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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI SANDEEP SINGH KARHAIL
The present cross appeals have been filed challenging the impugned order dated 30/03/2006, passed under section 250 of the Income Tax Act, 1961 ("the Act")
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 by the learned Commissioner of Income Tax (Appeals)–XXVI, Mumbai, [―learned CIT(A)‖], for the assessment year 2005–06.
The brief facts of the case, as emanating from the record, are: For the year under consideration, the assessee filed its return of income on 29/10/2005, declaring total income of Rs.1157,62,66,655. The return of income filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as under section 142(1) of the Act were issued and served on the assessee. The assessee is engaged in the manufacturing and trading of Viscose Staple Fiber, Textile, Power, Cement, Sponge Iron, Shipping, Plant & Machinery. The Assessing Officer (“AO”), vide order dated 20/02/2006, passed under section 143(3) of the Act, assessed the total income of the assessee at Rs.1196,50,28,870, after making certain additions/disallowances to the income declared by the assessee. The learned CIT(A), vide impugned order, granted partial relief to the assessee. Being aggrieved, both, the assessee as well as the Revenue, are in appeal before us. ./2006 Assessee’s Appeal – A.Y. 2005–06
3. The assessee, in its appeal, has raised the following grounds:– ―The appellant prefers an appeal against the order of the Commissioner of Income Tax (Appeals) - XXVI [hereinafter referred as "CIT (A)"] on the following amongst other grounds each of which is without prejudice to any other.
Disallowance under section 43B 1.1. On the facts and circumstances of the case and in law, the CIT (A) erred in not allowing the amounts paid or written back during the previous year amounting to Rs.1,87,21,814/-, which had already been disallowed in the past under clauses (b), (c), (d) and (e) of section 43B, consistent with the Department's stand. 1.2. The CIT (A) ought to have held that in the event the Department's stand is accepted by the ITAT in earlier years, then deduction of amounts paid or written back during the year amounting to Rs. 1,87,21,814/- should be allowed in the previous year. Club Membership Fees 2 . 2.1 On the facts and circumstance of the case and in law, the CIT (A) erred in holding that the ground of appeal relating to club membership fees is treated as partly allowed even though he has directed the AO to allow entire payment of Rs.5,02,800 as revenue expenditure. 2.2 The CIT(A) ought to have held that the entire disallowance of Rs.5,02,800/- is deleted and the ground of appeal is fully allowed. Page | 2 Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 3. Sales tax exemption 3.1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO in treating sales tax exemption benefit of Rs. 143.12 crores as revenue receipt. 3.2. The CIT (A) failed to appreciate that the object of grant of incentive is to promote setting up of industries in backward areas and therefore the subsidy is capital in nature. 3.3. The CIT(A) ought to have held that sales tax exemption benefit of Rs.143.12 crores is capital receipt.
4. Depreciation on let out property 4.1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO in disallowing depreciation of Rs.45,681/-. 4.2. The CTT (A) ought to have held that once an asset forms part of block of assets, it loses its identity and depreciation on a particular asset cannot be worked out separately and disallowed.
5. Adjustment of receivable against Provisions for Doubtful debts 5.1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of AO in rejecting the claim of Rs.6,01,759/- being the amount receivable from debtors adjusted during the year against provision for doubtful debts. 5.2. The CIT (A) ought to have directed the AO that in the event the Department's stand is accepted by the ITAT for A.Y. 1986-87, then deduction of Rs.6,01,759 be allowed in this year.
6. Loss on loan to Subsidiary Company 6.1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of AO in not allowing deduction of Rs.37.10 crores towards loss on loans given to subsidiary Company. 6.2. The CIT (A) ought to have held that the loss of Rs.37.10 crores is allowable deduction while computing taxable business income.
7. Disallowance u/s. 40(a)(ia) 7.1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of AO in disallowing the liability of Rs.2,67,92,244/- towards year-end expenses applying provision of section 40 (a)(ia). 7.2. The CIT (A) ought to have deleted the disallowance and held that the provision of section 40(a)(ia) are not applicable in the case.
8. Deduction u/s. 80G 8.1. On the fact and circumstance of the case and in law, the CIT(A) erred in upholding the action of AO in rejecting claim of deduction u/s. 80G of Rs.29,772/-.
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 8.2. The CIT (A) ought to have held that deduction u/s. 80G is allowable against the taxable profit of the Company.
9. Miscellaneous Receipts 9.1. On the facts and circumstance of case and in law, the CIT(A) erred in upholding the action of AO that miscellaneous receipts of Rs.5,71,169/- (Rs.95,09,733/- less Rs.89,38,564/-) is not income derived from undertaking eligible for deduction u/s. 80IA. 9.2. The CIT(A) ought to have held that miscellaneous receipt of Rs.5,71,169/- is derived from business of undertaking eligible for deduction u/s. 801A.
10. Interest from Income Tax Department. 10.1. On the fact and circumstances of the case and in law, the CIT (A) erred in upholding the action of AO in taxing interest of Rs.49,00,34,949/- received from Income Tax Department during the previous year. 10.2. The CIT (A) ought to have held that since the aforesaid amount of interest has not yet reached the stage of finality, it is not taxable in this assessment year.
11. The appellant prays for the cost of this appeal in view of section 254 (2B) of the I.T. Act. The appellant craves leave to add to, alter, amplify or delete any of the above ground(s) before or at the time of hearing. The appellant respectfully prays that relief prayed for in the abovementioned grounds be granted and that the appellate order of the CIT (A) be modified accordingly.‖
The issue arising in ground no.1, raised in assessee‟s appeal, is pertaining to the amount paid or written back during the year under consideration which has already been disallowed in the earlier years under section 43B of the Act.
Similar to the arguments made in the appeal for the assessment year 2003–04, the learned Sr. Counsel, appearing for the assessee, submitted that this ground is in respect of the alternate claim of the assessee to allow deduction under section 43B(c), (d) and (e) of the Act in respect of liability disallowed in earlier years, which are paid/written back in the year under consideration. The learned Sr. Counsel further submitted that the claim of the assessee under section 43B of the Act has been allowed by the Tribunal in earlier years and, therefore, this ground now is rendered infructuous.
Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 dated 13/06/2023, passed in assessee‟s own case in Grasim Industries Ltd. v/s DCIT, in ITA No.4745/Mum./2004 and ITA No.5978/Mum./2004, for the assessment year 2003–04, dismissed similar issue while following the decision rendered in assessee‟s own case in preceding years. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced below:– ―6. We find that a similar issue came up for consideration before the coordinate bench of the Tribunal in assessee's own case in Grasim Industries Ltd. v/s ACIT, in ITA no.4753/Mum./ 2004 and ITA no.5584/Mum./2004, for the assessment year 2002-03, wherein the coordinate bench, while dismissing the similar issue, following the earlier decision rendered in assessee's own case, observed as under:- "6. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum./2003 dated 22.10.2014 held as under: - "2. Rival contentions have been heard and perused the record. The assessee is engaged in manufacturing and sale various products. During the course of scrutiny assessment, the A.O. disallowed assessee's claim of deduction u/s 43-8 of the Act in respect of liabilities disallowed in earlier years which are paid/written back in the current year. The A.O. found that in the computation of income an amount of Rs. 10.85 crores has been considered as disallowance u/s 43-8 (a) of the Act by the assessee itself. However, an amount of Rs. 1.31 crores was not considered as disallowance u/s 43-8 of the Act falling under clause (b) to (d). The contention of the assessee was that the amount of Rs. 1.31 crores which falls under clauses (b) to (d) of section 43-B of the Act which are not payable as on 31-3-2001 cannot be covered by the provisions of section 43-B of the Act. However, the A.O. did not agree with this explanation and made the disallowance. The Id. CIT(A) by his impugned order, confirmed the order of the A.O. and the assessee is in appeal before us.
