9911796707
TMI Blog1985 (6) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 25th April, 1978, 13th Sept., 1978, 23rd Nov., 1978, land 7th Oct. 1978 and under these four show cause notices the Central excise duty proposed to be demanded was totally Rs. 16,03,020. The appellant follows Calendar Year as the year of account. For the asst. yr. 1980-81, the claim was based on three show cause notices dt. 20th March, 1979, 7th July, 1979 and 5th Oct., 1979 received during the year of account under which total amount of excise duty proposed to be demanded was Rs. 15,72,897 and a show cause notice dt. 8th Jan. 1980 demanding central excise duty of Rs. 6,62,923 received next year. The reason for including the demand of Rs.6,62,923 in the claim for the asst. yr. 1980-81 was stated to be that the relevant manufacture had been in the Calendar Year 1979 and, therefore, the liability of this amount had also accrued in the asst. yr. 1980-81, although demanded in the next year by the Central Excise Department." "The appellant is a composite mill who manufactures yarn and thereafter from the yarn manufactured by them, they weave cloth, thus utilising the yarn for the purpose of weaving in the weaving Department. Excise Duty on yarn is by weight. Sizing is a process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples enunciate by the Supreme Court in 145 ITR 1 though rendered in the context of liability for wealth-tax were applicable in determining the date on which the liability in respect of excise duty accrued. Further in respect of the quantum of liability he observed in para 6 of his order as follows: "It may be mentioned here that out of the liability of Rs. 16,03,020 claimed for the asst. yr. 1979-80, an amount of Rs. 1,21,632 is in respect of yarn manufactured in Calendar Year 1977 and another amount of Rs. 1,89,552 is in respect of yarn manufactured in Calendar Year, 1976 and even if it is held that manufacture of yarn is the taxable event these two amounts will not be admissible in asst. yr. 1979-80. Out of the claim of Rs. 22,35,820 as mentioned earlier show cause notices received during the year only of three amounts totalling Rs. 15,72,897 and the show cause notice for an amount of Rs. 6,62,923 has been received after the end of the year. But if the taxable event is the manufacture of yarn then even this amount pertains to Calendar Year 1979. No payment is made in respect of any of these demands of Rs. 16,03,020 and Rs. 22,35,820. It may be further mentioned here that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessment year commencing on the 1st day of April, 1983 or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him)." Though s. 43B is inserted by the Finance Act, 1983 w.e.f. 1st April 1984 it envisages as situation where the liability if not allowed by way of deduction in any earlier assessment year, the same would be allowed as per the provisions of s. 43B of the Act. In fact the CIT (Appeals) has given a finding and direction in this regard and there is no objection from the side of revenue against this direction by the CIT (Appeals). In absence of the provisions of s. 43B, of course, the grievance of the assessee would be justified in agitating the appeals because if the accrual of liability is determined to be pertaining to one particular assessment year, then the same would not be allowed in any other assessment year, even on the basis of payment. But this apprehension arising out of uncertainly is now done away with by inserting s. 43B of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 771 (All) is distinguishable because of the changed circumstances and it was followed because in assessee's own case in J. K. Synthetics Ltd. vs. ITO 1975 CTR (All) 256 : (1976) 105 ITR 864 (All) the earlier decision was rendered. We are not told there is any earlier ITAT order on the same point. Even the printed accounts incorporating stand of the assessee, treatment in accounts and reasons for adopting a particular treatment, observation of directors/auditors on accounts because usually cognisance of material facts taking place after the accounting year are taken note of by these persons, are usually disclosed in statements for the benefit of shareholders, lenders, tax authorities, Company Law Board and the like do not support the case of assessee. Accordingly, this ground is rejected. Advertisement expenses 4. The second common ground is in respect of disallowance of an expenditure debited in advertisement expenses invoking the provisions of s. 37(2A) of the Act. 4.1 Unfortunately, neither of the parties has placed before us the decision in asst. yr. 1977-78 followed by the CIT (Appeals). Therefore, we will decide this issue independently. In our opinion, such expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure following the decision in Shri Vallabh Glass Works Ltd. In respect of the claim for investment allowance he observed as under: "The allowance of investment allowance is admissible once for all in the year of installation of machinery. The expenditure of Rs. 1,59,876 in the asst. yr. 1979-80 was admittedly incurred in connection with machinery already installed and put to use in earlier years. Therefore, the investment allowance on this point is not admissible in the asst. yr. 1979-80. Out of the payment of Rs. 4,25,309 an amount of Rs. 1,47,649 only is claimed as expenditre incurred on new machinery installed during the year and the balance expenditure of Rs. 2,77,555 was incurred in connection with machinery installed in earlier years, No investment allowance is admissible on the amount of Rs. 2,77,555. As regards the amount of Rs. 1,47,649, the ITO is directed to verify the factual position and if the relevant machinery was installed during the year, then this amount may be added to the cost thereof for allowance of investment allowance and investment allowance may be allowed to the extent admissible in law after getting the condition regarding the reserves fulfilled. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee over period of credit or at the time of delivery of the machinery etc. the same should form an integral part of the payment price. But as per the submissions made out during the course of submission while replying the true nature of transaction it appears that vendors of the machinery insisted for guarantee later on and hence the expenditure. Now if this really is the case then because of the assessee being in the business since past many years the expenditure in respect of the moneys guaranteed would amount to expenditure on money borrowed after the installation of the plant and machinery, and may be required to be treated as revenue expenditure as claimed by the assessee. Therefore, to apply the ratio of the decision in the case of Shree Vallabh Glass Works Ltd. proper facts shall have to be gathered. Again we fail to understand the stand of the Revenue that for the purpose of granting the depreciation the whole amount of expenditure on bank guarantee and stamp charges would form part of the actual cost but for the purpose of investment allowance it would not be so. At the first flush this appears to be contradicting one ownself and to some, it may appear absurd. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of same and also of depreciation or investment allowance. Therefore, more appropriate course would be to grant additional investment allowance, of course on fulfilling the conditions by the assessee, from the assessed income of that year in which such claim was first entertained, if revenue is too rigid about the year of installation of the plant and machinery dehors of its stand taken that expenditure claimed as revenue forms part of actual cost of an asset purchased earlier. Not having done so why the assessee should be denied the claim in the current year on basis of simple stand not requiring rectification of past years. Neither the ITO nor the CIT (Appeals) has considered the issue from this angle. For the sake of clarification and fortifying our view we would submit that provisions of s. 43A do contemplate similar issue consequential to change in the rate of exchange of currency and this is a special provision. It is special because there could be two views whether the additional amount the assessee was required to pay for purchase of machinery was directly connected with the purchase of machinery or was in any way related to change in the rate of exchange declared by gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of s. 80VV. 9.1 On the basis of various figures available, the CIT (Appeals) has after considering the decision of ITAT in Sanjiv Textiles Pvt. Ltd. held that amount of Rs. 5,000 out of the total claim of Rs. 18,800 was admissible under s. 37 and the provisions of s. 80VV apply only to the balance of Rs. 13,800. The amount of expenditure related to s. 37 is in respect of comprehensive services. Before us the ld. counsel appearing on behalf of the assessee could not lay the details in respect of the various amounts in legal fees accounts. Subsequently, however, because of the demand in Court a copy of the bill dt. 29th Dec. 1982 issued by M/s C.C. Chokshi Co. for an amount of Rs. 9,000 in respect of services rendered in connection with income-tax assessment for asst. yr. 1979-80 is submitted with an explanation that the same is for comprehensive services. Since the CIT (Appeals) has already granted the deduction of Rs. 5,000 under s. 37 we do not find any justification to interfere with the decision taken by the CIT (Appeals). 10. The next ground is in respect of non-granting of investment allowance on the amount of expenditure for intercom telephone system cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and have gone through the necessary details and the decisions relied upon by both the sides. Firstly, we would deal with the decision of the Madras High Court in the case of Madras Race Club, relied upon by the ld. Departmental Representative. That was a case of claim under s. 33 of the IT Act regarding development rebate on air-conditioning plant in conference room used for discussion and deliberations and taking decisions touching upon racing in all respects. There was no material made available by the assessee to show that the conference room was used by the members of the club for their other activities and on these facts the decision of the Tribunal that air-conditioning equipment had been installed in the office premises of the assessee falling under s. 33 (6) of the Act was confirmed and the issue was decided against the assessee. Therefore, this case would not be a decisive case for rejecting the claim of the assessee. The CIT (Appeals) has rightly brought on record the true purport of the decision in the case of CIT vs. Mohan Meakin Breweries which was a case again in respect of the development rebate on internal telephone system. It should be clarified that development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is separate plant and each plant functions because of operation of electricity which the