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TMI Blog2019 (12) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... :- As in the assessee s own case [ 2016 (6) TMI 1388 - ITAT CHENNAI ] held that the contention of the appellant that contribution made by it to the Benevolent Fund constituted under a memorandum of settlement u/s 18(1) of the Industrial Act is statutory in nature and hence covered by exception provided under section 40A(9) is acceptable. Accordingly, direct the AO to allow contribution made by the appellant to the Benevolent Fund. The appellant, therefore, succeeds on this ground - Ground Nos.3.1 and 3.2 of the Revenue s appeals stands dismissed. Disallowance of provision of gratuity - an eligible deduction u/s.40A(7) or not? - HELD THAT:- As perused the orders passed by the learned Assessing Officer giving effect to the order of the Income Tax Appellate Tribunal for the earlier Assessment Years, wherein the Assessing Officer has allowed the assessee s claim. This being so and also considering the fact that the learned CIT(A) has followed the judicial discipline in following the order of the Tribunal in the assessee s own case referred to supra, we find no reason to interfere in the order of the learned CIT(A). Consequently, Ground Nos.4.1 and 4.2 of the Revenue s appeals stands di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber And Shri S. Jayaraman, Accountant Member Appellant by: Mr. R. Vijayaraghavan, Advocate Respondent by: Mr. M. Srinivasa Rao, JCIT ORDER PER BENCH: ITA Nos.2807, 2808, 2809 2810/Chny/2017 are appeals filed by the Assessee for the Assessment Years 2010-11, 2011-12, 2012-13 and 2013-14 respectively and ITA Nos.2957, 2958, 2959, 2960, 2961, 2962 2963/Chny/2017 are appeals filed by the Revenue for the Assessment Years 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 respectively against the consolidated orders of the learned Commissioner of Income Tax (Appeals)-17, Chennai dated 28.09.2017 in ITA Nos.55/2009-10, 32/2010-11, 72/2011-12, 43/2012-13, 7/2014-15, 20/2015-16, 30/2016-17 and 96/2016-17/(A)-17 for assessment years 2002-03,2008-09 to 2014-15. As the issues raised in all these appeals are interconnected, these are disposed of by this common order. 2. Shri R. Vijayaraghavan, Advocate represented on behalf of the Assessee and Mr. M. Srinivasa Rao, JCIT represented on behalf of the Revenue. 3. In the Revenue s appeal, the Revenue has raised four issues. The first issue being in Ground No.2.1 to 2.13 against the action of the learned CIT(A) in treating the non-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-compete fees paid by the assessee has been claimed as deferred revenue expenditure was disallowed by the Assessing Officer. By considering the decisions of the Chennai Benches of the Tribunal in the case of Orchid Chemicals Pharmaceuticals v. ACIT 137 TTJ 373 and also in the case of ITO v. Seafil Leasing 124 TTJ 531, the ld. CIT(A) directed the Assessing Officer to treat the non-compete fees paid as deferred revenue expenditure and allow 1/10th of the expenditure as deduction for every year by observing as under: 4.2 I have considered various submissions made by the appellant during the appeal proceedings. In similar circumstances, there is a decision of Hon'ble Chennai ITAT in the case of Orchid Chemicals Pharmaceuticals Vs ACIT 137 TTJ 373 and also one more decision of Hon'ble ITAT Chennai in the case of ITO Vs Seafil Leasing 124 TTJ 531 ITAT, Chennai. I am of the considered opinion that these decisions have similarities to the facts and circumstances of the present case and hence this expenditure may be allowed as deferred revenue expenditure for a period of 10 years. This decision of mine is in commensurate with the method adopted by the appellant himself for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000/- as a non-compete fee. The agreement laid down the restrictive covenants that the said U.Mohanrao shall not manufacture directly or indirectly any of the products mentioned above and shall not deal with the said products in any manner or advise, assist, aid, either directly or indirectly, any competitor or any other person in either establishing, managing, promoting or developing the business of the said products or any product similar thereto; he shall not act as a Consultant or use any knowhow, design or drawings directly or indirectly and refrain from disclosing or divulging any information relating to the knowhow, trade practices, etc. The agreement was to be effective for a period of five years from the date of the agreement. 7. On 29.04.1996, yet another agreement was entered into between the assessee and the said U.Mohanrao, former Chairman and Managing Director of Cutfast Abrasive Tools Limited, as by way of a non-compete agreement that the said U.Mohanrao shall not, in any manner, assist any third party, or sell or render advise or act as a Consultant in respect of the products, namely, coated and bonded abrasives, current range of products of the Electrominerals D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to the non-compete fee agreements, referred to above. Aggrieved by this, the assessee is on appeal before this Court. 