Being aggrieved, the assessee filed appeal before the first appellate authority. Ld. CIT(Appeals) had deleted the said amount stating that the issue is covered by the ITAT judgment in assessee's own case for assessment year 2002-03 in I.T.A. No. 18/Kol./2006 and for assessment year 2003-04 in ITA No. 1338/Kol./2006. Hence, the Department is in further appeal before the Tribunal.
15. During the course of hearing, ld. D.R. relied on the order of Assessing Officer. On the other hand, ld. A.R. of the assessee submitted that the amount aggregating Rs.25,783/- was given as security deposit to Electricity Board and for supply of gas to various agencies as 10 ITA Nos. 475/Kol./2010 & 476/Kol./2010 normal business requirement. It was submitted that it was an old amount and if litigation was initiated, its cost would be higher than recovery. He further submitted that Rs.3,17,520/- was given as security deposit for leased godown at Chennai in 1995 and 1999. There was a dispute on fixation of rent since January, 2001. The rent was hiked to Rs.38,580/-, but the assessee- company disputed the same and continued to pay old rent. Ultimately, the lessor compromised and the assessee-company vacated those godowns in 2004-05. The security deposit was not returned to which assessee-company agreed to. Ld. AR further submitted that the sum of Rs.50,000/- was given as deposit for a residential flat at Kolkata. The employee handed over the key to landlord while vacating the premises and the landlord did not return the security deposit on the ground that he had acute financial problems. He submitted that the case was filed but landlord was no longer traceable, hence, the amount was written off. Ld. AR submitted that written off amount aggregating Rs.3,93,303/- was deposited as security deposits in the ordinary course of business and the said amount has been written off in the assessment year under consideration considering the material aspect as well as the time and cost involved in such recovery. Ld. AR submitted that ld. CIT(Appeals) has rightly deleted the said amount as it is a trading loss under section 28. He submitted that such similar write off of trade advances/ deposits had been allowed by the Tribunal in the earlier assessment years.
16. We have carefully considered the submissions of the ld. representatives of the parties and the orders of the authorities below.
17. Considering the nature of the deposits given by the assessee, the details of which mentioned hereinabove, we find substance in the submission of ld. A.R. that trade advances were given in the normal course of its business of purchasing gas, taking godown and flat on rent, etc. Deposits could not be said to have been made to acquire any capital assets by the assessee. Nor the advances were in the nature of any investment made by the assessee-company or for any purchase of capital assets. We are of the considered view that write off of the above amounts by the assessee are loss, which could be allowed as deduction. In this regard, we are fortified by the decision of the Hon'ble Apex Court in the case of CIT -vs.- Mysore Sugar Company Limited [46 ITR 649]. We are also of the considered view that the assessee has taken a bonafide decision to write off of above amount considering the cost and the time involved., if assessee had initiated legal action. Hence, we do not find any reason to interfere with the order 11 ITA Nos. 475/Kol./2010 & 476/Kol./2010 of ld. CIT(Appeals). Therefore, Ground No. 1 of the appeal taken by the Department is rejected.
19. In respect of Ground No. 2 of the appeal taken by the Department, ld. A.R. submitted that the assessee itself disallowed a sum of Rs.1,02,700/- under section 14A of the Income Tax Act and referred para 4 of the assessment order. He submitted that no relief has been given by ld. CIT(Appeals) in regard thereto. Ld. D.R. has not disputed the said submission of ld. A.R.
20. We also on perusal of the order of Assessing Officer agree with the contention of ld. A.R. that the assessee itself made disallowance of Rs.1,02,700/- under section 14A of the Act while considering the exempted income shown by it and ld. CIT(Appeals) has not deleted it. Hence, Ground No. 2 of the appeal taken by the Department does not arise out of the order of ld. CIT(Appeals). Accordingly, Ground No. 2 of the appeal is rejected.
21. In respect of Ground No. 3 of the appeal taken by the Department, relevant facts are that the 'Power Undertaking 1 at Bhadrachalam' commenced its operation on 18.07.1997, i.e. in financial year 1997-98. The assessee stated that till financial year 2000-01, i.e. assessment year 2001-02 the said Power Undertaking belonged to another Company, viz. ITC Bhadrachalam Paperboards Limited (hereinafter to be referred as ITCBPL). ITCBPL never claimed any deduction under section 80IA in view of recurring losses. The assessee stated that in assessment year 2002-03, ITCBPL merged with the assessee-company and thereafter the merged Company having a positive gross total income, started claiming the deduction under section 80IA of the Act in respect of the said Power Undertaking. The assessee claimed that the deduction for the first time was claimed in respect of the said Power Undertaking in assessment year 2002-03.
