Income Tax Appellate Tribunal - Mumbai
Glaxo Smithkline Pharmaceuticals ... vs Assessee on 17 April, 2013
ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" Bench, Mumbai
Before Shri B. Ramakotaiah, Accountant Member
and Shri Amit Shukla, Judicial Member
ITA No.6483/Mum/2003
(Assessment Year: 2000-01)
Glaxo Smithkline Dy.CIT 6(3)
Pharmaceuticals Ltd (Formerly 522, Aayakar Bhavan
Vs
Glaxo India Ltd) MK Road
252 Dr.Annie Besant Road Mumbai 400020
Worli, Mumbai 400025
PAN No: AAACG4414B
(Appellant) (Respondent)
ITA No.7252/Mum/2003
(Assessment year: 2000-01)
Dy. CIT 6(3)
522, Aayakar Bhavan Glaxo Smithkline
MK Road Pharmaceuticals Ltd (Formerly
Vs
Mumbai 400020 Glaxo India Ltd)
Dr.Annie Besant Road
Worli, Mumbai 400025
PAN No: AAACG4414B
(Appellant) (Respondent)
C.O. No.04/Mum/2005
(Arising out of ITA No. 7252/Mum/2003)
Glaxo Smithkline Dy. CIT 6(3)
Pharmaceuticals Ltd (Formerly 522, Aayakar Bhavan
Vs
Glaxo India Ltd) MK Road
Dr.Annie Besant Road Mumbai 400020
Worli, Mumbai 400025
PAN No: AAACG4414B
(Cross Objector) (Respondent)
Assessee by: Shri P.J. Pardiwalla
& Shri Niraj Sheth
Department by: Shri Girija Dayal, CIT(DR)
Date of Hearing: 17/04/2013
Date of Pronouncement: 12/06/2013
Page 1 of 34
ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai
ORDER
Per Bench.
These are cross appeals by assessee and Revenue and cross objections by assessee for assessment year 2000-01 arising out of the order of CIT (A)-XXVI Mumbai dated 31/07/2003 on order of AO under section 143(3) of the Income-tax Act.
2. We have heard the learned Counsel and the learned Departmental Representative. Learned Counsel placed on record a paper book and a chart indicating the issues which are covered by earlier orders. These are considered while disposing of these appeals.
ITA No.6483/Mum/2003 - Assessee Appeal.3. Ground No.1 raised by assessee is as under:
"The Commissioner of Income-tax (Appeals)-XXVI Mumbai (hereinafter referred to as the CIT (A), erred in upholding the stand of the Asstt. Commissioner of Income-tax Circle 6(3) Mumbai (hereinafter referred to as the ACIT) erred in not allowing the appellants claim for depreciation on `.22,67,281 and `.16,42,617 being part of the Share Dilution expenses incurred in the assessment year 1984-85 and 1986-87 submitted as relatable to programmes of capital expenditure in the AYs 1984-85 and 1986-87 respectively".
3.1 This issue arised originally in AY 1984-85 and consequent to the capitalization of the amount in that year consequential depreciation benefits are being claimed by assessee.
3.2 Before us both the Counsels agreed that the issue of disallowance of depreciation of share valuation expenses is covered in favour of assessee and the against the Revenue by the Coordinate Bench decisions rendered in assessee's own case from AY 1984-85 to 1997-98. It was further informed that the Hon'ble Page 2 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai jurisdictional High Court in assessee's own case in AY 1986-87, 1988-89 and 1991-92 upheld ITAT orders. Consistent with the view taken therein, we direct AO to allow on the above amount capitalized in AY 1984-85 on which the depreciation claim is consequential. Ground is allowed.
4. Ground No.2 is as under:
(a) The CIT (A) erred in upholding the action of the ACIT in reducing the estimated written down values of each of the block of assets of the Family Products Undertaking transferred as a going concern in the AY 1995-96 from the opening written down values of the respective blocks, for computation of depreciation allowance.
(b) The CIT (A) erred in upholding the action of the ACIT, in disallowing depreciation on depreciation disallowed in earlier years in respect of assets of the family products undertaking.
(c) The CIT (A) erred in upholding the action of the ACIT in disallowing depreciation of `.44,000 from the block "Factory/Office Buildings" in respect of part of building 72 leased to M/s Hongkong & Shanghai Banking Corporation Ltd.
Depreciation for the current AY `,40,000 Depreciation on depreciation disallowed `. 4,000 in AY 1994-95, 1995-96, 1996-97 and 1997-98 and 1998-99 `.44,000"
4.1 Ground No.2a and 2b pertains to the issue of reduction of estimated WDV block of assets of FPU transferred in assessment year 1995-96 from the respective blocks and computation of depreciation disallowed in earlier years. As per the record, the family product undertaking was transferred as a going concern at slump price of `.180 crores in the previous year relevant to the assessment year 1995-96. Both the parties submitted that the issue has been set aside by the Tribunal in ITA No.1420/Mum/99 and ITA No.1594/Mum/99 vide order dated 16.6.2006 wherein the Page 3 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai Tribunal held that the transaction was not exigible to the capital gain tax. Further, AO was directed to deduct from such block the WDV of assets transferred to M/s Heinz before allowing depreciation to assessee. This direction was given as the Tribunal held as otherwise assessee would claim depreciation on the assets which were transferred. Accordingly, we restore the issue back to the file of AO to determine consequential WDV in this assessment year and allow depreciation there on. We order accordingly.
4.2 Ground No.2c pertains to disallowance in depreciation in respect of part of building 72 leased to M/s Hongkong & Shanghai Banking Corporation Limited.
4.3 AO disallowed depreciation on the assets in the block which were leased and income there on was assessed under the head House Property. The CIT (A) held that the leased assets are not part of assessee's business nor used for the business and held that AO rightly disallowed the claim of depreciation. It was fairly admitted that this issue was covered by the orders of the ITAT in assessee's own case in assessment years 1994-95, 1995-96 and 1996-97. Keeping in view of the findings of the ITAT in assessee's own cases in earlier years, as assessee had leased part of the building and the same was not used for the purpose of business, no depreciation can be allowed. Therefore, the order of the CIT (A) is confirmed and the ground is accordingly rejected.
5. Ground No.3 is as under:
"4. The CIT (A) erred in upholding the stand of the ACIT of making an addition of `.56,89,135 on account of closing stock of diesel and coal".
5.1 AO disallowed the claim made by assessee holding that since the said items have not been consumed in the year, the value of diesel oil/coal unutilized are to be considered as closing stock and added to the income of the current year. The CIT (A) following his Page 4 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai earlier orders in assessment years 1994-95 to 1996-97 confirmed the same.
