Income Tax Appellate Tribunal - Chennai
Acit, Chennai vs M/S. Bhavani Distilleries & Chemicals ... on 14 November, 2017
आयकर अपील
य अ धकरण, 'सी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL , 'C' BENCH, CHENNAI
ी ए. मोहन अलंकामणी, लेखा सद य एवं ी ध!ु वु" आर.एल रे #डी, या%यक सद य के सम&
BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER
AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER
आयकरअपीलसं./I.T. A. Nos.888/Mds/2010
( नधा रणवष / Assessment Year: 2007-08)
The ACIT, Vs M/s. Bhavani Distilleries and
Circle I(2), Chemicals Limited,
Chennai. Old No.16/New No.4, I Cross
Street, R.A. Puram,
Chennai - 600 028.
PAN: AABCB4040R
(अपीलाथ /Appellant) ( यथ /Respondent)
आयकरअपीलसं./I.T. A. No.68/Mds/2012
( नधा रणवष / Assessment Year: 2008-09)
The ACIT, Vs M/s. Bhavani Distilleries and
Company Circle I(3), Chemicals Limited,
Chennai. No.6, 6th Cross street,
Nungambakkam, Chennai - 34.
PAN: AABCB4040R
(अपीलाथ /Appellant) ( यथ /Respondent)
आयकरअपीलसं./I.T. A. Nos.1584/Mds/2014
( नधा रणवष / Assessment Year: 2009-10)
The ACIT, Vs M/s. Bhavani Distilleries and
Circle I(2), Chemicals Limited,
Chennai. No.6, 6th Cross street,
Mylapore, Chennai - 4.
PAN: AABCB4040R
(अपीलाथ /Appellant) ( यथ /Respondent)
आयकरअपीलसं./I.T. A. No.1571/Mds/2016
( नधा रणवष / Assessment Year: 2011-12)
The JCIT (OSD), Vs M/s. Bhavani Distilleries and
Corporate Circle I(2), Chemicals Limited,
Chennai. No.4, 1st Cross street,
R.A. Puram, Chennai - 28.
PAN: AABCB4040R
(अपीलाथ /Appellant) ( यथ /Respondent)
2 ITA Nos.814 & 888/Mds/2010
ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016
आयकरअपीलसं./I.T. A. No.3055/Mds/2016
( नधा रणवष / Assessment Year: 2012-13)
The ACIT, Vs M/s. Bhavani Distilleries and
Corporate Circle 1(2), Chemicals Limited,
Chennai. No.4, Old No.16, 1st Cross
Street, R.A. Puram,
Chennai - 28.
PAN: AABCB4040R
(अपीलाथ /Appellant) ( यथ /Respondent)
आयकरअपीलसं./I.T.A. No.814/Mds/2010
( नधा रणवष / Assessment Year: 2007-08)
M/s. Bhavani Distilleries and Vs The ACIT,
Chemicals Limited, Circle I(2),
st Chennai.
No.4, Old No.16, 1 Cross Street,
R.A. Puram,
Chennai - 28.
PAN: AABCB4040R
(अपीलाथ /Appellant) ( यथ /Respondent)
राज व क ओर से /Revenue by : Shri M.N. Maurya, CIT
नधा रती क ओर से /Assessee by : Shri B. Ramakrishnan, FCA
सन
ु वाईक तार!ख/Da t e of h e ar in g : 22.08.2017
घोषणाक तार!ख /D at e of Pr on o unc em en t : 14.11.2017
आदे श / O R D E R
Per A. Mohan Alankamony, AM:-
The Revenue has filed the following five appeals against the respective orders of the Ld.CIT(A) as detailed herein below:- 3 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016 CIT(A) Order details ITA Appeal Assessment Order Passed under No. year Order No. Date passed by Section CIT(A)-III, 250 (6) r.w.s.
888/Mds/2010 2007-08 667/09-10/A-III 31.03.2010
Chennai 143(3)of the Act
CIT(A)-III, 250 (6) r.w.s.
68/Mds/2012 2008-09 406/10-11/A-III 21.10.2011 143(3)of the Act
Chennai
CIT(A)-I, 250 (6) r.w.s.