22. At the relevant period, i.e. when the assessee-Undertaking commenced its operation on 18.07.1997, section 80IA provided that the assessee could claim deduction @ 100% for first five assessment years and at the rate of 30% for next five assessment years. However, by the Finance Act, 2001 w.e.f. 1st April, 2002, provisions of section 80IA were amended and as per said amendment if an Undertaking is set up for generation or generation and distribution of power, if it begins to generate power at any time during the period beginning on the 1st day of 12 ITA Nos. 475/Kol./2010 & 476/Kol./2010 April, 1993 and ending on the 31st day of March, 2006¸the deduction under section 80IA derived by an Undertaking or an Enterprise from any business referred to in sub-section (4), the deduction of an amount equal to 100% of the profits and gains derived from such business could be claimed for ten consecutive assessment years out of fifteen years beginning from the year in which the Undertaking or the Enterprise, inter alia, generates powers or commences transmission or distribution of power. The assessee claimed that the amended provisions of section 80IA of the Act were applicable to it for assessment year under consideration and since the assessee did not claim any deduction prior to assessment year 2002-03 and claimed deduction in respect of the said Undertaking for the first time in assessment year 2002-03, it was entitled for 100% deductions in the assessment year under consideration, i.e. assessment year 2005-06. The Assessing Officer did not accept the said contention of the assessee on the ground that the assessee commenced its generation of power from assessment year 1998-99 and as such it could claim deduction @ 100% of the profit from assessment years 1998-99 to 2002- 03 and subsequently for a period of 5 years i.e. from assessment year 2003-04 to 2008-09 @ 30%. In view of the above, the Assessing Officer restricted the deduction to the assessee under section 80IA of the Act to 30% of the profits of the said Undertaking being Rs.8,42,56,800/- instead of Rs.28,08,56,000/- as claimed by the assessee. Being aggrieved, assessee filed appeal before the first appellate authority.
23. Ld. CIT(Appeals) after considering the submission of the assessee has held that the assessee claimed deduction under section 80IA for the first time in assessment year 2002-03. Ld. CIT(Appeals) has stated that the assessee exercised its options as per the amended provisions for choosing 10 years from assessment year 2002-03 and as such, the assessee is entitled to claim deduction under section 80IA @ 100% of the profit of the said Unit for a period of five assessment years commencing from assessment year 2002-03 and accordingly, directed the Assessing Officer to allow the assessee's claim. The relevant order of ld. CIT(Appeals) is at pages 18 to 20 of the impugned order, which is as under :-
"In this ground the appellant is disputing the AO's action in limiting deduction under sec. 80IA of the Income Tax Act in respect of its power generation unit at Bhadrachalam to @ 30% of profits of the said unit instead of @ 100% claimed by it. The appellant's case is that the deduction in respect of the said unit was first claimed in the assessment year 2002-03 and was in accordance with the extant provisions of sec. 80IA of the Income Tax Act as applicable to that assessment year. Therefore, as per its contention, the claim for assessment year 2005- 13 ITA Nos. 475/Kol./2010 & 476/Kol./2010 2006 is the fourth year. The AO has denied the appellant's claim on the ground that the unit commenced operation in the financial year relevant to assessment year 1998-1999 and as per the provisions of sec. 80IA(2)(iv)(b) of the Income Tax Act prevailing in that assessment year the appellant was entitled to claim deduction @ 100% for first five assessment years and @ 30% for next five assessment years, the deduction being permissible for 10 consecutive assessment years. It is to be mentioned that sec. 80IA of the Income Tax Act was amended by the Finance Act, 2001 w.e.f. 01.04.2002. As per the amended provisions in force from assessment year 2002-2003, the appellant is entitled to choose any 10 consecutive years out of 15 years beginning from the year in which its business of power generation has commenced. The appellant has pleaded before me that the law to be applied is that which in force in the relevant assessment year relying on the decision in the case of Karimtharuvi Tea Estate Ltd. -vs.