5.2 After hearing both the parties and on perusal of the record available before us, we find that the issue for our adjudication is covered in favour of assessee by the decisions of the Mumbai Bench of the Tribunal in assessee's own case from assessment years 1986- 87 to 1996-97. Since there was a change of method of accounting in assessment year 1986-87, which was held to be a genuine change of method of accounting, the consumable items like coal and oil were allowed to be written off in the year of purchase itself. Therefore, consistent with the view taken therein, we set aside the impugned order by the CIT (A) and allow the ground raised by assessee.
6. Ground No.4 is given below:
"The CIT (A) erred in upholding the stand of the ACIT that all interest other than interest on securities deposit is assessable under the head "income from other sources".
The appellants submit that following interest income is related to and incidental to business and as such forms a part of business income:
`.in lakhs A Interest on Deposits with banks and 46.04 Limited Companies B Interest on Bank Deposits 2.59 C Interest on GOI Securities 25.20 D Interest on Income Tax Refunds 56.79 E Interest on Debentures/Bonds 145.52 F Interest on IDBI Bonds (Investment of 125.00 LTCG under section 54EA) 401.14 6.1 Ground No.4 pertains to the treatment given to interest income as income from other sources. Before us, both the parties agreed Page 5 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai that this issue was earlier decided by the Tribunal in assessee's own case for assessment years 1989-90 to 1991- 92, 1992-93 to 1993-94, 1994-95 and 1995-96 respectively, wherein the Tribunal restored the issue to the file of Assessing Officer for adjudication afresh by observing as follows:-
"57. Learned counsel for the assessee supported the order of the learned CIT (A). We have considered the rival submissions as also the judicial pronouncements relied upon by the learned DR. In the case of Shree Krishna Polyester Ltd. (supra), the Bombay High Court held that interest income from investment in short-term deposit of surplus funds acquired in public issue of shares, is assessable as "income from other sources". In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra), the Supreme Court held that interest on investment of borrowed funds prior to commencement of business is to be assessed under the head "income from other sources". The decision of Punjab & Haryana High Court in the case of Rani Paliwal is not relevant as the High Court was concerned with only applicability of clause (baa) of the Explanation under section 8OHHC. In the case of Pandian Chemicals Ltd. (supra) the Madras High Court held that interest on deposits with Electricity Board made out of statutory compulsion was not profit derived from industrial undertaking. This judgment has since been confirmed by the Supreme Court (262 ITR
278). In the case of Autokast Ltd., the assessee company borrowed money for purchase of plant and machinery and earned interest income by placing it in short- term deposits with Banks till payment was made for plant and machinery. These deposits were used in bill discounting. The Supreme Court held that the interest income earned was taxable as income from other sources. In our view, the present issue has to be considered n the light of the aforesaid judgments. The relevant part of the order of the CIT (A) for the assessment year 1989-90 has been reproduced (supra).
For the assessment years 1990-91 and 1991-92 also the facts are similar. We find that the exact nature of the interest 10 Glaxo India Limited ITA no.
6027/Mum/1999, income is not clear from the orders of the revenue authorities. In our view this issue requires reconsideration by the Assessing Officer after bringing on record the correct factual position with regard to the nature of the interest income, after allowing opportunity Page 6 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai to the assessee. Accordingly, we restore this issue to the Assessing Officer for re-adjudication."
6.2 Consistent with view taken, we set aside the order of authorities and restore the issue to the file of AO for adjudication afresh in accordance with law. The learned Counsel placed on record the orders giving effect to the orders of the ITAT in AY 1995-96 and 1996-97 wherein AO treated the business income by reducing the same from income from other sources. The action of AO in those years may be correct on facts but AO has to examine how much of the income do pertain to be the business income. It was informed that the interest included interest on inter corporate deposits, tax refunds, GOI securities, debentures/bonds. Since the nature of interest incomes are to be examined, the issue is restored to the file of AO. This ground is thus, allowed for statistical purposes.
7. Ground No.5 is given below:
"5(i) The CIT (A) erred in upholding the decision of ACIT in reducing 90% of the following items forming part of 'miscellaneous income' treating the same as covered by 'brokerage, commission, interest, rent charges or any other receipt of similar nature' as appearing in Explanation (baa) to section 80HHC.
`.in lakhs
Accommodation recovery 5.02
Manufacturing charges 93.54
Miscellaneous income 50.30
Total 148.86
The appellants submit that the above listed items are not envisaged by the said explanation and are not to be considered.
(ii) Without prejudice to the above, the reduction should be taken on a 'net basis' and not on a 'gross basis'.
7.1 Ground No.5 pertains to deduction u/s 80HHC. With reference to the exclusion of 90% of the miscellaneous income in computing the profits of the business, Vide Para 16 of AO's order AO discussed Page 7 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai various 'other incomes' received by assessee and listed out amounts to the extent of `.148.86 lakhs as other income which is to be excluded at 90% under Explanation (baa) to section 80HHC. Assessee contested the same before the CIT (A). Ld CIT(A) vide para 10 of the order allowed only part amount. It was the contention that none of the receipts can be excluded as they are not items which are envisaged by the said explanation and should not be considered for exclusion at 90% of the amount. Apart from the nature of the receipts, it was further submitted that if amounts are to be excluded, it should be only on the basis of the net amount following the principles laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P) Ltd. vs. CIT 343 ITR 89. It was the contention of the learned Counsel that the amounts are certainly business income.
7.2 We have considered the issue. Prima facie the part of amount represent the recoveries in the course of business which under the company law has been shown as other income. Balance of Manufacturing charges and Misc income details are not placed on record to verify. As the nature of amounts are not examined by AO in detail both on facts and on law and requires re-examination, issue is restored to the file of AO to examine afresh in the light of the principles laid down by the jurisdictional High Court relied upon by assessee and also other decision of the jurisdictional High Court or Supreme Court to decide each of the amount. In case it is part of the business receipts, not coming under the items under Explanation (baa) they should not be excluded at 90% from the profits of the business. Otherwise, the alternate contention of net amount to be considered if nexus is established. With these directions the ground is restored to the file of AO for examination and fresh adjudication. Assessee should be given due opportunity to explain the nature of the receipts.
Page 8 of 34ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai
8. Ground No.6 is as under:
"7. The learned CIT (A) erred in upholding the stand of the ACIT of not allowing the appellant's claim for deduction of interest on DPEA liability for the period 1st April, 1999 to 31st March, 2000 on the ground that it constitutes a contingent liability".
8.1 Ground No.6 pertains to interest liability with respect to DPEA liability. It was fairly admitted that this issue is to be held in favour of the Revenue and against assessee in view of the orders of the ITAT in earlier years. We find from the order from assessment year 1996-97 that the ITAT originally in assessment year 1986-87 considered that:
a) DPEA liability will be allowable, in the year in which such liability accrues. The orders of the ld. CIT (A) with regard to Ground Nos. 4, 5 and 5 of the Department, respectively fur the assessment years 1986.87, 1987-88 and 1988-89 are confirmed.
b) Regarding applicability of section 43B, we agree with the finding of the learned CIT (A) for the assessment year 1988-89 that this liability is not a tax, duty, cess or fee under any law leviable.