life of telephone system. Therefore, only those instruments installed within the office premises should be taken as not qualifying for the purpose of investment allowance. Merely because a switch board or a battery eliminator is installed either in the factory premises or in the office premises would not be a decisive test to properly evaluate the claim of the assesses. Such installation may be because of convenience on account of accommodation or the preference of a person operating the system or any other reason. Therefore, the whole expenditure requires to be bifurcated for the purpose of considering the claim in respect of investment allowance. The part of the expenditure which can be related to the instruments and the lines installed within the office premises would not be eligible for the purpose of benefit of investment allowance. From the details given in respect of the extensions in various Departments, we find that out of 44 telephone numbers about 21 strictly falls in the Departments not coming within the nature of office premises. Therefore, taking the overall situation we would hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The rent of the premises consists of basic rent, common outings and parking space rent. There are separate rates for each of these items in the agreement. As per the agreement, the lessee has to deposit with the centre an amount equal to approximately 3 months common outings and the same sum would be adjusted towards such payment. Later on for parking space rent. I was informed that the assessee had not taken any such space and therefore there was no payment for such rent. The basis rent would become due on every 1st April as per the agreement. The entire basis rent for 60 years was payable in three instalments by the lessee to the Trade. Centre in advance before the execution of the lease. It is also mentioned in cl. 6 (c) that if the area of such measurement is found to be more than the area mentioned in cl. No. 1 of the agreement then the amount of advance rent for 60 years in respect of the area found in excess shall. be paid by the lessee to the Trade Centre when the premises are ready for occupation. This rent as per the agreement shall be held by the Centre in deposit and shall be adjusted and set off towards the monthly instalments of the basic rent and the parking space re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecline to interfere in the ITO's order where he has proposed to disallow Rs. 2,50,635." 11.2 The CIT (Appeal) confirmed the decision holding that the expenditure was falling under s. 30 and the same was allowable as per the period of closure. 12. Before us, the submissions were reiterated, the main ground being advantage was not in the capital field. On a query from the Bench as to whether the whole of expenditure written off in the books of accounts so as to know about the stand of the assessee for the purpose of ascertaining the true profits the answer was in affirmative. The ld. Departmental Representative supported that orders of the authorities below. 12.1 We have gone through the relevant material placed before us and also copy of the lease agreement enclosed in the compilation at pp. 27 to 37. On going through the same following noteworthy facts emerge: (i) M. Vishweshariah Research and Development Centre, a company incorporated under the Companies Act was granted a lease on confessional terms for a tem of 99 years on and from 1972 vide resolution passed by the Government of Maharashtra for the purpose of developing the land in Bombay, as commercial centre. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was placed by the IAC. From the stand taken by the assessee also it is clear that all along the claim is made in respect of rent allowable under s. 30. No specific argument or submission in respect of allowability of the amount paid by way of advance rent under s. 37 was ever made. However, this lapse on the part of the assessee should not be fatal to the claim of the assessee if otherwise it is allowable under any provision of the Act. Therefore, the CIT (Appeals)'s approach on the basis of user because of the allowance of rent under s. 30 is defective as not considered form all angles. 12.2 Normally the amount paid of the purchase of a term of lease would be a premium rather than rent. Generally, price paid for the use an occupation of the premises would be known as rent. Therefore, to the extent the proportionate amount on the basis of period of use of the occupation allowed under s. 30 there should not be any problem or dispute. The claim of the assessee in respect of the remaining part of the expenditure should more appropriately fall on the basis of s. 37 and then only reliance placed by the assessee on the decisions cited by the ld. counsel can be properly considered. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full amount of expenditure would be allowable on the basis of payment. Considering the substance of the transaction in respect of the advance rent a practical view is regard to be adopted so that neither the Revenue is put to some unreasonable loss nor is the assessee subjected to any unreasonable hardship the case of Saligram Kanhaiyalal vs. CIT (1982) 133 ITR 915 (Punj). 