At the outset, the Id. Counsel for the assessee contended that the issue is covered by the decision of the Tribunal in earlier years i.e assessment years 1993-94 to 1998-99 and 2000-01 in assessee's own case, copy of which was placed on record. We find that similar issue was considered by the Tribunal in A.Y. 2000-01 vide order dated 9-10-2013 wherein the ground taken by the assessee was dismissed as the same has become infructuous. It was found by Tribunal that it is an alternative plea which relates to A.Y. 1993-94 decided by the Tribunal in assessee's favour. The appeal filed by the Department has been dismissed by the Tribunal vide order dated 20-12-2001. As the facts and circumstances during the year under consideration are para materia wherein appeal of department in earlier year was dismissed by the Tribunal, therefore, ground taken by assessee for disallowance during the year has become infructuous. The view taken by the Tribunal in A.Y. 2000-01 is respectfully followed, ground of the assessee becomes otiose and is accordingly dismissed.‖ 7. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2000-01 is respectfully followed, ground raised by the assessee is accordingly dismissed."
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 7. Thus, respectfully following the aforesaid decision, ground no.1, raised in assessee's appeal is dismissed.‖
Thus, respectfully following the aforesaid decision, ground no.1, raised in assessee‟s appeal is dismissed.
8. The issue arising in ground no.2, raised in assessee‟s appeal, is pertaining to the disallowance on account of Club Membership fee.
9. During the hearing, the learned Sr. Counsel, by referring to the order dated 08/08/2006, passed by the AO giving effect to the order passed by the learned CIT(A), submitted that the Club Membership fee of Rs.5,02,800, is already been allowed by the AO vide aforesaid order.
In view of the aforesaid submissions of the learned Sr. Counsel, ground no.2, raised in assessee‟s appeal is rendered academic and therefore, is left open.
11. The issue arising in ground no.3, raised in assessee‟s appeal, is pertaining to the taxability of Sales Tax exemption received by the assessee.
The brief facts of the case pertaining to the issue, as emanating from the record, are: During the year under consideration, the assessee availed Sales Tax exemption benefit of Rs.143.12 crore from the State Governments for setting–up of industries in the notified area. The assessee claimed that the Sales Tax exemption is a capital receipt not chargeable to tax and, therefore, is to be excluded from the profit while computing the income taxable under the head ―Income From Business”.
The AO, vide assessment order passed under section 143(3) of the Act, held that the State Governments have not given any amount of subsidy either in cash or in-kind to the assessee. It was further held that the object of the government is to grant Sales Tax exemption is to increase sales. It was further held that under the scheme, the assessee is not required to pay the amount of sales tax and there cannot be any question of receiving the subsidy. Therefore, the AO rejected the claim of the assessee and held that the Sales Tax exemption received by the assessee is revenue in nature and therefore is part of the taxable profit of the business.
The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 15. We have considered the submissions of both sides and perused the material available on record. We find that in the year under consideration, the assessee received Sales Tax subsidy under the following schemes, which has been claimed to be capital in nature:-
Packet Scheme of Incentive, 1988 dated 01/10/1988 by State of Maharashtra Sales Tax New Incentive Scheme for Industries 1989, Rajasthan Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) Sales Tax Waiver Scheme (Package of Fiscal Incentives offered by Government of Tamil Nadu to Industries) Punjab Industrial Incentive Code under the Industrial Policy, 1996 Haryana Valued Added Tax Act, 2003 Sales Tax Incentive Scheme (Incentives offered by Government of Gujarat under the New Incentive Policy-Capital Investment Incentive (General) Scheme-1995-2000)
16. We find that the coordinate bench of the Tribunal, vide order dated 23/06/2023, passed in assessee‟s own case in Grasim Industries Ltd. in ITA No.3439/Mum./2005 and ITA No.4337/Mum./2005, for the assessment year 2004– 05, after considering the Sales Tax subsidy received under the aforesaid schemes held the same to be capital in nature and thus not taxable in the hands of the assessee. The relevant findings of the coordinate bench, in the aforesaid decision, are as under:–
―54. We have considered the submissions of both sides and perused the material available on record. As per the assessee, the object for the grant of the incentive by the State Governments is to promote setting up industries in the backward/notified areas and therefore, the subsidy is capital in nature. In the year under consideration, the assessee received sales tax subsidiary under the following schemes:- Packet Scheme of Incentive, 1988 dated 01/10/1988 by State of Maharashtra Sales Tax New Incentive Scheme for Industries 1989, Rajasthan Sales Tax Exemption Scheme (Madhya Pradesh Industrial Policy & Action Plan, 1994) Sales Tax Waiver Scheme (Package of Fiscal Incentives offered by Government of Tamil Nadu to Industries) Punjab Industrial Incentive Code under the Industrial Policy, 1996 Haryana Valued Added Tax Act, 2003 Sales Tax Exemption Scheme (M.P. Vanijyikar Adhiniyam, 1994) Sales Tax Incentive Scheme (Incentives offered by Government of Gujarat under the New Incentive Policy-Capital Investment Incentive (General) Scheme-1995- 2000)
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006
We find that the taxability of sales tax exemption received under the schemes of the State of Maharashtra, Haryana, Rajasthan, and Madhya Pradesh came up for consideration before the coordinate bench of the Tribunal in assessee‘s own case in JCIT v/s Grasim industries Ltd, in etc., for the assessment years 1996-97 to 2000-01. The coordinate bench vide order dated 29/04/2022 decided a similar issue in respect of these schemes in favour of the assessee and held that the subsidy/incentive received by the assessee is in the nature of capital receipt and not chargeable to tax. We find that after analysing each sales tax subsidy scheme, the coordinate bench held that the only purpose of these schemes is for setting up industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. The relevant findings of the coordinate bench, in the aforesaid decision, in this regard are as under:- ―5.3.5. From the perusal of the aforesaid schemes together with its objects and preamble, we find that the dominant purpose for which the incentive scheme per se introduced by the respective State Governments was only for the purpose of setting up of industries in the respective areas for industrial development in State and also to accelerate development and absolutely not for augmenting the profits of the assessee. Effectively, the schemes of various State Governments envisaged the rapid industrialisation, growth and new employment generation in the respective areas which would in turn promote the growth of the State. Hence, it could be safely concluded that subsidy / incentive granted is only for setting up of the units based on the fixed percentage of the capital cost and not for running the business of the assessee. Moreover, even this subsidy which is determined based on sales tax assessment orders for 9 years, 6 years etc., are subject to maximum outer limit already fixed under the respective schemes. Though the quantification of the subsidy has been made post commencement of business, the measurement of subsidy is immaterial. In our considered opinion, none of the schemes contemplated to finance the assessee in the form of subsidy / incentive for meeting the working capital requirements of the assessee company post commencement of business. Hence, by applying the purpose test, apparently, the subsidy / incentive received in the instant case would only have to be construed as capital receipts not chargeable to income tax. In this regard, we find that ld. AR placed reliance on the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392, wherein the incentive conferred under that scheme were two fold. First, in the nature of higher free sale sugar quota and second, in allowing the manufacturer to collect Excise duty on sale price on the free sale sugar in excess of the normal quota, but to pay to the Government only the Excise duty payable on the price of levy sugar. The Hon‟ble Supreme Court in para 14 of its decision had held that ―character of receipt of subsidy has to be determined with respect to the purpose for which the subsidy is given. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial.‖ In fact, the Hon‟ble Supreme Court while rendering this decision had duly considered its earlier decision in the case of Sahney Steel and Press Works Ltd., reported in 228 ITR 253 and had absolutely no quarrel with that judgement. Rather, it concurred with the decision rendered in Sahney Steel and Press Works Ltd., case. In this regard, it would be relevant to reproduce the operative portion of the decision of Hon‟ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd., as under:- ―14. The second case is Lincolnshire Sugar Co. Ltd. v. Smart 20 TC 643. In that case it was found that Lincolnshire Sugar Co. Ltd carried on the business of manufacturing sugar from home grown beet. The company was paid various sums under British Sugar Industry (Assistance) Act, 1931, out of monies provided by the Parliament. The question was whether these monies were to be taken into account as trade receipts or Page | 8
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 not. The object of the grant was that in the year 1981, in view of heavy fall in prices of sugar, sugar industries were in difficulty. The Government decided to give financial assistance to certain industries in respect of sugar manufactured by them from home-grown beet during the relevant period. Lord Macmillan held that— "What to my mind is decisive is that these payments were made to the company in order that the money might be used in their business." He further observed that: "I think that they were supplementary trade receipts bestowed upon the company by the Government and proper to be taken into computation in arriving at the balance of the company's profits and gains for the year in which they were received."
