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TMI Blog2018 (10) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... has not committed grave legal error in not appreciating that the investment made in the 100% subsidiary companies was out of commercial expediency warranting no interest disallowance? 2. Whether under the facts and circumstances of the case the Ld. ITAT has not legally erred in upholding disallowance on account of interest expenses holding the investments in subsidiary companies and mutual funds to be out of borrowed funds? 3. Whether under the facts and circumstances of the case the Ld. ITAT has not erred in holding that the education cess is a disallowable expenditure u/s 40(a)(ii) of the Act? 4. Whether under the facts and circumstances of the case the Ld. ITAT was justified in not allowing deduction on account of Capital expenses claimed against the sale of mining rights and not reducing the short-term capital gains as directed by Ld. ITAT in Appellant's own case for A.Y.2004-05? In D.B. ITA No.68/2018:- 1. Whether the Tribunal was legally justified in allowing the deduction of Rs. 86,08,460/- to the assessee against the sale proceeds of mining rights, without affording any opportunity of hearing to the Assessing Officer as per Rule 46? 2. Whether the Tribunal was l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessments for the year 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided. 4.2 He has relied on the following decisions:- (i) In Municipal Corporation of City of Thane vs. Vidyut Metallics Ltd. & ors. (2007) 8 SCC 688, it has been held as under:- 14. So far as the proposition of law is concerned, it is well-settled and needs no further discussion. In taxation-matters, the strict rule of res judicata as envisaged by Section 11 of the Code of Civil Procedure, 1908 has no application. As a general rule, each year's assessment is final only for that year and does not govern later years, because it determines the tax for a particular period. It is, therefore, open to the Revenue/Taxing Authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or octroi on that basis in subsequent years. A decision taken by the authorities in the previous year would not estop or operate as res judicata for subsequent year. [vide Maharana Mills (P) Ltd. v. ITO: [1959]36ITR350(SC) ; Visheshwar Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be calculated on the average of the net profits for the last three years of the mine or the quarry and if the annual net profits of the property cannot be ascertained in the aforesaid manner then it is left to the Collector to determine the value of the property first in such manner as he considers expedient and determine 6 per cent on that value which would be deemed to be the annual net profits. The Cess Act of 1930 Mows the same pattern so far as the ascertainment of annual net profits is concerned. These profits arrived at according to the provisions of the two Cess Acts can by no stretch of reasoning be equated to the profits which are determined under Section 10 of the Act. It is not possible to see, therefore, how Section 10(4) could be applicable at all in the present case. Thus on the language of the provisions both of the Act and the two Cess Acts the applicability of Section 10(4) cannot be attracted. But even according to the decided cases such, cesses cannot fall within Section 10(4). The Privy Council in Commissioner of Income tax, Bengal v. Gurupada Dutta and Ors. 14 I.T.R. 100 had to consider whether the rate imposed under the provisions of the Bengal Village ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upada Dutta's case(1) the Parliament did not make any change in the language of the provisions corresponding to Section 10(4). It can, therefore, legitimately be said that the view of the Privy Council with regard to the true scope and ambit of Section 10(4) of the Act was accepted. We are unable to concur in the reasoning or the conclusion of the Calcutta High Court in Commissioner of Income tax, West Bengal, v. West Bengal Mining Co. (2) in which it was held that the two cesses being related to profits would attracts. 