9. Learned counsel appearing for the assessee placed reliance on the decision of the Apex Court reported in [1971] 82 ITR 902 (CIT Vs. Coal Shipments P. Ltd (S.C.)), [1980] 124 ITR 1 (Empire Jute Co. Ltd. Vs. Commissioner of Income Tax (S.C.)) and [1989] 177 ITR 377 (Alembic Chemical Works Co. Ltd.) and pointed out to the guiding factor in the matter of considering the claim as to whether the expenditure would fall under the capital or revenue head. Making particular emphasis on the fact that the expenditure incurred was more in the field of indefinite income earning operation and not in the context of strengthening the income earning structure, he submitted that the Tribunal and the Authorities below committed a serious error in looking at the enduring benefit concept for the purpose of rejecting the assessee's case. 10. Referring to the decision reported in [1980] 124 ITR 1 (Empire Jute Co. Ltd. Vs. Commissioner of Income Tax (S.C.)), he submitted that the expenditure incurred was for the exploitation of a commercial asset; hence was revenue in charac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount. In the decision reported in [1980] 124 ITR 1 (Empire Jute Co. Ltd. Vs. Commissioner of Income Tax (S.C.)), the Apex Court pointed out that the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. In a transaction of transfer of allotment of loom hours, on the question as to whether it is a revenue expenditure or a capital expenditure, the Apex Court pointed out that a payment may be a revenue payment from the point of view of the payer and a capital payment from the point of view of the receiver and vice versa. Thus whether an expenditure is capital or revenue has to be determined with regard to the nature of the transaction and other relevant factors. Referring to the decision reported in [1965] 58 ITR 241 (PC) (Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd.), the Apex Court pointed out that there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. ... What is material to consider is the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng part of the cost of the income-earning machine or structure as opposed to part of the cost of performing the income-earning operations . -- [1971] 82 ITR 902 (CIT Vs. Coal Shipments P. Ltd. (S.C.). 17. Thus, the consistent guiding principles in matters of understanding an expenditure as a capital or revenue, as held by the Apex Court, is to find out the aim and object of the expenditure and the commercial necessities of making such an expenditure. The question has to be considered in the background of the facts of each case, that the idea of once for all payment and enduring benefit are not to be treated as something akin to statutory conditions; nor are the notions of capital or revenue a judicial fetish. - [1989] 177 ITR 377 (Alembic Chemical Works Co. Ltd.). 18. Going by the above-said principle, if one looks at the decision reported in [1991] 191 ITR 249 (Chelpark Company Ltd. Vs. Commissioner of Income Tax), one may find that the decision that the expenditure was a capital expenditure and hence not deductible, rested in the context of the peculiar facts of the case; the partnership with which the assessee had the noncompete agreement got dissolved immediately after the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has observed that the payment was in respect of the performing of the business of the assessee, held that the expenditure is only on revenue account and not on capital account. Respectfully following the above decision of the Hon ble Jurisdictional High Court in the case of Carborandum Universal Limited v. JCIT (supra), we find no infirmity in the order passed by the ld. CIT(A) for both assessment years 2006-07 and 2007-08 and thus, the ground raised by the Revenue is dismissed. 4. It was however submitted by the learned Departmental Representative that the Revenue has not accepted the decision of the Co-ordinate Bench of this Tribunal. He vehemently supported the order of the Assessing Officer. 5. We have considered the rival submissions and perused the materials available on record. 6. As it is noticed, the issue is squarely covered by the decision of the Coordinate Bench of this Tribunal in the assessee s own case in the earlier Assessment Years referred to supra and it is noticed that the learned CIT(A) has followed judicial discipline in following the decision of the Co-ordinate Bench of this Tribunal, we find no reason to interfere in the order of the learned CIT(A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 2004-05, 200506, 2006-07 and 2007-08. 