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TMI Blog2011 (2) TMI 1599X X X X Extracts X X X X X X X X Extracts X X X X ..... ure on reconditioning of buses and withdrawing depreciation of ₹ 5,22,635/-. 3. At the outset Ld. Counsel for the assessee, Shri Sunil H Talati stated that this is covered in favour of assessee in assessee's own case in ITA No. 22, 1871, 2794 and 3429/Ahd/2002 for assessment years 95-96, 97-98, 90- 91 and 91-92, wherein the Tribunal has held in para-7 to 11 , which reproduced as under:- 7. We have heard rival contentions and gone through case as also decisions relied upon. As has been pointed out by the learned AR of the taxpayer, expenditure of ₹ 5.56 crores incurred during the period relevant to assessment year 1995-96 is merely 1 of the total cost of the buses reflected in the Balance Sheet as on 31-3-1995.The expenditure is stated to be on reconditioning of buses at Naroda Workshop. The said expenditure has been incurred on Engines, F.I. pumps, automizers at Central workshop at Naroda and includes proportionate labour cost and overheads. In addition to that, assessee incurred expenditure on repairs and maintenance of the business on tyres and tubes, lubricants, spare parts batteries etc. Besides, the taxpayer also incurred capital expenditure of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of repairs made to machinery, plant or furniture by restricting it to the concept of current repairs . All repairs are not current repairs. Section 37(1) allows claims for expenditure which are not of capital nature. However, even section 37(1) excludes those items of expenditure which expressly fail in sections 30 to 36. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in sections 30 to 36. To decide the applicability of section 31(1) the test is not whether the expenditure is revenue or capital in nature, which test has been wrongly applied by the High Court, but whether the expenditure is current repairs . The basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to preserve and maintain an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage. This court in the case of Ballimal Naval Kishore v. CIT [1997] 2 SCO 449 approved the test formulated by Chagla C J. in the case of New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT [1956] 30 ITR 338 (Bom) as to when the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue or capital in nature. The above test was not relevant during the assessment years in question as the Explanation to section 31(1) was inserted later on. Before concluding, one aspect needs to be discussed. It was submitted on behalf of the assessees, in the present case, that although the assessees had claimed deduction under section 31(1), they should be permitted to claim deduction under section 37(1) as on the facts it has been held by the Commissioner of Income-tax (Appeals), Tribunal and the High Court that the expenditure was revenue in nature. We find no merit in this contention. As stated above, even if the expenditure incurred is revenue in nature, still it may not fall in the connotation of the words current repairs under section 31(1) which test has not kept in mind. As held by Chagla C. J. in the case of New Shorrock Spinning and Manufacturing Co. Ltd. [1956] 30 ITR 338 (Bom) all repairs do not attract section 31(1) even though the expenditure is revenue in nature. 8. Following the aforesaid decision, Hon'ble Allahabad High Court in the case of CIT vs. Renu Sagar Power Co. Ltd.,298 ITR 94 (All) held that replacement of one turbine rotor in a turbo gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case, expenditure was incurred in digging a drain. 10.1 In CIT Vs. Hotel Lake End, 267 ITR 62 (Raj), the issue was whether the expenditure incurred in restoring the swimming pool and the boundary wall was allowable as revenue expenditure. Hon'ble High Court held that expenses are incurred on construction of swimming pool and boundary wall, which are of enduring nature, it cannot be said that these expenses are revenue expenses especially when it is not denied that the expenses on sets are of enduring nature. Here expenditure was not found to be on preserving and maintaining any asset but for construction of swimming pool boundary was enduring benefit had been obtained. 10.2. In Jonas Woodhead Sons Ltd. Vs. CIT, 224 ITR 342 (SC); the Income-tax Officer disallowed 1/4th of the Royalty claimed by the assessee company as revenue expenditure. The Royalty was in terms of the collaboration agreement between the assessee foreign company. It was a composite payment for supply of technical know-how and services for setting up plant and manufacture of products. There was no embargo on manufacture even after the expiry of agreement. The High Court confirmed the order of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rebate is also not determinative of the character of the expenditure. The interest paid was in respect of the asset, which was acquired on an outright purchase basis that was intimately linked with the value of the asset. That determines the character of the expenditure and it was capital in nature. 