In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose like extension of docks as in the Seaham Harbour Dock Co. 5 case (supra).
There is a Canadian case St. John Dry Dock & Ship Building Co. Ltd. v. Minister of National Revenue 4 DLR 1, which has close similarity to the case of Seaham Harbour Dock Co. 's case (supra). In that case it was held that where subsidies were given under statutory authority, the statutory purpose for which they are authorised is relevant and may even be decisive in determining whether it is taxable income in the hands of the recipient. In that case, it was pointed out after discussing the Seaham Harbour Dock Co. 's case (supra)as well as that of Lincolnshire Sugar Co. Ltd. 5 case (supra)that subsidy given by the Canadian Government to encourage construction of dry docks was 'an aid to the construction of dry dock and not an operational subsidy'.
17. This precisely is the question raised in this case. By no stretch of imagination can the subsidies whether by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments were trade for a period of five years calculated from the date of commencement of production in the assessee's factory. The subsidies are operational subsidies and not capital subsidies.‖ 56. Thus, respectfully following the aforesaid decision, rendered in assessee‘s own case, we are of the considered view that the sales tax exemption received by the assessee, in the year under consideration, under the similar schemes of the State of Maharashtra, Haryana, Rajasthan, and Madhya Pradesh are in the nature of capital receipts and therefore not taxable in the hands of the assessee.
57. As regards the Sales Tax Waiver Scheme (Package of Fiscal Incentives offered by the Government of Tamil Nadu to Industries), forming part of the paper book from pages 289-334, we find that the objective of the scheme was for fostering the pace of industrialisation and to enhance the competitiveness of Tamil Nadu for attracting a large share of industrial projects. Accordingly, the Government of Tamil Nadu introduced the aforesaid scheme which includes capital subsidies and sales tax concessions. From page No. 294 of the paper book, we find that as per the said scheme the State Government has provided a set of waivers and deferrals which can be availed Page | 9 Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 by the investor setting up a mega-investment. It is further provided that the concession is available to industries set up anywhere regardless of its location. In this regard, the assessee has also placed on record the eligibility certificate issued under the aforesaid scheme granted to the assessee‘s unit located at Reddipalayam Village for the manufacture of cement. Therefore, upon perusal of the aforesaid documents we are of the considered view that the sales tax exemption scheme floated by the Government of Tamil Nadu is of the nature similar to the schemes considered by the coordinate bench in the earlier years, and thus, sales tax exemption received under this scheme is in the nature of capital receipt.
Similarly, as regards the Sales Tax Incentive Scheme (Incentives offered by the Government of Gujarat under the New Incentive Policy–Capital Investment Incentive (General) Scheme–1995–2000), forming part of the paper book from pages 553–575, we find that the said scheme was to accelerate the development of the backward areas of the State and to create large–scale employment opportunities. Further, under the said scheme, it was also stressed that the need is to increase the total flow of investment to the industrial sector with the proper development of infrastructure and human resources to sustain long–term growth and achieve sustainable development. From the perusal of the eligibility certificate issued under the aforesaid scheme, forming part of the paper book on page 577, we find that the same also mentions the total investment in fixed assets by the assessee. Therefore, in view of the above, we find that the sales tax exemption scheme of the Government of Gujarat is of the nature similar to the schemes considered by the coordinate bench in the earlier years, and thus, sales tax exemption received under this scheme is in the nature of capital receipt.
As regards the Punjab Industrial Incentive Code under the Industrial Policy, 1996, forming part of the paper book from pages 481-490, we find that the said scheme was formulated with a view to promote growth of the industry in the State and for that purpose it provides various incentives for new industrial units that come into production or undertake expansion on or after 01/04/1996. We find that in the scheme, inter-alia, the capital subsidy is provided to the new large and medium units set up in the notified area as mentioned in Annexure-I of the scheme. We find that under the said scheme certificate of eligibility was also issued to the assessee in respect of Vikram Bathinda Cement Grinding Unit. Thus, the dominant purpose for which this incentive scheme was introduced is also for setting up the industry in the notified area to promote industrial growth in the State. Therefore, we are of the considered view that the sales tax exemption received by the assessee under the scheme is also in the nature of capital receipt. Therefore, in view of the above, the sales tax exemptions received by the assessee under all the schemes of various State Governments, as noted above, are in the nature of capital receipt, and thus, are not taxable in the hands of the assessee. Accordingly, grounds no.7.1 and 7.2 raised in assessee‘s appeal are allowed.‖
In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. Therefore, respectfully following the judicial precedent rendered in assessee‟s own case cited supra, ground no.3, raised in assessee‟s appeal is allowed.
The issue arising in ground no.4, raised in assessee‟s appeal, is pertaining to the disallowance of depreciation.
The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, it was observed that the assessee Page | 10
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 has let out its co-owned office premises at 6th floor, Sakhar Bhavan, Nariman Point, Mumbai and rent received on same has been offered for tax under the head “Income from House Property”. It was further observed that the assessee has not reduced the written down value of the aforesaid premises from the value of block of assets and claimed depreciation allowance on the total block of assets, which includes the written down value on the let out premises. Accordingly, during the assessment proceedings, the assessee was asked to show cause as to why the depreciation should be allowed on the let out property. In response thereto, the assessee submitted that under the block concept once an asset is added to the block of assets it loses its identity, and depreciation on a particular asset cannot be worked out separately. It was further submitted that adjustments to the block of assets can be made only in accordance with the provisions of section 43(6) of the Act. The assessee also placed reliance upon the CBDT Circular No. 469 dated 23/09/1986. The AO, vide assessment order passed under section 143(3) of the Act, did not agree with the submissions of the assessee and held that the assessee has claimed depreciation on the let out premises and is also claiming a deduction equal to 30% of annual rental value while computing income from house property. The AO held that the assessee cannot be allowed both deductions and therefore proceeded to compute the disallowable part of depreciation.
