2006 (6) TMI 174 - AT - Income Tax

Summary

Issues Involved:
1. Computation of short-term capital gain.
2. Allowability of lease compensation charges as revenue expenditure.
3. Taxation of goodwill.
4. Set-off of carry forward unabsorbed depreciation.
5. Correct Written Down Value (WDV) of bottles.

Detailed Analysis:

1. Computation of Short-Term Capital Gain:
The assessee stopped manufacturing soft drinks and sold bottles and crates, computing a short-term capital gain of Rs. 8,28,97,258. The Assessing Officer (AO) disagreed, noting the assessee's historical accounting for breakage of bottles and crates, and adjusted the WDV, resulting in a higher short-term capital gain of Rs. 10,54,18,206. The Tribunal found no justification for this adjustment, emphasizing that breakages were not claimed under the Income-tax Act, and thus should not reduce the WDV. The Tribunal deleted the addition, referencing Section 50 of the Income-tax Act, which outlines the computation of short-term capital gains for depreciable assets.

2. Allowability of Lease Compensation Charges as Revenue Expenditure:
The assessee claimed Rs. 1,84,63,029 as deferred revenue expenditure written off, related to lease compensation charges for setting up a new plant. The AO disallowed this, treating it as capital expenditure. The Tribunal found that these charges were in the nature of interest incurred to bring leased assets into existence and should be allowed as revenue expenditure. The Tribunal referenced the Supreme Court case of Madras Industrial Investment Corpn. Ltd. v. CIT, which allows spreading revenue expenditure over several years, and deleted the addition.

3. Taxation of Goodwill:
The AO taxed Rs. 3 crores received for goodwill in the year under consideration, but the assessee argued it was an advance and taxable in a later year. The Tribunal agreed with the assessee, noting that the transfer of goodwill was contingent on the transfer of other assets and various approvals, which occurred in later years. The Tribunal referenced the Supreme Court case of Alapati Venkataramiah v. CIT, which states that goodwill passes with the transfer of the whole business, and deleted the addition.

4. Set-off of Carry Forward Unabsorbed Depreciation:
The assessee sought to set off Rs. 7,84,18,940 of carry forward unabsorbed depreciation against capital gains. The Tribunal noted that the CIT (Appeals) did not adjudicate this issue as it was withdrawn by the assessee. The Tribunal, referencing the case of National Thermal Power Co. Ltd. v. CIT, suggested the assessee could seek rectification from the CIT (Appeals) if a wrong concession was made. The Tribunal did not adjudicate the issue, directing the assessee to approach the CIT (Appeals).

5. Correct Written Down Value (WDV) of Bottles:
The revenue contested the WDV of bottles, with the AO adopting Rs. 11,76,09,543 and the CIT (Appeals) directing Rs. 12,01,13,238. The Tribunal found discrepancies in the figures and set aside the issue for re-verification by the AO, ensuring the correct WDV is adopted after providing the assessee adequate opportunity.

Conclusion:
The Tribunal allowed the appeal partly, deleting the additions related to the computation of short-term capital gain, lease compensation charges, and taxation of goodwill, while directing re-verification of the WDV of bottles. The issue of set-off of carry forward unabsorbed depreciation was left to be re-agitated before the CIT (Appeals).