Income Tax Appellate Tribunal - Delhi
Delhi Tourism And Transport ... vs Deputy Commissioner Of Income-Tax on 31 August, 1995
Equivalent citations: [1996]56ITD524(DELHI)
ORDER
G.D. Agrawal, Accountant Member
1. These cross-appeals for the two assessment years, namely, 1990-91 and 1991-92 are directed against the orders of the Commissioner of Income-tax (Appeals)-XV, New Delhi. Since common points are involved, they are being disposed of together for the sake of convenience.
ITA Nos. 6388/Del./1993 & 7041 (Delhi)/1994 (Revenue's appeals)-
2.1 These two appeals by the revenue are for assessment years 1990-91 and 1991-92. In these two appeals there is only one ground of appeal in each year, which reads as under :-
Ground of appeal in assessment year 1990- 91:
On the facts and in the circumstances of the case, the CIT (Appeals) erred in granting relief of Rs. 24,17,65,160 crores by deleting the addition made on account of amount credited to Delhi Administration and other Government Economic Services by holding that it was a case of diversion of income and not application of income.
Ground of appeal in assessment year 1991-92:
On the facts and in the circumstances of the case, the ld. CIT (Appeals) has erred in considering the expenditure of Rs. 28.86 crores to Delhi Administration- Other General Economic Services' as a diversion of income rather than an application of income.
2.2 The facts in this respect are that the assessee, namely, Delhi Tourism and Transportation Development Corporation Ltd. (hereinafter will be referred to as "the DTTDC") is a wholly owned Government company of Delhi Administration, which was Union Territory at the relevant time. It was engaged in the business of tourism, transportation, catering and Indian made foreign liquor till the assessment year 1989-90. The country liquor business was being carried on by the Excise Department of Delhi Administration till 14-5-1989. The country liquor business was transferred to the assessee from 15-5-1989. A note dated 24-4-1989 was put up by the Secretary (Transport), Delhi Administration before the Executive Council for special arrangements to ease congestion on road by construction of grade separators. The copy of the note is produced before us and placed at vide pages 30 to 34 of paper book. As' per this Note the retail trade business in country liquor was to be transferred to the DTTDC with effect from 15-5-1989. With the surplus to be generated out of this business, the DTTDC was to construct flyovers and padestrian facilities. These structures were to be transferred to the road owning authorities and the assessee Corporation was to derive pay back from those authorities. The note was approved by the Executive Council in the meeting held on 25-4-1989. Accordingly the retail trade in country liquor was transferred to the DTTDC with effect from 15-5-1989. That the Lt. Governor of Delhi Administration had retrospectively fixed the profit margin of the assessee i.e., the DTTDC, which was communicated to the assessee, as per letter dated 27-2-1992 of the Deputy Secretary (Finance) of Delhi Administration. By another letter dated 5-2-1992, the Deputy Secretary (Finance), Delhi Administration directed the assessee to pay the difference between the retail sale price not covered by specific duties, taxes and the margin of profit as allowed to the assessee by Delhi Administration and the wholesale price with effect from 15-5-1989 to 8-4-1991 to the credit of Major Head 1475 "Other General Economic Services" Minor Head "109 Sale Proceeds of Liquor". In view of these directions the assessee worked out the amount payable to the Government as per above direction. This was Rs. 24,17,65,160 and Rs. 28,86,02,020 for assessment years 1990-91 and 1991-92 respectively. This amount was debited to the profit and loss account. By another letter dated 5-2-1992 Deputy Secretary (Finance), Delhi Administration informed the assessee that as a continuing and ongoing consideration for the DTTDC being transferred the country liquor retail trade business, the DTTDC be obliged to construct fly-overs, pedestrian facilities as per direction issued by the Delhi Administration and on completion of such infrastructure facilities, the DTTDC shall be obliged to handover same to the appropriate Government offices on a free of cost basis. The assessee created Transport Infrastructure Utilisation fund by the amount of margin of profit allowed as per letter of Delhi Administration dated 27-2-1992 (referred earlier in the order). This fund was created by debit to profit and loss account and the quantum of amount was Rs. 2,39,07,659 and Rs. 6,65,05,785 for assessment years 1990-91 and 1991 -92 respectively. Out of this fund the assessee appropriated 5 paise for assessment year 1990-91 and 10 paise for assessment year 1991 -92 per bottle of country liquor sold against administrative expenses of its corporate office. This was adjusted by debit to Transport Utilisation Fund Account and by credit to corporate office expenses account.