- State of Kerala [60 ITR 262 (SC)]. The AO's main contention appears to be that it is immaterial whether the appellant could claim deduction under sec. 80IA of the Income Tax Act in the assessment year 1998-1999 or not. The period of 10 years was fixed as per the provisions of sec. 80IA of the Income Tax Act which existed in assessment year 1998-1999 and this period could not be changed by a subsequent amendment. It is not in dispute that the appellant has first claimed deduction under sec. 80IA of the Income Tax Act for its Bhadrachalam Unit in assessment year 2002-2003. Therefore, it is seen that the appellant had exercised its option for choosing 10 years from the assessment year 2002-2003. The amendment to sec. 80IA of the Income Tax Act brought about from assessment year 2002-2003 indicates that the intention of the legislature was to extend the benefit of sec. 80IA of the Income Tax Act for full 10 years out of initial 15 years to all such industries which have begun operation on or after 01.04.1995 and which, due to substantial capital investment were not able to make profits in the initial year of operation. This intention has been further clarified by the CBDT in its Circular No. 14 of 2001. The unit in question having commenced operation for assessment year 1998-1999, the appellant has still assessment year 2013-2014 to exercise its option of choosing 10 consecutive years out of this period. Having made its choice the initial year of the appellant in this case will be assessment year 2002-2003 and for a period of five assessment year commencing from that initial assessment year it would be entitled to a deduction of 100% of its profit of the said unit. Therefore, I hold that the contention of the appellant is correct and accordingly direct the AO to allow the appellant's claim under sec. 80IA of the Income Tax Act in respect of Bhadrachalam Unit. This ground of appeal is allowed".
Hence, Department is in further appeal before the Tribunal.
14 ITA Nos. 475/Kol./2010 & 476/Kol./201024 At the time of hearing, ld. D.R. relied on the order of Assessing Officer. However, ld. A.R. of the assessee made his submissions on the lines of the submissions made before ld. CIT(Appeals). He further submitted that a similar issue was considered by ITAT, Ahmedabad Bench in respect of providing cellular services in the case of ACIT -vs.- Vodafone Essar Gujarat Limited (2010) 38 SOT 51. He submitted that in the said case, the Tribunal held that the assessee could not be denied benefit of the amended provisions once it fulfilled the conditions stipulated in the relevant provisions and the substituted provisions of section 80IA would apply to the assessee. In the said case, the assessee commenced its commercial operation on 24.01.1997, i.e. in assessment year 1997-98 but did not claim deduction under section 80IA from assessment years 1997-98 to 1999-2000. The question arose as to whether the pre- amended provisions of section 80IA of the Act, i.e. the provisions, which were in existence, when the assessee commenced production would be applicable or the amended provisions of section 80IA of the Act applicable with effect from 1st April, 2000 would apply to the assessee. It is relevant to state that prior to the amendment, assessee was entitled to get deduction under section 80IA of the Act in respect of profits and gains from Infrastructure Undertaking @ 100% for first five years and thereafter @ 30% in next five years. However, as per amended provisions applicable w.e.f. 01.04.2000 in respect of providing telecommunication services on or after 01.04.1995, there was an option to the assessee to claim benefit of section 80IA of the Act for any ten consecutive years out of fifteen years commencing from which the year in which the assessee started providing telecommunication services. The assessee exercised its option of claiming deduction under section 80IA from assessment year 2005-06. Assessing Officer and ld. Commissioner (Appeals) were of the opinion that the relevant provisions, as they stood in the period relevant to the assessment year 1996-97, would determine the deduction under section 80IA in the year under consideration, i.e. assessment year 2006-07. It was stated that the assessee did not have any option in choosing the initial year as defined in the provisions relevant to the assessment year 1997-98 nor assessee could have claimed any deduction under section 80IA in the assessment years 1996-97 to 1999-2000 or even after until the assessment year 2003-04 due to losses, while the amended provisions provided option to the Undertaking, which had started providing telecommunication services on or after 1st April, 1995 and the assessee fulfilled all other conditions stipulated under section 80IA, the Tribunal held that ld. CIT(Appeals) was not justified in holding that the assessee was not entitled to exercise option in terms of the amended provisions applicable from assessment year 2000-01 15 ITA Nos. 475/Kol./2010 & 476/Kol./2010 onwards. It was held that the amended provisions applicable w.e.f. 1.4.2000 allowed option even to those Undertakings, which had already started providing telecommunication services on or after 1.4.1995 and since the assessee undisputedly, did not claim deduction from assessment years 1997-98 to 1999-2000, the assessee, therefore, could not be denied benefit of the amended provisions, once it fulfilled the conditions stipulated in the relevant provisions.
