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TMI Blog2012 (9) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... our of assessee Denial of benefit claimed u/s 10 (15) (iv) (h) - interest earned on tax free bonds between the date of their application by the assessee and the date of their allotment - Held that:- Interest payable on “bonds or deposits” [referred to Section 10(15)(1)(iv)(fa)] would mean interest earned by such amount or 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 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 - the conclusion by the AO might have been justified but this case, the time lag is ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ojects 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 ability of the employer to bear the additional burden. These provisions also took into account factors such as price index in adjustment inflation etc. The assessee, a public sector unit, had stated that since the liability being ascertained, even the Comptroller and Auditor General had not communicated them to be contingent liabilities. The Assessing Officer, for both the relevant years, held that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 taking them into account. Contingent rights, if capable of valuation, can similarly be taken into account as trading receipts where it is necessary to do so in order to ascertain the true profits. In Bharat Earth Movers (supra) (decided by the Supreme Court), the question which the Court had to consider was whether the provision for meeting earned-leave-encashment by the employee was an admissible deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 allotment. Interest income was exempted from the date of allotment till the date of maturity even though the concerned agency might have paid interest for the period before the allotment, that interest income could not claim the benefit of exemption. 10. The Tribunal by its impugned order reasoned while accepting the assessee s appeal as follows: - 50. We have considered the rival submissions. It is noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing 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 regard to these circumstances and the intendment of the statute which was to generally exempt such kind of income, this Court is satisfied that the Tribunal s order on this aspect does not call for any interference. 14. Question No.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 consequence of such donations. It had to show the particulars of the organizations which were beneficiaries of such donations and also the corresponding expedience in making out such donations. The danger in promoting such expenditure as having been laid out exclusively for business purposes is that it can well degenerate into an exercise of unregulated activity for which the Revenue would perforce defer to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced 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 within the extended period provided, then the same is also liable to be considered for deduction u/s 80HHB otherwise not. In the circumstances, this issue is partly allowed. The object of enacting Section 80HHB was to extend incentive to export of project business, by treating the income received from it, to the extent provided, deductible from the gross total income. Incentivization of certain kinds of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, 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 application of the provisions of that section to the profits and gains of a single industry. The deduction of eight per cent is intended to be an index of recognition, that a priority industry has been set up and is functioning efficiently. It was never intended that the merit earned by such industry should be lost or' diminished because of a loss suffered by some other industry. It makes no difference that the other ind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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