Therefore, we uphold the order of the learned CIT (A) on this issue for the assessment year 1988-89.
c) Additional claim for DPEA would be admissible on the same footing on accrual basis.
d) Regarding determination of profits for the purpose of section 80- I, as and when any order of higher judicial forum comes, the Assessing Officer shall give effect to such order.
e) Enhanced DPEA liability, as per additional ground of appeal raised by assessee for the assessment year 1986-87 and the assessee's C.O. for the assessment year 1987-88, would be allowable on accrual basis.
Page 9 of 34ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai
f) Interest liability accrues from year to year and, therefore, such liability may be allowed on this basis during each assessment year.
g) This disposes of the various issues mentioned above raised by assessee as also by the Department with regard to DPEA liability.
8.2 Keeping in view of the above aforesaid decision of the Tribunal, we set aside the impugned order of the CIT (A) and restore the issue back to the file of AO for de novo adjudication in accordance with the law consistent with earlier year's orders. Thus this ground is allowed for statistical purposes.
9. Ground 7 is as under:
(a) The CIT (A) erred in upholding the stand of the ACIT in holding that `.7,65,29,026 being the advance licence benefit accounted for in the appellant's books of account had accrued to the appellants and was taxable as their income under section 28(iv) of the Income Tax Act, 1961.
(b) Without prejudice to (a) above, the appellants submit that the amount of advance licence benefit actually credited in the Pass Book upto 31st March, 2000 should only be included in computing income under the head profits and gains of business".
9.1 Ground 7 pertains to computation of income of advance licence benefit and re-computation of deduction under section 80HHC after excluding the advance licence benefit from business profit.
9.2 Briefly stated, the assessee company offered a sum of `.4,66,77,440 on account of advance licence in the computation of income attached to the return of income. The same amount was not offered to income tax in the previous year relevant to the AY 1999- 00, though credited in the Profit & Loss A/c in that year. In this year the amount of `.1133.55 lakhs which was an advance Page 10 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai licence accrued during the year for exports made during the year was credited in the Profit & Loss A/c and a sum of `.7,65,29,026 being closing balance of advance licence as at 31.03.1999 has been excluded from the total income on the ground that the same has not been accrued to assessee. The net relief claimed by assessee is therefore, Rs. 2,98,51,486. AO analysed the nature of the advance licence and after discussion vide Page 15 of the assessment order ultimately concluded that this amount is the income taxable under section 28(iv) is not derived from the exports and therefore, not eligible for deduction under section 80HHC. Thus the profits of the business shown by assessee under section 80HHC has been adjusted. This matter was contested before the CIT (A) who vide Para 11.5 decided as under:
11.5. Sub-ground No.(e) is against the action of AO in not excluding closing balance of advance licence benefit aggregating `.1,65,29,026 while computing business profit. 11.5a In this regard it is seen that this sub-ground of appeal is decided in favour of the appellant vide CIT (A) order dated 30.01.2002 against the order under section 143(3) r.w.s. 147 for AY 1997-98. Respectfully following the same, AO is directed to re-compute deduction under section 80HHC after excluding the advance licence benefit aggregating `.1,65,29,026 from business profit. This sub- ground of appeal is therefore, allowed".
9.3 Assessee is aggrieved on the above direction. It was submitted that in the case of Excel Industries, the ITAT consistently taken a view that on the issue of the taxability of the advance licence benefits, no income accrues until imports are made and are materialized. The learned Counsel referred to the series of the orders on the issue in the case of Excel Industries and for AY 1998- 99 and 1999-2000 in ITA No.3868/Mum/2003 dated 4.5.2012 and submitted that the working as provided by assessee is correct.Page 11 of 34
ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai 9.4 We have considered the issue. In the case of DCIT vs. Excel Industries (supra) this issue was discussed at Ground No.1 and 2 as under:
'3.1. Ground No.1& 2 : Taxability of advance licence benefit receivable Rs.52,84,674/- and pass book benefit receivable Rs.2,98,03,293 (wrongly stated as Rs.5,62,63,127/- in ground of appeal but rectified) in the total income.
3.2. There is a long discussion in the assessment order in respect of the grounds taken in the appeal. However, both the grounds are covered in favour of the assessee by the earlier orders of the Tribunal in the assessee's own case. So far as Ground No.1 is concerned, which relates to the taxability of advance licence benefits receivable, the Tribunal has decided that no income accrues until the imports are made and the raw materials are consumed.
In the year before us, it is not in dispute that the imports were made and the raw materials were consumed in the subsequent year. In such circumstances the earlier orders of the Tribunal in the assessee's own case apply. The first of such orders was passed on 6th October 2003 in ITA No: 4346/Mum/1997 for the assessment year 1992-93. In this order the Tribunal applied and followed the decision of the Mumbai Bench of the Tribunal in Jamshri Rajitsinghji Spg. & Wvg. Mills Ltd. vs. IAC (1992) 41 ITD (Bom) 142, in which it was held that until the goods are imported and the raw materials are consumed, no income by way of advance licence benefit accrues to the assessee. This order was followed by the Tribunal in its order dated 27th January 2004 for the assessment year 1993-94 in ITA No.4145/Mum/1998. For the assessment year 1995- 96 the issue again came before the Tribunal in ITA No.2067/Mum/2000. This appeal was disposed of by the Tribunal on 7th March 2005. This order took the same view as in the earlier years. What is significant in this order is that the department relied on the decision of the Ahmedabad Bench of the Tribunal in the case of United Phosphorus Limited vs. JCIT (2002) 81 ITD 553 (Ahd), in which a view was taken that the advance licence benefit Page 12 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai was taxable in the year in which it was received, without waiting for the actual imports and the consumption of the raw material. This order of the Ahmedabad Bench of the Tribunal was strongly relied upon by the revenue in the appeal for the assessment year 1995-96. The Tribunal in its order for the assessment year 1995-96 has dealt with the arguments of the revenue based on the Ahmedabad Bench of the Tribunal in paragraphs 13 onwards. It was held by the Tribunal that every aspect highlighted in the order of the Ahmedabad Bench has been duly explained on behalf of the assessee. In fact the Tribunal took the view that there was no distinction between the facts of the assessee's case and the facts of the case before the Ahmedabad Bench of the Tribunal in the case of United Phosphorus Limited (supra) and that it was in order for the Ahmedabad Bench to have referred the issue to a Larger Bench for the sake of consistency, having regard to the orders of the Mumbai Benches of the Tribunal in Jamshri Rajitsinghji Spg. & Wvg. Mills Ltd. (supra). In this view of the matter and finding no difference in the facts relating to the assessment year 1995-96 and the facts for the earlier assessment years, the Tribunal held that there was no reason to take a different view of the matter on the basis of the order in the case of United Phosphorus Limited, Ahmedabad Bench. After this order of the Tribunal, the Tribunal disposed of the appeals relating to the assessee for the assessment years 1996-97 and 1997-98 by order dated 12th January 2009, in which the Tribunal followed its own order for the assessment year 1995-96 passed on 7th March 2005, to hold that the advance licence benefit was not taxable unless the goods have been imported and the raw materials are consumed. A similar view was taken by the Tribunal again for the assessment year 2004-05 in ITA No:2251/Mum/2009, dated 29th July 2010.
