United Phosphorus Ltd vs Addi.C.I.T.....Opponent(S) on 5 December, 2014

[Cites 8, Cited by 2]

Gujarat High Court

United Phosphorus Ltd vs Addi.C.I.T.....Opponent(S) on 5 December, 2014

1. This is an appeal by the appellant- assessee, seeking to challenge the order of the learned ITAT, Ahmedabad Bench-C, Ahmedabad (for Page 1 of 11 O/TAXAP/129/2003 JUDGMENT short, 'the Tribunal'), Dated : 03.10.2002, rendered in ITA No.783/Ahd/2001 for A.Y. 1997-98, whereby, the Tribunal allowed the same in part.

2. The brief facts of the case are that the assessee filed its return of income for the year under consideration on 30.11.1997, declaring its total income at Rs.10,75,13,910/-. Subsequent thereto, the case of the assessee was examined and the AO concerned, assessed its income at Rs.18,29,00,840/-. Hence, the assessee approached the CIT(A) against the same and the CIT(A) allowed the same in part. It appears that, then, the assessee as well as the Revenue, both carried the matter before the Tribunal by filing separate appeals / cross-objections. The Tribunal, after hearing the parties, allowed the appeals / cross objections in part. Hence, the present appeal.

3. At the time of admitting this Tax Appeal, following questions of law were framed by this Court;

"(i) Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that the alleged income from Advance License Benefit Receivable ("ALBR" for short) is taxable in the year under consideration even though the said income has accrued to the appellant in the subsequent years?

                (ii)         Whether,             in        the   facts      and

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circumstances of the case, the ITAT was right in law in holding that the alleged income from Pass Book scheme is taxable in the year under consideration even though the said income has accrued to the appellant in the subsequent years ?

(iii) Whether, in the facts and circumstances of the case the ITAT was right in law in holding that premium paid for the leasehold land is not revenue expenditure and not allowable as such?

(iv) Whether, in the facts and circumstances of the case the ITAT was right in law in holding that premium of leasehold land can not be allowed on proportionate basis spread over the period of lease which is totally contrary to the decision of Hon'ble the Supreme Court in the case of Madras Industrial Investment Corporation Limited vs CIT (225 ITR 802)?

(v) Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that business loss suffered by the appellant in China is not allowable in the year under consideration?

(vi) Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that income from Advance License Benefit Receivable, Pass Book Benefit Receivable and profit on sale of import license is not derived from industrial undertaking and thus not eligible for deduction u/s 80I and 80IA of the Act?

(vii) Whether, in the facts and circumstances of the case, the ITAT was Page 3 of 11 O/TAXAP/129/2003 JUDGMENT right in law in not granting set off of expenditure against income for the purpose of calculating deduction u/s 80HHC of the Act ?

(viii) Whether, in the facts and circumstances of the case, the ITAT was right in law in allowing deduction u/s 80M after deducting management expenses from the gross dividend received when no such expenses have been incurred by the appellant?"

4. At the very outset, Mr. Soparkar, learned Sr. Advocate for the appellant-assessee, invited our attention to a decision of this Court in Tax Appeal No. 344 of 2002 in the case of "UNITED PHOSPHORUS LIMITED VS. JT. CIT", Dated :

11.11.2014. Mr. Soparkar submitted that this Court has already decided some of the questions framed in this appeal, while disposing of Tax Appeal No. 344 of 2002.

5. In above view of the matter, we propose to deal with each question one by one.

6. Mr. Soparkar submitted that so far as question Nos. 1 and 2 framed in this Tax Appeal are concerned, they are covered by the decision of the Apex Court in the case of "COMMISSIONER OF INCOME TAX V. EXCEL INDUSTRIES LTD.", [2013] 358 ITR 295 ", wherein, it is held that income from sale of Advance License Benefits is taxable only in the year in which actual sale took place.

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      O/TAXAP/129/2003                                        JUDGMENT




7.         Mr.          Mehta,    learned         Advocate      for     the

respondent-Revenue, does not dispute the aforesaid aspect. Hence, we answer question Nos. 1 and 2 in favour of the assessee and against the Revenue.

8. Mr. Soparkar, then, submitted that so far as question No.3 framed in this Tax Appeal is concerned, same is covered by the observations made by this Court in Para-4 of Tax Appeal No. 344 of 2002, which reads as under;

"4. Insofar as question no.(iii) is concerned, the issue is already concluded by the decision of Apex Court in the case of Deputy Commissioner of Incometax v. Sun Pharmaceuticals Ind. Ltd., [2010] 329 ITR 479 (Guj). In that case, the Appellate Tribunal found that the land in question was not acquired by the assessee. It was held that merely because the deed was registered, the transaction in question would not assume a different character. The lease rent was very nominal and by obtaining the land on lease, the capital structure of the assessee did not undergo any change. It was further held that the assessee only acquired a facility to carry on business profitably by paying nominal lease rent and that the lease rent paid by the assessee to GIDC was allowable as revenue expenditure. In view of the above principle, the question no.(iii) is answered in favour of the assessee and against the Revenue."

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9.           Mr.          Soparkar,      then,          submitted          that,

since, question No.3 is covered by the decision of this Court in Tax Appeal No.344 of 2002, question No.4 shall not survive.

10. Mr. Mehta is unable to controvert the aforesaid aspect, hence, question No.3 is answered in favour of the assessee, whereas, so far as question No.4 is concerned, as stated above, since, question No.3 is answered in favour of the assessee, question No.4 is not answered as redundant.

11. Mr. Soparkar submitted that so far as question No.5 is concerned, it is true that the assessee has got decree of a foreign Court in its favour, but, merely by that it cannot be said that the assessee has suffered no loss. It was, further, submitted that the chances of recovery are not very significant, and therefore, the assessee should be given deductions for the loss in the year in question.