25. At the time of hearing, ld. A.R. submitted that the above decision of ITAT, Ahmedabad Bench (supra) squarely applies to the case of the assessee and as such the initial assessment year in the case of the assessee for claiming deduction under section 80IA was assessment year 2002-03, which would be available for next ten years i.e. upto assessment year 2011-12. He submitted that the order of ld. CIT(Appeals) should be confirmed.
26. We have carefully considered the orders of the authorities below and the submissions of ld. representatives of the parties. We have also gone through the order of ITAT, Ahmedabad Bench in the case of Vodafone Essar Gujarat Limited (supra). We observe that the issue involved in the appeal before us and the issue involved in the appeal before the ITAT, Ahmedabad Bench is identical save and except the fact that in the case of appeal of ITAT, Ahmedabad Bench, the Undertaking was providing telecommunication services and whereas in the case before us it is a Power Undertaking. There is no dispute to the fact that the Undertaking providing telecommunication services and/ or Power Undertaking both are Infrastructure Undertakings as per Explanation to sub-section (4) of section 80IA of the Act. There is no dispute to the fact that the assessee-company fulfills all the requisite conditions as laid down in section 80IA of the Act to claim deductions under section 80IA of the Act. The only issue is as to whether the pre-amended provisions of section 80IA i.e. the provisions as applicable when the assessee-Undertaking commenced its generation of power would apply or amended provision of section 80IA of the Act, which were amended by the Finance Act, 2001 w.e.f. 1st April, 2002 would be applicable to the assessee-company. There is no dispute to the fact that as per erstwhile provision of section 80IA of the Act, there was a two tier deductions, i.e. 100% of its profit of power generating for the first five years and thereafter @ 30% for subsequent five years available to an assessee, but as per amended provisions of section 80IA of the Act, the assessee is entitled to have an option to claim 100% of its profit of power generating undertaking in any of ten years within a period of fifteen years, at the option of the 16 ITA Nos. 475/Kol./2010 & 476/Kol./2010 assessee. There is no dispute to the fact that the assessee did not claim any deduction under section 80IA of the Act from assessment year 1998-99 to assessment year 2001-02 as there was a negative gross total income. The assessee claimed deduction under section 80IA of the Act for the first time in assessment year 2002-03. The assessee has stated that the initial assessment year for claiming deduction under section 80IA is thus assessment year 2002-03 and the assessee is entitled for claiming deduction for next ten years, i.e. upto assessment year 2011-12. However, the Assessing Officer has stated that pre-amended provisions of section 80IA would be applicable and whereas ld. CIT(Appeals) has agreed with the contention of the assessee. We observe that similar issue had been considered by ITAT, Ahmedabad Bench in the case of Vodafone Essar Gujarat Limited (supra) and the relevant part of the said order reads as under :-
"We are of the opinion that the assessee was justified in exercising option in terms of the amended provisions, especially when the provisions of section 80-IA(4)(ii) clearly stipulate that the option is available even to those undertakings which had started providing telecommunication services on or after 1.4.1995. Therefore, when the assessee fulfilled all other stipulated conditions in terms of the relevant provisions of section 80-IA of the Act, the ld. CIT(A.) was not justified in holding that the benefit of substituted provisions was available only to those undertakings which were granted a license after 1.4.1995 and could not start operations until 1.4.2002. We are of the option that such an restrictive interpretation does not emerge from the amended provisions. The ld. CIT(A.) was also not justified in concluding that the assessee having exercised option in the period relevant to the assessment year 1997-98 [even though there was no such provision of exercising option and the assessee could not claim any such deduction in view of loss], provisions of section 80-IA of the Act substituted from the assessment year 2002-03 would not apply".