3.3. Thus, in a series of orders passed in the assessee's own case, the Tribunal has taken a consistent view in favour of the assessee even after considering the order of the Ahmedabad Bench of the Tribunal in the case of United Phosphorus Limited (supra). We may add that Page 13 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai the order of the Tribunal for the assessment year 1993-94 and the order for the assessment years 1996-97 and 1997-98 were appealed against by the revenue before the Hon'ble Bombay High Court but since no steps had been taken by the revenue to challenge the first order of the Tribunal, the Hon'ble High Court did not consider it fit to admit the appeals. Copies of all the orders of the Tribunal and the judgments of the High Court have been filed before us.
3.4. It was the submission of the learned D.R. that in view of the Special Bench Decision of Mumbai in the case of Topman Exports vs. ITO 124 ITD 1 (Mum.) (S.B.) particularly in paras 33 and 34 of the Orders, it was submitted that income on advanced licence will accrue to the assessee when the exports were made and accordingly, following the principles laid down by the Special Bench which was in fact upheld ultimately by the Hon'ble Supreme Court, the issue is to be decided against the assessee holding that income on advance licence arises, the moment exports were done and application was made and not at the time of actual imports as contended by the assessee. Further, referring to the Orders in ITA. No. 6969/Mum/2008,It was specially submitted that the ITAT referred to the Judgment of the Hon'ble Bombay High Court in the case of CIT vs. Kalpataru Colours& Chemicals 328 ITR 451 (Bom.) to dismiss the revenue's contention in view of the then existing Bombay High Court Judgment referred above, which was reversed by the Hon'ble Supreme Court in the case of Topman Exports vs. CIT & Others in Civil Appeal No.1699/2012. In view of the above, it was submitted that Special Bench decision got approved by the Hon'ble Supreme Court. Therefore, the issue is to be decided in line with the Special Bench decision that income accrues in the year in which exports were made and assessee got entitlement for advance licensing.
3.5. The learned Counsel, however referred to the principles laid down by the Coordinate Benches in assessee's own case and also submitted that the issue in Page 14 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai Topman Exports was with reference to the taxability and bifurcation of the DEPB proceeds while computing deduction under section 80HHC and nowhere concerned with the issue before us which itself was upheld by the Hon'ble Bombay High Court in assessee's own case.
3.6. We have considered the issue and perused the record. As already stated above, the issues in assessee's own appeal is consistently held in favour of the assessee following the decision of the Mumbai Bench of the Tribunal in Jamshri Rajitsinghji Spg. &Wvg. Mills Ltd. vs. IAC (1992) 41 ITD (Bom) 142. As already stated, the issue was confirmed by the Hon'ble jurisdictional High Court which dismissed the Revenue's appeal vide orders ITA.1183/Mum/2011 dated 25-11-2011. In that, the question referred specifically is as under :
"Whether the advance licence and the DEPB receivable by the assessee are liable to be assessed to tax in the year in which the licence is granted to the licensee or liable to be taxed in the year in which the benefits actually accrue after the imports are effected, is the question raised in this appeal."
3.7. The Hon'ble High Court held as under :
2. "The Income Tax Appellate Tribunal following its decision in the case of JamshriRajitsinghjiSpg. &Wvg.
Mills Ltd. vs. IAC reported in 41 ITD 142 held that the said amounts are liable to be taxed in the year in which the benefits actually accrue to the assessee and not in the year in which the licence is granted. This Court in the case of Commissioner of Income Tax vs. M/s. Mafatlal Industries Ltd, being Income Tax Appeal No. 424 of 2009 decided on 22nd September, 2009 has upheld the decision of the Income Tax Appellate Tribunal in the case of Jamshri Rajitsinghji Spg. & Wvg. Mills Ltd. (supra).
3. In this view of the matter, we see no merit to entertain this appeal. The appeal is accordingly dismissed with no order as to costs."
Page 15 of 34ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai 3.8. Therefore, this issue is no longer survives for consideration as far as the Income Tax Appellate Tribunal is concerned as it has consistently held the issue in favour of the assessee and was also upheld by the Hon'ble High Court. We may also note that even though the issue of accrual of income on DEPB was discussed by the Special Bench in paras 33 and 34, the present issue is not with reference to DEPB but advance licences which is not transferable unlike the DEPB benefits granted under the scheme. The Hon'ble Supreme Court in the case of Topman Exports vs. CIT, Mumbai and others had not dealt with accrual of income but dealt with the issue of bringing to tax the sale proceeds of the DEPB, profit on sale of DEPB and how they can be considered under section 28. The issue was not about the accrual of income but bifurcation of proceeds of DEPB/DFRC into face value and profit and year of taxability. In view of this, to the extent of accrual of income is concerned, we are of the opinion that issue was decided in favour of the assessee in assessee's own case by the Hon'ble High Court in the orders referred (supra). Respectfully, following the same, we allow the grounds raised by the assessee. Assessing Officer is directed to do the needful in accordance with the Orders on the issue as in the earlier years and make necessary adjustments, if any required in the computation. With these directions, grounds are considered as allowed".
9.5 Consistent with above opinion, AO is directed to do the needful in accordance with the orders on the issue in the earlier year and make necessary adjustment, if any required in the computation of income under the head business and also u/s 80HHC. With these directions the grounds are considered allowed for statistical purpose.
Additional Grounds:
10. Assessee has raised the following additional grounds, which were allowed:
" Betnelan Interest demand.
The Appellants submit that in view of the demand of interest raised by the Department of Chemicals and Petrochemicals pursuant to the letter/order dated 10th June, 1997 a sum of `.18,06,887 which represents the Page 16 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai interest payable for the period 1.4.1997 to 31.3.1998 be allowed as a deduction.
Betnelan demand.
The Appellants submit without prejudice to their contentions that they be allowed deduction for the demand in each of the AYs to which they pertain i.e. 1995-96 and 1996-97, the entire amount of `.1,20,42,318 be allowed in AY 1998-99 as the demand was raised vide letter/order dated 10.6.1997 of the Department of Chemicals and Petrochemicals".
