2019 (1) TMI 887 - HC - Income Tax

MAT - Addition being provision for wealth tax, while computing the Book profits u/S. 115JB - Held that - The legislature has advisedly not included wealth tax in this clause. By no interpretative process, the wealth tax can be included in clause (a). The Revenue, further made a vague attempt to bring this item in clause (c) noted above. Clause (c) would include the amount set aside for provisions made for meeting liabilities other than ascertained liabilities. For applicability of this clause, therefore, fundamental facts would have to be brought on record which in the present case, the Revenue has not done. In fact, the entire thrust of the Revenue's argument at the outset appears to be on clause (a) which refers to the income tax which according to the Revenue would also include wealth tax. This question, therefore, is not required to be entertained. Addition being gain on extinguishment of debentures / bonds treated as income u/s 41(1) - Held that - In the present case, the Revenue has not established these basic facts. In other words, it is not even the case of the Revenue that in the process of issuing the bonds, the assessee had claimed deduction of any trading liability in any year. Any extinguishment of such liability would not give rise to applicability of sub-section (1) to Section 41 of the Act. Also notice that the decision of this Court in the case of Mahindra and Mahindera Ltd 2003 (1) TMI 71 - BOMBAY HIGH COURT came to be confirmed by the Supreme Court in the case of Commissioner Vs. Mahindra Mahindra Ltd 2018 (5) TMI 358 - SUPREME COURT . It was reiterated that for applicability of Section 41(1) of the Act, it is a sine qua non that there should be an allowance or deduction claimed by the Assessee in any assessment year in respect of loss, expenditure or trading liability incurred by the assessee. Then, subsequently, during any previous year, if the creditor remits or waives any such liability, then the Assessee is liable to pay tax Under Section 41 of the IT Act. This question, therefore, does not require any consideration. Commission / surcharge paid to State Oil Marketing Organization ( SOMO ), an Iraqi Government Agency - disallowance - Volcker Committee report (India being a member state of the UN) which was prepared after due diligence and investigation of documents as well as personnel interviews - Revenue argues that the assessee had paid illegal commission for purchase of such oil and therefore, such expenditure was not allowable - Held that - CIT(A) in detail order while reversing the disallowance made by the Assessing Officer, observed that there was no evidence that the assessee had paid any such illegal commission. He noted that except for the Volcker Committee Report, there was no other evidence for making such addition. He noted that even in the said report, there is no finding that the assessee had made illegal payment. It appears that the payments were made by an agent and there was no evidence to suggest that the assessee had made any illegal commission payment to Iraqi government. The Tribunal confirmed this view of the CIT(A). The entire issue is thus based on appreciation of materials on record and is a factual issue. No question of law arises.

Summary

Issues involved:
1. Exclusion of provision for wealth tax while computing book profits under Section 115JB of the Income Tax Act.
2. Deletion of addition of gain on extinguishment of debentures/bonds under Section 41(1) of the Income Tax Act.
3. Allowance of commission/surcharge paid to State Oil Marketing Organization (SOMO) by ignoring the Volcker Committee report.

Issue 1:
The first issue revolves around whether the provision for wealth tax should be excluded while computing book profits under Section 115JB of the Income Tax Act. The Tribunal held that the provision for wealth tax should not be included as it is not covered under the relevant clauses of the Act. The Tribunal relied on a previous decision and emphasized that wealth tax cannot be included in the provisions for income tax. The Court further explained that the legislative intent did not encompass wealth tax under the relevant clauses. The Revenue's attempt to bring wealth tax under a different clause was deemed vague and lacking in factual basis, thus not warranting consideration.

Issue 2:
The second issue concerns the deletion of a gain on extinguishment of debentures/bonds under Section 41(1) of the Income Tax Act. The Assessing Officer treated the gain as assessable income, but both the CIT(A) and the Tribunal disagreed. The Tribunal reasoned that the liability from the issuance of bonds was not a trading liability, thus Section 41(1) did not apply. The Court concurred with the Tribunal's view, emphasizing the absence of claimed deductions or allowances related to trading liabilities by the assessee. The Court also referred to a precedent confirming the interpretation of Section 41(1), highlighting the necessity of claimed allowances or deductions for its applicability.

Issue 3:
The final issue involves the allowance of commission/surcharge paid to SOMO by the assessee. The Revenue contended that the payment was illegal and therefore not allowable. However, the CIT(A) and the Tribunal both ruled in favor of the assessee, citing lack of evidence supporting the illegal nature of the payment. The Tribunal upheld the view that there was no proof of illegal commission payments to the Iraqi government, and the entire matter hinged on factual evaluation without raising any legal questions.

In conclusion, the High Court of Bombay dismissed the appeal, upholding the Tribunal's decisions on all three issues. The judgment meticulously analyzed each issue, emphasizing statutory provisions, precedents, and factual assessments to arrive at the final decision.