12. As against this, Mr. Mehta supported the reasoning adopted by the Tribunal on the aforesaid aspect. However, we are of the view that, since, it is an admitted position that the appellant, herein, has got decree of a foreign court in his favour, and therefore, there being a possibility of realizing the amount in near future, the Page 6 of 11 O/TAXAP/129/2003 JUDGMENT Tribunal was justified in holding that business loss suffered by the appellant in China is not allowable in the year under consideration. Thus, question No.5 is answered in favour of the Revenue and against the assessee, accordingly.

13. Mr. Soparkar, then, in connection with question No.6 framed, herein, invited our attention to a decision of the Apex Court in "LIBERTY INDIA VS. CIT", [2009] 317 ITR 218, wherein, the Apex Court has observed and held as under;

" DEPB / Duty drawback are incentives which flow from the schemes framed by the Central Government or from Section 75 of the Customs Act, 1962. Incentive profits are not profits derived from eligible business under section 80I-B :

they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB / Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profits derived from industrial undertaking" under section 80-IB."

14. In view of this judgment of the Apex Court, Mr. Soparkar, fairly conceded that the question has to be answered in the affirmative and against the assessee and in favour of the Revenue.

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15.         Mr.      Mehta,      relies         upon   the     aforesaid

judgment of the Apex Court and submits that the view taken by the Tribunal be confirmed.

16. Having examined the facts, we are of the view that question No.6 is squarely covered by the judgment of the Apex Court in the case of "LIBERTY INDIA VS. CIT"(Supra), therefore, same requires to be answered in favour of the Revenue and against the assessee.

17. Mr. Mehta is unable to show any judgment of the Apex Court, taking a contrary view than the one taken by the Apex Court in "LIBERTY INDIA VS. CIT"(Supra), and therefore, issue No.6 is answered in favour of the assessee and against the revenue.

18. Mr. Soparkar submitted that question No.7 raised in this appeal shall be governed by Para-6 of the decision of this Court in Tax Appeal No. 344 of 2002; which reads as under;

"6. Insofar as question no.(v) is concerned, the issue is already concluded by the decision of the Apex Court in the case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income tax, [2012] 343 ITR 89 (SC) wherein, it has been held that for the purpose of Section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit but, the sale value less the face value Page 8 of 11 O/TAXAP/129/2003 JUDGMENT of the DEPB that will represent profit on transfer of DEPB credit by the assessee. Accordingly, the question no.

(v) is answered in favour of the assessee and against the Revenue."

19. Mr. Mehta fairly accepted the principle of law enunciated by the Apex Court and followed by this Court in the above referred decision, and hence, question No.7 is answered in favour of the assessee and against the revenue.

20. As regards question No.8, Mr. Soparkar, submitted that the Tribunal has erred in assuming that the assessee would have incurred some expenditure for the purpose of earning dividend and based on that assumption, while calculating deduction under Section 80M of the Act, reduced the amount of dividend. He submitted that there is no dispute with regard to the proposition that, if, the expenditure is actually incurred, same shall go to reduce the amount of dividend and reduce the claim of dividend under Section 80M of the Act. If, however, no such expenditure is incurred, on a notional basis and without giving finding as to the amount of actual expenditure incurred, the Tribunal cannot reduce the claim of assessee for deduction under Section 80M of the Act. For this purpose, Mr. Soparkar relied upon following judgments of different High Courts, wherein, the view has been taken, which is in Page 9 of 11 O/TAXAP/129/2003 JUDGMENT favour of the assessee, that on notional basis expenditure cannot be made or assumed to reduce claim of deduction under Section 80M of the Act;

(1) "CIT VS. KARNATAKA BANK LTD.", 49 Taxmann.com 246 (Ker) (2) "CIT, LUDHIANA VS. VARDHMAN HOLDINGS LTD.", 30 Taxmann.com 436 (P&H) (3) "FARIDABAD INVESTMENT CO. LTD. VS. CIT", 338 ITR 26 (Cal) (4) "STATE BANK OF INDORE VS. CIT", 275 ITR 23 (MP)

21. Mr. Mehta relied upon the order of the Tribunal for the purpose of contending that the Tribunal has taken a fair view of the matter and has rightly assumed that assessee would have incurred some expenditure for the purpose of earning dividend income. He, therefore, requested to confirm the view taken by the Tribunal.

22. We are of the opinion that unless there is a finding that the assessee has actually incurred expenditure to earn dividend income, the Revenue has no basis to reduce the amount of dividend, which would qualify for deduction under Section 80M of the Act. The various High Courts, as referred to herein above, has taken the same view. Respectfully, following the aforesaid judgments of different High Courts, we answer Page 10 of 11 O/TAXAP/129/2003 JUDGMENT question No.8 in negative and in favour of the assessee by holding that when no expenditure are shown to have been incurred by the assessee for earning gross dividend income, deduction under Section 80M of the Act cannot be curtailed to reduce the amount qualifying for claim of deduction under Section 80M of the Act by assuming the amount of expenditure, which is assumed to have incurred by the assessee. Hence, question No.8 is answered in favour of the assessee and against the Revenue, accordingly.

23. To sum up, the question Nos. 1, 2, 3, 7

and 8 framed in this appeal are answered in FAVOUR of the assessee and AGAINST the Revenue, whereas, question No.5 and 6, herein, are answered in FAVOUR of the Revenue and AGAINST the assessee.

24. In the result, this appeal stands PARTLY ALLOWED. The order of the Tribunal, Dated :

03.10.2002, stands MODIFIED to the aforesaid extent.

(K.S.JHAVERI, J.) (K.J.THAKER, J) UMESH Page 11 of 11

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