The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue. Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Sr. Counsel submitted that in previous years, the property was used by the assessee as one of its office premises. However, in the year under consideration, the same was not used as an office by the assessee and was let out. The learned Sr. Counsel submitted that the property remained part of the block of assets in the year under consideration and accordingly, the depreciation was computed.
On the other hand, the learned Departmental Representative (“learned DR”) submitted that the assessee has not used the property for business purposes during the year under consideration and rather the same was let out. The learned DR further submitted that the property should be ready to use for claiming depreciation, which is not so in the present case.
We have considered the submissions of both sides and perused the material available on record. It is evident from the record that the property under question Page | 11
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 was purchased by the assessee in the assessment year 1987-88. Since its acquisition, the said property forms part of the block of assets for the purpose of claiming depreciation under the Act. It is the claim of the assessee that in the preceding years the assessee used this property as one of its office premises. In the year under consideration, the said property was let out and the rental income was offered to tax under the head “Income from House Property”, after claiming a deduction under section 24 of the Act. The AO, vide assessment order, worked out the disallowable depreciation in respect of the aforesaid property while allowing deduction claimed under section 24 of the Act.
Before proceeding further, it is pertinent to note certain provisions of the Act that are relevant to the issue at hand. The term “block of assets” is defined in section 2(11) of the Act, as under:-
"block of assets" means a group of assets falling within a class of assets comprising— (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed ;‖
Further, the relevant provisions of section 32, reads as under:-
―Depreciation 32.(1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets;
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—
(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;
(ii ) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: ……….. Explanation 2.—For the purposes of this sub-section "written down value of the block of assets" shall have the same meaning as in clause (c) of sub-section (6) of section 43.‖
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006
Section 43(6)(c) of the Act reads as under:-
―(c) in the case of any block of assets,— (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,—
(A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year;
(B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced— (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b) by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value;] (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i).
It is the plea of the assessee that since the property was acquired in the assessment year 1987-88 and forms part of the block of assets, therefore, the lower authorities have erred in carving out the depreciation for this property and disallowing the same. Since the assessee is the owner of the property from the assessment year 1987-88 and the same was also used as one of its office premises in preceding years, therefore, we are of the view that the conditions laid down in section 32 of ownership of the asset and usage for the purpose of business are satisfied in the present case. We find that the only basis on which the AO/learned CIT(A) disallowed the depreciation is that the assessee has rented out the property during the year and offered the income under the head “Income from House Property”, after claiming deduction under section 24 of the Act. In this regard, it is pertinent to note that the Page | 13
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 property in question forms part of the block of assets since the assessment year 1987-88 and the depreciation on the entire block was also allowed. The Revenue has also not disputed this fact. It is settled that once any asset forms part of the block of assets, it losses its individual identity, and thus for the purpose of depreciation, only the block of assets has to be considered. This aspect is sufficiently evident from Circular No.469 issued on 23/09/1986, which reads as under:-
―6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1)(iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation of lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture.‖
Further, as per section 43(6)(c)(i)(B) of the Act, the written down value in the case of any block of assets is reduced by the money payable when the asset is sold or discarded or demolished or destroyed. However, in the present case, the assessee continued to own this property, and the same was only let out during the year. In any case, this section also does not provide for carving out depreciation for disallowance, as is done by the AO in the present case. We find that the Hon‟ble Delhi High Court in CIT v/s Oswal Agro Mills Ltd. [2012] 341 ITR 467 (Delhi), observed as under:-
32. Another significant and contemporaneous development, which needs to be noticed is that the Legislature has also deleted the provision for allowing terminal depreciation in respect of each asset, which was previ- ously allowable under section 32(1) (iii) and also taxing of balancing charge under section 41(2) in the year of sale. Instead of these two provisions, now whatever is the sale-proceed of sale of any depreciable asset, it has to be reduced from the block of assets. This amendment was made because now the assessees are not required to maintain particulars of each asset separately and in the absence of such particular, it cannot be ascertained whether on sale of any asset, there was any profit liable to be taxed under section 41(2) or terminal loss allowable under section 32(1) (iii) . This amendment also strengthen the claim that now only detail for block of assets" has to be maintained and not separately for each asset.
33. Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submission of the learned counsel for the Revenue that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of 'block of assets'. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was Page | 14
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 brought about. It is also essential to point out that the revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the 'block of assets' even when that particular asset is not used in the relevant assessment year. Whenever such an asset is sold, it would result in short-term capital gain, which would be exigible to tax and for this reason, we say that there is no loss to revenue either.‖
Thus, in view of the above, once the property forms part of the block of assets, carving out the depreciation for the said property and disallowing the same goes against the spirit of allowing depreciation on the entire block of depreciable assets. Before concluding, we may note that in this appeal the Revenue has not disputed the claim of deduction under section 24 of the Act in respect of the property which forms part of the block of assets. Thus, merely because the Revenue has accepted the claim of deduction under section 24 of the Act doesn‟t mean that the property which forms part of the block of assets will cease to be so. Therefore, the disallowance of depreciation of Rs. 45,681 made by the AO is deleted. As a result, ground No. 4 raised in assessee‟s appeal is allowed.
The issue arising in ground no.5, raised in assessee‟s appeal, is pertaining to the adjustment of the amount receivable from the debtors against the provision for doubtful debts made in the assessment year 1986–87.
Before us, the learned Sr. Counsel, at the outset, submitted that in the assessment year 1986–87, the deletion of disallowance of provision for doubtful debts was upheld by the coordinate bench of the Tribunal, which order has further been affirmed by the Hon'ble jurisdictional High Court. In view of the submissions of the learned Sr. Counsel, ground no.5, raised in assessee‟s appeal is rendered academic and therefore is kept open.
The issue arising in ground no.6, raised in assessee‟s appeal, is pertaining to the disallowance of loss on loans given to subsidiary companies.
33. The learned Sr. Counsel, at the outset, wishes to withdraw this ground on the basis that relief has already been allowed in assessment year 2007–08. Accordingly, ground no.6, raised in assessee‟s appeal is dismissed as withdrawn.
The issue arising in ground no.7, raised in assessee‟s appeal, is pertaining to the disallowance of provision made towards liability for year–end expenses under section 40(a)(ia) of the Act.
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 35. The learned Sr. Counsel, at the outset, wishes not to pursue this ground, as the full amount claimed was allowed in the assessment year 2006–07. Accordingly, ground no.7, raised in assessee‟s appeal is dismissed as withdrawn.
Ground no.8, raised in assessee‟s appeal, pertaining to the rejection of claim of deduction of Rs.29,772, under section 80G of the Act was not pressed due to the smallness of the amount. Accordingly, ground no.8 is dismissed as not pressed.
The issue arising in ground no.9, raised in assessee‟s appeal, is pertaining to the exclusion of miscellaneous receipts from business profits while computing deduction under section 80IA of the Act.
