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TMI Blog2011 (3) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... to treat the said surplus as a capital receipt not liable to tax. 4. Learned representatives fairly agree that the issue is now covered in favour of the assessee by Special Bench decision in the case of Sulzer India Ltd vs JCIT (42 SOT 457) wherein it has been held that the deferred sales tax liability being the difference between the payment of net present value against the future liability credited by the assessee under the capital reserve account in its books of account was a capital receipt and could not be termed as remission/cessation of liability and, consequently, no benefit would arise to the assessee in terms of section 41(1)(a). There is no dispute that material facts of the case before us are the same as were the facts before the Special Bench in Sulzer's case. Learned Departmental Representative, however, makes elaborate submission in support of his stand that the Special Bench decision in the case of Sulzer India Limited (supra) calls for a reconsideration and that it is not correct. He submits that even though the issue is covered by the Special Bench decision, we must take independent view of the matter since the Special Bench decision is, what he terms as, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate upon such submissions. That apart, we are in most respectful and considered agreement with the conclusions arrived at by the Special Bench and we find that all the necessary aspects of the matter have been considered by the Special Bench in a very comprehensive and elaborate order. The findings of the Special Bench in Sulzer's case (supra) can be summarized as follows:- In order to invoke the provisions of section 41(1), the following conditions must be fulfilled:- (i) In the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee. (ii) The assessee must have subsequently:- (i) obtained any amount in respect of such loss or expenditure, or (ii) obtained any benefit in respect of such trading liability by way of remission or cessation thereof. In case either of these events happen, the deeming provision enacted in closing part of sub-section (1) comes into play. (iii) The amount obtained by the assessee or the value of benefit accruing to him is deemed to be profit and gain of the business or profession and it becomes chargeable to income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y it an amount equal to the net present value of the deferred tax as may be prescribed and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid. [Para 73] In the instant case, the assessee had collected total amount of Rs. 752.01 lakhs towards sales tax during the years 1989-90 to 2001-02. It was treated as a loan liability payable after 12 years in six annual/equal instalments and, thus, the assessee treated the said liability as unsecured loans in its books of account. [Para 76] Pursuant to the amendment made to sub-section (4) of section 38 of the Bombay Sales Tax Act, 1959 by substituting the 4th proviso which provides for payment of Net Present Value (NPV) of deferred taxes under the package scheme of incentives, the State Government by Notification No. STR-12.02/CR-102/taxation- 1, dated 16-11-2002, introduced rule 31D in the Bombay Sales Tax Rules, 1959 (BST Rules) laying down the procedure for determination of such NPV. The procedure for determination of NPV of the amount of deferred taxes having been published, the Deferral Units may exercise the option under 4th proviso to subsection (4) of section 38 of the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly stated vide para 5 that '...the statutory liability shall be treated to have been discharged for the purposes of section 43B' [Emphasis supplied]. Thus, the benefit of deduction was allowed for the purpose of section 43B only and not under any other provisions of the Act. There was no dispute that the Assessing Officer had also applied the aforesaid Board Circular while giving the benefit of deduction under section 43B. It is settled law that the circulars are binding on the department. It is also settled law that the Court cannot add words to statute or read words into it which are not there. This being so, it was to be opined that the first requirement of section 41(1) has not been fulfilled in the facts of the case. [Para 104] The other requirement of section 41(1) is that the assessee must have subsequently:- (i) obtained any amount in respect of such loss and expenditure, or (ii) obtained any benefit in respect of such a trading liabilities by way of remission or cessation thereof. In the instant case, the sales tax collected by the assessee during the years 1989-90 to 2001-02 amounting to Rs. 752.01 lakhs was treated by the State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales tax authorities had not issued the modified eligibility certificate did not mean that the payment of Rs. 337.13 lakhs made by the assessee could not be accepted as having been paid at NPV of the future sum of Rs. 752.01 lakhs towards discharge of full liability. It is settled law that the law does not contemplate or require the performance of an impossible act- lex non cogit ad impossibilia. Further, both the parties had agreed during the course of their arguments that the entries recorded in the books of account were not determinative of the nature of transaction. Even assuming for the sake of argument that the assessee did not get modified eligibility certificate or the repayment of loan paid by the assessee at its NPV of future sum, then in those circumstances, merely because the assessee had passed necessary entries in its books of account, it could not be held that there was any cessation or remission of liability. [Para 106] The assessee was liable to pay sales tax amounts collected from 1-11-1989 to 31- 10-1996, payments of which were deferred under the scheme, and the amounts were payable after twelve years in six equal annual instalments commencing from 1-5-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of dividend income. The appellant submits that the allocation is erroneous in fact and in law, and that the Assessing Officer be directed to recompute the total income without making the said allocation. 