12.3 The decision of the Supreme Count in the case of Empire Jute Co. vs. CIT was concerned with the issue of a payment in respect of loom hours obviously adding to the costs of production which was obtained on bigger scale and, therefore, it formed part of the cost of production. Obviously therefore, the payment was in the Revenue field. In the case of CIT vs. Gujarat Mineral Development Corporation, the case before the Gujarat High Court was in respect of payment to the extent of 50per cent of an expenditure incurred by the Gujarat Electricity Board for laying electric cables and transmission lines, etc. the ownership of which was to remain with Gujarat Electricity Board and on these facts it was held that the expenditure though would endure for number of years i.e. 7 years was of revenue nature as it enabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fourth point which pertains to asst. yr. 1980-81 alone relates to expenditure of Rs. 49,975 incurred for increasing the authorised share capital and expenditure of Rs. 44,388 incurred on issue of bonus shares, disallowed by the ITO as capital expenditure. placing reliance on the decisions of Madras High Court in 130 ITR 385 and of ITAT Ahmedabad in Gujarat Steel Tubes in I.T.A. No. 859/Ahd/78-79 dt. 9th April 1980, it is contended that both these expenses were admissible as revenue expenses. In my view, the appellant's contention in respect of both these amounts is not tenable. It has been held by the Hon'ble H.P. High Court in the case of Mohan Meakin Greweries Ltd. vs. CIT that expenditure incurred for increase of authorised capital by the company is one of capital nature and it cannot be allowed as a deduction under s. 37 of the Act. The expenditure incurred on issue of bonus shares also affects the capital structure of the company and following the ratio of the decision of Allahabad High Court cited above, I uphold the disallowance of both these items of Rs. 49,957 and Rs. 44,388 as capital expenditre." 13.1 The learned counsel appearing on behalf of the assessee reiterated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by various High Courts the facts and change in the circumstances because of the Development of various processes and evaluation of the philosophy in respect of the corporate finance and management shall always have to be borne in mind. We had an occasion to consider a similar issue in ITA No.594/Ahd/82 dt. 30th Aug. 1983 in the case of Ahmedabad New Cotton Mills Co Ltd. and for the detailed reasons recorded therein, we hold that such expenditure is an allowable expenditure. However, for the sake of completion we would add that an expenditure sought to be disallowed must bring in an asset of enduring nature and not merely an advantage, if any, of enduring nature. The distinction between the asset and an advantage lies in the fact that asset would fetch some value, the enduring advantage may not. The payment of fees for increasing the capital even if, assuming for the moment bring in advantage of enduring nature, it is fictitious one and here exactly we shall have to keep in mind the ratio of decision of the Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT especially with regard to the tests required to be applied as mentioned in p. 13 and the nature of the enduring ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel appearing on behalf of the assessee brought to our notice pages 40 to 49 of the paper book in respect of the liability under the notification and the basis on which provision was made in the accounts. He placed reliance on in the case of Kedarnath Jute Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) and CIT vs. Tarun Commercial Mills Ltd. 1977 CTR (Guj) 21 : (1977) 107 ITR 172 (Guj). 14.2. The ld. Departmental Representative reiterated the submission that no evidence was made in respect of the party to whom the obligation was transferred. 14.3. We have gone through the orders of the authorities below and the relevant material placed before us. Notes submitted by the learned counsel at p. 40 of the paper book bring out the salient features having bearing on the claim of the assessee and the same are reproduced here for the sake of appreciation of the issue: (1) Sec. 3 of the Essential Commodities Act, 1955 empowers the Central Government to issue order which provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein. (2) Pursuant to the powers vested in Central Government, it has issued several orders which include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 10th Oct., 1979 raised against the company by Assam Cotton Mills and accepted by revenue. Besides identification of the party to prove obligation transferred cannot be a prerequisite condition for allowing the deduction of an existing liability. The stay, if at all is granted, is a matter of event of the subsequent years and there is nothing no record to suggest that the assessee is absolved from any penal action. Even on these facts, we have considered the provisions of s. 43B of the IT Act so as to take a very rigid view in favour of the Revenue but we find that the same are applicable only in respect of tax or duty under any law for the time being in force and therefore, the claim of the assessee on the basis of payment may not be covered therein if made as failing within the provisions of s. 43B. We do not see any justification to agree with the decision taken by the CIT (Appeals.) We, therefore, decide the issue in favour of the assessee holding that the amount claimed is allowable while computing the income. 15. To the extent as above the consolidated order of the CIT (Appeals) shall be treated as modified and the ITO is directed to pass the appropriate orders in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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