10(4) of the Act. (iii) In Installment Supply (P) Ltd. & ors. vs. The Union of India (UOI) & ors. (1962) 2 SCR 644, it has been held as under:- 19. There is another answer to the point of res judicata raised on behalf of the petitioners, relying upon the decision of the Punjab High Court in Installment Supply Ltd., New Delhi v. State of Delhi MANU/PH/0068/1956. It is well settled that in matters of taxation there is no question of res judicata because each year's assessment is final only for that year and does not govern later years, because it determines only the tax for a particular period. (See the decision in the House of Lords in Society of Medical O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the capital expenses amounting to Rs. 1,73,53,860/- included in the cost of mining rights i.e. non-tangible assets then such cost may be considered to be deducted against the sale of mining rights in the assessment year 2009-10. Therefore the assessee was asked to furnished details of these expenses which were included in the mining rights. The assessee submitted that amount of Rs. 87,45,400/- were paid to M/s ANS construction for dismantling of existing structure, fencing of boundary, construction of temp. site office and security in plant area. Firstly from the above nothing could be concluded [no details were produced], secondly it's connection to mining was not proved. From the details already in the order of ITAT it can be concluded that of Rs. 8608460/- related to deep excavation and road work were related to mining operation and treated as included in sale of mining rights. Whereas misc. Capital expenses of 87,45,400/- [in absence of details] cannot sale proceeds of mining rights. Therefore the AO is directed to allowed deduction of Rs. 86,08,460/- from sale proceeds of mining rights. 7. He contended that once the details are given and payment is reflected in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) is that only taxes paid are to be disallowed in the assessment for the years 1962- 63 onwards. Thus, as per the said circular, Education cess cannot be disallowed; there cannot be a contradiction as the circulars bind the tax authorities. (3) That education cess cannot be treated at par with any "rate" or "tax" within the meaning of section 40(a)(ii) especially when the same is only a "cess" as may also be seen from the speech of the hon'ble Finance Minister while placing before the Parliament the budget for the year 2004-05 ([2004] 268 ITR (ST.) 1,6). "Education. 22. In my scheme of things, no issue enjoys a higher priority than providing basic education to all children. The NCMP mandates Government to levy an education cess. I propose to levy a cess of 2 per cent. The new cess will yield about Rs. 4000- 5000 crore in a full year. The whole of the amount collected as cess will be earmarked for education, which will naturally include providing a nutritious cooked midday meal. If primary education and the nutritious cooked meals scheme can work hand-in-hand, I believe there will be a new dawn for the poor children of India" 61. At the outset, the ld. CIT DR has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax and convey the same to 'assessee' vide notice of demand u/s 156. In case, the said demand is not paid during the notice period of 30 days of service of notice u/s 156, interest on such demand is chargeable u/s 220(2). In addition, the assessee is also liable for imposition of penalty u/ s 221. The wordings of sec 221(1) are as follows: "When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under subsection (2) of section 220,be liable, by way of penalty, to pay such amount as the Assessing Officer may direct and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, or, however, that the total amount of penalty does not exceed the amount of tax in arrears." The above said provision makes it clear that penalty is leviable in case of default in payment of "tax". Such tax includes any demand relating to unpaid cess also, indicating that unpaid cess is treated as unpaid tax and is visited with all consequences of non-payment of demand. There is no separate machinery in the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 288 ITR 1 (S.C.) observing that assessee is required to prove commercial expediency to make interest free advances investments in order to justify its claim for interest on borrowed funds. There is clear cut, direct and proximate nexus between interest bearing borrowed funds and nil income earning investments made by assessee. Further, the assessee has failed to prove that there was any commercial expediency to make investments in above said subsidiary companies. The assessee is paying interest @ 13.25%/12.75% per annum on the above said cash credit accounts. The interest payable on investments in above said subsidiaries is determined at Rs. 78,47,330/- as per calculations below:- (i) Interest @ 13.25% per annum on Rs. 5,23,94,115/- from 3.4.2008 to 31.3.2009 Rs.69,04,180/- (ii) Interest @ 12.75% per annum on Rs. 1.20 crore from 19.8.2008 to 31.3.2009 Rs.9,43,150/- Total Rs.78,47,330/- Therefore, disallowance of Rs. 78,47,330/- will be made out of interest paid by assessee on borrowed funds. 