We observe that ITAT, Ahmedabad Bench also considered the CBDT Circular No. 14 of 2001, which was issued explaining the purpose of amendment under section 80IA of the Act, which reads as under :-
"The fiscal benefit available has been further relaxed and such undertakings (read undertaking engaged in the generation or generation and distribution of power) shall now be entitled to a ten year tax holiday in place of the existing two tier tax benefit. The ten- year tax holiday can be availed of consecutively in the block of initial fifteen years. The amendment will take effect from the first day of April, 2002, and will apply in relation to assessment year 2002-03 and subsequent years".17 ITA Nos. 475/Kol./2010 & 476/Kol./2010
ITAT, Ahmedabad Bench after considering the amended provisions and the above CBDT Circular held that the assessee was entitled of deduction @ 100% for ten consecutive years out of the first fifteen years. We are of the considered view that the issue before us is squarely covered by the decision of ITAT, Ahmedabad Bench (supra) and, therefore, we do not find any infirmity in the order of ld. CIT(Appeals) to delete the disallowance made by the Assessing Officer. Hence, we confirm the order of ld. CIT(Appeals) by rejecting Ground No. 3 of the appeal taken by the Department.
27. In regard to Ground No. 4 of the appeal (Department), relevant facts are that the assessee claimed exemption of income from sale of clonal plants, coconut, sugarcane, etc. amounting to Rs.65,55,048/- considering it as agricultural income. Assessing Officer stated that the exemption granted for agricultural income under section 10(1) of the Act is meant and intended for such income and person in whose hands income is coming out of agrarian activities. He stated that the assessee-company is implementing its object of diversification by trying to reach to rural mass and economy with a view to a better foothold in the new and emerging commercialized scientific research and development. The said profit arising out of sale of clonal plant is not something similar or commonly accepted income from agricultural activities. Assessing Officer observed that the assessee is engaged in these new dimensions of bio-technological research, testing and developing its tools, technology and product thereof. It is all part of agro-business of the assessee-company and cannot qualify for exemption. Hence, the assessing Officer added the said income of Rs.65,55,048/- to the total income of the assessee and treated it as business income. Being aggrieved, assessee filed appeal before the first appellate authority.
28. Ld. CIT(Appeals) after considering the submission of the assessee and also considering the amendment made by Finance Act, 2008 incorporated in section 2(1A) Explanation 3 and also considering CBDT Circular No. 1 of 2009 dated 27.03.2009 directed the Assessing Officer to allow exemption to the assessee under section 10(1) of the Income Tax Act as per assessee's claim. The relevant part of the order of ld. CIT(Appeals) reads as under :-
"In this ground, the appellant is disputing the AO's action in not allowing exemption under sec. 10(1) of the Income Tax Act on income claimed by it to be agricultural income. The AO's contention is that the appellant is engaged in agro business which incorporated by technological research and its products, the outcome of such activity, which makes it ineligible 18 ITA Nos. 475/Kol./2010 & 476/Kol./2010 the claimed exemption under sec. 10(1) of the Income Tax Act for income from sale of such products. In course of its submission before me has relied on the decision in the case of Raja Benoy Kumar Sahas Roy [32 ITR 466 (1957) (SC)], wherein the Hon'ble Supreme Court defined term agriculture. It has also relied on other jducial decisions which have incorporated in its submission mentioned above as also CBDT's Circular No. 1 of 2009 dated 27.03.2009. These have been perused. I find the case of the appellant is covered by these decisions as also CBDT's Circular mentioned above. It cannot be denied that the appellant is carrying out basic operations on land and whether subsequent operations are carried out in continuation of such basic operations is immaterial to the facts of the case. The appellant's activities would come within the definition of agriculture and therefore, the AO is directed to allow exemption under sec. 10(1) of the Income Tax Act as per appellant's claim. This ground of appeal is allowed".
Hence, Department is in further appeal before the Tribunal.
29. During the course of hearing, ld. D.R. supported the action of the Assessing Officer. He submitted that amendment made by Finance Act, 2008 is w.e.f. 1st day of April, 2009, i.e. applicable from assessment year 2009-10 and it is not retrospective. He further submitted that even otherwise, the amendment made by inserting Explanation 3 to section 2(1A) is not applicable as it only states that the income derived from saplings or seedling grown in a nursery shall be deemed to be an agricultural income but cloning process is highly technical. It involves a lot of technology. He submitted that the Assessing Officer has rightly held that the said income does not qualify for exemption though the product has a colour of agricultural income.
