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TMI Blog1991 (2) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(Appeals) for the earlier year has been considered by the Tribunal by an order dated 24-9-1990. The Tribunal has upheld the CIT's finding. However, it would appear that, for a subsequent year, the CIT(Appeals) made a personal inspection of the unit under discussion and he was satisfied that it was not a separate Industrial Unit at all. Shri Amitabh Kumar has pressed for review of the earlier decision on the basis of the findings of the CIT (Appeals). The facts as noticed in that year, are as follows. 33. In 1979, the assessee-company obtained a sanction for extension of the industrial licence for an additional capacity of 70,000 tonnes of cement. The company had invested Rs. 4.16 crores in setting up a new plant for this purpose. The plant was commissioned in November 1981. Hitherto, the assessee was following a method which is described as Slurry method. In the old method, limestone is mixed with water and made into a Slurry. Clinkers are manufactured therefrom. In the new method, there is no use of water at all this stage. Limestone and clay, after being crushed, are fed into a vertical roller mill. They are ground into a fine powder therein called raw meal. It is air-swe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered for the purpose of deduction. According to him, the existing industry was producing 8 lac MT of cement per annum and if a similar industry were to be set up now, the investment required, will not be less than 100 crores. The investment now made is only Rs. 4.16 crores. Therefore, there is no substantial investment. He also pointed out that the new unit has not substantially increased the production capacity. The total capacity of the assessee during the year was 7.94 lac MT and the production relatable to the clinkers was only 84000 MT. Apart from the physical aspect of the unit, he had also considered, whether the profits attributable to the unit can be separately found out. Since this unit was only manufacturing clinkers, which were to be used as raw material in manufacture of the cement, it will be very difficult for assigning any profit to a particular process adopted by the assessee in preparation of the clinkers. He also pointed out that the plant would consist of superstructures also, like land, building, factories, premises, labour quarters, quarters for officials, roads, electric equipments etc. These are not separate for this unit. 37. We have considered the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rately. 39. The point would still remain, whether clinker could be considered as a marketable commodity. In order to satisfy the question that it is a separate unit manufacturing identifiable articles. In this connection, we would refer to the decision of the Supreme Court in the case of Union Carbide India Ltd. v. Union of India [1987] 165 ITR 1. This identical question was considered there. That was a case of levy of Central Excise. The assessee, a manufacturer of flash lights, produced aluminium cans or torch bodies from aluminium slugs. These cans were in a rude and elementary form incapable of being employed at this stage as a component in flash light. The cans had sharp uneven edges and, in order to be used as a component in making flashlight cases, they had to undergo various processes such as trimming, threading and redrawing and, thereafter, they had to be reeded, headed and anodised or painted. At the stage of crude aluminium cans, excise duty was demanded from the appellant. To avoid coercive action, the appellant filed price lists in which the price of aluminium cans was calculated at cost plus a margin of profit of 5% of the cost, though the appellant claimed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be an intermediate product. Factually, Shri Amitabh Kumar is correct, when he says that clinkers have no other use. However, the mere fact that a particular product has a very restricted use, would not, by itself, show that it is not a marketable item. There are very many marketable items which can be used only as raw material in the production of some other final product. Nevertheless, these intermediate products are also treated as marketable goods. For instance, rubber sheets can be used only in rubber companies for manufacture of rubber goods, like tyres etc. Rubber sheets, by itself, does not have any other use. Still it is a product known in the market. Preparation of many basic chemicals are considered as manufacturing articles or things even though these basic chemicals are only used as raw materials in further preparation of chemicals and products. 41. We have given in para 37 the method used in the preparation of clinkers in the vertical shaft kiln. It is quite clear from the chart and the description that the machineries, the buildings housing them, the conveyor systems and Silos are separate and different from the rest of the plant which was being used for preparatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery new creation in business is some kind of expansion and advancement. The true test is not, whether the new industrial undertaking expansion of the existing business of the assessee, but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine, whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An undertaking is formed out of the existing business if the physical identity with the old unit is preserved." 43. It will be seen from the above that the test is a new and identifiable undertaking separate and distinct from the existing business has come into being. In our opinion, it would not be necessary even to go into the test of substantial investment because the unit, by itself, could stand separately. He has also pointed out that the new unit shares the same superstructures like land, buildings, labour quarters, quarters for offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal held that there was no ascertained liability at all. The provision was only contingent one and it could not be allowed as a deduction. 47. During the accounting year concerned, the assessee has amended the provision. The amended provision now reads as follows :---- " Modification of the Scheme The Board of Directors of the Company may, from time to time, modify any of the provisions of this scheme and/or withdraw the same at any time prospectively without in any manner whatsoever, effecting retrospectively the operation of the provisions of this scheme or the liability incurred by the Company or the benefits accrued to the eligible employees under the existing provisions of this scheme prior to the date of any such modification or withdrawal of any provisions thereof." 48. On the basis of this amendment, the assessee had claimed before the departmental authorities, the deduction towards actuarial liability to pay pension. In a letter to the ITO dated 28th August 1984, the assessee had claimed that, after the amendment of clause (xii), there was no discretion left to the Directors and, under the circumstances, the contributions made are allowable expenses. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1984. In that case, the assessee company introduced from 1-1-1970 a gratuity scheme for its employees. The liability arising in respect of that scheme was claimed as a deduction. There was no divestment of funds, but only creation of a liability under a scheme. Nevertheless, the Delhi High Court held that the assessee is entitled to the deduction. The High Court observed that the fact that gratuity fund was to be administered by a Board of Directors, did not effect the allowability of the amount. Once the amount was credited to the gratuity fund, it was no longer capable of being used by the company for its own purposes. In the assessee's case also, a separate scheme has been created and the funds of the scheme are separately credited in the assessee's own books. Thus, on the basis of the Delhi High Court decision, there is enough divestment for the purpose of eligibility of the deduction. 52. The second point to be considered is, whether the amendment to clause (xii) has removed the disability. We have already extracted this clause. Even under the modified scheme, the Board of Directors retain the power to withdraw the scheme. However, such withdrawal would be only prospective. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585. That case has no relevance at all to the issue before us. That was a case of a claim for deduction of provision for gratuity. There is a specific bar in the statute in section 40A(7). The Supreme Court did not accept the assessee's submissions regarding the interpretation of section 40A(7). As far as the pension scheme is concerned, there is no such statutory provision. Thus, the decision in Shree Sajjan Mills Ltd.'s case is not at all relevant for this issue. 55. In Ground No. 17, the issue is, whether certain payments made to two retired employees by way of a commutation of pension could be considered for disallowance under section 40A(5). As already stated, the assessee has a pension scheme, the refiring employees, under clause (v) of the Pension Scheme, had option of commuting either the whole or a part of the pensionary benefits. Two of the employees who retired during the accounting year, exercised such a provision and was paid a commuted sum totalling Rs. 2,06,143. The assessee-company, in their initial computation of the disallowance of section 40A(5) had included this amount in the consideration. Later on, they wrote to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws the employer to write off their liability of periodic payment by substituting that one lumpsum payment. No right of the employee is transferred or nullified by such payment. It is not the price paid for extinguishment of the rights of the employees. Therefore, it cannot be considered as a capital payment. Its character essentially is that of payment of pension only. 57. In this connection, we may refer to the decision of the Special Bench of the Tribunal in the case of IAC v. Kodak Ltd. [1983] 3 SOT 517 (Bom.). In that case, the assessee had paid to their employee on retirement, Rs. 36,410 as retirement gratuity. This was included in the computation of inadmissibles under section 40A(5). As in this case, there was a submission that gratuity was outside the term of salary under section 17. This submission was rejected. However, the Tribunal considered that in respect of the payment of gratuity to a former employee, there is a separate limit prescribed under section 40A(5) and that limit has to be considered in the computation. In our opinion, the decision in this case also should be identical. An employee becomes eligible for commutation only after his retirement. Therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the High Court had stayed the collection of the cess pending the decision of the Supreme Court. The assessee had filed the return for the assessment year 1984-85 without noticing this liability towards the payment of cess. However, thereafter, they wrote a letter to the ITO stating that the liability towards cess is a statutory liability and should be allowed as a deduction. The ITO did not accept the assessee's claim. He pointed out that similar issue had arisen in the prior assessment years and the claim was not allowed. He referred to the fact that the CIT (Appeals) for the assessment year 1983-84 has allowed the deduction, but he stated that the department has filed an appeal against the deduction and that appeal was pending. 73. The matter came before the CIT (Appeals). Before the CIT (Appeals), for the first time, the case was argued under section 43B. According to the department, the cess was a tax and since this was not paid, it should be disallowed because of the provisions of section 43B. A reference was made to a circular of the Central Board of Direct Taxes dated 18-5-1967 in which the Board has given directions not to include cess in the expression ' tax ' f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court has also considered the submission that the decision of the apex court in the case of H.R.S. Murthy had been prevailing in this country as the rule of the land for several years and many welfare programmes have been undertaken on that basis. On the finding of the Supreme Court, that royalty and cess were not tax, all the amounts collected would become illegal and will have to be refunded. This would create considerable problems for the States and Panchayats. The Supreme Court saw good deal of substance in the submission. They observed : " We are, therefore, of the opinion that we will be justified in declaring the levy of the said cess to be ultra vires, the powers of the State Legislature prospectively only ". 76. Relying on this Supreme Court decision, the assessee had argued that cess was not a tax at all and, therefore, it would not come for consideration under section 43B. In our opinion, the matter is not so simple. If the Supreme Court had held that cess was not a tax at all for all purposes and for all times, there would be no problem. The assessee's contention could be accepted. However, the Supreme Court has not done so. According to them, it is a valid levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third argument was that it could not be recovered as an arrear of land revenue. This was also rejected. So the only inference from this decision is that the Supreme Court has upheld the validity with reference to the Constitution. 78. We accept Shri Hari Har Lal's submission that the expression ' tax ' as used in the constitution, is in a wider sense and the same expression could be used in a narrower sense also. For instance, Article 265 of the Constitution says " no tax shall be levied or collected except by an authority of law ". Here the expression ' tax ' is used in a broad sense. However, Article 277 uses the same word in a narrow sense. That Article reads as follows :---- " 277. Any taxes, duties, cesses or fees, which, immediately before the commencement of this Constitution, were being lawfully levied by the Govt. of any State or by any municipality or other local authority or body for the purposes of the State, Municipality, district or other local area may, notwithstanding that those taxes, duties cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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