2.3 The assessee has debited the amount of Rs. 24,17,65,160 and Rs. 28,86,02,020 for assessment years 1990-91 and 1991-92 respectively to the profit and loss account being the amount payable to Delhi Administration. Before the Assessing officer it was pleaded that the amount was not the income of the assessee, so it cannot be taxed in the hands of the assessee. The argument of the assessee was not accepted by the Assessing Officer and he treated this amount as income of the assessee for both the years.
2.4 On appeal, the CIT (Appeals) accepted the assessee's plea and directed the Assessing Officer to delete the above additions in those years. The revenue, aggrieved by such a direction of the CIT (Appeals) is in appeal before us.
2.5 At the time of hearing before us Shri M.S. Syali, Special Standing Counsel appeared for the revenue. He submitted that the country liquor business was transferred to the assessee as per Minute dated 25-4-1989 by approving the note dated 24-4-1989. This note was a detailed note and as per this note, the assessee was supposed to utilise the income earned by it from country liquor business for construction of fly-overs and pedestrian facilities etc. Such structures was to be transferred to the appropriate road owning authorities from whom the assessee was to receive pay back. In this respect he relied upon paras 2 and 3 of the Note. He further submitted that this note had decided everything and no matter was left pending for further decision. He also submitted that the subsequent letters i. e., letter dated 27-2-1992 fixing the margin of profit retrospectively, cannot alter the income already earned by the assessee. This letter can operate from a subsequent date. He further submitted that the income earned by the assessee remained within the assessee's own control. He further submitted that there was no diversion of income at source, as claimed by the assessee, on the other hand it was only an application of income after the accrual of income. As per the Minutes of the Executive Council, the assessee was obliged for application of income from the country liquor business for construction of fly-overs, etc. Thus, it is a clear case of the application of income and not of the diversion of income. In support of his submission, he relied upon the following decisions :-
(a) Western States Trading (P.) Ltd. v. CIT [1971] 80 ITR 21 (SC).
(b) Dalmia Cement Ltd. v. CIT [1991] 191 ITR 331 (Delhi).
(c) CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC).
(d) S.N. Bhargava v. Asstt. CIT [1995] 52 ITD 49 (Delhi).
(e) Motilal Chhadami Lal Jain v. CIT [1991] 190 ITR 1 (SC).
(f) Jiwajirao Sugar Co. Ltd. v. CIT [1989] 176 ITR 182 (MP).
(g) Dashmesh Transport Co. (P.) Ltd. v. CIT [1980] 125 ITR 681 (Punj. & Har.)
(h) Industrial Credit & Development Syndicate Ltd. v. CIT [1992] 196 ITR 574 (Kar.).
(i) Motilal Chhadami Lal Jain v. CIT [1977] 106 ITR 909 (All).
He also distinguished the decision of Income-tax Appellate Tribunal in the case of MMTC reported in ITO v. Minerals & Metals Trading Corporation of India Ltd. [ 1983] 3 ITD 466 (Delhi), on the ground that in that case MMTC had deposited the surplus every month with the Consolidated Fund of India. Therefore, they did not have any control over the money. While in the case of the assessee the money remained under the control of the assessee during the relevant previous year. This money was invested for earning interest and such interest income was shown as income of the assessee. This interest was not paid to Government of India alongwith the money deposited in Consolidated Fund of India subsequently. This clearly prove that the assessee was owner of money at the relevant time. The money was deposited with the Consolidated Fund of India only after the letter of the Delhi Administration issued in February, 1992. The deposit of money subsequently will not affect the income accrued to the assessee during relevant previous years.
