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2019 (1) TMI 1359 - HC - Income TaxDis-allowance of delayed payments made to Employees' Provident Fund and Employees' State Insurance, etc. - Held that - Since they relate to employees' contributions which the assessee had deducted from the monthly salary payable to them, the issue stands covered against the assessee and in favour of the Revenue by our decision reported in Popular Vehicles Services Pvt. Ltd. v. The Commissioner of Income Tax, Ernakulam 2018 (8) TMI 133 - KERALA HIGH COURT . Hence, we answer question No. (ii) in favour of the Revenue and against the assessee. The Tribunal's order to that extent stands deleted and the AO's dis-allowance stands restored. Sale of Grevellea trees - AO taking 30% of the sale proceeds of Grevellea trees as cost and balance sale proceeds brought to tax as capital gains - Held that - We have considered the issue in the Revenue's appeal in assessee's own case as held Tribunal had considered the facts and had held that the order of the CIT (Appeals) directing deletion of such deduction in the capital gains has to be set aside, on facts. The Tribunal has also held that it being long term capital loss, is entitled to be carried forward. We do not see any question of law arising from the order of the Tribunal and, hence, uphold the order to that extent - Decided against revenue Disallowance of slump sale - sale of two estates as going concerns - claim of agricultural income - levy under Section 50B - Held that - We found on a reference to the agreement of sale that there was a transfer as a going concern and it does not change by the mere fact that the employees were taken over by the purchasing company as a measure to avoid any retrenchment compensation being paid. We had specifically referred to the terms of the agreement and the Tribunal too in the present case does refer to the facts here, which we find to be similar to the earlier sale. The fact finding authorities also notice that the terms of the agreement are identical with that entered into in the earlier year. The issue being on facts as to the specific terms of the agreement and not giving rise to a question of law we refuse to answer question No.(iv). The order of the Tribunal to the extent of deleting the levy under Section 50B is confirmed. MAT - adding back the provision for gratuity in computing the income under Section 115JB - Held that - As relying on The Fertilizers Chemicals Travancore Ltd. v. CIT, Kochi 2018 (10) TMI 1303 - KERALA HIGH COURT he same would be an ascertained liability and, hence, would be capable of being deducted from computation of the Minimum Alternate Tax (MAT) under Section 115JB. We, answer question in favour of the assessee Addition on account of interest dis-allowance made by the assessing Officer - business for which the funds have been utilised is the business of the sister concerns and not the business of the assessee itself - Held that - The assessee was flushed with non-interest bearing funds as found by the first appellate authority also. Looking at the manner in which the proportion was computed by the AO itself, we find that the assessee had more than ₹ 30,000 lakhs of non-interest bearing funds. The loans which were said to be interest free, granted to its subsidiary Companies came to only ₹ 21,221.04 lakhs. Hence, the assessee is deemed to have granted the interest free loans to its subsidiary Companies from its non-interest bearing funds available with it, which was also in excess of the total loans granted by the assessee to the subsidiary companies. There was absolutely no warrant for applying the proportion between interest bearing funds and non-interest bearing funds to make a disallowance of the interest liability satisfied by the assessee for the assessment year which was claimed as an expenditure in the said year. - Decided in favour of the assessee Applicability of Rule 7A to the sale of old and unyielding rubber trees - Held that - As relying on Commissioner of Income Tax v. Thiruvambadi Rubber Co.Ltd. 2011 (6) TMI 452 - KERALA HIGH COURT , wherein a Division Bench of this Court had clearly found that sale of old and unyielding rubber trees would not give rise to an agricultural income. If there is no agricultural income, then there is no question of application of Rule 7A. In such circumstances, question No.(vii) is answered in favour of the assessee MAT computation - sale of agricultural land - Held that - The consideration received on sale of agricultural land in rural area, not coming under Section 2(14)(iii)(a) and (b) would not be income or revenue derived from land. But it has to be added to the profit and loss account and would be reflected in the book profits, for assessment under Section 115JB. There is no statutory provision enabling a downward adjustment of the said sum from the book profits in the computation as provided in Section 115JB. Also in the relevant year, there was The Kerala Agricultural Income Tax Act, 1991 (AIT Act) applicable to the State and there is no contention raised by the assessee that the amounts received as consideration on sale of estate was offered under that enactment. We also notice the levy under the AIT Act of the State to be 60% for the relevant year, which is a lot higher than the levy under the Income Tax Act. We, in such circumstances, answer question in favour of the Revenue and against the assessee.