10.1 These are the additional grounds raised in the course of present appellate proceedings vide letter dated 9.8.2007. The facts leading to the present issue are that during the previous year relevant to assessment year 1998-99, assessee received a demand dated 10th June, 1997 from the Department of Chemicals & Petrochemicals (DCP) amounting to Rs.1,90-,43,347/- towards overcharging of price in respect of the Appellant's product "Betnelan Tabs sold during the period January 1995 to July 1995. The demand was revised to Rs. 1,20,42,312/-. Interest of Rs. 84,29,619/- upto 31.12.1999 was charged on the demand at the rate of 15% per annum. Aggrieved by the DCP's order, assessee filed a Writ Petition bearing No. 1266 of 1999 before the Division Bench of the Hon'ble High Court of Bombay. The Division Bench, vide order dated 16.2.2004 upheld the stand of the DCP. The DCP, subsequently by an order dated 17/18.5.2004, revised upwards the interest demand to Rs. 1,63,70,915/- (Total demand:Rs.2,84, 13,228/-). Assessee has filed a Special Leave Petition (CIVIL) No. 6518 of 2004 in the Supreme Court with prayer for interim relief challenging the order of the Division Bench of the Bombay High court. The same is pending before the Hon'ble Supreme Court for disposal.
10.2 Assessee is of the view that the liability pertaining to the above demand was allowable in each of the years to which the demand Page 17 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai pertains. The year-wise break-up of the total demand of Rs.2,84,13,228/- (inclusive of interest) is given below:
Assessment Demand Product Interest
year Betnelan (`) demand (`.)
1995-96 14,59,674 47,891
1996-97 1,05,82,638 18,06,887
1997-98 - 18,06,887
1998-99 - 18,06,887
1999-2000 18,06,887
2000-01 18,06,887
2001-02 18,06,887
2002-03 18,06,887
2003-04 18,06,887
2004-05 18,06,887
2005-06 65,901
Total 1,20,42,312 1,63,70,915
Assessee has not debited the aforesaid demand (including Interest) to the Profit & Loss Account. Assessee has also not paid the demand.
10.3 On this issue, it was fairly admitted that the issue is restored to the file of AO for fresh adjudication in view of the directions given in assessment year 1995-96 order dated 30.11.2011 wherein the Tribunal vide Para 3 & 4 restored the issue to the file of AO for de novo adjudication in accordance with the law. Consistent with the view taken therein, we direct AO to adjudicate the issue and consider the allowance of the above amount in accordance with the law and facts. The grounds are considered allowed for statistical purposes.
10.4 In the result, appeal is partly allowed.
ITA No.7252/Mum/2003 - Revenue AppealThis is Revenue appeal and there are 18 grounds for consideration.
11. Ground No.1 is as under:
"1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Page 18 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai `.10,93,851(5% of `.2,18,77,028) being estimated expenses incurred on earning the gross dividend of `.2,18,77,028 observing that the entire amount of dividend comprises only one dividend warrant received on earlier investments without appreciating that the Calcutta High Court has, in the case of United India Fire & General Insurance Co. Ltd (161 ITR 295) held that dividend income exempt under section 80M is only the net income and that management expenses have to be apportioned for distribution of the said income and therefore, AO rightly worked out expenses of `.10,93,851 on earning of the gross dividend of `.2,18,77,028.
11.1 This ground pertains to disallowance at 5% of an amount of `.10,93,851 being the estimated expenses incurred on earning the gross dividend of `.2,18,77,028. After hearing both the parties and on perusal of the records available before us, we find that this issue is covered by the judgment of Hon'ble Jurisdictional High Court in CIT v/s General Insurance Corporation of India, (2002) 254 ITR 204 (Bom.), as well as the decision of Chandigarh Special Bench of the Tribunal in Punjab State Industrial Corporation Ltd., (2006), 102 ITD 001 (Chandi.). Consistent with the view taken by the Tribunal in earlier assessment years, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer. The Assessing Officer is directed to consider assessee's claim consistent with the orders in earlier year as per law and principle laid down on the issue. This ground is, thus, allowed for statistical purposes.
12. Ground No.2 is as under:
"On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of a sum of `.4,30,000 being the expenditure incurred on Glaxo Sports Club activities under section 40A(9) relying upon the CIT (A)'s order for the AY 1998-99 & 1999-2000 in assessee's own case which has not been accepted by the Department and contested by way of filing appeal to the ITAT.Page 19 of 34
ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai
12.1. Ground No.2 pertains to disallowances under section 40A(9) on payment of `.4,30,000/-. Before us, both the parties agree that this issue was earlier decided by the Tribunal in assessee's own case for assessment years 1989-90 to 1991- 92, 1992-93 to 1993- 94, 1994-95, 1995-96 , 1996-97 1997-98 respectively, wherein the Tribunal allowed the deduction in respect of payment made to M/s. Glaxo Sports Club. Consistent with the view taken by the Tribunal, we uphold the order passed by the Commissioner (Appeals) and dismiss the ground raised by the Revenue.
13. Ground No.3 is as under:
"3.On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs.39,26,000/- written off by the assessee as bad debts relying upon the CIT(A)'s orders for the A Ys. 1998-99 & 1999-2000 in assessee's own case which have not been accepted by the Department and contested by way of filing appeal to the ITAT.
13.1 As stated in the assessment order, the said amount has been disallowed by AO primarily because the same was actually written off in May,2000, whereas the year under consideration closed on 31.3.2000. It was the contention of AO that since the account was written off only in the financial year 2000-01, the same could be claimed as deduction in AY 2000-01, although it pertains to an earlier AY.
13.2 The CIT (A) held as under:
"6.1a. It is seen from the assessment order that this amount `.39,26,000 has been disallowed by AO after perusal of facts which shows that this amount relates to the period 1st January 2000 to 31st March, 2000 and was actually written off in the books of account in May, 2000. He has, therefore, held that this amount does not pertain to the AY in question. As per provisions of 36(1)(vii) for an amount to be deductible as a bad debt, the same has to be written off as irrecoverable in the Page 20 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai accounts of assessee for the previous year. AO has no where contended that this amount does not pertain to the year under consideration and further the requirement of the section is that the amount should be written off in the accounts of assessee in previous year even if the write off is done actually after the end of the previous year, at the time of closing of the books. Since the accounts for the year ended 31st March, 200 were finalized on 26th July, 2000 and the write off has been done in May, 2000 I hold that requirement of section 36(1)(vii) has been fulfilled in that the amount claimed as irrecoverable has been written off in the accounts of assessee in the previous year under consideration. An identical issue was also considered by me in the AYs 1998-99 and 1999-2000 wherein following the decision of the Calcutta High Court in the case of Turner Morrison & Co. (114 Taxman 9) the issue was decided in favour of the appellants. I therefore, hold that this addition should be deleted. This sub-ground of the appeal is therefore, allowed".