2.6 The learned Counsel for the assessee has argued at length. His arguments may be summarised as below:-
The country liquor business was transferred to the assessee with effect from 15-5-1989 but the margin of the assessee was not fixed. It was fixed only in February, 1992 with retrospective effect from 15-5-1989. This fixation of the profit retrospectively was communicated to the assessee by a letter dated 27-2-1992. By another letter dated 5-2-1992 from Delhi Administration the assessee was directed to deposit the surplus above the retail margin allowed to the assessee, with the Consolidated Fund of India. The assessee has not disputed the retrospective fixation of margin of profit. On the other hand, the sum of Rs. 24.21 crores is already deposited with Consolidated Fund of India. In support of this contention letter dated 14-7-1993 from Deputy Secretary (Finance), Govt. of National Capital Territory of Delhi was filed. He also referred to the letter dated 25-6-1991 from the Excise Commissioner addressed to the Deputy Commissioner of Income-tax, Special Range-6, New Delhi informing that the issue relating to the fixation of retail margin to the DTTDC is still pending in the Administration. He further submitted that on account of the fixation of profit from a retrospective date, the money received by the assessee stands diverted with that date only. Therefore, the said amount cannot be treated as income accrued to the assessee. He also submitted that it is only the real income which can be taxed for the purpose of income-tax and the amount which is paid/payable to the Consolidated Fund of India cannot be treated as income of the assessee. In support of the contentions raised, he relied upon the following decisions :-
(1) Ramjee Prasad Sahu v. Union of India [1993] 202 ITR 800 (Pat.).
(2) Rajkot District Gopakik Co-operative Milk Products Union Ltd. v. CIT [1993] 204 ITR 590 (Guj.).
(3) CIT v. A. Tosh & Sons (P.) Ltd. [1987] 166 ITR 867 (Cal.).
(4) CIT v. Karamchand Thapar & Bros. [1979] 117 ITR 621 (Cal.).
(5) CIT v. M.D. Manohar Rao [1985] 155 ITR 696 (AP).
(6) Smt. Savita Mohan Nagpal v. CIT [1985] 154 ITR 449 (Raj.).
(7) CIT v. Smt. Nandiniben Narrottamdas [1993] 201 ITR 893 (Guj.).
(8) CIT v. Jhanzie Tea Association [1989] 179 ITR 295 (Cal.).
(9) CIT v. Tranvancore Sugars & Chemicals Ltd. [1973] 88 ITR 1 (SC).
2.7 We have carefully considered the arguments of both the sides and have perused the material produced before us and various decisions relied upon by both the sides. The assessee was transferred the retail trade business in country liquor by virtue of the decision of Executive Council of Delhi Administration. The Council in its meeting held on 25-4-1989 had approved the Note dated 24-4-1989 put up by Secretary (Transport), except the name of the assessee which was changed from Delhi Tourism & Transportation Corporation Delhi Tourism and Transportation Development Corporation. The relevant portion of the paragraph 3 of the Note dated 24-4-1989 reads as under:-
3. The main constraint in taking up a major programme for construction of grade separators, footover bridges and subways is of funds....The matter has been discussed extensively at the official level and the following approach is submitted to the Executive Council for its approval:
(a) ** ** **
(b) The retail trade in Country Liquor and 50 degree U.P. Rum which has so far been undertaken departmentally by the Excise Department, be transferred to DTTC w.e.f. 15-5-1989. That will give DTTC a surplus of over Rs. 100 crores in the three financial years, 1989 to 1992 which will enable it to construct about 20 road flyovers and a fairly substantial number of pedestrian facilities. The Corporation will also derive pay back from the road owning authorities (as explained hereunder) whereby it will be possible to expand the programme further. The shift of retail trade from the department to the Corporation (as it already obtains for Indian Made Foreign Liquor) apart from delivering funds to DTTC for transportation infrastructural development, is desirable on other grounds also. There must be a separation of the retail business by corporate bodies such as DTTC, the latter should continue to be the functions of the departmental authorities who have the requisite legal sanctions. The operational details of transfer of retail trade from the department to DTTC have been examined and are easy to negotiate. The 10 vends being currently operated by the department will be transferred to DTTC. Bulk of the staff managing the Country Liquor trade is composed of deputationists, who from the date of their transfer to DTTC will continue to be treated as working on deputation under DTTC. There are a few other employees working on adhoc basis, who will be absorbed in the Corporation. As a consequence of transfer of retail trade from the department to DTTC no difference will be caused either in the procurement of wholesale supplies or in the manner or procedure of retailing. The department will continue to call tenders and to take the requisite decisions for procurement of wholesale supplies.
