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TMI Blog2013 (11) TMI 1245X X X X Extracts X X X X X X X X Extracts X X X X ..... se. - Decision of Apex Court in M/s. ICDS Ltd. Vs. Commissioner of Income Tax [2013 (1) TMI 344 - SUPREME COURT] followed. - ITA No.4103/M/10, CO No.112/M/11, CO No.173/M/11, ITA No.5261/M/11, ITA No.4963/M/11, ITA No.6448/M/11, ITA No.6249/M/11 - - - Dated:- 20-11-2013 - Shri D. Karunakara Rao And Shri Sanjay Garg, JJ. For the Petitioner : Shri F. V. Irani For the Respondent : Shri R. K. Sahu, D. R. ORDER Per Bench: With this common order we will dispose off above noted appeals as well as cross appeals and cross objections filed by both the parties relevant to assessment year 2006-07 as the issues raised therein are identical in nature. ITA No.4103/M/2010 and C.O. No.112/M/11 C.O. No.173/M/11 - Assessment Year 2006-07 2. This appeal by the assessee and cross objections by the Revenue have been preferred against the order of the CIT(A) dated 26.03.10 relevant to assessment year 2006-07. Common issues have been raised by the assessee as well by the revenue which are discussed as hereunder: Ground No.1 Cross Objections of Revenue : Remission of Loan Liability 3. The assessee has opposed the action of the lower authorities in treating the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Godrej Boyce Mfg. Co. Ltd. in ITA No.6867/M/11 decided on 26.06.13. He has further contended that similar issues which have been raised by both the parties in the case in hand, relating tax liability of remission of loan amount, were also considered in the above noted case by the co-ordinate bench of the Tribunal. The co-ordinate bench of the Tribunal, when faced with almost similar set of facts and circumstances, while relying upon the decision of the Special Bench of the Tribunal in the case of 'Sulzer India Ltd.' (47 DTR 329 dated 10.11.10, has observed as under: 4. We have considered the rival submissions and carefully perused the order of the lower authorities and the material evidences brought on record. It is not in dispute that the assessee has taken benefit of the scheme offered by the Government of Maharashtra. As provided in Circular No.496 dated 25.09.1987 and Circular No.674 dated 29.12.1993 issued by the CBDT, although the sales tax collected from the customers is a trading receipt, on account of deferral scheme, the same is deemed to have been paid. As a result, it amounts to discharge of the liability to pay sales tax. Once the liability is discha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h it was provided that if some dealers opted, then they could pay the future liability at a discounted value or what one may call net present value immediately. Thus, in this situation, it could not be construed as remission of liability, because the State Government had not waived of any of the liability as given in the illustrations. Had the State Government accepted lessor amount after twelve years or reduced such installments, then it could have been a case of remission cessation. However, in the instant case the State Government had chosen to receive the money immediately which was receivable from 1-5-2003 to 1-5-2008. The amount of ₹ 337.13 lakhs was actually paid to SICOM on 30-10-2002. Thus, it did not satisfy the condition of actual remission in present. It was a simple case of collecting the amount at net present value which was due later on and even the formula for collecting the net present value was also given by the SICOM and the amounts had been paid as per that formula. Therefore, such payment of net present value of a future liability could not be classified as remission or cessation of the liability so as to attract the provisions of section 41(1)(a) [Para 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability so as to attract the relevant provisions of the Income Tax Act for taxing the said amount and the same has been held to be a capital receipt. In view of the consistent findings of the Tribunal on this issue as discussed above, this issue is decided accordingly in favour of the assessee and against the Revenue. Ground No.2 Disallowance u/s 14A - Applicability of rule 8D: 7. Ground No.2 of the appeal of the assessee has not been pressed by the ld. A.R. of the assessee because of the smallness of the amount involved. Hence the findings of the ld. CIT(A) relating to the issue involved in ground no.2 of the assessee's appeal are hereby upheld. However, since this issue has not been decided by us on merits, hence, our decision on this issue will not have any binding effect with respect to subsequent assessment years in the case of the assessee. Ground No.3 Vehicle Lease Rental - Whether Finance Lease or Operating Lease : 8. The assessee in its return of income for the relevant year had claimed expenditure of ₹ 11,90,627/- on account of lease rental of the cars. The AO noticed that the assessee had capitalized leased assets acquired during the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the requirement of accounting principles, had capitalized the said leasehold assets, itself, cannot be a ground to disallow the claim of the assessee for treating the expenditure as revenue in nature in its computation of income under the Income Tax Act. He has further submitted that as per the facts and circumstances of the case, the assessee has rightly treated the same as revenue expenditure in its computation of income. On the other hand the ld. D.R. has strongly relied upon the findings of the authorities below. 