The brief facts of the case pertaining to the issue, as emanating from the record, are: The AO, vide assessment order passed under section 143(3) of the Act, held that the income on account of house rent, interest, and other income (miscellaneous income) totaling to Rs.95,09,733, cannot be considered as derived from industrial undertaking and thus, the assessee is not entitled to claim deduction under section 80IA of the Act on such receipts.
The learned CIT(A), vide impugned order, granted partial relief to the assessee and directed the AO to include excess provisions written back as business profits for the purpose of computing deduction under section 80IA of the Act. While in respect of other receipts included the head ―Miscellaneous Receipts‖, the findings of the AO excluding the same from the business profit was upheld. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. We find that similar issue came up for consideration before the coordinate bench of the Tribunal in assessee‟s own case for the assessment year 2004-05. The coordinate bench, vide order dated 23/06/2023 cited supra, restored this issue to the file of the AO for de novo adjudication, by observing as under:–
―49. We have considered the submissions of both sides and perused the material available on record. In the year under consideration, the assessee included miscellaneous receipts of Rs.10,10,73,313 for the purpose of computation of deduction under section 80 IA of the Act. As per the details of miscellaneous receipts, provided on page 135 of the paper book, these receipts include interest, excess/short provision, prior period adjustments, rent, miscellaneous receipts, job charges, exchange rate difference, export incentive, profit on the sale of DEPB license, notice pay and sludge sales. As per the assessee, all these receipts are directly connected with and derived from the eligible business, and therefore, should be considered for computation of Page | 16
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 deduction under section 80-IA of the Act. As is evident from the record, the learned CIT(A) only examined the receipts from job charges and excess provisions written back and considered the same to be business profits for computing deduction under section 80-IA of the Act. While, the other receipts, as noted above, under the broad category of ‗miscellaneous receipts‘ were not examined by any of the lower authorities to determine whether they are derived by the undertaking or the enterprise from the eligible business, as per the provisions of section 80-IA of the Act. Therefore, in view of the above, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication as per law, after examining each and every receipt under the category of ‗miscellaneous receipts‘, which were excluded from the business profits by the learned CIT(A) for computing the deduction under section 80 IA of the Act. Thus, to this extent, the impugned order on this issue is set aside. Accordingly, grounds No. 6.1 and 6.2 raised in assessee‘s appeal are allowed for statistical purposes.‖
41. Since in the year under consideration also, various receipts under the broad category of „miscellaneous receipts‟, except excess provision written back, were not examined by the lower authorities, therefore, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication as per law, after examining each and every receipt under the category of ‗miscellaneous receipts‘, which were excluded from the business profits by the learned CIT(A) for computing the deduction under section 80IA of the Act. Thus, to this extent, the impugned order on this issue is set aside. Accordingly, ground no.9, raised in assessee‟s appeal is allowed for statistical purposes.
The issue arising in ground no.10, raised in assessee‟s appeal, is pertaining to the taxability of interest received from the Income Tax Department.
Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:–
Having considered the submissions of both sides and perused the material ―15. available on record, we find that the coordinate bench of the Tribunal, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03 cited supra, by following the decision rendered in the preceding year, observed as under:– ―15. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - "7. The assessee is also aggrieved for taxing of interest received from Income Tax Department amounting to Rs. 13,64,09,609/-. We find that Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 similar issue has been dealt with by the Tribunal in A.Y. 1993-94 in vide para 62 as under;- "We have heard the parties and considered the rival submissions. These refunds have been granted to the assessee in the year under consideration and therefore they would partake the character of income of the assessee. If however, any refund has been found to be not refundable to the assessee and consequently the interest granted is withdrawn the same would not partake the character of income. We accordingly direct the Assessing Officer to reduce from the taxability of the aforesaid interest granted to the assessee, the amount which has been withdrawn subsequently. We direct accordingly."
It was argued by the Id. A.R. that benefit of interest so allowed by the department was subsequently withdrawn as a result of the appellate orders should be given to the assessee and the interest subsequently withdrawn should not be taxed and for this, reliance was placed on the decision of the Tribunal in the case of Avada Trading Co. (P.) Ltd. vs. ACIT (2006) 100 ITD 131.
We have considered the rival contentions. As far as the taxability of interest amounting to Rs. 13,64,09,609/- is concerned, granted alongwith interest. However, if in the subsequent year refund of interest is withdrawn, then the same should be reduced from the total income of the assessee. Accordingly, we direct the A.O. to tax interest income in terms of the order of the tribunal for A.Y. 1993-94 as reproduced above, keeping in view our above observation"
16. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal is respectfully followed, we order accordingly.‖
Therefore, in view of the above, ground no.10, raised in assessee‟s appeal is allowed with similar directions, as rendered by the coordinate bench in the preceding assessment years.
Ground no.11 raised in assessee‟s appeal seeking the cost of this appeal was not pressed during the hearing. Therefore, the same is dismissed as not pressed.
The assessee, vide application dated 23/01/2013, sought admission of the following additional ground of appeal:–
―The appellant prefers appeal against the order of the Commissioner of Income Tax (Appeals) -XXVI [hereinafter referred as "CIT (A)"] on the following additional grounds: 1. The learned CIT (A) ought to have held that the sum of Rs. 2,68,71,018 being dividend received from Alexandria Carbon Black Company, a company incorporated and registered in Egypt (U.A.R.) was not taxable in India. The appellant craves leave to add, to alter, amplify or delete all or any of the ground (s) before or at the time of hearing.‖
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 47. The issue arising in the aforesaid additional ground of appeal is pertaining to the taxability of dividend received from Egyptian company. Since, the issue raised by way of additional ground is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon‟ble Supreme Court in NTPC v/s CIT, [1998] 229 ITR 383 (SC). During the year under consideration, the assessee received Rs.2,68,71,018, as a dividend from M/s Alexandria Carbon Black Company S.A.E., a company incorporated and registered under the laws of Egypt (U.A.R.). It is the plea of the assessee that the aforesaid dividend received from the Egyptian company is not taxable in India.