10.6 In Gujarat Mineral Dev.Corpn. Ltd. Vs. CIT, 143 ITR 822 (Guj), the issue was as to whether the expenditure incurred for the construction of a bridge for laying of pipes was in the capital field and, therefore, the loss incurred by the assessee on the bridge having been washed away on both the occasions could only be termed as capital loss and not business loss or revenue loss and, therefore, could not be deducted under s.28(i) of the Act. Hon'ble High Court upheld the view of the Tribunal that it was capital loss. 10. 7 As is evident from the facts in the afore-cited decisions, none of these decisions support the revenue. In the aforesaid cases, questions were of ovation of buildings or of royalty or purchase of buildings. Ld. DR has not demonstrated before us as to how these decisions are of any assistance to Revenue. In this connection, Hon'ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised the following ground No.2:- 2. Ld. CIT(A) erred in law and don the facts of the case in directing to allow the claim of deduction of ₹ 5,75,12,229/- u/s.43B of the Income- tax Act, being the employer's contribution to the Provident Fund. 5. We find that the issue is squarely covered in favour of the assessee as the payments of these contribution are made within the due date of filling of return of income as noted by the Assessing Officer in his assessment order and Hon'ble Delhi High Court in the case of CIT v. P.M. Electronics Ltd. (2008) 220 CTR 635 (Del), wherein the issue has been discussed in para-4 as under:- 4. On 27th Nov., 1998 the assessee had filed a return of income declaring a loss of ₹ 8,92,888. On 11th May, 1999 the return was processed under s. 143(1)(a) of the Act. The case of the assessee was selected for scrutiny. Accordingly, a notice dt. 27th Sept., 1999 under s. 143(2) of the Act was issued to the assessee. In response to the notice and on examination of the details submitted by the assessee with respect to provident fund payments made both on account of employer's and employees' share revealed that payments in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the country. But, this does not amount to saying that the order of the Court. Tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. 11. Upon noting the observations of the Supreme Court in Kunhayammed Ors. (supra) the Division Bench of the Madras High Court in the case of Nexus Computer (P) Ltd. (supra) came to the conclusion that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was law declared by the Supreme Court under Art. 141 of the Constitution. 12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P) Ltd. (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in Dharmendra Sharma (supra). 13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd. (supra). 14. In these circumstances indicated above, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07/- on new addition of assets. 10. We have heard rival contentions and gone through facts and circumstances of the case. We find that the Assessing Officer disallowed depreciation claim of these items of assets on the ground that requisite details as to the utility were not furnished. The assessee before CIT(A) argued that the A.O failed to appreciate that the assessee-company being subject to audit by CAG and various additions to building and furniture are at various divisions/units according to the consistent system that their claim being allowed all these years based on certified depreciation statement, the disallowance ought not to have been made. The CIT(A) allowed the claim of the assessee by giving following findings in his appellate order:- 6.1 I find that such disallowance was deleted in earlier years also. However, the depreciation claimed as per Income-tax Rules are being verified by the Tax Auditors and the appellant had furnished a certificate in this regard. As no specific finding has been given as to wrong claim and the disallowance was mainly for want of details from various divisions, in the light of the appellant's claim, the disallowance cannot be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter making various adjustments was of ₹ 3,74,39,18,534/- and after setting of brought forward losses, the total taxable income was Nil. On verification of books of account of the assessee, it is found that in spite of huge profit in the profit and loss account no book profit u/s.115JB of the Act is reflected and assessee was also required to submit computation of book profit in the prescribed Form No.29B as per I.T. Rules, 1962. However, no such computation of book profit was given. The assessee claimed that the Corporation was established by an Act of state Legislation passed in 1950 as amended in 1982. The Corporation was established by an Act called Road transport Corporation Act, 1950. The assessee also submitted copy of the Act along with its rules. The assessee claimed that the status as Corporation and not a Company . The assessee-corporation was not established under the Companies Act, 1956 in case of company registered under Companies Act, the registrar of companies being part of ministry/department of company affairs has to issue certificate of incorporation and certificate of commencement of business. No such formalities were completed in case of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y would be the profit and loss of the corporation. There is o provision in the Act which has attempted to lift the veil from the face of the corporation and thereby