1584/Mds/2014 2009-10 512/11-12/A-1 25.02.2014 143(3)of the Act
Chennai
CIT(A)-I, 250 (6) r.w.s.
1571/Mds/2016 2011-12 49/CIT(A)-1/2013-14 18.01.2016 143(3)of the Act
Chennai
CIT(A)-I, 250 (6) r.w.s.
3055/Mds/2016 2012-13 6/CIT(A)-1/2015-16 22.08.2016 143(3)of the Act
Chennai
2. The assessee has also raised an appeal ITA No.814 of 2010 against the order passed by Ld. Commissioner of Income Tax (Appeals)-III, Chennai in ITA No.667/09-10/A-III dated 31.03.2010 for the assessment year 2007-08.
3. Since the issues and grounds in all the appeals of the Revenue / assessee are identical/similar/common, they are heard together and disposed off by this consolidated order for the sake of convenience.
4. Revenue's Appeal:
4.1 The concise grounds raised by the Revenue as well as the assessee are stated herein below for adjudication:- 4 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016 A) ITA No.888 of 2010, Assessment year 2007-08:-
The Revenue has raised five grounds in its appeal however the cruxes of the issues are as follows:-
(i) The Ld.CIT(A) has erred in treating the sum of Rs.94,60,500/- out of Rs.18,92,10,000/- received by the assessee towards relinquishment of farming rights as the agricultural income of the assessee as against 'income from other source' held by the Ld.AO and the remaining amount of Rs.17,97,49,500/- as 'Short-term Capital Gain' as against 'income from business' held by the Ld.AO.
(ii) The Ld.CIT(A) has erred in deleting the addition of Rs.3,51,945/- made by the Ld.AO under the head 'income from other source' being the expenditure incurred for agricultural operations.
(iii) The Ld.CIT(A) has erred in deleting the disallowance made U/s.40(a)(ia) of the Act on amortization of premium on convertible debentures amounting to Rs.16,11,25,000/-. 5 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016 B) ITA No.68 of 2012, Assessment year 2008-09:-
The Ld.CIT(A) has erred in deleting the disallowance made U/s.40(a)(ia) of the Act on amortization of premium on convertible debentures amounting to Rs.17,81,66,667/-.
C) ITA No.1584 of 2014, Assessment year 2009-10:-
The Ld.CIT(A) has erred in deleting the disallowance made U/s.40(a)(ia) of the Act on amortization of premium on convertible debentures amounting to Rs.17,81,64,888/-. D) ITA No.1571 of 2016, Assessment year 2011-12:-
(i) The Ld.CIT(A) has erred in deleting the disallowance made U/s.40(a)(ia) of the Act on amortization of premium on convertible debentures amounting to Rs.17,81,64,885/-.
(ii) The Ld.CIT(A) has erred in deleting the disallowance made U/s.14A of the Act by the Ld.AO, amounting to Rs.57,99,790/-6 ITA Nos.814 & 888/Mds/2010
ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016 E) ITA No.3055 of 2016, Assessment year 2012-13:-
The Ld.CIT(A) has erred in deleting the disallowance made U/s.40(a)(ia) of the Act on amortization of premium on convertible debentures amounting to Rs.17,89,39,134/-.
4.2 Assessee's Appeal :-
ITA No.814 of 2010, Assessment year 2007-08:-
The Ld.CIT(A) has erred in treating 5% of Rs.18,92,10,000/- being the net compensation received by the assessee towards relinquishment of farming rights amounting to Rs.94,60,500/- as the agricultural income exempt U/s.10(i) of the Act and the balance amount of Rs.17,97,49,500/- as non- agricultural income.
5 Revenue's Appeal ITA No.888/Mds/2010, AY : 2007-08:- 5.1 Ground No.4.1 A(i) : Assessment of income received towards relinquishment of farming rights amounting to Rs.18,92,10,000/- under the head 'agricultural income' / 'income from other source' / 'short-term capital gain' / 'income from business':-7 ITA Nos.814 & 888/Mds/2010
ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016 The brief facts of the case are that the assessee claims to have entered in to Joint Venture Farming Agreement (JVFA) dated 09.07.2004 with several persons involving 70 acres of land situated at Thaiyur and Thazhampur Village, Chengalpet Taluk, Kancheepuram District. Subsequently M/s. Carmen Builders & Constructions Pvt. Ltd., purchased about 42.41 acres of land comprising of the aforesaid land of 70 acres for a total sale consideration of 147.56 crores. Out of the sale proceeds a sum of Rs.47,30,25,000/- was paid to the assessee as compensation for relinquishment of farming rights against which the assessee ceded 60% of the same to the owners of the land and retained the balance amount of Rs.18,92,10,000/-. The Ld.AO opined that the JVFA entered by the assessee is not genuine and therefore treated the net compensation received by the appellant as revenue receipts taxable under the head 'income from other source'.