We find that the coordinate bench, vide order dated 23/06/2023, passed in assessee‟s own case for the assessment year 2004-05 cited supra, decided a similar issue against the assessee in light of the amendment in section 90 of the Act, vide Finance Act, 2003, w.e.f. 01/04/2004, by observing as under:–
―65. The issue arising in the aforesaid additional ground of appeal is pertaining to the taxability of dividend received from Egyptian company. Since, the issue raised by way of additional ground is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon‘ble Supreme Court in NTPC Ltd. (supra). During the year under consideration, the assessee received Rs.1,16,24,021 as a dividend from M/s Alexandria Carbon Black Company S.A.E., a company incorporated and registered under the laws of Egypt (U.A.R.). It is the plea of the assessee that the aforesaid dividend received from the Egyptian company is not taxable in India. We find that a similar issue came up for consideration before the coordinate bench of the Tribunal in assessee‘s own case in assessment year 2003-04. Vide order dated 13/06/2023 cited supra, the coordinate bench observed as under:- ―65. Having considered the submissions of both sides, we find that as per Article 11(2) of the India- UAR (Egypt) DTAA, dividends paid by a company which is a resident of the UAR (Egypt) to a resident of India may be taxed in the UAR (Egypt). As noted above, it is the plea of the assessee that prior to amendment by Finance Act 2003, w.e.f. 01/04/2004, to section 90 of the Act, the term ―may be taxed‖ means that only the source country has the right to tax the income earned in such country and the resident country does not have any taxing rights. Therefore, the dividend received by the assessee from the Egyptian company, in the present case, is only taxable in Egypt. We find that while examining the issue of applicability of the aforesaid amendment vide Finance Act, 2003 to section 90 of the Act, and the aforesaid Notification issued under the said section, the coordinate bench of the Tribunal in Essar Oil Ltd v/s ACIT, [2013] 42 taxmann.com
21. (Mum-Trib.), observed as under:- ―88 We summarise our conclusion as under:— (i) ….. (ii) The notification dated 28th August 2008, reflects a particular intent and objective of the Government of India, as understood during the Page | 19
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 course of negotiations leading to formalization of treaty. Therefore, such a notification has to be reckoned as clarificatory in nature and hence interpretation given by Govt. of India through this notification will be effective from 1st April 2004, i.e., from the date when provision of section 90(3) was brought in the statute, giving a Legal frame work for clarifying the intent of one of the negotiating parties;‖
66. The coordinate bench of the Tribunal also noted the legal position as it existed prior to the aforesaid amendment as under:-
―57A. If we analyse all the judgments as have been referred to above, it is evident that:— • Firstly, in R.M. Muthaiah (supra), the expression ―may be taxed‖ has not been expressly dealt with, however, in the context of Article-6(1), wherein similar phraseology has been used, the High Court has given its decision that once it has been taxed in the foreign country, the same cannot be taxed in India. Thus, this decision in a way interprets the phrase ―may be treated‖ to mean that source country has a right to tax to the exclusion of resident state;
• Secondly, in S.R.M. Firm (supra), the High Court has in a very clear terms, has interpreted the expression ―may be taxed‖ to mean that once the income is taxable in other contracting State that is country of source then country of resident i.e., India is precluded from including the same income in India;
• Thirdly, the Hon‘ble Supreme Court in Azadi Bachao Andolan (supra), has approved the reasoning of R.M. Muthaiah (supra) in an entirely different context, therefore, it cannot be held that the Hon‘ble Supreme Court has carved out any express law on the phraseology of ―may be taxed‖; • Fourthly, in P.V.A.L. Kulandagan Chettiar (supra‘s) the Hon‘ble Supreme Court has specifically refrained from giving any such interpretation of ―may be taxed‖ and affirmed the decision of High Court on a different reasoning and grounds. Thus, this decision does not carve out any express law on the phrase ―may be taxed‖; and • Lastly, the Hon‘ble Supreme Court in Turquoise Investments & Finance Ltd. (supra) has not only confirmed the decision of R.M. Muthaiah (supra) but also decision of the M.P. High Court, wherein extensively reliance was placed on the decision of S.R.M. Firm (supra). Thus, this decision of the Hon‘ble Supreme Court in a way has confirmed the entire reasoning of the S.R.M. Firm (supra) which, in our opinion, is slightly different from the judgment of the Hon‘ble Supreme Court in P.V.A.L. Kulandagan Chettiar (supra) to the extent that the phrase ―may be taxed‖ was not expressly dealt with by the Hon‘ble Supreme Court as the reasoning of the High Court was affirmed on different ground. Thus, the later decision of the Hon‘ble Supreme Court in Turquoise Investments & Finance Ltd. (supra) can be said to be the view expressed by the decision in S.R.M. Firms (supra) by the Madras High Court.
In this background, that the three High Courts have expressed their views and which have been affirmed by the Hon‘ble Supreme Court in some context or the other, specially the decision of Turquoise Investments & Finance Ltd. (supra), Page | 20
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 wherein the Apex Court has approved these decisions completely, then as a judicial precedence, one has to accept that the phrase ―may be taxed‖ has to be inferred as allocating the taxing right to the source country only on the income earned in such country and the country of resident is completely precluded from taxing the same income.‖ 66. Since the year under consideration before the coordinate bench in the aforesaid decision was the assessment year 2003-04, the coordinate bench following the decision of the Tribunal in Essar Oil Ltd v/s ACIT, [2013] 42 taxmann.com 21 (Mum-Trib.) came to the conclusion that the amendment w.e.f 01/04/2004, by which sub-section (3) to section 90 has been brought in the statute, whereby there was a clear departure from the earlier position, is not applicable to that year. However, since the amendment vide Finance Act, 2003 to section 90 was held to be effective from 01/04/2004 and thus applicable from the assessment year 2004-05, therefore the year under consideration will be governed by the aforesaid amended provisions and Notification no. 91 of 2008 dated 28/08/2008 issued under section 90(3) of the Act is also applicable. We find that the coordinate bench of the Tribunal in Technimont (P.) Ltd. v/s ACIT, [2020] 116 taxmann.com 996 (Mumbai - Trib.), after taking into consideration the aforesaid amendment observed as under:- ―10. It may be recalled that, with effect from 1st April 2004, a new sub-section 3 was inserted in Section 90, and this new sub-section provided that "(a)ny term used but not defined in this Act or in the agreement referred to in sub- section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf". In exercise of the powers so vested in the Central Government, vide notification no. 91 of 2008 dated 28th August 2008, it was notified as follows: In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, provides that any income of a resident of India "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement.
The effect of Hon'ble Supreme Court's judgment in Kulandagan Chettiar's case (supra) thus was clearly overruled by the legislative developments. It was specifically legislated that the mere fact of taxability in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India and that "such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement". A coordinate bench of this Tribunal, in the case of Essar Oil Ltd (supra) also proceeded to hold that this notification was retrospective in effect inasmuch as it applied with effect from 1st April 2004 i.e. the date on which sub-section 3 was introduced in Section 90.‖ (emphasis supplied) 67. Therefore, in view of the above, we find no merit in the plea of the assessee. Accordingly, the additional ground filed by the assessee vide application dated 23/01/2013 is dismissed.‖
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 49. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. Therefore, respectfully following the aforesaid decision, the additional ground raised by the assessee vide application dated 23/01/2013 is dismissed.
The assessee, vide application dated 06/02/2015, sought admission of the following additional grounds of appeal:–
―1 On the facts and the circumstances of the case and in law the learned AO erred in not treating TUF subsidy of Rs.0.71 Cr as capital receipt and not chargeable to tax. 2 The Appellant prays that the learned AO be directed to increase the deduction allowed to the assessee on account of interest cost by Rs 0.71 Cr being TUF subsidy deducted from interest cost claimed during the year. 3 The Appellant craves leave to add and/or to amend and/or to alter the above Ground of Appeal.‖
The issue arising in the aforesaid additional ground of appeal is pertaining to treating the subsidy received by the assessee under Technology Upgradation Fund (“TUF”) Scheme as capital receipt and thus not chargeable to tax. Since, the issue raised by way of additional ground is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon‟ble Supreme Court in NTPC v/s CIT, [1998] 229 ITR 383 (SC).
