9911796707
TMI Blog1994 (2) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... ntures were carried a right of conversion into equity shares exercisable by the holders of one-half of the value of the debentures. Assessee-company held 75% of the debentures and decided to exercise the option of converting the same into equity shares of Rs. 100 each totalled upto 1,51,500 equity shares. ABL shares are not quoted on stock exchange. The IAC taxed the capital gains on conversion of 202 debentures of AVB into shares and calculated long term capital gains at Rs. 74,60,817. Similarly he brought into taxed short term capital gains in respect of conversion of 101 debentures of AVB into shares and calculated the gains at Rs. 39,83,435, put together Rs. 1,14,44,305. Assessee objected to this and got support from Vol. 1 of the Law Practice of Income-tax by N.A. Palkhivala B.A. Palkhivala (7th Edition) appearing in para 3 as well as footnote appearing on page 553. The alternative plea of the assessee is that the capital gains in respect of the transactions can be worked out only by finding out what debentures would have fetched, if sold in the open market. The debentures of ABL were not quoted on stock exchange and, therefore, they cannot fetch a price in the market more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the final order of the Delhi High Court dt. 28th Sept., 1984, and the Supreme Court's order rejecting the SLP dt. 30th April, 1985 are placed before the Tribunal vide assessee's paper book page 1 to 42. 8. The learned counsel for the assessee contended that income in respect of any item in dispute accrues only after the same is finally determined is a well settled proposition of law and the learned counsel relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Hindustan Housing Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC). The learned counsel has taken us through the judgment of Hon'ble Supreme Court and contended that the facts before the Supreme Court were similar to the facts in the instant case of the assessee. The facts before the Supreme Court in the case of CIT vs. Hindustan Housing Land Development Trust Ltd. were briefly as under. Assessee was a limited company dealing in land. It maintained accounts on mercantile system. By an order dt. 21st June, 1946, under r. 75A(1) of the Defence of India Rules r/w s. 19 of the DIA Act, 1939, certain plots of land admeasuring about 90.17 acres were requisitioned by the West ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee should furnish bank guarantee to the extent of the amount which become due hereafter for being deposited in Cement Regulation Account. The same was the case in Hindustan Housing Land Development Trust Ltd. 10. The learned counsel for the assessee pointed out that there is a clear distinction between cases where the right to receive payment is in dispute and there is only a dispute with regard to quantification of the amount. In the second case the right to receive is not disputed, whereas in the first case the right to receive is not finally decided in favour of the assessee. In the second case the Court finally decide only the amount that is in dispute whereas in the first case if final decision of the higher Court is against the assessee the assessee will not receive any amount at all. 11. In the light of the above discussion we allow the claim of the assessee that the amount of Rs. 409.67 lakhs should be treated as income of the year corresponding to asst. yr. 1986-87. In the result appeal by the assessee on this ground stands allowed. 12. Third ground agitated by the assessee is with regard to the interest on sale of company's undertaking in Pakista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is that with regard to the taxability there is no dispute. The dispute is confined to the year in which it should be taxed. 15. It is to be seen that the communication received from the State Cement Corporation of Pakistan Ltd. in April 1982 specifically and categorically informs the company that it is not bound by the decision of the Hon'ble High Court of Bombay and, if the decision is not accepted by the company in Pakistan it is not possible to execute the decision of the Hon'ble Bombay High Court against the SCC of Pakistan Ltd. Under these circumstances and facts we are of the view that the order of Assessing Officer that the same is taxable cannot be accepted. The amount becomes due and recoverable only by the agreement entered into between the contending parties. 16. In the light of the above discussion we hold that income at Rs. 119.32 lakhs accrued to the assessee during the accounting year 1982-83 corresponding to the asst. yr. 1984-85. The appeal by the assessee on this ground allowed. 17. Fourth ground agitated by the assessee for the year under consideration is with regard to the payment of additional gratuity to daily paid employees and fifth g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid or not. 18. The learned counsel for the assessee produced a copy of the policy of the company with regard to the payment of gratuity and additional gratuity issued by the company dt. 15th July, 1982. In this it is mentioned that even prior to 1963, as a matter of policy, the company sanctioned additional payment to its workmen and the same has been increased on various occasions. Vide page 177 of the paper book an extract from company's personal manual on additional gratuity is also placed before us. In this it is mentioned that this is paid to the workers who have rendered long and meritorious service, and as a reward, at the time of retirement, by payment of additional gratuity. The rate fixed: (a) For service of 25 years and overbut less than 30 years, 30% of the gratuity payable under the rules (b) For service of 30 years and over but less than 35 years 40% (c) For service of 35 years and over 50%. 19. Coming to the payment of ex gratia to the relatives of the deceased employees the learned counsel contended that though the company was not bound by the law to make such payment to the relatives of the deceased such pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asst. yrs. 1980-81 and 1981-82 assessee claimed that the interest on long-term borrowings amounting to Rs. 1981.19 lakhs out of which assessee capitalised 888.98 lakhs should be treated as revenue expenditure. The IAC held that the entire interest pertains to expansion and modernisation undertaken by the assessee of its plants, thus applying the Supreme Court decision in the case of Challapalli Sugar Mills Ltd. vs. CIT 1974 CTR (SC) 309 : (1975) 98 ITR 167 (SC). He disallowed the claim of the assessee. According to the Assessing Officer the assessee's work at Wadi and Gagal were not put to commercial use during the accounting year relevant to the assessment year. Thus, he disallowed the entire interest, i.e., interest capitalised in the books of account as well as balance interest charged to the P L account. It is admitted that similar issue on identical facts were agitated before the Tribunal in ITA No. 1093/Bom/86 vide its order dt. 31st Oct., 1990. Tribunal allowed the claim of the assessee following the decision of the Tribunal for the asst. yr. 1976-77 in assessee's own case. Respectfully following the above decision of the Tribunal for the preceding years we dismiss the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the assessee we reject the appeal by the Department for the year under consideration. This ground is rejected. 