13.3 After considering the rival submissions, we do not see any reason to interfere with the order as the learned CIT (A) order is consistent with the principles laid down on the issue including the decision of Hon'ble Supreme Court in the case of TRF Ltd vs. CIT, 323 ITR 397 (SC). In earlier years also the issue was decided against Revenue. Since the amounts were already written off, Revenue ground is rejected.
14. Ground No.4 to 6 are as under:
"4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to allocate only 75% of the staff cost of `.963.73 lakhs for the purpose of computation of deduction u/s.80-I & 80- IA, in respect of Nasik Unit, relying upon the CIT(A)'s order for the AY. 1998-99 & 1999-2000 which have not been accepted by the department and contested by way of filing appeal to the ITAT.
5. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to allocate "net" interest for the purpose of computation of deduction under section 80-I/80-IA relying upon the CIT (A)'s order Page 21 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai for the AY 1998-99 and 1999-2000 which have not been accepted by the Department and contested by way of filing appeal to the ITAT.
"6. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that no finance cost is allocable to Unit No.3 namely the Sterile Dry Vial Unit as it is a self financing Unit, relying upon the CIT (A)'s order for the AY 1998-99 and 1999-2000 which have not been accepted by the Department and contested by way of filing appeal to the ITAT 14.1 Ground No.4 to 6 pertains to the deduction of staff cost of `.963.76 lakhs to the Nashik Unit which claimed 8th year of deduction. The CIT (A) allowed 75% of staff cost and 100% of the other costs. The CIT (A) further directed not to add any finance cost to Sterile Dry Vial Unit as it is a self financing unit. Hence Revenue is aggrieved. These grounds are considered in favour of assessee in earlier years.
14.2 The order of the ITAT in AY 1997-98 is as under:
"10. Ground No.7 pertains to the claim of deduction under section 80I and 80IA. The dispute is pertaining to (a) adjustment of interest cost against interest income, (b) allocation of additional staff cost to Nashik Units and (c) alternately disallowance in the same proportion as the head office expenses allocation.
11. We have heard the rival contentions and we find that this issue is covered by the decision of the ITAT in assessee's own case for assessment year 1989-90 and 1991-92 in ITA Nos.10002/Bom/92, 8341/Bom/93, and 7742/Bom/94 vide Para 31 to 35 and ITA Nos.4433 and ITA No.4434/Bom/96 for assessment year 1992-93 and1993-94 in Revenue appeals vide Para 24. Since the facts of the case under consideration are same to that of the aforesaid decisions, respectfully following the decisions (Supra) we direct AO to allow deduction under section 80I and 80IA as claimed by assessee, following the directions in earlier years. It was submitted that section 80IA claim involves various assessment years so, AO is directed to determine the year of claim while allowing the deduction so that no deduction is claimed beyond the allowable period. Grounds allowed".Page 22 of 34
ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai 14.3 Considering the above, there is no merit in Revenue grounds as the CIT (A) followed the order in earlier year. The grounds are rejected.
15. Ground 7 is as under:
7. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to add proportionate disallowances to eligible profits for the purpose of computation of deduction under section 80-
I/80-IA relying upon the CIT (A)'s orders for the AY 1998-99 & 1999-2000 in assessee's own case which have not been accepted by the Department and contested by way of filing appeal to the ITAT.
15.1 Ground No.7 pertains to the claim under section 80I and 80IA on the disallowances to be considered as profit of eligible unit on proportionate basis. After hearing both the parties and on perusal of the records available before us, we find that this issue was not contested by revenue in AY 97-98 on the basis of which the CIT(A) gave relief. Even other wise, we do not see any reason to differ as the expenditure claimed was disallowed the same would increase the corresponding profits. We uphold the order passed by the Commissioner (Appeals) and dismiss the ground raised by the Revenue.
16. Ground No.8 is extracted as under:
"8. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A O. not to treat the sale of scrap as a part of total turnover for the purpose of deduction under section 80HHC relying on the decision of the Bombay High Court in the case of Kantilal Chhotalal (246 ITR 439) without appreciating that the decision of the Bombay High Court as aforesaid has not dealt with the issue of scrap sales in relation to total turnover for the purpose of deduction under section 80HHC.Page 23 of 34
ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai 16.1 AO included the income received on sale of product scrap to the total turnover. It is fairly admitted that this issue is held against assessee in the earlier years consistently from assessment year 1988-89 onwards. Consistent with the view taken by Tribunal in assessee's own case, which was fairly admitted by the learned Counsel, we allow the ground raised by Revenue on this issue. The order of CIT(A) is modified to that extent.
17. Ground no 9 is as under:
9 On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. to exclude the amount of excise duty and sales-tax from the total turnover for the purpose of computation of deduction u/s.80HHC relying upon the decision of the Bombay High Court in the case of Sudarshan Chemical Industries Ltd.
(245 KTR 784) which has not been accepted by the department and contested by way of filing SLP".
17.1 The learned CIT (A) following the decision of the Hon'ble Bombay High Court in the case of CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769 held that excise duty and sales tax are not includible in the turnover for the purpose of computation of deduction under section 80HHC. This issue is now fairly covered by the judgment of the Hon'ble Supreme Court in the case of CIT vs. Lakshmi Machine Works 290 ITR 667 (SC) wherein it was held that excise duty and sales tax cannot form part of total turnover under section 80HHC(3). Respectfully following the aforesaid judgment of the Hon'ble Supreme Court, we reject the ground of the Revenue and uphold the order of the CIT (A) on this issue.
18. Ground No.10 and 11 are as under
10.On the facts and in the circumstances of the case and in law the CIT (A) erred in holding that for the purpose of working out indirect cost in the case of export of trading goods, the export division is an independent, self Page 24 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai contained division and therefore, the Head Office administration expenses including interest should not be allocated to the said division for the purpose of working out deduction under section 80HHC, relying upon the CIT (A)'s order for the AY 1997-98 in assessee's own case which has not been accepted by the department and contested by way of filing appeal to ITAT.
11. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. to take "net"
interest charges for allocation of expenses for the purpose of computation of deduction under section 80HHC in respect of profit on export of trading goods, relying upon the CIT (A)'s order for the AY 1998-99 and 1999-2000 in assessee's own case which have not been accepted by the Department and contested by way of filing appeal to the ITAT.