10. Thereafter, she has taken us to the finding of the CIT (A) which reads as under:- 4.8 Ground # 8 "That the l'd Joint Commissioner erred in disallowing interest of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income must not be includible in the total income of the Assessee. Once the said condition is satisfied, the expenditure incurred in earning the said income cannot be allowed to be deducted. The Section does not contemplate a situation where even though the income is taxable in the hands of the dividend paying company the same to be treated as not includible in the total income of the recipient Assessee, yet, the expenditure incurred to earn that income must be allowed on the basis that no tax on such income has been paid by the Assessee. Such a meaning, if ascribed to Section 14A, would be plainly beyond what the language of Section 14A can be understood to reasonably convey." 10.2 For 25,00,816/-, she has relied upon the finding of CIT(A) which reads as under:- 4.12 Assessee's submissions The assessee vide letter dated 21.08.2012, 17.09.2012 & 15.10.2012 submitted as under:- "The details of major prior period expenses are as under:- 1. Rs. 9,43,693.00:- By oversight, the Income of Co-marketer arrangement was wrongly booked in excess vide document no. 100247242 dt. 31.03.2008 in the financial year 2007-08 and the error was noticed by us in next financial year, henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank Account and the bank has charged cash credit interest of only Rs. 3,87,800/- during the period from December 2008 to March 2009. However, the L'd Assessing Officer calculated notional interest based on the period of holding of the security without considering the actual interest paid during the relevant peirod. When the total interest of only Rs. 3,87,800 was paid in respect of HDFC, it is inconceivable that an interest of about Rs. 12.77 crores has been calculated by the L'd Assessing Officer without any basis. Further there is a mistake in the calculations of the L'd Assessing Officer are taken into consideration and there is a calculation mistake of Rs. 9,598,087 as is evident from the statements given at Annexure 6 and 7. Considering the above, it is humbly submitted that the addition made on this account deserves to be deleted. 10.3 She has also relied on the observations of the tribunal which reads as under:- 18. We have heard the rival contentions and perused the material available on record. Firstly, regarding amount of Rs. 9,43,693, it relates to income under the co-marketer arrangement which was booked in excess in the previous financial year and now been rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve pointed out hereinabove the surtax is essentially levied on the business profits of the company computed in accordance with the provisions of the Income-tax Act. Merely because certain further deductions (adjustments) are provided by the Surtax Act from the said profits, it cannot be said that the surtax is not levied upon the profits determined or computed in accordance with the provisions of the Income-tax Act. Section 4 of the Surtax Act read with the definition of "chargeable profits" and the First Schedule made the position abundantly clear. 8. We may mention that all the High Courts in the country except the Gauhati High Court have taken the view which we have taken herein. Only the Gauhati High Court has taken a contrary view in the decisions in Makum Tea Co. (India) Limited and Anr. v. Commissioner of Income Tax MANU/GH/0040/1989 and Doom Dooma Tea Co. Limited v. Commissioner of Income Tax MANU/GH/0033/1989. The decision of the Gauhati High Court in Makum Tea Co. (India) Limited, is under appeal before us in Civil Appeal Nos. 3976-77 of 1995. Similarly Civil Appeal No 3246 of 1995 is preferred against the decision of the Gauhati High Court following the decision in Doo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time being in force. Sub-section (3) of Section 93 provides that the provisions of the Central Excise Act, 1944 and the Rules made thereunder, including those related to refunds and duties etc. shall as far as may be applied in relation to levy and collection of Education Cess on excisable goods. A conjoint reading of these provisions would amply demonstrate that Education Cess as a surcharge, is levied @ 2% on the duties of excise which are payable under the Act. It can, therefore, be clearly inferred that when there is no excise duty payable, as it is exempted, there would not be any Education Cess as well, inasmuch as Education Cess @ 2% is to be calculated on the aggregate of duties of excise. There cannot be any surcharge when basic duty itself is Nil. 12. We have heard counsel for the parties. 13. On the third issue in appeal no.52/2018, in view of the circular of CBDT where word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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