enable the shareholders to claim that despite the form which the organization has taken, it is the shareholders who run the trade and who can claim the income coming from it as their own. Therefore, we are satisfied that the income derived by the appellant from its trading activity cannot be said to be the income of the State under article 289(1) (b) All State Road Transport Corporation are liable to pay income tax in the status of a company. The relevant portion of the judgement is quoted as below The Advocate-General, no doubt, attempted to derive some support to his argument by relying on section 343 of the State Financial Corporations ct, 1951 (63 of 1951), as well as section 43 of the Damadar Valley Corporation Act, 1948 (14 of 1948). Section 43 which occurs sin both the said Acts provides that the corporation shall be liable to pay any taxes on income levied by the Central Government in the same manner and to the same extent as a company. It is urged that where the Legislature wanted to provide for the liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns but denying an exemption otherwise allowable would run counter to judicial conscience. This is a mute point which the AO did not address. An assesse not having operating profits for the period covered by the accounts cannot be held to be liable u/s.115JB. As pointed out earlier, the computation u/s.115JB was prompted by the prior period adjustments shown in the appropriation account. In a decision favourable to the Revenue, the Hon'ble ITAT Madras 'D' Bench in the case of Sree Rajendra Mills Ltd. V. DCIT held that prior year expenses should not be deducted in computing the book profit u/s.115JB. If the same rationale is applied then the prior period adjustments in the Appropriation Account not being cash receipts but only credit entries to reduce the dues to the State Government cannot be added to the current year operational results in computing the book profit u/s. 115JB. The Appellant-Corporation did not receive any cash assistance in respect of above prior period adjustments and in this respect the observation of the AO vide para 8.22 that during the year under consideration, there was huge profit to the appellant as per profit and loss account is without proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [penalty proceedings-Corporation is not liable to tax u/s.115JB either in law or on facts, there being no operational book profit for the year under consideration. To hold otherwise would lead to absurdity of levying tax u/s./115JB in respect of an appellant who is fit enough to be a case under BIFR. In this view of the matter, I direct the AO to delete the book profit computation. Aggrieved, Revenue came in appeal before the Tribunal. 15. Before us the Ld. CIT-DR filed following written submissions:- WRITTEN SUBMISSIONS In this case various hearing had already been made and it was considered by the Hon'ble Bench that besides other ground which is to be considered on merits, the ground related to the applicability of section 115JB in this case i.e. applicability of the provision of Minimum Alternative Tax is to be considered first. This case was treated as heard with pronouncement on 04/08/2010 that issue of applicability of section 115JB for such corporation will be referred to Special Bench by the Bench itself. However, the case was again placed for reconsideration in view of the latest decision of Hon'ble Kerala High Court in the case of Kerala State E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other company. Both section 115J(1A) and this exclusion was inserted by the Direct Tax Law (Amendment) Act,1989 w.e.f.1.4.89 while the section 115J was introduced by Finance Act,1987 w.e.f.1.4.88. Circular No.550 dated 01/01/1990 vide para 24, further explained the nature and scope of section 115J. Para 24(2) clearly reflect the intention of the legislature shown therein that the companies who are having different accounting year were not required to prepare computation of book profit as on 31st March because, they are having different previous year, it was made clear that the same is against legislature intention and amendment was made to make it mandatory that all companies will prepare their P L a/c. for the previous year ending on 31st March to determine book profit for the purpose of this section even if it is having different accounting year for the requirement under Companies Act. If we plainly analyze the language of section 115J(lA),it is unambiguous which stipulates that Every assessee, Being a Company, Shall, For the purposes of this section Prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II and III of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repeated issue as to whether interpretation should be strict or liberal had come up again in CIT v. Punjab Financial Corporation [20021 254 ITR 6 (P H lFFBI wherein the High Court reiterated the law, that the fiscal statute should be construed strictly in respect of a charging provision or a provision imposing penalty, but not other parts of the statute, which contain the machinery provisions or what is ordinarily understood as procedural law following the decision of the Supreme Court in CIT v.National Taj Traders [19801 121 ITR 535. A machinery provision has to be construed in a manner, that it sub serves