2.8 The Delhi Administration vide its letter dated 5-2-1992 intimated to the assessee as under:-
This has reference to the Executive Council's decision dated 25-4-1989 as amended from time to time according to which you were required to pay the difference between the retail sale price not covered by specific duties, taxes, and margins as allowed to you by the Delhi Administration and the whole sale price w.e.f. 15-5-1989 to 8-4-1991 to the credit of Major Head 1475 "other General Economic Services" Minor Head 109, "Sale Proceeds of Liquor.
You are requested to make arrangement to deposit the same.
The Delhi Administration by another letter dated 27-2-1992 intimated the assessee as under:-
In continuation of this Administration's letter of even number dated 5-2-1992,1 am directed to convey the approval of Lt. Governor, Delhi for :-
(i) Retrospective fixation of the profit margin to Delhi Tourism and Transport Development Corporation as follows:-
(a) Re. 1 per bottle for the period from the date of takeover i.e., 15-5-1989 to 31-3-1990.
(b) Rs. 2 per bottle for the period 1-4-1990 to 7-4-1991.
(ii) Provisional charging of rental from DTTDC at rate of Rs. 10,000 per month per shop from the date of transfer of trade.
You are therefore, requested to make arrangement to deposit the balance amount at the earliest.
2.9 The assessee on the basis of above two letters dated 5-2-1992 and 27-2-1992 worked out the amount payable to the Government and debited the same to the profit and loss account in both the years under appeal. The amount of Rs. 24.21 crores was paid to Consolidated Fund of India in support of this letter of Deputy Secretary (Finance), Govt. of National Capital Territory of Delhi was filed. It is also claimed that assessee never disputed or challenged fixation of profit retrospectively. This factual position is not disputed by the Revenue. The main argument of the learned Special Standing Counsel for the revenue was that the letter dated 27-2-1992 cannot have the retrospective operation and the income which already accrued to the assessee in the relevant previous years could not be diverted at source by virtue of that letter. Thus he submitted that the income already accrued to the assessee was liable to be taxed in its hands. Both the parties have relied upon the number of decisions in support of their contentions. The issue was considered by the Hon'ble Supreme Court in the case of Sitaldas Tirathdas (supra).
Their Lordships have held as under:-
The true test for the application of the rule of diversion of income by an overriding charge, is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount by which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied.
The Hon'ble Supreme Court again had the occasion to consider this issue in the case of Moti Lal Chhadami Lal Jain (supra). In this case their Lordships have explained and applied the decision in the case of Sitaldas Tirathdas (supra). It was held as under:-
The expressions "reaches the assessee" and "has been received" have been used by the Supreme Court in the case of Sitaldas Thirathdas [1961] 41 ITR 367 not in the sense of the income being received in cash by one person or another. What the court emphasized is the nature of the obligation by reason of which the income becomes payable to a person other than the one entitled to it. Where the obligation flows out of an antecedent and independent title in the former (such as, for example, the rights of dependents to maintenance or of coparceners on partition, or rights under a statutory provision or an obligation by a third party and the like), it effectively slices away a part of the corpus of the right of the latter to receive the entire income and so it would be a case of diversion. On the other hand, where the obligation is self-imposed or gratuitous, it is only a case of application of income.
