9911796707
TMI Blog2012 (9) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... 010)? (3) Whether the expenditure allowed by the impugned order of the Tribunal was justified in respect of the donations made by the assessee and claimed as business expenses under Section 37(1) (arising in ITA-1578/2010 and 278/2010)? (4) Whether the Tribunal fell into error in holding that loss of one project eligible for deduction under Section-80 HHB could not be set of against the profits of other projects eligible under the same provision (arising in ITA 1578/2010 and 278/2010)? 3. Question No.1 - Whether the provisions made claiming deduction for wage revision, allowed by the Tribunal was justified in the circumstances of the case? The assessee, BHEL, had during the relevant assessment years 1988-89 and 1998-99 claimed, in its schedule in the balance sheet, addition of its liability on account of wage revision. Accordingly, a provision for wage revision was factored. The assessee submitted that even though the wage revision proposals had been submitted to the competent bodies or authorities, the liability was certain and ascertained on the basis of its past experience and after taking into consideration the previous Pay Commission's reports, union demands and the abilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... realistic and reasonable calculations, even though actual quantification may not be possible. 5. In the earliest decision on the question of whether such liability incurred towards employees' services or fulfillment of their terms of employment which may become payable in future but claimed by the assessee in a given previous year is allowable as deduction, the Supreme Court observed as follows in Metal Box Company of India Ltd. v. Their Workmen, 73 (1969) ITR 53: - "The question that concerns us is whether, while working out the net profits, a trader can provide from his gross receipts his liability to pay a certain sum for every additional year of service which he receives from his employees. This, in our view, he can do, if such liability is properly ascertainable and it is possible to arrive at a proper discounted present value. Even if the liability is contingent liability, provided its discounted present value is ascertainable, it can be taken into account. Contingent liabilities discounted and valued as necessary can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion No.2 - Whether the interest earned on tax free bonds between the date of their application by the assessee and the date of their allotment could be given the benefit claimed? This question arises for consideration only for the assessment year 1988-89. The assessee had earned Rs. 25 lacs which was credited to its interest account. The facts are that the assessee had applied for and was allotted tax free bonds during the relevant period. The interest sought to be taxed was for the period between the date of submission of application along with the money to the issuing agency i.e. the Railways and actual allotment. In the opinion of the AO and the Appellate Commissioner (who affirmed the former's decision), the character of the income i.e. interest for that period i.e. between the date of application and the date of allotment of bonds was different and it could not claim the benefit of exemption. 9. In support of the appeal, it was argued that the Tribunal fell into error in holding that interest for the brief period when the bonds were not allotted, could not be taxed. It was submitted that in terms of the bonds applied for, interest was payable from the date of allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit. On the other hand, interest paid in respect of such bonds, as is the case with tax free interest bonds under sub-section 15(1)(iv)(h), connotes an entirely different intention. The expression "in respect of," unlike the term "on," has a wider connotation and would embrace a larger subject matter. On the other hand, "interest ... on the bond or deposit" would mean what is actually yielded by the bonds and nothing else. The Tribunal noticed - and in our opinion - correctly - that interest would include hedging transaction charges payable on account of currency fluctuation. Such being the amplitude of the provision, the fact that interest was paid for a brief period of about six days in the present case would not make it any less an amount of interest payable "in respect of the bonds" in question. If, in fact, the assessee had sought to claim the benefit of tax exemption for a larger period and there were some material on record to show that the amount deposited towards the bond and kept for that purpose was for an unreasonably long period of time, the conclusion by the AO might have been justified. In this case, the time lag is extremely small less than a week. 13. Having r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the organizations or Trusts or Societies it donated the amounts to, had the requisite approval. The necessary certificates to claim deductions under Section 80G were not forthcoming, neither during the assessment nor in the appellate proceedings. Before the Tribunal, the assessee appears to have argued that what it claimed as a limited permissible deduction by virtue of Section 80G, and which was not granted on account of lack of evidence, could be enlarged as business expenditure in entirety under Section 37(1). This Court is unpersuaded by the logic and reasoning of the Tribunal. There is absolutely no documentary evidence to show that the amounts involved (which are quite substantial) could be deemed necessary or expedient to promote the assessee's business. While the philanthropic activity such as donation are laudable and, in principle, cannot be faulted; however, parting with of large amounts to "gain local support," per se cannot constitute deductible business expenditure. For the assessee to have successfully made a claim in terms of section 37 (1), it was not enough for it to assert the general charitable public welfare benefits that potentially would accrue as a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the execution of a foreign project, the assessee is to be allowed in computing the total income a deduction of such profits and gains of an amount as specified therein. Thus, what is noticed is that the deduction is allowable to the assessee in regard to each project. In the circumstances, we are of the view that the deduction u/s 80HHB is to be computed in regard to each project separately. It is further noticed that as per the provisions of Section 80HHB (3) (iii), the convertible foreign exchange is to be brought into India within the period of 6 months from the end of the previous year, referred to in the said section or within the such further period as the competent authority might allow in this behalf. Here, it is noticed that the assessee has made necessary applications for the extension of the said period. In the circumstances, we are of the view that the computation of deduction u/s 80HHB would have to be restored to the file of the AO, who shall re-decide this issue after verifying if the assessee has brought in convertible foreign exchange within such extended period granted by the competent authority. If the assessee has brought in the convertible foreign exchange w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court had occasion to deal with a somewhat similar situation in C.I.T. (Central), Madras vs Canara Workshops (P) Ltd, AIR 1986 SC 1727, where a priority income generating activity's profits (under the then existing Section 80-E, which entitled deduction of a particular kind) was sought to be reduced by the loss suffered in respect of another business activity. The revenue's interpretation of the provision, in support of such a proposition, was rejected; the Court observed as follows: "The assessee in this case carries on two industries, both of which find place in the list in the Fifth Schedule and can, therefore, be described as priority industries. It is urged by the learned Additional Solicitor General, appearing for the Revenue, that on a true application of s. 80E the profit in the industry of automobile ancillaries must be reduced by the loss suffered in the manufacture of alloy steel, and reference has been made to a number of cases to which we shall presently refer. After giving the matter careful consideration we do not find it possible to accept the contention. It seems to us that the object in enacting s. 80E is properly served only by confining the applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88-89 (in respect of which a question was pending before this Court in ITA 312/2010) has since rectified its impugned order in exercise of its jurisdiction under section 254(2), and restored the issue for decision after a fresh hearing. In this view, these two appeals (ITA 810 and 813 of 2010), also arising from the impugned order, were disposed off by this Court by separate order with the direction that the revenue may prefer applications under section 254(2) which the Tribunal would be required to consider along with submissions on the issue of allowing provision for anticipatory loss in respect of other assessment years. For the same reasons, the question (of anticipated loss provision) shall be decided afresh, by the Tribunal, provided the Revenue applies for the years under consideration (in ITA-278, 807 & 1578 of 2010) for rectification under Section-254 (2). The order in ITA-312/2010 was rectified on 18.03.2011; so no directions are called for. Liberty is, therefore, granted in the above terms. 22. In light of the aforementioned discussion, Question Nos.1, 2 and 4 are answered in favour of the assessee, and against the revenue; Question 3, on the other hand, is answered in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