Issues Involved:
1. Deductibility of license fee under Section 37 of the Income Tax Act, 1961. 2. Deductibility of delayed payments to Employees' Provident Fund and Employees' State Insurance under Section 37. 3. Tax treatment of sale proceeds of Grevellea trees. 4. Tax treatment of proceeds from the sale of two estates under Section 50B. 5. Addition of provision for gratuity in computing income under Section 115JB. 6. Disallowance of proportionate interest under Section 14A on loans to subsidiary companies. 7. Taxability of consideration obtained on sale of old rubber trees under the Income Tax Act. 8. Exclusion of profit on sale of two estates from computing book profit under Section 115JB as agricultural income. Issue-wise Detailed Analysis: 1. Deductibility of License Fee under Section 37: The Department instructed not to press this issue. Consequently, the Tribunal's order remains untouched, and the question was declined to be answered. 2. Deductibility of Delayed Payments to EPF and ESI: The issue relates to employees' contributions deducted from monthly salaries. The court referenced its decision in Popular Vehicles & Services Pvt. Ltd. v. The Commissioner of Income Tax, Ernakulam, ruling against the assessee and in favor of the Revenue. The Tribunal's order was deleted, and the AO’s disallowance was restored. 3. Tax Treatment of Sale Proceeds of Grevellea Trees: The court referred to its judgment in CIT, Cochin v. Harrisons Malayalam Ltd., which upheld the Tribunal's order that the sale of shade trees should be treated as long-term capital loss entitled to be carried forward. Thus, the question was answered in favor of the assessee and against the Revenue. 4. Tax Treatment of Proceeds from the Sale of Two Estates: The court referred to its judgment in another case, finding that the sale was a transfer as a going concern. The Tribunal's order deleting the levy under Section 50B was confirmed, and the question was not answered as it did not raise a question of law. 5. Addition of Provision for Gratuity in Computing Income under Section 115JB: The court referenced its judgment in The Fertilizers & Chemicals Travancore Ltd. v. CIT, Kochi, ruling that the provision for gratuity is an ascertained liability and can be deducted from the computation of MAT under Section 115JB. The question was answered in favor of the assessee and against the Revenue. 6. Disallowance of Proportionate Interest under Section 14A on Loans to Subsidiary Companies: The court examined the disallowance made by the AO, who apportioned the interest-bearing and non-interest-bearing funds. The court found the assessee had sufficient non-interest-bearing funds to cover the interest-free loans to its subsidiaries. Thus, the disallowance was unwarranted, and the question was answered in favor of the assessee, sustaining the Tribunal's deletion of ?3,18,21,074/-. 7. Taxability of Consideration Obtained on Sale of Old Rubber Trees: The court referred to Commissioner of Income Tax v. Thiruvambadi Rubber Co. Ltd., ruling that the sale of old and unyielding rubber trees does not give rise to agricultural income. Thus, Rule 7A does not apply, and the question was answered in favor of the assessee, sustaining the Tribunal's order. 8. Exclusion of Profit on Sale of Two Estates from Computing Book Profit under Section 115JB as Agricultural Income: The court discussed various judgments and statutory provisions, concluding that the consideration received from the sale of agricultural land not falling under Section 2(14)(iii)(a) & (b) is not agricultural income. The court followed the Division Bench's decision in Commissioner of Income Tax v. T.K. Sarala Devi, ruling that such consideration must be added to the profit and loss account and reflected in the book profits for assessment under Section 115JB. The question was answered in favor of the Revenue and against the assessee. Conclusion: The appeal was partly allowed, with parties left to bear their respective costs.
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