9. The relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has received dividend income of Rs 87,57,108 but has not offered any expenses for disallowance under section 14 A. The contention of the assessee was that no direct expenses have been incurred to earn this dividend income, but this contention was rejected. The Assessing Officer disallowed 10% of dividend earnings as expenses incurred to earn the same. In appeal, CIT(A) upheld the disallowance in principle but reduced to the quantum of disallowance to 3% of dividend earnings, which worked out to Rs 2,62,713. The assessee is not satisfied and is in further appeal before us. 10. Having heard the rival contentions and having perused the material on record, we consider it appropriate to restrict the disallowance to 2%, as has been done by the coordinate benches in group cases. To this limited extent, part relief is granted to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he grievance of the assessee and direct the Assessing Officer to grant relief in this respect as well. Ground No. 3 (c) is thus allowed. 16. Ground No. 3 is thus partly allowed in the terms indicated above. 17. In ground no. 4, the assessee has raised the following grievance:- The learned CIT(A) erred in confirming the action of the Assessing Officer in reducing deduction allowable under section 80 IB Rs 61,25,635 from the 'adjusted profits of the business' without computing deduction under section 80 HHC. The appellant submits that deduction under section 80HHC be computed without reducing the deduction allowed under section 80 IB. 18. It is sufficient to take note of the fact that this issue was decided against the assessee, by the CIT(A), by relying upon Special Bench decision of this Tribunal in the case of ACIT vs Rogini Garments (108 ITD 49) which has subsequently been approved by the larger bench in the case of ACIT vs Hindustan Mint Agro Products Pvt Ltd (119 ITD SB 107) and by Hon'ble Delhi High Court in the case of Great Eastern Exports vs CIT (196 Taxman 145). These decisions were, however, disapproved by Hon'ble jurisdictional High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of deduction under various provisions under heading 'C' of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under heading 'C' of Chapter VI-A, so that the aggregate deduction under section 80-IA and other provisions under heading 'C' of Chapter VI-A do not exceed 100 per cent of the profits of the business of the assessee. Our above view is also supported by the C.B.D.T. Circular No. 772 dated 23-12-1998, wherein it is stated that section 80IA(9) has been introduced with a view to prevent the tax-payers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of section 80-IA(9) being not to curtail the deductions computable under various provisions under heading 'C' of Chapter, it is reasonable to hold that section 80-IA(9) affects allowability of deduction and not computation of deduction. To illustrate, if Rs. 100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80, then, in view of section 80-IA(9), the deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of Cobot India Limited vs DCIT ( ITA No. 4/Mum/4), which has been approved by Hon'ble Bombay High Court, and that whether assessee follows the inclusive method or exclusive method, there is no impact on taxable profits. In the year 2009, similar addition for the assessment year 2002-03, was remanded to the Assessing Officer by a coordinate bench, but no orders have been passed by the Assessing Officer in this regard. We have also noted that in the immediately preceding year, the relief granted by the CIT(A) on this issue has not been carried in further appeal. All this shows that the dispute has been allowed to reach finality and there are no good reasons to agitate this issue in this particular year. In view of these discussions, as also bearing in mind entirety of the case, we approve the impugned relief granted by the CIT(A) and decline to interfere in the matter. 29. Ground No. 1 is dismissed. 30. In ground no. 2, the Assessing Officer has raised the following grievance:- On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the disallowance under section 14A of the Act to the extent of Rs 2,62,713 only, holding that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... netted (reduced) before arriving at the figure which is to be reduced from the 'profits and gains from business or profession' under Explanation (baa) below Section 80 HHC. 37. The assessee assembles the effluent treatment plant at customer's site and service charges represent charges received by the assessee in respect of the same. There are direct costs involved in this activity. While Assessing Officer was of the view that service charges are received for services rendered by the assesse, the CIT(A) has granted relief on the ground that since these activities are part and parcel of assessee's business, the service charges receipt cannot be excluded from business profits. The Assessing Officer is aggrieved and is in appeal before us. 38. Having heard the rival contentions and having perused the material on record, we are of the considered view that the service charges receipts are not in respect of export business and should be excluded as such, what is to be excluded is the earnings from service charges, on net basis, because there are direct and clearly identifiable expenses incurred to earn the same, and any other approach will result in distortion of results. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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