12. We have considered the submissions of the ld. representatives of the parties and have also gone through the records. The issue relating to definition and meaning of operating and finance lease came into consideration before the Special Bench of the ITAT in 'M/s. IndusInd Bank Limited' (ITA No. 6566/M/2002) decided on 14.03.2012. The Special Bench of the Tribunal, in the said authority, after carefully considering the guidance note of Accounting Standard (AS) 19, the law laid down by the Hon'ble Supreme Court in 'Asea Brown Boveri Limited v. Industrial Finance Corporation of India' [(2006) 154 Taxman 512 (SC)] and further in 'Associati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fleet Management India Private Limited' (hereinafter referred to as lessors ) and the assessee i.e. M/s. Godrej Consumer Products Limited, (hereinafter referred to as lessee ) A perusal of the above said lease agreement reveals that as per Article 2.2(ii), the insurance premium in relation to insurance policies of the vehicle have been agreed to be borne by the lessor. As per the clause 2.2(iv) the road tax has been agreed to be paid by the lessor. As per clause 2.2(vi) maintenance and repair management charges have been agreed to be borne by the lessor. The lessor has designated certain authorized work shop for maintenance, from which the lessee is required to get the repairs of the vehicles done and the charges so incurred have been agreed to be paid and settled by the lessor. Similarly the services relating to break down of the vehicle and replacement of the vehicle etc. have also been agreed to be done by the lessor. Under Article 3, the lease period has to end either on the expiry of the contract period or by the mutual consent of the parties. It has been further provided that on the occurrence of the events as mentioned under Article 3.1, upon which the lease contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the MV Act mandates that during the period of lease, the vehicle be registered, in the certificate of registration, in the name of the lessee and, on conclusion of the lease period, the vehicle be registered in the name of lessor as owner. The section leaves no choice to the lessor but to allow the vehicle to be registered in the name of the lessee. Thus, no inference can be drawn from the registration certificate as to ownership of the legal title of the vehicle; and (iii) if the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically recorded in the order of the appellate tribunal, was not done. It would be a strange situation to have no claim of depreciation in case of a particular depreciable asset due to a vacuum of ownership. As afore-noted, the entire lease rent received by the assessee is assessed as business income in its hands and the entire lease rent paid by the lessee has been treated as deductible revenue expenditure in the hands of the lessee. This reaffirms the position that the assessee is in fact the owner of the vehicle, in so far as Section 32 of the Act is concerned. 16. When we apply the observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend) income, irrespective of the fact that whether the exempt/dividend income was received or not during the year. He further observed that the assessee had received new loans of ₹ 107.99 crores during the year. The assessee's funds were a mix of own funds as well as borrowed funds. There was no clear nexus between borrowed capital and the investments made during the year. However, he also observed that the assessee had earned sufficient profits during the year in comparison to the investments made, hence the interest cost attributable to the investments made during the year for earning exempt income would have been minimum. So keeping in view of the entire facts and circumstances, he reduced the interest cost from ₹ 9.41 crores as was worked out by the A.O. to ₹ 2 lakhs only. However, he upheld the disallowance of ₹ 2,75,000/- towards administrative and managerial expenses attributable to the investments made during the year being reasonable and justified and not on the higher side. He thus restricted the disallowance under section 14A from ₹ 12,90,000/- to ₹ 4,75,000/-. 19. Before us the ld. A.R. of the assessee has relied upon an au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a mechanical manner. As per the law laid down by the Hon'ble Bombay High Court in the case of 'Godrej Boyce Manufacturing Co. Ltd.' (supra) and also by the Hon'ble Delhi High Court in the case of 'Maxopp Investment Ltd.' (supra), the AO was required to indicate cogent and convincing reasons while rejecting the working/calculations given by the assessee. He was required to examine the accounts of the assessee first and then if he would not have been satisfied with the correctness of the claim, only then, he was required to work out the disallowance on some reasonable basis. In the case in hand, no such examination was made or satisfaction recorded by the AO. The ld. CIT(A) though observed that rule 8D was not applicable in this case, but made the disallowance on adhoc basis. In our view, the proper course for the Ld.CIT(A) was to remand back the case to Assessing Officer directing him to find out as to whether sufficient own funds/ interest free funds were available with the assessee, and if found so, no disallowance should have been directed to be made towards interest cost of the investments made for earning exempt income. 