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TMI Blog2004 (12) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... s leading to the dispute briefly are that the assessee, M/s. Premier Tyres Ltd. is engaged in the business of manufacture and sale of tyres. The assessee filed the return for the assessment year 1996-97 on 29-11-1996 and for the assessment year 1997-98 on 1-12-1997 declaring nil income. For both the years, the assessee leased its plant and machinery to M/s. Apollo Tyres and derived income from lease amounting to Rs. 16.25 crores, out of total receipt of Rs. 18.10 crores for the assessment year 1996-97. The assessment was completed accepting the position claimed by the assessee, i.e., the nature of business, as leasing of plant and machinery. 5. According to the Assessing Officer since the business was carried on by Apollo Tyres Ltd. using the assessee s plant and machinery and workers, the assessee was only getting lease rent and as such the income of the assessee was to be assessed under the head other sources . Hence setting off of carry forward was not allowable. The same is enumerated in the assessment order for assessment year 1996-97, which reads as under : ( a )The assessee had no intention to close down its business operations or sell its assets. On the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided reconstitution of Board of Directors of Premier Tyres Ltd. (for short PTL ) and introduced representative of Apollo Tyres Ltd. (for short ATL ) besides the nominee of Government of Kerala, Bank of India, Financial Institutions and BIFR. The authorised capital of the company was increased from Rs. 4 crores to Rs. 14 crores. As per the scheme ATL was to operate PTL s plant on an irrevocable lease of 8 years and pay total lease rent amounting to Rs. 45.5 crores to PTL over the period of 8 years. In addition to this ATL was to lift the entire production and sell the same under Apollo s brand name ATL was to modernise and expend PTL s plant to achieve a 100 tonnes capacity per day in a phased manner during the period 1998 to 2003. This expansion- cum -modernisation drive involve, an estimated expenditure of Rs. 70 crores to be entirely met by ATL. The revival plan envisages a one time settlement of dues to Bank and Financial institutions for reducing the term liability which in turn will substantially reduce the interest burden, making operations viable. The rehabilitation scheme also contemplated a voluntary retirement scheme vide agreement dated 28-3-1995 which the employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs. The asset side will consist of net block of fixed assets at Rs. 31 lakhs and cash and bank balances of Rs. 1,383 lakhs. In other words PTL will be having fixed assets of Rs. 31 lakhs on which ATL would spent Rs. 70 crores. Rs. 70 crores was additional investment as noted above by ATL and not to be reflected in the account of PTL. It will not enhance the value of assets of PTL. 6. Thus the Assessing Officer came to the conclusion that at the end of the lease period PTL has zero current assets, zero stores and spares and a net block of assets of w.d.v. of Rs. 31 lakhs of which Rs. 16 lakhs is the cost of land (which is neither plant nor machinery). ATL spent Rs. 70 crores for modernisation which is not an asset of PTL will not be reflected in the accounts of the assessee. As per the scheme employees and staff of Head Office as well sales office were to retire voluntarily and the agreement was entered between ATL and workers, not PTL. ATL was to supply raw materials to manufacture tyres as to their own specification and sell it under their brand name, for a price fixed by them. According to the Assessing Officer the net result would be PTL will not have head office, sales o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected the benefit of carry forward of loss as well. The assessee s plea that PTL and ATL running the business jointly also rejected by the Assessing Officer because she held that the fact remains that in the absence of head office/sale office, employees/staff, the involvement of PTL become passive. The assessee s plea that PTL was incurring all the manufacturing expenses including labour, power, fuel, etc. were also rejected by the Assessing Officer as it is entirely reimbursed by ATL. She held that there is no joint venture of PTL and ATL. Thus, the Assessing Officer treated the entire income from other sources. Aggrieved, the assessee approached the first appellate authority. 9. The first objection of the assessee was with regard to the reopening of the assessment itself. It was the case of the assessee that the assessee received lease rent from ATL during the relevant assessment year was very much evident from the Directors report itself and from the profit and loss account and hence there was no new material came to the possession of the Assessing Officer to reopen the assessment after the completion of the same. It is only a change of opinion. There was no reason to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d marketing. PTL had no intention to stop the business at any stage. The assessee also relied on the Government s order which states that the power will be supplied at concessional rate to M/s. PTL for three years. PTL was allowed to request extension of the concessional rate of supply of electricity. It was further submitted that it was part of over all BIFR scheme that the compensation payable by ATL was fixed as leased rent for the plant and machinery and reimbursement of manufacturing and other expenses. It was a part of the scheme of the reorganisation of the business and nothing else. Thus, it was an income from business and the assessee declared it as such