5.2 Before the Ld.CIT(A) the Ld.AR had made the following submissions:-8 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016
1. The assessee had started entering into JVF agreements, as early as from June 2004, i.e., before 2 years from the ultimate sale of land by the owners of the land.
2. The JVF agreements were made with different owners of the land who were not inter-related.
3. Thereafter the assessee was engaged in agricultural operation till the date of sale of the land.
4. The assessee had decided to enter into agriculture operation due to the high potential of Jetropa Cultivation after extensive research.
5. The land forming part of JVF agreements were all agriculture land falling outside the scope of "capital asset" as per provisions of Section 2(14) of the Act.
6. The land owners were under the bonafide belief that corporate farming will enhance the value of their land and also protect their land from encroachment.
7. The entire transaction was made after extensive negotiations which are evidenced by letters. 9 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016
8. Documentary evidence such as revenue records also establish the fact that agricultural operations were carried out in the land covered under JVF Agreement which is also evidenced by the sworn statement of VAO and the land owners before the Ld.AO stating that Jetropa cultivation existed till the date of the sale of the land.
9. All the parties to the transaction had acknowledged about the bonafide of the transaction.
10. There was no necessity for the assessee to do any tax planning because the assessee was having sufficient brought forward losses and depreciation.
11. Therefore the termination of the JVF Agreement did not constitute in any systematic or organized business activity.
12. Hence the amount received on the relinquishment of the farming rights held by the assessee on 'agricultural land' which is not a 'capital asset' as per provisions of Section 2(14) of the Act, is akin to compensation received towards termination of tenancy rights with respect to 10 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 agricultural land and therefore such receipts has to be treated as agricultural income.
13. The assessee had not engaged itself in any other transaction of similar nature. Therefore the lone transaction of the assessee cannot be treated as the business activity of the assessee.
14. Income received in lieu of rent or revenue from agricultural land or any transaction inseparably connected therewith, will be entitled for the benefit of tax exemption as 'agricultural income'. Reliance was placed in the case CIT vs. Gowri Shankar Agarwal reported in 131 ITR 28.
15. There was no privity of contract between the appellant and M/s. Carmen Builders & Constructions Pvt. Ltd. other than the JVF agreement as confirming party.
16. The bonafide of JVF agreement was also acknowledged by the ultimate buyers of the land M/s. Carmen Builders & Constructions Pvt. Ltd. The land owners had also voluntarily entered into the JVF agreements. 11 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016
17. Property is a bundle of rights. Interest in land can be splitted by different persons not merely in the case of co-ownership but also between those having interest in possession for life or specified period and those in reminder known as reversionary right. The compensation received for ceding farming rights on 'agricultural land' which is not a 'capital asset' as specified in Section 2(14)(iii) of the Act should be treated as 'capital gain' which is exempt from income tax in the hands of both the landlord and tenant. 5.3 The Ld.CIT(A) after examining the issue in detail held that 5% of the compensation received should be treated as agricultural income because there is an element of income in the nature of agricultural income embedded in the compensation. He further held that the balance 95% should be treated as 'short-term capital gain' which is taxable. The relevant portion of the order of the Ld.CIT(A) is extracted herein for reference:-
"4.7 I have carefully considered the rival submissions and material on record. Though the intention of the buyer is 12 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 different, the assessee was able to prove that the agricultural operations were carried on by it on the land in the past. Since agricultural yield in jetropa takes a longer time, such income from agricultural operations on the said 40 acres of land were not realised in financial years 2004-05, 2005-06 and during the year under consideration. However, vouchers in proof of expenses provide evidence that agricultural operations were carried on in this land in the past before its sale to CBCPL. The issue, therefore, is limited as to whether the compensation of Rs.18,92,10,000/- could be treated as income from agricultural operations. The compensation of Rs.18,92,10,000/· received by the assessee is a huge sum and such a price is disproportionately high for any agricultural operations on mere 40 acres of land in which the appellant was a joint venture partner. The price is so high that it would not be viable, if the land is put to agricultural use by the purchaser, while it is more consistent with the price fetched for urban plots than agricultural land. Though agricultural operations were carried on, the guiding factor to decide the nature of such compensation should the immediate nexus the compensation is having with the land. In other words, if the connection is only a remote source then the compensation cannot take the colour of agricultural income in toto. Since the value of compensation is absurdly high, making it not suitable for agricultural operations, it is absolutely clear that a substantial portion of compensation received is non- agricultural in nature. This portion is not directly linked to the any agricultural operations and its immediate source to the land sold is only a remote source.