22. In view of our above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 14A cannot be applied for computing the book profit under section 115JB of the Act. In support of his submissions he has relied upon an authority of the Delhi Bench of the ITAT styled as 'Goetze (India) Ltd. vs. CIT' [2009] 32 SOT 101 (Delhi) which has been subsequently followed by the other benches of the Tribunal in the following cases: 1. Ovira Logistics Ltd. (ITA No.3230/Mum/2012 2439/Mum/2012) dated August 30, 2013. 2. Bengal Finance Investments Private Ltd. (ITA No.5937/Mum/2010) dated July 31, 2012 3. Essar Teleholdings Ltd. (ITA No.3850/Mum/2010) dated July 29, 2011 4. Goetze (India) Ltd. reported in 32 SOT 101. 25. On the other hand the ld. D.R. has relied upon another authority of the Mumbai Bench of the Tribunal in the case of 'ITO vs. RBK Share Broking (P) Ltd.' [2013] 37 taxmann.com 128, wherein it has been held that the amount disallowable under section 14A is to be added back while computing book profit under section 115JB. 26. In view of the divergent views of the different benches of the Tribunal on this issue, it has become incumbent upon us to discuss the law laid down by the Delhi bench of the ITAT in the case of Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay observe that the case before the Delhi Bench of the Tribunal in Goetze (India) Ltd. (Supra) was related to assessment year 2000-01 whereas sub section (2) and sub section (3) to section 14A have been inserted by the Finance Act, 2006 w.e.f. 01.04.07. Meaning thereby prior to 01.04.07, the provisions of section 14A were akin to the provisions of clause (f) of the explanation to section 115JA. Since the case before the Delhi bench of the Tribunal was pertaining to assessment year 2000-01, under such circumstances, the provisions of sub section (2) and sub section (3) of section 14A otherwise were not applicable for that year, so far the computation of the adjustment of book profits was concerned. We may further observe that the different provisions of the Act are to be read in harmony and in consonance with each other, unless or until specifically provided to be read otherwise. When we read section 14A with clause (f) of the explanation to section 115JA or clause (f) of the explanation (1) to section 115JB, we do not find that they have any type of conflict with each other. What has been provided under sub section (1) of section 14A is that the expenditure incurred for exempt i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and clause (j) if not credited to the profit and loss account. The amount so determined is further adjusted by reducing the amounts specified in clauses (i) to (vii). The amount which eventually results is the amount of `book profit' on which tax liability is determined u/s 115JB. Clause(f) to Explanation (1) provides that the net profit shown in the profit and loss account shall be increased by : (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause 38 thereof) or section 11 or section 12 apply; . A bare perusal of clause (f) of Explanation (1) makes it abundantly clear that the amount of expenditure relatable to any exempt income, other than section 10(38), is liable to be added back to the amount of net profit as shown in the profit and loss account. When we turn to the language of section 14A, it transpires that it talks of disallowing any expenditure incurred `in relation to' income not includible in the total income. Sub-section (1) of this provision provides that : For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fails. 29. The view taken by the Mumbai bench of the Tribunal is the latest view which has been taken after duly considering the previous decisions as has been mentioned in the opening lines of Para 6 of the order as reproduced above. We are in agreement with the latest view of the Mumbai Bench of the Tribunal taken in the case of RBK Share Broking (P) Ltd. and in view of our observations made above, it is held that the amount of expenditure disallowable under section 14A is to be added back while computing book profit under clause (f) of the explanation (1) to section 115 JB. 30. Since in the case in hand, so far interest expenditure is concerned, we have restored the matter back to the file of the A.O. and so far administrative and managerial expenses are concerned, we have restricted the disallowance to Rupees One lakh only, hence it is held that whatsoever expenditure would be found by the AO as disallowable under section 14A, the same can be added back while computing book profit under section 115JB in the case of the assessee. Ground No.6 Vehicle Lease Rental 25. We have dealt with this while adjudicating upon ground No.3 of the assessee's appeal relating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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