27. Third ground agitated by the Department is directed against the order of the CIT(A) in directing to allow normal depreciation on Wadi work amounting to Rs. 2,85,27,640. Since this ground is consequential to other decision and ground this has become consequential. In the result we direct the Assessing Officer to give necessary relief and, therefore, appeal by the Department on this ground also rejected. 28. Fourth ground agitated by the Department is directed against the order of the CIT(A) in directing the ITO that process escalation amounts should be taken at Rs. 409.67 lakhs and not Rs. 4,66.172. This amount was brought to tax by the Assessing Officer by virtue of the interim relief granted by the Delhi High Court. The Delhi High Court granted interim relief and permitted the assessee to retain an amount of Rs. 237.19 lakhs related to the period 3rd May, 1980 to 31st July, 1981. Assessee made further claim of Rs. 229.73 lakhs through Cement Regulation Account. Since the High Court decision was not final and a SLP was preferred by the Govt. assessee did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that the company has not accepted the Supreme Court decision, which is not so as will be seen from the appellant's letter dt. 21st Aug., 1985 to the Development Commission and the letter dt. 21st Oct., 1985 showing the adjustment. On the basis of the abovementioned facts the correct amount to be brought to tax is Rs. 4,09,67,164 as against the amount of Rs. 4,76,97,000 added by the IAC. The appellant will, therefore, get a relief of Rs. 67,29,836. Because of the Supreme Court's order the claim of the appellant is finally determined and settled. It is, therefore, incorrect for the IAC to say that the appellant can claim the liability arising out of the Supreme Court's order in the year in which the Supreme Court passes such order, because the Supreme Court's order does not create a liability but only determines and quantifies the claim. The IAC should modify the assessment order as above." 29. After going through the order of the Revenue authorities and hearing the contending parties we are agreeing with the reasoning of the learned CIT(A) that it is incorrect on the part of the Assessing Officer to opine that the assessee can claim the liability arising out of the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 2844) 32. The relief claimed by the assessee in the memorandum of cross objection is with regard to the item of Rs. 409.67 lakhs being the additional retention price in respect of wet process plants. This issue we have already decided in favour of the assessee while disposing of assessee's appeal No. 2827/Bom/86 (Ground No. 2). In the result cross-objection is treated as infructuous and dismissed. ITA No. 3972/Bom/88 33. Coming to the appeal by the assessee for the asst. yr. 1984-85, first ground is with regard to the interest on sale of the unit in Pakistan. This ground we have already decided in favour of the assessee while deciding the appeal for the asst. yr. 1983-84. Following the precedent we allow the appeal by the assessee on this ground. 34. Second ground agitated by the assessee for the asst. yr. 1984-85 is directed against the order of the CIT(A) in disallowing the claim of the assessee with regard to the additional gratuity to daily paid workers treating it as ex gratia in nature. At the assessment stage the Assessing Officer noted that the assessee has paid to its daily paid workers an additional gratuity amounting to Rs. 28,34,111. Following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, which corresponds to s. 10(2)(xv) of the Act. An attempt was made in the IT Bill of 1961 to lay down the 'necessity' of the expenditure as a condition for claiming deduction under s. 37. Sec. 37(1) in the Bill read 'an expenditure laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed.' The introduction of the word 'necessarily' in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word 'necessarily' came to be dropped." 36. Second ground agitated by the assessee is with regard to additional gratuity paid to its daily workers and ex gratia payment to kin of the deceased employees. This issue also we have decided in favour of the assessee in the preceding year. For the reasons stated therein we allow the appeal by the assessee for the year under consideration also on this ground. In the result appeal by the assessee on this ground is allowed. 37. Third ground agitated by the assessee for the asst. yr. 1984-85 is with regard to the disallowance made under s. 43B amounting to Rs. 6,07,00,146. The learned counsel for the assessee submitted that out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r off location of manufacturing units necessitated these expenses. Revenue authorities opined that these are of no relevance in view of the specific bar on such deductions. None of these contributions had a statutory obligation. Aggrieved by the above disallowance the assessee is in appeal before the Tribunal. 42. On the above undisputed facts the learned counsel for the assessee relying upon the decision of the Hon'ble Karnataka High Court in the case of Mysore Kirloskar Ltd. vs. CIT (1987) 61 CTR (Kar) 265 : (1987) 166 ITR 836 (Kar) contended that these are allowable deduction. In this case the Hon'ble High Court held that the words 'for the purpose of business' used in s. 37(1) should not be limited to the meaning of 'earning profit alone'. The Court held that business expediency or commercial expediency might require providing facilities like schools, hospitals, etc., for the employees or their children and, any expenditure laid out or expended for their benefit, must be allowed as a deduction under s. 37(1) of the IT Act, 1961. Respectfully following the principles laid down by the Hon'ble High Court in the case referred to above we allow the appeal by the assessee on this ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