12.4 We have heard rival contentions and perused the materials available on record. Against the claim of the assessee towards contribution to benevolent fund, the Assessing Officer has made addition under section 40A(9) of the Act in the assessment year 199899. By following the decision of Coordinate Bench of the Tribunal in the case of India Pistons Repco v. IAC 26 ITD 413), the ld. CIT(A) directed the Assessing Officer to allow contribution made by the assessee to benevolent fund by observing as under: 5. I have carefully considered the facts of the case, case laws and the submissions of the Id. AR. It is clear that Memorandum of Settlement was executed in terms of section 18(1) of the Industrial Dispute Act, 1947 and is binding on both the parties i.e. the employer and the workmen. The contribution to the benevolent fund was made in terms of clause 3 of the said Memorandum of Settlement. Thus the fund was not created suomote by the appellant but was based on the Memorandum of Settlement between the employer and the workmen in terms of section 18(1) of the Industrial Dispute Act, 1947. The case relied by the Ld. AO supra is also not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) on this issue for all the above assessment years under appeal and dismiss the ground raised by the Revenue. It was further submitted by the learned Departmental Representative that the Revenue has not accepted the order of the Tribunal and the appeals are pending before the Hon ble Jurisdictional High Court. 7. We have considered the rival submissions and perused the materials available on record. 8. As it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal referred to supra and it is noticed that the learned CIT(A) has followed judicial discipline in following the decision of the Co-ordinate Bench of this Tribunal, we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, Ground Nos.3.1 and 3.2 of the Revenue s appeals stands dismissed. 9. In Ground Nos.4.1 and 4.2 of the Revenue s appeal against the action of the learned CIT(A) in deleting the provision of gratuity, it was submitted by the learned Authorized Representative that the issue was squarely covered in favour of the assessee by following the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. The assessee contended that during the previous year relevant to the assessment year 2007-08, it made provision towards gratuity with LIC of India which was approved by the Commissioner of Income Tax . The assessee submitted that the said amount is allowable as deduction as per provisions of section 40A(7)(b) of the Act. It was the submission of the assessee that claim should be allowed under the provisions of section 40A(7)(b) which is a specific provision and hence the same overrides section 43B of the Act, as section 43B is only general provision. The Assessing Officer rejected the contentions of the assessee and disallowed the provision for gratuity holding that unless the said provision is paid, it is not allowable in view of the provisions of section 43B of the Act. On appeal, the Commissioner of Income Tax (Appeals) allowed the claim of the assessee and deleted the disallowance observing that similar issue has been allowed in assessee s own case for the assessment years 2005-06 and 2006-07. 3. Departmental Representative vehemently supports the order of the Assessing Officer in disallowing the provision for gratuity submitting that since the said amount is only a prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so taken by the Third Member of Jaipur bench of this Tribunal in the case of Mewar Sugar Mills Ltd. Vs. DCIT (supra). 6. The Hon ble Kerala High Court in the case of CIT Vs. Common Wealth Trust (P) Ltd Anr. (supra) held as under:- Section 40A(7) of the Income-tax Act, 1961, was introduced by the Finance Act, 1975, with retrospective effect from April 1, 1973, and section 43B was introduced by the Finance Act, 1983, with effect from April 1, 1984. Section 40A says that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the head Profits and gains of business or profession . Similarly, section 43B opens with a non obstante clause. Section 40A(7) provides that in cases covered by the provisions of clause (a) no deduction shall be allowed in respect of any provision whether called as such or by any other name made by the assessee for the payment of gratuity of his employees on their retirement or on termination of their employment for any reason. However, clause (b) of section 40A(7) clearly provides that to any provision made by the assessee for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act will have an' overriding effect over s.43B of the Act. In the first place section 40A(1) is an unequivocal non-obstante clause and since s. 40A(7)(b) specifically permits a deduction of a sum constituting the provision towards an approved gratuity fund, the said provision will take precedence over a comparatively general provision like s. 43B. Secondly, s. 40A(7)(a) which disallows deduction of any provision of gratuity to employees on their retirement is itself made subject to s. 40A(7)(b) which allows such deduction as long as it is made towards an approved gratuity fund. There is no dispute that in the instant case the provision made is towards contribution to an approved gratuity fund. Therefore the claim by the assessee for deduction on this score was clearly justified. We are accordingly of the opinion that no substantial question of law arises in this regard as well. 8. Respectfully following the said decisions, we uphold the order of the Commissioner of Income Tax (Appeals) in deleting the disallowance made for approved gratuity funds. 