rightly. The assessee was utilising its own workmen directly in the plant and operates and incurring manufacturing expenses, of course reimbursed as per the scheme, out of the lease rent. 12. It was the case of revenue before the Commissioner of Income-tax (Appeals) that due to acute cash crunch production was stopped by PTL permanently and as per BIFR scheme the production was entrusted to ATL. They had taken over the entire business activity. The assessee had no capacity and no intention to manufacture tyre in its fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995 is also in the name of the assessee. Sales-tax assessment notice even for the current period is issued in the name of the assessee. These all indicate that the assessee had no intention to stop the business permanently. Further, the learned authorised representative submitted that even the decision relied on by the Assessing Officer in Universal Plast Ltd. v. CIT [1999] 237 ITR 454 1 (SC) is in assessee s favour and against the revenue. Therefore, the learned authorised representative submitted that the reopening of the assessment itself was bad and also on merit, the revenue had no case. 14. Replying to the objections of the assessee s representative with regard to the reopening of the assessment, the learned departmental representative, Shri Sreekumar, submitted that the Assessing Officer passed a very cryptic order without applying the mind. He discussed the entire issue with one sentence "the details called for were furnished and the same were scrutinised." There is no application of mind by allowing the claim of the assessee and treating the lease rent as business income and allowing carry forward. It caused loss to the revenue. The Assessing Officer, thus, has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l these, indicates that the assessee had the intention of continuing the business and had no intention to stop the business activities. The premises had been rented out to over come the present financial difficulties and this is not a permanent arrangement. Over 80% of the business activities are done by PTL and only 20% of the work, i.e., procuring of raw material and marketing is done by ATL. Thus relying upon the following judgments, the assessee s representative submitted that the order of the Commissioner of Income-tax (Appeals) is liable to be set aside: ( a ) CEPT v. Sree Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC); ( b ) CIT v. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC); ( c ) CIT v. Allahabad Milling Co. (P.) Ltd. [1992] 195 ITR 325 (All.); ( d ) CIT v. Aryan Industries (P.) Ltd. [1982] 138 ITR 718 (AP); ( e ) CIT v. Katihar Jute Mills (P.) Ltd. [1979] 116 ITR 781 (Cal.); ( f ) Sree Hanuman Sugar Industries Ltd. v. CIT [2004] 266 ITR 106 (Cal.); ( g ) Prem Trading Co. v. CIT [1987] 166 ITR 211 (MP); ( h ) CIT v. Northern India Iron Steel Co. Ltd. [1995] 211 ITR 370 (Delhi); ( i ) CIT v. Premchand Jute Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassessment proceeding upon his mere change of opinion. We, however, may hasten to add that if reason to believe of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself. We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it empowers reopening of an assessment after the period of limitation of four years and hence must satisfy the test strictly. Therefore, the notice issued for reassessment was not valid." This decision cannot be applicable in the instant case of the assessee because there the reopening was done after four years and their Lordships held that the conditions must satisfy strictly. 19. Now coming to the merit on the basis of the facts brought hereinabove, we are of the view that the issue has to go in assessee s favour. It is to be seen that the agreement is irrevocable for a period of 8 years. As rightly contended by the learned authorised representative of the assessee, the assessee as an corporate entity, it continues to exist. The share value of the assessee has gone up. Merely additional amount of Rs. 110 crores has been invested by way of share by ATL does not mean that the existence of the PTL has been diluted. The ATL has acquired share in PTL. Coming to the investment of Rs. 70 crores in the plant and machinery, the assessee s representative submitted that the investments are reflected in the books of account of the ATL. Mere change of administrative level officers/direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from business. The only limitation is that the assessee should have the present intention to revive the industry/activity in a future date when the difficulties ceased to exist or the assessee is in a position to over come the difficulties. 21. From the facts stated as above, there is nothing on record to show that the assessee had no present intention to revive its business at an appropriate time. Therefore, this issue is decided against the revenue and in favour of the assessee. 22. The fourth ground (effective third ground) for both the years under consideration is against the order of the Commissioner of Income-tax (Appeals) in confirming the disallowance of certain business expenditure claimed. The Assessing Officer disallowed and the Commissioner of Income-tax (Appeals) confirmed the disallowance of expenditure incurred by the assessee towards the payment of VRS for head office and sales office staff and gratuity paid to the retired employees as part of the BIFR scheme. We have already held hereinabove that the rental income received by the assessee is to be treated as income from business and as such this ground becomes academic interest. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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