30. On the other hand, ld. A.R. of the assessee made his submissions on the lines of the submissions made before ld. CIT(Appeals). He submitted that the activities undertaken by the assesee are as under :-
In the initial stage the nurseries cultivate seeds. In order to cultivate such seeds it undertakes activities like preparing of land, leveling, preparation of beds, sowing of seeds, plan ting, etc. After a certain stage the best responsive plant is earmarked as the mother seed. These activities undertaken for growing the seedlings are agricultural activities.
Thereafter, the laboratories maintained by the nurseries come into operation. The DNA of the mother clone is collected from the mother plant/ seedling and the same is implanted into other seeds. In other words, a fair degree of bio-technological input goes into preparation of clones of the best plant in order to achieve the best genetic growth patterns.19 ITA Nos. 475/Kol./2010 & 476/Kol./2010
The said seeds are once again planted by the nurseries thereby developing clonal plants and seedlings. The nurseries undertakes all the activities like preparing of land, leveling, preparation of beds, sowing of seeds, planting etc., which tantamount to agricultural activities. These saplings are then sold to the local farmers.
In other words, the nurseries undertake basic operations in land once for identifying the mother clone and thereafter to cultivate clonal saplings fit for market. The activities undertaken in both the stages require human labour and skill in preparing the land fit for plantation of the seeds and raising the saplings.
Learned Authorized Representative further placed reliance on the decision of the Hon'ble Madras High Court in the case of CIT -vs.- Soundarya Nursery [241 ITR 530] and submitted that the Hon'ble High Court held that income from sale of plants and seedlings grown in nurseries is agricultural income. He submitted that similar view has also taken by the Hon'ble Uttarakhand High Court in the case of CIT -vs.- Green Gold Tree Farmers (P) Ltd. (2008) 167 Taxman 151 and also by Hon'ble ITAT, Delhi Bench in the case of Mrs. Aruna Jain -vs.- DCIT (2008) 21 SOT 218. He submitted that the amendment made by the Finance Act, 2008 is retrospective as it was inserted with a view to settle the controversies that had arisen by Judicial Authorities and referred CBDT Circular No. 1 of 2009 dated 27.03.2009. He submitted that the explanation is retrospective as the same are inserted to secure deficiencies arising out of the dispute. Learned AR submitted that the order of ld. CIT(Appeals) be confirmed.
31. We have carefully considered the submissions of the ld. representatives of the parties and the orders of the authorities below and also the provisions of section 2(1A) of the Act along with section 10(1) of the Act. We have also gone through the cases cited by ld. A.R. of the assessee.
32. We observe on perusal of summary of the activities undertaken by the assessee as mentioned hereinabove that the basic operation to cultivate seeds is on land and therefore, subsequent operations are carried out. The entire activities undertaken by the assessee right from the stage of cultivation of seeds is on land till it is marketed and we observe that the activities undertaken require human labour and skill in preparing the land fit for plantation of 20 ITA Nos. 475/Kol./2010 & 476/Kol./2010 seeds and raising saplings. The Hon'ble Apex Court in the case of CIT -vs.- Raja Benoy Kumar Sahas Roy [32 ITR 466] has held as under :-
"Agriculture" in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term, meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. These are basic operations and require the expenditure of human skill and labour upon the land itself. Those operations which the agriculturist has to resort to and which are absolutely necessary for the purpose of effectively raising produce from the land, operations which are to be performed after the produce sprouts from the land, e.g. wedding, digging the soil around the growth, removal of undesirable undergrowth, and all operations which foster the growth and preservation of the same not only from insets and pests but also from depradation from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market, would all be agricultural operations when taken in conjunction with the basic operations...............Only if this integrated activity which constitutes agriculture is undertaken and performed in regard to any land.....................the income derived therefrom be said to be 'agricultural income'".
It is also relevant to state the following extracts from the decision of the Hon'ble Madras High Court in the case of Soundarya Nursery (supra), wherein it was held that income from sale of plants and seedlings grown in nurseries is agricultural income, which reads as under :-
"All the products of the land which have some utility either for some consumption or for trade or commerce if they are based on land would be agricultural products. If the plants sold in pots were the result of basic operations on the land expending human skill and labour thereon and if after performance of the basic operations on land the resultant product grown or such part thereof was suitable for being nurtured in a pot with water or by placing them in the green house or in share or after performing several operations such as weeking, watering, manuring, etc., and are made ready for sale, all these operations are agricultural operations and the plants are products of agriculture.
