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TMI Blog1985 (1) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the Department of Energy was to pay for the cost of the time of the assessee-company spent in connection with the contract. According to the agreement, clause 6.1.1, the Department of Energy was to pay for the normal fringe benefits which required the approval of the Department of Atomic Energy. The fringe benefit included pension, provident fund, group insurance, hospitalisation and medical. The company had staff provident fund scheme along with Mahendra Mahendra Ltd. The Commissioner, Bombay, recognised this scheme. This particular scheme stands duly approved from the date of dissolution, i. e., 1-4-1969. On the basis of such payment, the supplementary bills were raised on the Department of Atomic Energy and correspondences were exchanged. According to the supplementary bills, the total of such provident fund contributions aggregated to Rs. 1,16,872 from April 1969 to December 1970. The Department of Atomic Energy kept on postponing the same and finally a meeting was held between the Director of the Power Projects Engineering Division of the Department of Atomic Energy regarding the reimbursement of their expenses incurred on the company's contribution on the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 176(3A). Shri Khare further submitted that it was also explained that section 176(4) was introduced subsequent to the case of Nalinikant Ambalal Mody v. S. A. L. Narayan Row, CIT [1966] 61 ITR 428 (SC), where Shri Mody, who received certain professional receipts after he joined the Bombay High Court as a Judge. In that case, it was held that since when he received this amount, he did not carry on the profession of advocacy. The receipt is capital in nature and, therefore, not taxable. It is under these circumstances that section 176(4) came into being. The Commissioner (Appeals), however, mentions in his order that section 176(3A) does not mention anything about cash basis or otherwise and it talks only of business being discontinued and taxability of sum which have been received after the discontinuation. According to the Commissioner (Appeals), the amount having been received out of business activities, it has to be taxed under section 176(3A) and it is not a capital receipt or a receipt under section 41(1). 6. Shri Khare submitted that the assessee's accounts have been maintained on mercantile basis all through. According to Shri Khare, section 41(1) provides chargi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nabsorbed depreciation of Rs. 10,010, which is brought forward from the assessment year 1976-77. He submitted that the ITO was of the view that since the business has discontinued, the Act does not provide for setting off of carry forward depreciation. In this connection, reliance was placed on the Ahmedabad Special Bench decision in ITO v. Rajaratna Naranbhai Mills Ltd. [1983] 2 SOT 144. According to Shri Khare, in case there is income under section 41(1) or if there is any income from business, the unabsorbed depreciation shall be allowed to be set off. According to him the assessee is also entitled to claim under that section 80MM of the Act in respect of receipts. 9. The last ground, Shri Khare, submitted is in respect of interest levied under section 217(1A) of the Act. He submitted that the interest has been levied consequent to the department treating the receipt of Rs. 1,10,940. The assessee had filed an estimate at nil income since there was no income at all. According to him, as per the Bombay High Court decision in the case of CIT v. Diamler Benz, A. G. [1977] 108 ITR 961 (FB), the assessee who is aggrieved by the order of the ITO can prefer an appeal to the AAC or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very person, Section 176 (3A) reads as under : "Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance." The reading of this section indicates that any sum that is received in the nature of income would be taxable under this section. It would become taxable only when such receipt is related to the period when the business was in existence though received subsequent to the cessation or discontinuance of such business. An identical provision exists in section 176(4), which provides for receipt received by for profession after he ceases to carry on the profession. The background of insertion of these provisions, is as per the advice of the report contained in Direct Taxes Administrative Committee (1958-59), copy of which is at page 184 of the paper book. The relevant portion reads as under : "There is no provision in the law at present to assess the income received after the cessation of pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , expenditure made and allowed in computing the total income of the assessee-company in any previous year when the business was in continuance or in existence. In the year of receipt of money, when the business is either discontinued or ceased to exist, then the amount of such receipt shall become income of the assessee under section 41(1) as if the company is in existence. 14. Section 41(5) is an Explanation to section 41(1), which only provides that the income that is chargeable to tax under section 41(1) should be set off against any loss of the company. We are, therefore, satisfied that the claim of the assessee-company is fully justified. That the amount of Rs. 1,10,940 received in the year which represents reimbursement of expenses like provident fund contribution and overhead expenses, which have been charged to the profit and loss account in 1969-70 is to be taxed under section 41(1). While coming to this conclusion, we have placed reliance on the Supreme Court decisions in CIT v. Ajay Products Ltd. [1965] 55 ITR 741, C. A. Abraham v. ITO [1961] 41 ITR 425 as well as CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. 15. As regards the receipt of Rs. 5,930 representing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult is that the appeal for the assessment year 1979-80 is partly allowed. 18. In 1980-81 appeal, the assessee has raised three grounds. The first and second are common with the earlier year, the first being the taxability of income of Rs. 5,000 and the second being the setting off of unabsorbed depreciation. 19. We have held already that the service income received would be taxable under section 176(3A), and the unabsorbed depreciation should be allowed to be set off against such income. We hold accordingly. 20. Regarding relief under section 80MM for both the assessment years, it is provided that the relief under Chapter VIA of the Act shall be limited to the gross total income before deduction of claim under Chapter VIA. In case for these two years, there is any income after set off of earlier years' losses, the relief that is to be worked out would be limited to the income on account of service fees received of Rs. 5,930 and Rs. 5,000 for 1979-80 and 1980-81, respectively. 21. The last of the grounds is in respect of levy of interest under section 216 of the Act. Following the earlier paragraph, where we have dealt with the interest under section 217, we are of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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