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2011 (3) TMI 510 - AT - Income TaxDeemed income - Revenue or capital receipt - Applicability of section 41 - it is also clear that the provisions contained in section 41(1) do not make any distinction between any contractual trading liability or any statutory trading liability - even if any statutory liability is remitted or ceased of or any amount whether in cash or in any other manner has been obtained in respect of the expenditure incurred by way of statutory liability the same would be deemed to be the profit and gain of the business of the assessee and would accordingly be chargeable to income-tax as the income of that year in which such benefit or amount is obtained - what the assessee was required to repay after 12 years in six annual/equal instalments the same was repaid by the assessee in the public interest as NPV is equivalent to the Future Value of the sum - in this situation it could not be construed as remission of liability because the State Government had not waived of any of the liability as given in the illustrations - It was a simple case of collecting the amount at net present value which was due later on and even the formula for collecting the net present value was also given by the SICOM and the amounts had been paid as per that formula - Therefore such payment of net present value of a future liability could not be classified as remission or cessation of the liability so as to attract the provisions of section 41(1)(a) Assessing Officer noticed that the assessee has received dividend income of Rs 87, 57, 108 but has not offered any expenses for disallowance under section 14 A - The contention of the assessee was that no direct expenses have been incurred to earn this dividend income but this contention was rejected - Held that disallowance restricted to 2% as has been done by the coordinate benches in group cases Regarding deduction u/s 80HHC - C.B.D.T. Circular No. 772 dated 23-12-1998 - To illustrate if Rs. 100 is the profits of the business of the undertaking Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80 then in view of section 80-IA(9) the deduction under section 80HHC would be restricted to Rs. 70 so that the aggregate deduction does not exceed the profits of the business - Appeal is allowed
Issues Involved:
1. Taxability of surplus arising on prepayment of deferred sales tax. 2. Allocation of expenses to dividend income under section 14A. 3. Re-computation of deduction under section 80 HHC. 4. Reduction of deduction under section 80 IB from adjusted profits for section 80 HHC. 5. Disallowance of write-off of capital work in progress. 6. Addition of unutilized MODVAT credit under section 145A. 7. Inclusion of income from agency commission, service charges, scrap sales, and sales tax refund in business profit for section 80 HHC. 8. Disallowance of club entrance fees. Detailed Analysis: 1. Taxability of Surplus Arising on Prepayment of Deferred Sales Tax: The assessee contested the CIT(A)'s decision to treat the surplus from prepayment of deferred sales tax as a revenue receipt taxable under section 41(1). The Tribunal noted that this issue is covered in favor of the assessee by the Special Bench decision in Sulzer India Ltd vs JCIT, which held that such surplus is a capital receipt and not taxable under section 41(1). The Tribunal emphasized the binding nature of Special Bench decisions and directed the Assessing Officer to delete the impugned addition, allowing the assessee's ground. 2. Allocation of Expenses to Dividend Income Under Section 14A: The assessee challenged the allocation of Rs. 2,62,713 as expenses related to earning dividend income. The Tribunal reduced the disallowance to 2% of the dividend earnings, consistent with the approach in related cases, granting partial relief to the assessee. 3. Re-computation of Deduction Under Section 80 HHC: - Prepaid Sales Tax: The Tribunal dismissed the issue as infructuous due to the favorable decision on the first ground. - Insurance Claim: The Tribunal followed the Bombay High Court's decision in CIT vs Pfizer Limited, directing the Assessing Officer not to exclude the insurance claim receipts, allowing the assessee's ground. - Penalty on Bounced Cheque: The Tribunal agreed with the assessee that such penalties are part of business receipts and should be included in income eligible for deduction under section 80 HHC, allowing the assessee's ground. 4. Reduction of Deduction Under Section 80 IB from Adjusted Profits for Section 80 HHC: The Tribunal noted that the CIT(A) relied on the Special Bench decision in ACIT vs Rogini Garments, which was subsequently disapproved by the Bombay High Court in Associated Capsules Pvt. Ltd. vs DCIT. The Tribunal directed the Assessing Officer to recompute the deduction under section 80 HHC without reducing the deduction allowed under section 80 IB, allowing the assessee's ground. 5. Disallowance of Write-off of Capital Work in Progress: The Tribunal upheld the CIT(A)'s decision to disallow the write-off of Rs. 20,35,641 for capital work in progress, as the factual elements were not substantiated by the material on record, dismissing the assessee's ground. 6. Addition of Unutilized MODVAT Credit Under Section 145A: The Tribunal noted that the issue is covered in favor of the assessee by previous decisions, including the Bombay High Court's approval in Cobot India Limited vs DCIT. The Tribunal upheld the CIT(A)'s relief and dismissed the Assessing Officer's ground. 7. Inclusion of Income from Agency Commission, Service Charges, Scrap Sales, and Sales Tax Refund in Business Profit for Section 80 HHC: - Agency Commission: The assessee conceded that agency commission should not be treated as business profit. - Service Charges: The Tribunal agreed that service charges should be excluded from business profits on a net basis, considering direct expenses incurred. - Scrap Sales and Sales Tax Refund: The Tribunal followed previous decisions favoring the assessee, upholding the CIT(A)'s conclusions. 8. Disallowance of Club Entrance Fees: The Tribunal noted that the disallowed expenses were normal club expenses, not entrance fees. The issue was covered in favor of the assessee by previous Tribunal decisions. The Tribunal upheld the CIT(A)'s relief and dismissed the Assessing Officer's ground. Conclusion: The appeals filed by the assessee and the Assessing Officer were partly allowed, and the cross objection filed by the assessee was allowed, in the terms indicated above.
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