From the facts of the case as discussed in detail above, it is more than evident that the obligation to pay the amount in dispute was neither self-imposed or gratuitous. The assessee was required to pay the money as per the direction of Delhi Administration. The direction was issued with the approval of the Lt. Governor of Delhi. Thus, it cannot by any stretch of imagination be held to be self imposed or gratuitous. In fact the claim of the Revenue is mainly limited to the retrospective operation of the direction.
2.10 At the time of hearing before us it was admitted by the Special Standing Counsel that the direction of the Delhi Administration may be applicable prospectively but it will have no effect so far as the assessment years under appeal are concerned; the income in the relevant previous years had already accrued to the assessee. Before we examine the merit of the contention of the learned Special Standing Counsel, we may mention that the assessee, i.e., DTTDC has not disputed the fixation of margin of profit retrospectively. On the other hand, as per direction of Lt. Governor it has paid Rs. 24.17 crores to the Consolidated Fund of Government of India. It is not disputing the liability of payment of remaining sum of Rs. 28.86 crores. Therefore, if these letters of Lt. Governor were effective prospectively, as canvassed by the learned Special Standing Counsel for Revenue, the Government of India would have certainly been entitled to recover income-tax on these two sums i. e., Rs. 24.17 crores and Rs. 28.86 crores, but by virtue of retrospective operation of the said letter Government of India had received the entire sum of Rs. 24.17 crores and is entitled to Rs. 28.86 crores. Therefore, in view of retrospective operation of these letters, Government of India has been benefited.
2.11 Even on merits, the assessee deserves to succeed. The Note dated 24-4-1989 was prepared by the Secretary (Transport). It was put up before the Executive Council of the Delhi Administration. The claim of the learned Special Standing Counsel of the Revenue is that every aspect of the transfer of retail trade business to the assessee was determined by this Note and, therefore, there/was no question of fixation of margin of profit by the Delhi Administration with retrospective effect. From the evidences furnished by the assessee we find that it was not so. In this Note itself in Para 3(b), apart from other things it is mentioned "The operational details of transfer of retail trade from the department to DTTC have been examined and are easy to negotiate. "(Underlined by us to supply emphasis). It is thus clear that with regard to transfer of retail trade business, some issue was pending for negotiation. Apart from this, the assessee has claimed that there was protracted discussion between the DTTDC and the Delhi Administration for fixation of margin of profit of the assessee. The margin of profit of the assessee was riot fixed, therefore, there was delay in the finalisation of accounts, which were finalised only after the fixation of the margin by Delhi Administration. In support of this contention the assessee has filed the copy of letter dated 25-6-1991 from Commissioner of Excise, Delhi addressed to the Deputy Commissioner of Income-tax, Special Range-6, New Delhi. In this letter it is mentioned as under:-
DTTDC has informed this office that they are required to file audited account for the year 1989-90 with your office by 30-6-1991. In this regard, it is stated that the retail trade of Country Liquor was transferred to DTTDC from 15-5-1989 in view of the decision taken in the Executive Council. Due to certain Administrative difficulties the issue relating to fixation of retail margin to DTTDC on the sale of Country Liquor is still pending in the Administration. The matter needs detailed examination keeping in view the financial interest of both the Administration as well as the DTTDC. However, necessary steps for sorting out the issue are being taken and the decision is likely be arrived at shortly.
In the letter dated 5-2-1992 of Delhi Administration also it is mentioned that "This has reference to the Executive Council's decision dated 25-4-1989 as amended from time to time." (Underlined by us to supply emphasis). The genuineness of the contents of these letters are not in doubt and, therefore, the assessee's contention that there was protracted discussion for the fixation of the margin of profit in the retail trade Country Liquor business of the assessee, has to be accepted.