4.7.1 The Id. AR produced evidences to prove that the lands in question are agricultural in nature. The land is also situated beyond the specified distance from the outer limits of the city. Hence, the assets cannot be treated as a capital asset u/s 2(14) of the income-tax Act. The Id. AR also explained that the 13 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 villages in which the lands sold are situated are not part of the urban agglomeration of the Chennai Metropolis. Though the contention the Id. AR is acceptable, since the appellant is not the owner of the land, it cannot be granted the benefit on these grounds alone. It may altogether be a different matter as regards the compensation received by the land owners. The compensation received as described in the earlier part of the order thus have a remote link to the source of income and therefore irrespective of the character of the land and its location the same cannot be treated entirely as income from agriculture.
4.7.2 The appellant has entered into JVFAs in the year 2004 for a period of ten years and in the third year the rights to farming were relinquished. The appellant had incurred expenditure in planting, pruning and cultivating jetropa. The VAO has also certified the planting and nursing of jetropa plants on the lands under consideration. The future yield from these lands had got terminated consequent of sale of land and therefore the income from agricultural operation in the remaining seven years were foregone by the appellant. Therefore, the compensation received on termination of farming rights constitutes a portion of compensation relating to loss of agricultural income to be derived in future. The Id. AR had submitted a calculation of projected income likely to be earned in jetropa cultivation. According to it, the initial two years are gestation periods and the crop start generating income from third year onwards. Records produced by the appellant reveal that jetropa cultivation has been carried out in 42 acres of lands and substantial amounts have been spent in financial years 2004:05, 2005·06 and also in the current year. Proof of purchase of seeds of jetropa in FY 06-07 has also been produced. Jetropa is a more viable commercial crop and the assessee is bound to get fairly high revenue in the remaining years. Due to surrender of land on transfer and 14 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 relinquishment of the farming rights, the appellant has lost further revenue gains though significant amounts have been spent initially on its cultivation. However the claim of 100 per cent of the compensation on extinguishment of farming right alone sounds unreasonable and lacks proper basis for the reasons stated in para 4.7 and 4.7.1. Nonetheless, taking into account the comparatively high revenue yield derivable from the commercial crop cultivation of Jetropa an.d the termination of farming agreement within 3 years, while 7 years of farming rights are still left, 5 per cent or Rs. 94,60,500/- of the compensation received may reasonably be attributed to appellant's share of loss of farming income. The balance 95 per cent or Rs. 17,97,49,500/- is treated as non- agricultural income. Only this amount of 5 per cent i.e. Rs. 94,60,500/- of the compensation has direct nexus to the immediate source by agricultural land and hence the compensation to that extent is treated as agriculture income and exempt u/s 10(1) of the Income-tax Act, 1961.
4.7.3 The appellant classified the entire sum of Rs.18,92,10,000/- as compensation on extinguishment of the farming rights for the succeeding years. This compensation received has been held by the AO as business income u/s 28(ii). In my considered view, this compensation does not fall in any of the four clauses of 28(ii). This transaction squarely falls into the ambit of section 55(2) (a) and compensation received on termination of rights has to be treated as income from capital gains only. Since the tenure of holding of the capital asset in the form of farming rights is less than 3 years, the profits arrived at RS.17,97,49,500/- is to be treated as short-term capital gains and not as business profits u/s 28(ii). Further going by the viablity factor for continued agricultural operation discussed above and the help extended by the appellant to the buyer in acquiring the land and facilitating the deal, the major portion of 95 percent of compensation 15 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 received cannot be treated as capital gains received on transfer of a excluded capital asset, which is exempt from tax. Since its immediate source is real estate, the same is a taxable as short-term capital gains (STCG) and it is not exempt from tax. In the result, out of the total compensation amount of Rs.18,92,10,000/-, a sum of Rs.94,60,500/- is held as agricultural income and the remaining Rs.17,97,49,500/- is held as short-term capital gain. The appellant partly success on this ground."