9. In the result, appeal of the Revenue is dismissed. 9.5 After considering the ratio laid down by the Hon ble Kerala High Court and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. We have also perused the orders passed by the learned Assessing Officer giving effect to the order of the Income Tax Appellate Tribunal for the earlier Assessment Years, wherein the Assessing Officer has allowed the assessee s claim. This being so and also considering the fact that the learned CIT(A) has followed the judicial discipline in following the order of the Tribunal in the assessee s own case referred to supra, we find no reason to interfere in the order of the learned CIT(A). Consequently, Ground Nos.4.1 and 4.2 of the Revenue s appeals stands dismissed. 14. In respect of Ground No.5, it was submitted by the learned Departmental Representative that the issue was against the action of the learned CIT(A) in deleting the provision for gratuity when computing the book profits u/s.115 BBG of the Act. It was fairly agreed by both the sides that the issue was fairly covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case referred to supra, wherein in page 37 at paragraphs 15 to 15.3 it has been held as follows in favour of the assessee. 15. The next common ground raised in the appeals of the Revenue for the assessment years 2004-05 and 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned CIT(A) and the ground raised for the assessment years 2004-05 and 2005-06 is dismissed. It was further submitted by the learned Departmental Representative that the Revenue has not accepted the orders of the Co-ordinate Bench of this Tribunal and consequently, vehemently supported the order of the Assessing Officer. 15. We have considered the rival submissions and perused the materials available on record. 16. As it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case referred to supra and as it is noticed that the learned CIT(A) has followed the judicial discipline by following the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case referred to supra, we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, Ground No.5 of the Revenue s appeal for the Assessment Year 2008-09 2009-10, 2010-11, 2011-12, 2013-14 and 2014-15 stands dismissed. This issue is not there in the appeal for the Assessment Year 2012-13. 17. In the result, the appeals of the Revenue stands dismissed. 18. Coming to the assessee s appeals, it was submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in clause (a). It was a submission that in any case till 01.04.2018, the legislation did not wish to tax carbon credits. It was further a submission that provision of Section 115BBG cannot be made retrospective in operation either. It was further a submission that the fact the provision of Section 115BBG is being introduced also shows that the intention of the legislature is not to tax the receipts of the said carbon credits as regular business income at all. It was further a submission that the addition made by the Assessing Officer and as confirmed by the learned CIT(A) treating the receipts on the sale of carbon credits as revenue may be deleted. 19. In reply, the learned Departmental Representative vehemently supported the order of the learned Assessing Officer and the learned CIT(A). 20. It was a submission that the order of the Tribunal in the case of Apollo Tyres Limited was a right interpretation and the receipts was liable to be treated as revenue receipts only. 21. We have considered the rival submissions and perused the materials available on record. 22. A perusal of the provision of Section 115BBG clearly shows the intention of the legislature to bring the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment Year 2014-15 as also the decision of the Hon ble Jurisdictional High Court in the case of M/s. Brakes India Limited vs. The Deputy Commissioner of Income Tax, Chennai in T.C.A. No.551 of 2013 dated 14.03.2017 and had directed the Assessing Officer to allow the additional depreciation on the plant and machinery installed in the second half of the financial year preceding the Assessment Years 2013-14 and 2014-15. It was a submission that the Revenue has not challenged these findings. It was further a submission that the learned CIT(A) had not considered the identical ground for the Assessment Year 2012-13 raised by the assessee. It was a submission that the issue having being held in favour of the assessee by the learned CIT(A) for the Assessment Years 2013-14 and 2014-15, the similar findings may be granted for the Assessment Year 2012-13 also. The learned Authorized Representative drew our attention to the Ground No.14 raised by the assessee before the learned CIT(A) which relates to the claim of additional depreciation. 24. In reply, the learned Departmental Representative vehemently supported the order of the Assessing Officer. 25. We have considered the rival submission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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