2.12 Now reverting back to the decision of the Hon'ble Supreme Court in the case of Motilal Chhadami Lal Jain (supra). The relevant portion is already reproduced by us earlier. Their Lordships by giving example of diversion by over-riding title, has mentioned that if it is a right under a statutory provision or an obligation by third party, it effectively slices away a part of the corpus of the right of the latter to receive the entire income, and so it would be a case of diversion. In our opinion, the assessee's case squarely falls within such observation of the Hon'ble Supreme Court.
2.13 For sale of intoxicants in the Union Territory of Delhi the Punjab Excise Act, 1914 is applicable. (The Punjab Excise Act, 1914 was extended to Delhi vide Government of India Notification No. 3246-39 dated 2-5-1914. The various amendments in the Act were also extended from time to time by various Notifications). The relevant provision for manufacture, possession and sale under the Punjab Excise Act, 1914 reads as under:-
26. Sale of Intoxicants: No liquor shall be bottled for sale and no intoxicant shall be sold except under the authority and subject to that terms and conditions of a license granted in the behalf; provided that:
1. ** ** **
2. ** ** **
3. ** ** **
4. ** ** ** Section 27. ** ** ** Section 34. Fees for terms, conditions and forms of, and duration of licenses, permits and passes (1) Every license, permit and or pass granted under this Act shall be granted :
(a) on payment of such fees, if any.
(b) subject to such restrictions and on such conditions,
(c) in such form and containing such particulars,
(d) for such period, as the Financial Commissioner may direct.
2.14 As per Delhi Liquor Licence Rules, 1976, Rule 1: Lt. Governor is the authority empowered to grant licence L-10 i.e., for Retail vend of Country Liquor for consumption 'off the premises.
2.15 Now in this case the assessee was transferred the retail trade of liquor with effect from 15-5-1989. The Lt. Governor of Delhi fixes the margin of profit of the assessee retrospectively, and directs the assessee to deposit the amount received in excess of the margin of profit determined by it. As per the Delhi Liquor Rules, 1976 the Lt. Governor is the authority to grant licence for retail vend of Country Liquor. The grant of licence would be on such conditions and on payment of such fees as the authority concerned will direct.
2.16 Thus, we hold that the right of the Government to receive the amount over and above the margin of profit fixed for the assessee was a right under a statutory provision. The Hon'ble Supreme Court in the case of Mod Lal Chhadami Lal Jain (supra) has clearly stated that if it is a right under a statutory provision, it effectively slices away a part of the corpus of the right of the latter to receive the entire income and so it would be a case of diversion. In view of above, we have no hesitation to hold that the amount paid/payable by the assessee as per the direction of the Lt. Governor of Delhi vide letter dated 27-2-1992 was not the income of the assessee. Therefore, we uphold the order of the CIT (Appeals) and dismiss the appeal of the revenue.
ITA No. 6060 (Delhi)/1993 Assessment year 1990-91- Assesseee's appeal-
3. The first two grounds of appeal read as under:-
That on the facts and circumstances of the case, the learned Commissioner of Income-tax (Appeals)-XV, New Delhi has erred in holding that the Assessing Officer was right in bringing the income from retail sale of liquor at Re. 1 per bottle sold to tax as income of the assessee.
That the learned Commissioner of Income-tax (Appeals) did not appropriate that out of the margin of Re. 1 per bottle of liquor sold, income to the extent of 95 paise per bottle was diverted by overriding title and only the balance income to the extent of 5 paise per bottle belonged to the appellant, which was duly disclosed.
3.1 We have already stated the facts relating to the transfer of liquor business to the assessee with effect from 15-5-1989 in Para 2.2 above. As per the Minutes of the Executive Council dated 25-4-1989 the assessee was to construct fly-overs and pedestrian facilities and to transfer the same to road owning authorities. As per this Minute, the assessee-Corporation was to receive pay back from those authorities. However, as per letter dated 5-2-1992 from Delhi Administration, Delhi the assessee was informed as under:-
Delhi Administration has decided to entrust retail sale of Country Liquor to Delhi Tourism & Transportation Development Corporation Ltd. (DTTDC) on a retail margin which will be determined from time to time. As a continuing and ongoing consideration for DTTDC being transferred the country liquor retail trade business, DTTDC be obliged to construct fly-overs and substantial number of pedestrian facilities etc. as per directions issued by Delhi Administration to the DTTDC from time to time, and, on completion of such infrastructure facilities, DTTDC shall be obliged to hand over same to the appropriate Government office's on a FOC basis, subject to execution of a deficiency charge report.