5.4 The Ld.DR vehemently argued before us in support of the order of the Ld.AO by reiterating the discussions made therein and pleaded that her order may be restored. On the other hand the Ld.AR reiterating the submission made before the Ld.CIT(A) prayed that the entire amount of compensation may be treated as agricultural income which is exempt from tax. 5.5 We have heard the rival submissions and carefully perused the materials available on record. From the facts of the case, it cannot be simply conceived that the JVF Agreement is not bonafide. These agreements are entered between various parties and acted upon over few years. Further it is not uncommon for a person to enter into agreement related to farming rights. The only reason to view the transaction as a colourable device is due to the 16 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 projection of high potential income arising out of Jetropa cultivation. Both the parties before us have not brought out sufficient materials to prove or disprove the huge profit arising out of Jetropa cultivation. The Ld.CIT(A) also realizing the gravity of situation, has held that the compensation received by the assessee cannot take the colour of agriculture income in its entity. Further on perusing the nature of JVF agreement between the assessee company and various other parties, it is evident that the agreement is a commercial transaction, though it pertains to farming rights on agriculture land because the assessee company apart from its farming activities also have to carry out various other operations subsequent to harvesting the agricultural produce. Further on perusing the Section 2(1A)(a) (b) & (c) of the Act, we find that the compensation received by the assessee for cancellation of the commercial agreement does not fall under the purview of agricultural income. Further, taking cue from Section 32(1)(ii) of the Act, the right of farming on the agricultural land possessed by the assessee due to the commercial agreement entered into between various parties can be construed as an 'intangible asset'. Therefore the view of the Ld.CIT(A) that the 17 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 compensation received by the assessee should be taxed under the head 'short-term capital gains' has merits. Further, we fail to understand the reason as to how any element of agricultural income is embedded in the compensation received by the assessee other than the value of existing standing crops on the agricultural land at the time of the cancellation of the JVF Agreement. Therefore we hereby remit the matter back to the file of Ld.AO with a direction to give relief to the assessee with respect to the estimated value of the standing crop that existed on the agricultural land at the time of cancellation of the JVF agreement and treat the same as 'agricultural income' and bring the balance amount of the compensation received to tax under the head 'short-term capital gain' as held by the Ld.CIT(A). It is ordered accordingly. Thus Ground No.4.1 A(i) is disposed off. 6 Ground No.4.1 A(ii) : Treating the amount of expenditure of Rs.3,51,945/- incurred towards farming as the income of the assessee :-
Since in the ground No.4.1 A(i), we have held that relief should be granted to the assessee with respect to the value of the standing crops which existed at the time of cancellation of the JVF 18 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 agreement, the prayer of the Revenue for treating the expenditure of Rs.3,51,945/- incurred by the assessee towards farming activities as the income of the assessee under the head 'income from other source' does not have any merits. Therefore this ground raised by the Revenue is hereby decided against the Revenue.