18.1 After hearing both the parties and on a perusal of the records available before us, we find that the head office administrative expenses, etc., have been allocated to arrive at the indirect cost in the case of export of trading goods. These issues have been decided by this Tribunal in assessee's own case in ITAs No.3464 & 3465/Mum./1996, etc., for assessment years 1992-93 and 1993- 94, etc., order dated 29th March 2007, wherein the Tribunal, vide Para-11, held as follows:-
"11. After hearing both the parties, we find that this aspect of the issue was never adjudicated by the assessing officer. No doubt, the assessee had given a note regarding deduction u/s 80HHC vis-à-vis indirect cost in respect of trading goods for export but the assessing officer did not record any finding in this regard as he was of the view that the assessee was not eligible for deduction u/s 80HHC as there was huge loss in trading ground which was much more than profits of export of manufactured goods. On appeal, the learned CIT(A) has held that loss in trading goods could not be adjusted against the profits in respect of export of manufactured goods. In view of this finding, the learned CIT(A) proceeded to dispose of the issue regarding indirect cost. On these facts, we are of the view that this issue requires fresh adjudication. The legislature has amended the provisions of Section 80HHC with Page 25 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai retrospective effect. According to such amendment, the loss in trading goods requires to be adjusted against profits from export of manufactured goods. Computation of indirect cost is necessary ingredient for computing the export profit from trading goods as well as manufactured goods. The assessing officer has not made any observation on this aspect of the issue. However, such exercise may not be required to be made if the loss in traded goods as per the computation of assessee itself is more than the profits from export of manufactured goods in as much as in such situation, the assessee would not be entitled to deduction u/s 80HHC as per the amended provisions. On the other hand, if the profits from export of manufactured goods, as per the calculation of assessee, is more than the loss in traded goods export, then the assessing officer would be required to determine the indirect cost. Accordingly, we set aside the order of the learned CIT(A) on this aspect of the issue and remit the matter to the file of assessing officer for fresh deduction for both the years. The assessee would be at liberty to furnish all the details regarding this aspect of the issue."
18.2 Allocation of office expenses including interest and netting thereof to export division for working out cost relating to export of trading goods has to be re-determined after examination. Consistent with the view taken by the co-ordinate bench of this Tribunal in assessee's own case for earlier assessment years, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer for adjudication afresh in accordance with law and after providing adequate opportunity of being heard to the assessee. These ground are, thus, allowed for statistical purposes.
19. Ground No.12 is given below:
12. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. to recomputed deduction under section 80HHC without reducing 90% of various items forming part of miscellaneous income in accordance with Explanation (baa) to section 80HHC, holding that these items have no direct nexus with the business of assessee company without appreciating that the items of miscellaneous Page 26 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai income are not in the nature of income as specified in clauses (iiia) (iiib) & (iiic) of section 28 of the Act and therefore, AO rightly reduced 90% of various items of miscellaneous income for computation of deduction under section 80HHC.
19.1 Consequent to the order of the CIT (A), both assessee and the Revenue are in appeal. This issue was considered in assessee's appeal against Ground No. 5 above wherein the matter was restored to the file of AO for fresh examination. Accordingly, this ground is treated as allowed for statistical purposes.
20. Ground No.13 & 14 are given below:
13. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. to include closing balance of advance licence benefit aggregating to `.7,65,29,026 (as rectified in order under section 154 dated 22.08.2003) in the profits of business and to recomputed the deduction under section 80HHC relying upon the order of the CIT (A) for the AY 1997-98 which has not been accepted and contested by filing appeal to the ITAT.
14. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. to allow benefit of `.1133.55 lakhs being advance licence benefit actually utilized by assessee as envisaged in proviso to section 80HHC(3) relying upon the CIT (A)'s order dated 30.01.2002 for the AY 1997-98 in assessee's own case which has not been accepted by the Department and contested by way of filing appeal to the ITAT.
20.1 Ground Nos. 13 & 14 are related to Ground No.7 in assessee's appeal. Consistent with the stand taken therein, as the matter was restored with directions, these grounds are considered allowed for statistical purposes.
21. Ground No.15 is extracted below:
"15. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the addition made by AO by invoking the provisions of section 43B on Page 27 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai unpaid interest liability, relying upon the CIT (A)'s order for the AY 1997-98 in assessee's own case which has not been accepted by the Department and contested by way of filing appeal to the ITAT.
21.1 Ground No.15 pertains to section 43B on unpaid interest liability which corresponds to Ground No.6 of assessee's appeal. Consistent with the stand taken therein, as the issue was restored to AO, the ground is considered allowed for statistical purposes
22. Ground No.16 & 17 are as under:
"16. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that sale proceeds of `.5.00 crores in respect of transfer of a self generated brand "Multivite FM' constitutes Capital Receipts not chargeable to tax, without appreciating that self generated brand is a goodwill which is taxable under section 45 of the Act and therefore, AO rightly applied the provisions of section 55(2)(a)(ii) of the Act and brought to tax the sale proceeds as long term capital gains".
"17. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that AO is not justified in applying the provisions of section 55(2)(a)(ii) trademarks and brands as this provision is effective from 1.4.2002 i.e. from the AY 2002-03 without appreciating that self generated brand is a goodwill which is taxable under section 45 of the Act and therefore, AO rightly applied the provisions of section 55(2)(a)(ii) which is applicable on transfer of a capital asset being goodwill of a business w.e.f. 1.4.1995 i.e. AY 1995-96 and brought to tax the sale proceeds as long term capital gains.
22.1 These grounds pertain to the action of AO in holding that the sale proceeds of `.5.00 crores in respect of transfer of self generated Brand "Multivite FM" is taxable as long term capital gain under section 45 of the I.T. Act, 1961. AO in Para 21 of the assessment order has stated that the aforesaid amount is taxable under section 55(2)(a)(ii) of the I.T. Act. It was assessee's contention that the self generated asset for which no cost has been incurred for its Page 28 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai acquisition is not taxable under the provisions as section 55(2)(a)(ii) are not applicable at the relevant time. It was the contention that it is not a goodwill or any rights, stage carriage permits or loom hours which are taxable at the relevant point of time. It was also further contention that the trademarks and brands were brought into tax w.e.f. 1.4.2002 i.e. for AY 2002-03.
22.2 After considering assessee's submissions, the CIT (A) finds considerable merits in the arguments of assessee. Since the amendment brought to tax including the trademarks and brands under section 55(2)(a)(ii) was applicable only from AY 2002-03, the CIT (A) allowed assessee's contention and deleted the same. Revenue is aggrieved.