The assessee was carrying on business of a nursery and various types of fruit plants, flower plants, vegetable plants and seedling were grown. The assessee's activities were to prepare seedlings on scientific basis, grow plants on prepared beds and after several operations carried out on the land, viz. cutting gootying and inarching, they were transplanted in suitable containers including pots and kept in the green houses or in share and then sold. The assessee claimed that the income derived from the sale of plants grown in pots and sale of seeds constituted agricultural income. The Tribunal upheld the contentions. On a reference :21 ITA Nos. 475/Kol./2010 & 476/Kol./2010
Held, that the income from the sale of plants grown in pots and the sale of seeds derived on account of cultivation by the assessee was agricultural income".
It is evident that the income of the assessee from marketing of clonal plants is an agricultural income. Now the question arises as to whether the amendment made by Finance Act, 2008 by inserting Explanation 3 to section 2(1A) is retrospective or is prospective. Explanation 3 as inserted by Finance Act, 2008 to section 2(1A) reads as under :-
"For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income".
The explanatory notes to the said provision of the Finance Act, 2008 is contained in CBDT Circular No. 1 of 2009 dated 27.03.2009, which is as under :-
"4.1. Agricultural income is defined in sub-section (1A) of section 2 of the Act to mean, inter alia, income derived from land which is situated in India and is used for agricultural purposes. Such agricultural income is exempt from tax under sub-section (1) of section 10 of the Income Tax Act, 1961. It has been held by judicial authorities that whether income from nursery operations constitutes agricultural income or not, will depend on the facts of each case. If the nursery is maintained by carrying out basic operations on land and subsequent operations are carried out in continuation of the basic operations, then income from such nursery would be agricultural income not liable to tax under section 10. However, if the nursery is maintained independently without resorting to basic operations on land, then income from such nursery would not be agricultural income and would be liable to be included in the total income.
4.2. With a view to giving finality to the issue, an explanation in section 2 of the Income Tax Act, has been inserted providing that income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income. Accordingly, irrespective of whether the basic operations have been carried out on land, such income will be treated as agricultural income, thus qualifying for exemption under sub-section (1) of section 10 of the Act".
33. On perusal of above CBDT Circular, it is evident that the amendment has been made by inserting Explanation 3 by Finance Act, 2008 is to settle the controversy which has arisen because of the judicial pronouncements. Therefore, we agree with ld. AR that the said amendment is curative in nature and it has to be considered retrospective. The Hon'ble Bombay 22 ITA Nos. 475/Kol./2010 & 476/Kol./2010 High Court has held in the case of Godrej & Boyce Manufacturing Co. Ltd. -vs.- DCIT 328 ITR 81, inter alia, that when the amendment is curative or it is intended to remedy unintended consequences or to render a statutory provision workable, the amendment may be construed to relate back to the provision in respect of which it supplies a remedial effect.
34. Considering the above decisions and the amendment now made by the Finance Act, 2008, we are of the considered view that the income derived by the assessee from marketing of clonal plants is in the nature of agricultural income. Thus it is exempted under section 10(1) of the Income Tax Act. Hence, we agree with the order of ld. CIT(Appeals) and reject Ground No. 4 of the appeal taken by the Department.
35. In the result, appeal of the assessee is allowed in part and whereas appeal of the Department is dismissed.
ORDER PRONOUNCED IN THE OPEN COURT ON 10.06. 2011.
Sd/- Sd/-
[Akber Basha/ आकबर बाशा ] बी.
बी आर.
[ B.R. Mittal /बी आर िमƣल ् ]
Accountant Member/ लेखा सदःय Judicial Member/ Ûयायीक सदःय
Dated : 10/ 06/ 2011
Pronounced by
Sd/- Sd/-
(A.M.) 10/06 (J.M.)
(S.V. Mehrotra) (B.R. Mittal)
Copy of the order forwarded to:
1. M/s. I.T.C. Limited, 37, J.L. Nehru Road, Kolkata-71, 2 DCIT, Circle-8 Aayakar Bhawam, 5th floor, P-7, Chowringhee Square, Kolkata-69,
3. Commissioner of Income-tax (Appeals), Central-II, Kolkata, 4 CIT, Kolkata-
5. DR, Kolkata Benches, Kolkata (True Copy) By Order Assistant Registrar, I.T.A.T., Kolkata Laha, Sr. P.S.