7 Ground No.4.1 A(iii) : Deleting the disallowance made U/s.40(a)(ia) of the Act on amortization of premium on convertible debentures amounting to Rs.16,11,25,000/-:-
The assessee had issued debentures at face value of Rs.1000/- amounting to Rs.64,45,00,000/-. The redeemable value per debenture on the 12th year was Rs.5000/-. Therefore the assessee claimed deduction of Rs.16,11,25,000/- during the relevant assessment year based on the following working being the prorata premium for one year:-
Redemption value per debenture: 5000 Value of one debenture : 1000 Total Premium : 4000 Period of debenture : 12 years Prorata premium per year : 4000/12 = 250 Prorata premium for one year : 250*64,45,00,000 / 1000 = 16,11,25,000 19 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 7.1 The Ld.AO opined that since the assessee had not deducted 'tax at source' on the expense claimed for Rs.16,11,25,000/-, provisions of Section 40(a)(ia) of the Act will be applicable and therefore disallowed the entire expenditure claimed by the assessee. On appeal, the Ld.CIT(A) relying on the decision of the Hon'ble Jurisdictional High Court in the case CIT vs First Leasing Company of India Ltd reported in 292 ITR 110, the decision of the Hon'ble Apex Court in the case Madras Industrial Corporation Ltd., vs. CIT reported in 225 ITR 802, the decision in the case National Engineering Industries Ltd vs. CIT reported in 236 ITR 557 held that there is no distinction between the discount on debentures and premium on debentures and further relying on the circular issued by the CBDT held that the tax is required to be deducted only at the time of redemption of debentures and accordingly directed the Ld.AO to delete the addition by observing as under:-
"6.3 Now, the second issue is whether provisions of sec.
40(a)(ia) is applicable and whether any tax was required to be deducted at source at the time of credit of pro-rata premium in the name of debenture holder. The appellant has relied on CBDT Circular Nos. 2/2002 and 4/2004 and its letter F.No. 275/103/2003-IT(B) dated 30-09-2004 addressed to M/s. 20 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016 Emerald Testing (India) Pvt. Ltd., (Coimbatore) and CBDT letter F.No. 275/126/96 IT (B) dated 05·07-1996 addressed to Tata Iron & Steel Co. Ltd. in support of its contention that no TDS was needed each year in this regard. The Circular No. 4/2004 dated 13-05·2004 issued by CBDT has clarified that the tax is required to be deducted at source u/s. 193 or 195 only at the time of redemption of such bonds and not on year to year basis. The same is reproduced hereunder for easy understanding:
"The tax-treatment of income from Deep Discount Bonds has been explained in the Board's Circular No.2 of 2002 dated February 15, 2002 (see [2002) 254 ITR (St.) 241). Subsequently, the Board has received various requests for a clarification regarding tax deduction at source u/s. 193 of the Income-tax Act from interest on Deep Discount Bonds. Difficulties; could also be faced by the taxpayers in view of sec. 199 of the IT Act. which provides that credit for tax deduction at source shall be allowed only in the year in which the corresponding income is declared.
It is hereby clarified that tax is required to be deducted at source u/s. 193 or 195, as the case may be, only at the time of redemption of such bonds, irrespective of whether the income from the bonds has been declared by the bond-holder on accrual basis from year to year or is declared only in the year of redemption."
It has been argued by the appellant that the debentures issued by it are freely transferable and the ultimate payee at the time of redemption of debenture is not known. The CBDT has clarified vide Circular Nos. 2 of 2002 and 4 of 2004 that in the case of zero percent debentures issued at a discount, the tax has to be deducted only at the time of redemption. The benevolent circulars are binding on the departmental officers. 21 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016 This is the consistent view of various courts of the land. Reliance may be placed in the case of Navnit Lal C. Javeri v. K.K. Sen [56 ITR 198 (SC)]. Even if the directions contained in the circular issued by the CBDT deviate from the provisions of the Act, they are binding on the ITO [Ellerman Lines Ltd. v. CIT 82 ITR 913 (SC)] and K.P. Varghese v. ITO 131 ITR 597(SC)]. In view of the above, I am of the considered opinion that the facts of the appellant is covered by the circulars and communications issued by the Board. Further, the jurisdictional High Court has held that there is no distinction between premium on debenture and discount on debenture and the expenditure incurred are revenue in nature to be allowed over the period of debenture. Respectfully following the above decisions and the circulars, the AO is directed to delete the addition made on this issue. The appellant succeeds on this ground."
7.2 From the facts of the case, it is apparent that while deciding the case of the assessee the Ld.CIT(A) has followed the decision of the various higher Judiciary which is directly applicable in the case of the assessee and the circular No.4/2004 dated 13.05.2004 of the CBDT wherein it is clarified that tax is required to be deducted at source U/s. 193 or 195 of the Act only at the time of redemption of such bonds and not on year to year basis. Moreover, it is not the case of the Revenue that the debentures are redeemed during the relevant assessment years. The Ld.DR could also not controvert to any of the findings made by the 22 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014 ITA Nos. 1571 & 3055/Mds/2016 Ld.CIT(A) on the issue. In this circumstance, we do not find it necessary to interfere with the order of the Ld.CIT(A). Accordingly this ground filed by the Revenue does not have any merits and therefore decided against the Revenue.