22.3 After considering the rival submissions, we agree with the findings of the CIT (A). Since similar issue has been considered and approved by the Hon'ble jurisdictional High Court of Bombay in the case of CIT vs. M/s Fernhill Laboratories and Industrial Establishment in ITA No.5615 of 2010 dated 12th June, 2012, we have no reason to differ from the findings of the CIT (A). On similar facts wherein M/s Fernhill Laboratories and Industrial establishment, owner of the trademark Colin, sold to M/s Reckitt & Colman Ltd, AO brought the same to tax. The Hon'ble High Court held as under:
"8. We have considered the rival submissions. Section 45 of the Act is a charging section for the purpose of levying capital gains. However to impose the charge, parliament has enacted provision to compute profits or gains under that head. Section 48 of the said Act provides the manner in which the income chargeable under the head capital gains is to be computed i.e. by deducting costs of acquisition of the capital asset from the full consideration received on the transfer of the capital asset. The Supreme Court in the matter of B. C. Srinivasa Shetty (supra) was dealing with the issue whether the transfer of the goodwill by partnership Page 29 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai firm can give rise to a capital gain tax under Section 45 of the said Act. The Apex Court held that where the cost of acquisition of the capital asset is nil then the computation provision fails and the transfer of goodwill not give rise to capital gains tax. Prior to the amendment made to Section 55(2) by the Finance Act, 2001 effective from 1/4/2002 by adding the words "trade mark or brand name associated with the business" self generated assets such as trademark did not have any cost of acquisition. Therefore for the period under consideration the computation provision under Section 48 of the said Act fails resulting in such transfer of trade marks not being chargeable to capital gains tax. Consequent to amendment made to Section 55(2) with effect from 1/4/2002 by which the words trade mark or brand name associated with the business was introduced into it, the computation provision becomes workable and the consideration received for the sale of trade mark would be subject to capital gains tax. However, for the period prior to 1/4/2002 the sale of self generated trademark is not liable to capital gains tax. In fact, when the amendment was made to Section 55 by Finance Act, 2001 the Central Board of Excise and Customs had issued a circular bearing No.14/2001 explaining the provision of the Finance Act, 2011 relating to direct taxes provided as under:
"42- Providing for cost of acquisition of certain intangible capital asserts under section 55 42.1 Under the existing provisions of sub- section (2) of section 55 of the Income tax Act, the cost of acquisition of an intangible capital asset, being goodwill of a business or a right to manufacture, produce or process any article or thing, tenancy rights, stage carriage permits or loom hours, is the purchase price in case the asset is purchased by the assessee from a previous owner, and nil in any other case. It was pointed out that certain similar self generated intangible assets like brand name or a trademark may not be considered to form part of the goodwill of a business and consequently it may not be Page 30 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai possible to compute capital gains arising from the transfer of such assets.
42.2- The Act has therefore amended clause (a) of sub-section (2) to provide that the cost of acquisition in relation to trademark or brand name associated with a business shall also be taken to be the purchase price in case the asset is purchased from a previous owner and nil in any other case.
42.3- This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years."
9. From the above circular, it would be clear that the amendment bringing self generated intangible assets such as trademark to capital gains tax only with effect from Assessments Year 2002-03 onwards. In this case, we are concerned with Assessment Year 1999-2000 and therefore, the amendment would not have any effect. Further as held by the Supreme Court in the matter of Dy. CIT v/s. Core Health Care ltd. reported in 298 ITR 194 that a provision introduced with effect from a particular date would not have retrospective effect unless it is expressly stated to be so. Consequently, the sale of self generated trade marks during the Assessment year 1999-2000 are not chargeable to capital gains tax. So far as the sale of self generated designs (i.e. not acquired) the same is also not chargeable to capital gains tax not only for the reasons applicable to trade marks but for the fact that even till this date, no amendment has been made to Section 55(2) of the said Act defining cost of acquisition of design as in the case of trademark goodwill etc.
10. In the circumstances, the aforesaid re-framed question is answered in the affirmative i.e. in favour of the respondent/assessee and against the appellant/revenue".
22.4 Since the provisions are not applicable to the impugned year, we do not see any reason to interfere with the order of the CIT (A) and accordingly the grounds are rejected.
Page 31 of 34ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai
23. Ground No. 18 is given below:
"18. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. not to attribute any expenses towards earning of interest on tax free securities relying upon the CIT (A)'s order for the AY 1999-2000 in assessee's own case which has not been accepted by the Department and contested by way of filing appeal to the ITAT".
23.1 With regard to Ground No.18 AO invoked section 14A to disallow 5% of the expenditure on tax free incomes. The CIT (A) considered the same as under:
"3.1 It has been stated that there is no expenditure debited to the Profit & Loss A/c for earning the interest income. AO in fact on page 28 has stated that assessee has not maintained list of any expenses and therefore, the expenses for earning the interest are estimated at 5%. It has also been stated that during the year only 3 interest warrants were received which were deposit5ed into the Bank along with other cheques and therefore, no administration cost has been incurred in earning the aforesaid interest. A note was furnished during the assessment proceedings which was also part of the paper book at pages 42 to 44.
3.2 I have gone through the records of the case and the details filed and I find that the contention of the appellants is correct. Considering the facts of the case I am of the view that there is an error in the appellate order which needs to be corrected. I direct AO not to attribute any expenses forwards the earning of such interest as only 3 interest warrants were received during the year which fact has not been denied by AO. Accordingly this ground of appeal is allowed".
23.2 We do not see any reason to interfere with the orders of the CIT (A) as assessee has own surplus funds from the sale of Family Products Undertakings as a going concern on 1.10.1994 and these securities were purchased out of the funds and there is not interest cost. Moreover since only three interest warrants were received, no expenditure can be attributed to the same. However, the 5% estimation on dividend received is restored in Ground No.1 of the Page 32 of 34 ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai Revenue which was on exempt income under section 10(33). For the same reasons, this ground is also restored to AO for fresh consideration.
23.3 In the result, appeal of the Revenue is partly allowed.
C.O. No. 4/Mum/200524. Assessee raised the following grounds in the cross objection:
"1. The respondents submit that in case AO's action of allocation of H.O Administration expenses while working out the indirect cost in the case of export of trading goods for the purpose of deduction under section 80HHC is upheld, then the amount of `.12.86 lakhs being allocation made from other services which has already been included in the Export Division expenditure, should be excluded.
2. The respondents submit that in case the AO's action in reducing 90% of items forming part of 'miscellaneous income' treating the same as covered by 'brokerage, commission, interest, rent charges or any other receipt of similar nature as appearing in Explanation (baa) to section 80HHC, is upheld, then only the net amount i.e. net of expenses ought to be considered".
3. The respondents submit that in case AO's action of not allowing benefit on advance licence benefit of `.1133.55 lakhs actually utilized is upheld, then AO be directed to grant the benefit on `.835.03 lakhs being advance license benefit credited to the Profit & Loss A/c and taxed by him in this AY as envisaged in the proviso to section 80HHC(3).
24.1 These grounds correspond to Ground Nos. 10, 12, 13 and 14 of the Revenue appeal. Since the issues are restored to the file of AO in the above grounds, AO is directed to keep in mind the above contentions while deciding the issues and decide accordingly in accordance with facts and law. The grounds are considered allowed for statistical purposes.
Page 33 of 34ITA Nos.6483 7252 of 2003 and CO No.04 of 2005 Glaxo Smithkline Mumbai
25. To sum up, appeals of Assessee and Revenue are partly allowed whereas CO by assessee is allowed for statistical purposes.
Order pronounced in open court on 12th June, 2013.
Sd/- Sd/-
(Amit Shukla) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 12th June, 2013.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, " " Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
Page 34 of 34