the objective of the statute as was pointed out in Sardar Harvinder Sine Seigal v.Asst.CIT [19971 227 ITR 512 (Gauhati). A charge upon the subject must be imposed by clear and unambiguous language, so that nothing is left to the intendment, a proposition which has received repeated recognition of the Supreme Court, as for example, in Hansraj Gordhandas v.H.H.Dave, Asst.Collector.Central Excise and Customs AIR 1970 SC 755. Indian courts have recognized the dictum of Rowlatt J. In Cape Brandy Syndicate v.lRC [19211 1 KB 64. Such a view has been taken even recently in Federation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, Mumbai in the case of Maharashtra State Electricity Board vs. JCIT 82 ITD 422(Mumbai) at para 15 fully recognized of above discussed proposition i.e. the requirement of preparation of final accounts as per Schedule 6 of the Companies Act was not a essential requirement but was for the purpose of charging section i.e. 115JA in the case. As per Hon'ble members referred latest decision of Hon'ble Kerala High Court in the case of Kerala State Electricity Board Vs.Dy. CIT 329 ITR 91 (Ker.), it was considered by the Hon'ble Kerala High Court that v initially section 115 expressly excluded from its operation bodies like the Electricity Board. Though such exclusion were absent in section 115JA, the CBDT issued Circular No.762, dated February 18,1998 excluding bodies like the Electricity Board from the operation of the section. This circular was considered by the Hon'ble High Court binding on the department and also as explaining the purpose of introducing section 115JA. At para 29, Hon'ble High Court considered the appellant argument that where the computation provision cannot be applied in the particular case, it is indicative of the fact that the charging sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual words employed by the legislature in the name of giving effect to the supposed under lying object. After all, the under lying object of any provision has to be gathered on a reasonable interpretation of the language employed by the legislature. A liberal interpretation which advances the purpose and object under lying the provision should be adopted. But, it cannot be carried to the intent of doing violence to the plain and simple language and in the enactment. 16. On the other hand, Ld. counsel for the assessee, Shri Sunil H Talati filed following written submissions in reply to Ld. CIT-DR's submissions:- In connection with the Ground No.5 of the Department's Appeal with regard to levy of Minimum Alternate Tax u/s.115JB as directed by the Hon'ble Bench the undersigned has to submit as under: 1. GSRTC is not at all a Company as envisaged under Sec. 2(17) of the Companies Act. It is a Corporation under the Road Transport Corporation Act, 1950 and not at all under the Companies Act. 2. Right from 1988 when Sec. 115J was introduced and thereafter when Sec. 115JA was introduced in 1997 and when Sec. 115JB was introduced in 2001, never this Corporation has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at it annual general meeting in accordance with the provisions of section 210 of the Companies Act 1956(1 of 1956): The proviso of section also provides that the accounts of the Company are to be laid before the Annual General Meeting in accordance with the provisions of Sec. 210 of the Companies Act. GSRTC has not to hold any Annual General Meeting, which has not to lay its accounts in any Annual General Meeting and provisions of Sec. 210 of the Companies Act are not at all applicable to this Corporation. (vi) Lastly, the accounts of GSRTC are not at all prepared as per Schedule-VI of the Companies Act, the Accounting policies and Accounting standards of the Companies Act and ICAI are not at all applicable to it, but the Accounting Standards in accordance with Sec. 33 of the Road Transport Act are applicable to it. Coming to the incorrect mentioning by the Assessing Officer right from Page 10, Para-8 onwards it is to be clarified as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, there is no question of levying any tax under MAT. ON FACTS On facts the learned C.I.T. (Appeals) has very clearly observed that as per audited accounts of C A.G. and Tax Auditors there was a net loss of ₹ 187 Crores during the year ending 31-03- 2003. The credit shown in the Profit Loss Account is not as a profit or income of the year but is an item of appropriation. Therefore, in Schedule- K it is shown beyond the Profit Loss as Appropriation. This is because the credit of income of ₹ 1088.63 crores were granted by Government of Gujarat to compensate the losses of earlier years. C.I.T. (Appeals) on Page 8 and 9 in Para 7.3 has further verified the facts and observed that there were no cash subsidy received from Government but it is only adjustment of previous losses of Government owned Corporation waived by Government. This is not at all in the nature of income of the current year and cannot be remotely also taken as income for MAT. The assessee relied on the decision of Sree Rajendra Mills Ltd. vs. Deputy Commissioner of Income Tax 63 TTJ (Mad) 697, wherein it is held that item shown in the Profit Loss Account as Appropriation cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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