8. Revenue's Appeal : ITA Nos.68 of 2012, 1584 of 2014, 1571 & 3055 of 2016:-
Ground Nos. 4.1 B, C, D(i) & E :Deleting the disallowance made U/s.40(a)(ia) of the Act on amortization of premium on convertible debentures amounting to Rs.18,92,10,000/-, Rs.17,91,66,667/-, 17,81,64,885/- & Rs.17,89,39,134/- for the assessment years 2007- 08, 2008-09, 2009-10, 2011-12 & 2012-13 respectively:-
Since we have already held this issue in favour of the assessee in the Revenue's appeal in Para No.7.2 herein above, the same decision will hold good in the case of the other appeals of the Revenue for the other relevant assessment years. Accordingly these appeals of the Revenue are devoid of merits. 23 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016
9. Revenue's Appeal in ITA No.1571 of 2016, AY 2011-12:
Ground No. 4.1 D (ii) Deleting the disallowance made U/s.14A of the Act by the Ld.AO, amounting to Rs.57,99,790/-
From the balance sheet of the assessee, it was revealed that the assessee has made investment of Rs.2,91,04,590/- in assets, the income from which is exempt from tax. Therefore the Ld.AO invoked the provisions of Section 14A r.w.r. 8D(ii & iii) of the Rules and worked out the disallowance at Rs.57,99,790/-. On appeal the Ld.CIT(A) directed the Ld.AO to recompute the disallowance U/s.14A r.w.r. 8D in view of the submission of the assessee that the entire premium on debentures of Rs.17,81,64,888/- was disallowed and therefore further disallowance was not warranted.
9.1 On perusing the issue and the order of both the Ld.Revenue authorities, we find that the complete facts of the issue have not surfaced. Therefore we remit back the matter to the file of Ld.AO for denova consideration.24 ITA Nos.814 & 888/Mds/2010 ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016 10 Assessee's Appeal in ITA No.814 of 2010, Assessment year 2007-08 :-
Ground No. 4.2 : Assessment of income received towards relinquishment of farming rights amounting to Rs.18,92,10,000/- under the head 'agricultural income' / 'income from other source' / 'short-term capital gain' / 'income from business':-
In the Revenue's appeal in ITA No.888/Mds/2010 for the assessment year 2007-08 at para No.5.1 herein above, we have remitted back the matter to the file of Ld.AO with a direction to give relief to the assessee with respect to the estimated value of the standing crop that existed on the agricultural land at the time of cancellation of the JVF agreement and treat the same as 'agricultural income' and bring the balance amount of the compensation received by the assessee to tax under the head 'short-term capital gain' as held by the Ld.CIT(A). Since the issue has been already decided by us herein above in the Revenue's appeal, the assessee's appeal has become infructuous which is on the very same issue.25 ITA Nos.814 & 888/Mds/2010
ITA No.68/Mds/2012, 1584/Mds/2014
ITA Nos. 1571 & 3055/Mds/2016
11. In the result the Revenue's appeal in ITA No.888 of 2010 is partly allowed, ITA Nos. 68 of 2012, 1584 of 2014 & 3055 of 2016 is dismissed and ITA No. 1571 of 2016 is partly allowed for statistical purposes. The Assessee's appeal in ITA 814 of 2010 is dismissed as infructuous.
Order pronounced on the 14th November, 2017 at Chennai.
Sd/- Sd/-
(ध!ु व"
ु आर.एल रे #डी) (ए. मोहन अलंकामणी)
( Duvvuru RL Reddy ) ( A. Mohan Alankamony )
%या यक सद य /Judicial Member लेखा सद य / Accountant Member
चे%नई/Chennai,
(दनांक/Dated 14th November, 2017
RSR
आदे श क त*ल+प अ,े+षत/Copy to:
1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आय/
ु त (अपील)/CIT(A)
4. आयकर आय/
ु त/CIT 5. +वभागीय त न2ध/DR 6. गाड फाईल/GF