This direction of the Delhi Administration was not disputed by the assessee. The assessee was allowed retail margin of Re. 1 per bottle sold during the year and against such profit the assessee was to construct flyovers and pedestrian facilities as may be directed. Therefore, it created a transportation infrastructure utilisation fund in respect of the entire margin of Re. 1 allowed to it, out of which it adjusted 5 paise per bottle towards administrative expenses. In this respect the resolution passed by the Board of Directors of the assessee reads as under:-
Resolved that
(i) the action to create a Transportation Infrastructure Utilisation Fund in respect of margin equivalent to Re. 1 (Rupee one only) per bottle sold during, the year as per the direction of Delhi Admn. to the Company to manage the trade of country liquor and to construct flyovers and pedestrian facilities therefrom, and
(ii) the action to charge 5 paise (five paise) per bottle of the country liquor sold as administrative expenses towards its Corporate Office expenses against the Transportation Infrastructure Utilisation Fund, be and are hereby approved.
Accordingly the assessee has claimed that the Transportation Infrastructure Utilisation Fund created by it amounting to Rs. 2,04,35,870 during the year was not its income as the same was to be utilised for construction of fly-overs and pedestrian facilities. The claim of the assessee was not accepted by either the Assessing Officer or by the CIT (Appeals). Hence this appeal before us.
3.2 At the time of hearing before us the learned counsel for the assessee has submitted that the assessee was to utilise the profit of Re. 1 per bottle earned by it for the construction of fly-overs or pedestrian facilities as may be directed by the Delhi Administration. Thus, the amount was never the income of the assessee but the assessee has held the money only for the purpose of utilisation as per the direction of Delhi Administration. The learned Departmental Representative (Special Standing Counsel) supported the orders of the authorities below. He submitted that the amount spent on the construction of fly-overs or pedestrian facilities was only an application of income and not in the nature of expenditure. He alternatively submitted that the amount was spent for acquiring the liquor business and, therefore, it amounted to the consideration paid for acquisition of business, it would be capital expenditure.
3.3 We have carefully considered the arguments of both the sides. The assessee was transferred Country Liquor business with effect from 15-5-1989. Delhi Government vide its letter dated 5-2-1992, which is already reproduced hereinabove in this order, has ordered that as a continuing and on-going consideration for DTTDC being transferred, the Country Liquor retail business, DTTDC be obliged to construct fly-overs and pedestrian facilities as per direction issued by the Delhi Administration from time to time. It was further directed that such structure on completion shall be handed over to the appropriate authorities on FOC basis. These directions are not contested by the assessee but were actually acted upon. However, there was no direction that out of margin of Re. 1 per bottle allowed during the year under consideration the assessee was to spend 95 paise. The assessee had created Transportation Infrastructure Utilisation Fund at the rate of 95 paise (Re. 1 minus 5 paise) per bottle of the liquor sold. We do not find any basis for creation of such Fund. There was no obligation to spend 95 paise per bottle of liquor sold. The obligation of the assessee was to construct the infrastructure facilities in the shape of fly-overs or pedestrian facilities as may be directed by the Delhi Administration. The obligation of the assessee though definite was to be discharged on a future uncertain date. Keeping this important factor in view, we consider it reasonable to allow the expenditure as and when incurred. As already pointed out, provision of 95 paise per bottle for expenditure is without any basis and therefore, cannot be accepted as a sound basis for allowance of deduction. Therefore, we hold that the assessee should be allowed the deduction in respect of the expenditure as and when actually incurred on the construction of fly-overs or pedestrian facilities as per direction of Delhi Administration. We are unable to agree with the submission of the learned Counsel for the revenue that the expenditure incurred by the assessee on this construction are in the nature of capital expenditure. As per the letter of Delhi Administration dated 5-2-1992, the construction of fly-overs and pedestrian facilities is a continuing and ongoing consideration for transfer of Country Liquor trade business. While deciding the Revenue's appeal we have already held that as per Punjab Excise Act, 1914 (which is extended to Delhi), no liquor can be sold except under the authority and subject to the terms and conditions of licence granted in this behalf. We have also held as per Delhi Liquor Rules, the Lt. Governor is the authority to grant licence for retail vend of country liquor. The Delhi Administration is headed by the Lt. Governor. From this direction (letter dated 5-2-1992) of Delhi Administration, it is evident that construction of flyovers and pedestrian facilities was the consideration for carrying on of the retail trade business within the territory of Delhi. Thus, it was in the nature of licence fee paid by any trader for sale of liquor. Therefore, it is in the nature of revenue expenditure. We also do not agree with the submission of the assessee's Counsel that the fly-overs and the pedestrian facilities are capital assets and therefore, the expenditure on their construction is capital expenditure. Because the assets were never owned by the assessee but the assessee was to construct them as a consideration for carrying on of the liquor business within the territory of Delhi. Accordingly, we direct the Assessing Officer to allow the expenditure, an and when incurred on construction of these facilities as a revenue expenditure.
4. The ground No. 3 is against the disallowance of interest of Rs. 6,07,000. At the time of hearing before us it was submitted by the assessee's Counsel that the assessee has borrowed the money from Delhi Administration to whom the interest was to be paid. Since the rate of interest was not finalised, the Assessing Officer did not allow the same. It is submitted that now the rate of interest has already been finalised and the Assessing Officer himself in the subsequent year has allowed the interest. In view of these facts, we deem it proper to set aside the issue and restore the matter back to the file of the Assessing Officer with the direction to allow the interest as per the rate of interest now finalised with the Delhi Administration.
5. In the result, the appeal is partly allowed to the above extent.
ITA No. 6582 (Delhi)/1994 Assessee's appeal for assessment year 1991-92-
6. The first two grounds of appeal are common as in assessment year 1990-91 except that in this year the assessee was allowed the margin of profit at the rate of Rs. 2 per bottle and it created the Infrastructure Utilisation Fund at the rate of Rs. 1.90 P. per bottle. We have already held above while deciding the appeal for assessment year 1990-91 that the sum of Rs. 2 per bottle earned by the assessee is its income and the assessee is entitled to the expenditure incurred on construction of fly-overs or other infrastructure facilities as per direction of Delhi Administration. The Assessing Officer is directed to work out the addition accordingly.
7. The next ground of appeal is against the disallowance of Rs. 36,920 under Section 40A(3) of the Income-tax Act, 1961. The Assessing Officer had made the addition of Rs. 81,000 under Section 40A(3) of the Act. On appeal, the CIT (Appeals) considered each and every item of disallowance in detail and upheld the disallowance in respect of two payments totalling to Rs. 36,920. He found that the sum of Rs. 17,000 was paid to an employee of the assessee. Shri Amarjeet Singh and similarly another cash payment of Rs. 19,920 was made to Sukh Darshan Kaur. In respect of these items the CIT (Appeals) has held that the assessee could not prove that the payment was made under exceptional circumstances so as to be covered by rule 6DD(j) and he also found that the payments were made to the assessee's own employees. Before us the assessee's Counsel reiterated the same submissions which were made before the CIT (Appeals) that the payments were made in cash, as some photographs were urgently required. However, no corroborative evidence in support of such submission is filed before us. In the absence of any evidence to support the assessee's submission, we have no material to interfere with the findings of the CIT (Appeals). Accordingly, the same is confirmed.
8. In the result, the appeal is partly allowed as above.