52. As per the assessee, the TUF subsidy is provided by the Central Government to sustain and improve the competitiveness and overall long-term viability of the Textile Industry and as an incentive for technology upgradation of the textile industry. It was submitted that the subsidy is granted via - Resolution on TUFS on Techno-Operational parameters by the Ministry of Textiles in March 1999. We, at the outset, find that while deciding a similar issue the coordinate bench of the Tribunal in the case of subsidiary of the assessee held the interest subsidy received under the TUF scheme is capital in nature. The relevant findings of the coordinate bench of the Tribunal in DCIT v/s M/s Grasim Industries Ltd (successor to Aditya Birla Novo Ltd.), ITAs No. 84/Mum./2023 and 356/Mum./2023, vide order dated 12/06/2023, observed as under:-
―06. We have carefully considered the rival contention and perused the orders of the lower authorities as well as the decision of the coordinate bench. During the Page | 22
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 course of hearing before the coordinate bench in ITA number 2525/M/2014 for assessment year 2009 – 10, assessee raised an additional ground stating that interest subsidy received under technology upgradation fund scheme amounting to ₹ 83,426,992/– is revenue receipt. The coordinate bench as per paragraph number 12 of that decision remanded back this issue to the file of the learned assessing officer for de novo adjudication in accordance with the law. This decision was arrived at by in the earlier years also this issue was remanded back to the file of the learned assessing officer. Therefore based on this the learned AO proceeded to examine the claim of the assessee that whether the interest subsidy received under technology upgradation fund scheme is revenue receipt or capital receipt. It is also to be noted that assessee itself has reduced the above subsidy from the interest expenditure debited to the profit and loss account. Thus, assessee itself treated it as a revenue income and not capital expenditure. However in assessee‘s own case in ITA number 4220 and 4704/M/2014 dated 24/2/2020 it has been held that the subsidy received by the appellant company under technology upgradation fund scheme is capital receipt. The coordinate bench held as under:- ―8. Ground No. 11: 11. "On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in directing to treat the interest subsidy of ₹ 15,23,25,727/- as capital in nature." 38.1 In ground No.11 the Revenue has assailed the findings of CIT(A) in holding interest subsidy from Technology Up gradation Fund(TUF) ₹ 15,23,25,727/- as capital in nature. The ld. Authorized Representative for the assessee submitted that the Hon‘ble Rajasthan High Court in the case of PCIT vs. Nitin Spinners Ltd. in DB Income Tax appeal No.31/2019 decided on 19/09/2019 has held subsidy received under TUF as capital in nature. Similar view has been taken by Mumbai Tribunal in the case of ACIT vs. SVG Fashions Ltd. in for assessment year 2012-13 decided on 17/07/2018. The ld. Authorized Representative for the assessee to further buttress his submissions placed reliance on the following decisions:- (1) CIT vs. Gloster Jute Mills Ltd. ,96 taxmann.com 303 (Cal) (2) CIT vs. Sshyam Lal Bansal, 200 Taxman 14 (P&H) 38.2 The ld. Authorized Representative for the assessee further submitted that CIT(A) has decided this issue after seeking remand report of Assessing Officer and examining TUF scheme in details. The ld. Authorized Representative for the assessee further submitted that the Tribunal in assessee‘s appeal for assessment year 2009-10 (supra) has admitted this issue raised in additional ground of appeal and has restored to Assessing Officer for fresh adjudication.
39. The ld.Departmental Representative submitted that the issue may be restored to Assessing Officer for reconsideration in line with Tribunal order in assessee‘s appeal for Assessment Year 2009-10.
40. Both sides heard. The assessee has received subsidy under TUF scheme. The assessee has claimed the subsidy as capital receipt, whereas, the Department treated the subsidy as Revenue in nature. We find that the Hon‘ble Rajasthan High Court in the case of PCIT vs. Nitin Spinners Ltd.(supra) examined the scheme in the light of various decisions and held the subsidy under TUF scheme as capital in nature. Similar view has been taken by the Hon‘ble Calcutta High Court in the case of CIT vs.Gloster Jute Mills Ltd.(supra). Thus, in view of above judgements of Hon‘ble High Courts, we see no infirmity in the findings of CIT(A). The same are upheld and ground No.11 of the appeal is dismissed. Page | 23
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006
In the result, appeal of the Revenue is partly allowed for statistical purpose.‖ 07. Therefore in view of the above decision of the coordinate bench the issue is squarely covered in favour of the assessee wherein it has been held that interest subsidy received under technology upgradation fund scheme, though credited in the net off against the interest expenditure in the books of account is still capital in nature and therefore not chargeable to tax. Further the argument of the learned departmental representative has also been negated about the applicability of explanation 10 to section 43 (1) of the act by the decision of the coordinate bench in case of orbit exports (supra). In view of this both the grounds of appeal raised by the learned assessing officer are dismissed.‖
53. Therefore, respectfully following the decision of the coordinate bench cited supra, we direct the AO to treat the subsidy received under the TUF Scheme as capital in nature. As a result, the additional grounds raised by the assessee vide application dated 06/04/2015 are allowed.
The assessee, vide another application dated 30/01/2019, sought admission of the following additional grounds of appeal:–
―3.1 On the facts and the circumstances of the case and in law, the learned AO erred in treating Education cess as disallowable expenditure under Section 40(a)(ii) of the Act.
3.2 The Appellant prays that the learned AO be directed to allow deduction of Education Cess while computing the total income of the Appellant.
3.3 The Appellant craves leave to add and/or to amend and/or to alter the above Ground of Appeal.‖
55. The issue arising in the aforesaid additional grounds of appeal is pertaining to the disallowance of Education Cess under section 40(a)(ii) of the Act. Since the issue raised by way of additional ground is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration in view of the ratio laid down by the Hon'ble Supreme Court in NTPC v/s CIT, [1998] 229 ITR 383 (SC).
56. We find that Finance Act, 2022, with retrospective effect from 01/04/2005, inserted Explanation 3 to section 40(a)(ii), whereby it has been provided that the term 'tax' shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. We further find that the Hon'ble Supreme Court in JCIT Vs. Chambal Fertilisers & Chemicals Ltd., [2022] 145 Page | 24
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 taxmann.com 420 (SC) allowed the Revenue's appeal against the Hon'ble Rajasthan High Court's decision in Chambal Fertilisers & Chemicals Ltd. Vs. JCIT, [2019] 107 taxmann.com 484 (Raj.) and held that education cess paid by the respondent- assessee would not be allowed as an expenditure under Section 37 read with 40(a)(ii) of the Act. Therefore, in view of the above, the additional grounds raised by the assessee vide application dated 30/01/2019, are dismissed.
In the result, the appeal by the assessee is partly allowed for statistical purposes. ./2006 Revenue’s Appeal – A.Y. 2005–06
58. The Revenue, in its appeal, has raised the following grounds:– ―1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs.5,04,15,408/-u/s.43B by relying upon the order of the ITAT in the assessee's case for the AY 1993-94 without appreciating that the department had not accepted the same by filing an appeal u/s.260A.
2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs.23,91,188/- towards contribution to local organization, relying upon the CIT(A)'s orders in the assessee's own case for the Asst. Years 1999-2000 & 2001-02 which have been contested by the department in further appeal before the ITAT.
3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs.81,12,672/- made by the AO on account of rural development expenses, relying upon the CIT(A)'s orders in the assessee's own case for the Asst. Years 1996-97 & 2001-02 which have been contested by the department in further appeal before the ITAT.
4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to treat the production cost of the advertisement films of Rs.4,05,99,545/- as a revenue expenditure by relying upon his earlier orders for the Asst. Years 2002-03 and 2003-04 without appreciating that the department has not accepted the orders by filing appeal with the ITAT.
5. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of Rs.1,31,93,113/- as incurred towards earning of exempt dividend income by relying upon his decision for earlier years without appreciating that the same have not been accepted by the department by filing an appeal with the ITAT.
6. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO not to reduce the claim of deduction of Rs.1,00,90,705/- u/s.80-IA by relying upon his earlier orders on the issue for Page | 25 Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 Asst. Years 1996-97 to 2003-04 without appreciating that the department had not accepted the same by filing an appeal to the ITAT.
7. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to allow deduction of Rs.25,71,93,534/- u/s.80-IA in respect of profits of Rail System Raipur and Hotgi by relying upon his decision for the AYrs. 2003-04 without appreciating that the department has not accepted the same by filing an appeal with the ITAT.
8. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.‖
59. The issue arising in ground no.1, raised in Revenue‟s appeal, is pertaining to deletion of disallowance under section 43B of the Act.
60. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:– ―73. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 14/12/2021, passed in assessee‟s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee, by observing as under:– ―48. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - ―31. Ground No. 1 in Revenue‘s appeal relates to the disallowance u/s 43B of the Act which has been dealt with by the A.O. at para No. 9-9.5 of his order. The ld. CIT(A) dealt with this issue at page No. 2, para 5 of his order and deleted the disallowance by following the order of the Tribunal in earlier years. From the record, we found that the Tribunal has been consistently allowed the issue in favour of the assessee in assessment years 1990-91, 1993-94, 1994-95, 1996-97, 1997-98 & 1998-99. We further found that against the order of the Tribunal, the Department has not filed any appeal before the Hon‘ble High Court in assessment years 1996-97, 1997-98, 1995-96 & 1994-95. As the matter has been settled and the ld. CIT(A) deleted the disallowance by following the order of the Tribunal, we do not find any reason to interfere with the order of the Ld. CIT(A) deleting the disallowance made by the A.O. u/s 43-B of the Act.‖ 49. Respectfully following the above decision, we sustain the order passed by the Ld.CIT(A) and dismiss the Ground No.1 raised by the revenue.
74. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in Page | 26
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 the relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.1, raised in Revenue‘s appeal is dismissed.‖
In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.1, raised in Revenue‟s appeal is dismissed.
The issue arising in ground no.2, raised in Revenue‟s appeal, is pertaining to deletion of disallowance towards contribution to local organization.
Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:– ―78. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee, by observing as under:– ―52. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - ―32. With regard to the contribution to the local organization, the issue has been dealt with by the A.O. at page 6 -7, para 10 of his order. The ld. CIT(A) deleted the addition/disallowance by dealing the issue at page 3, para 7 of his order wherein he has followed the order of the Tribunal in earlier years.
We have considered the rival contentions and we found that the issue has been decided by the Tribunal consistently in favour of the assessee in the assessment years 1986-87 to 1989-90, 1994-95 & 1995-96 to 1997- 98. In an appeal further filed by the Revenue before the Hon‘ble High Court in assessment years 1988-89, 1994-95, 1995-96, the same has been decided in favour of the assessee. The order of the Tribunal for 2000-01 was not challenged by the Department before the Hon‘ble High Court on this issue. Respectfully following the order of the Tribunal and Hon‘ble High Court in assessee‘s own case, we do not find any reason to interfere with the order of the ld. CIT(A).‖ Page | 27
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Respectfully following the above decision, we sustain the order passed by the Ld.CIT(A) and dismiss the Ground No. 2 raised by the revenue. We order accordingly.‖ 79. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.2, raised in Revenue‘s appeal is dismissed.‖
In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.2, raised in Revenue‟s appeal is dismissed.
The issue arising in ground no.3, raised in Revenue‟s appeal, is pertaining to the deletion of disallowance on account of rural development expenses.
Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:–
―83. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee by observing as under:– ―60. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - ―38. Ground No. 6 of Revenue‘s appeal relates to the disallowance of rural development expenses. The A.O. has dealt with this issue at page 9, para 15 and the ld. CIT(A) has dealt with this issue at page 4-5, para 11 of his order. We found that the issue has been decided by the Tribunal in assessee‘s own case in its favour in assessment years 1998-99, 1999- 00 & 2000-01. We further found that the Department on this ground is not in appeal before the Hon‘ble High Court in these years. Respectfully following the order of the Tribunal, we do not find any reason to interfere
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 with the order of the ld. CIT(A) for deleting the rural development expenses amounting to Rs. 66,08,937/-.‖ 61. Respectfully following the above decision, we sustain the order of the Ld.CIT(A) and dismiss the ground raised by the revenue. We order accordingly.‖
84. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in the relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.3, raised in Revenue‘s appeal is dismissed.‖
In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.3, raised in Revenue‟s appeal is dismissed.
The issue arising in ground no.4, raised in Revenue‟s appeal, is pertaining to the deletion of disallowance made on account of expenses incurred for making advertisement films.
Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:–
―97. Having considered the submissions of both sides and perused the material available on record, we find that the Coordinate bench, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee by observing as under:– ―94. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - ―47. The issue in ground No. 13 with regard to deleting the disallowance of expenses incurred for making advertisement films has been dealt with by the A.O. at page 15-16, para 26. The ld. CIT(A) deleted the same after having observed at page 12-13, para 21 of his order. We found that the issue has already been settled by the Tribunal in assessee‘s own case in A.Y. 1976-77 and no ground was taken by the Department before the Hon‘ble High Court. Similar issue has been decided by the Hon‘ble Page | 29
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 Supreme Court in the case of Empire Jute Co. Ltd., 124 ITR 1 (SC). Accordingly, we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance by observing that advertisement film was made only for advertisement and its useful life is very short and such films do not add to the capital structure of the company.‖ 95. Respectfully following the above decision, we do not find any reason to interfere with the order of the Ld.CIT(A) and dismiss the ground raised by the revenue. We order accordingly.‖
98. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in relevant assessment year. This issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.6, raised in Revenue‘s appeal is dismissed.‖
In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.4, raised in Revenue‟s appeal is dismissed.
The issue arising in ground no.5, raised in Revenue‟s appeal, is pertaining to the deletion of disallowance made on account of earning exempt income.
The brief facts of the case pertaining to the issue, as emanating from the record, are: During the year under consideration, the assessee received a exempt dividend of Rs.34,16,21,175. During the assessment proceedings, the assessee submitted that the investments in shares/securities on which tax-exempt dividend is received were made out of internal accruals and own funds. It was further submitted that no borrowings were made for the purpose of making these investments and no expenditures were incurred for earning tax-exempt dividend income. The AO, vide assessment order passed under section 143(3) of the Act, computed the disallowance of Rs.1,31,93,113, as expenditure incurred for earning exempt income as per section 14A of the Act.
The learned CIT(A), vide impugned order, following the judicial precedents rendered in assessee‟s own case deleted the disallowance made by the AO under section 14A of the Act. Being aggrieved, the Revenue is in appeal before us.
Having considered the submissions of both sides and perused the material available on record, it is evident from the Balance Sheet of the assessee as no Page | 30
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 31/03/2005, forming part of the paper book on Page–71, that the assessee has share capital and reserves & surplus of Rs.4328.35 crore, while the investment made is of Rs.2982.05 crore during the year. Therefore, it is sufficiently evident that during the year under consideration, the assessee's own funds are more than investments, including the investments for earning exempt income. We including the investments find that the Hon'ble Jurisdictional High Court in CIT vs HDFC Bank Ltd., [2014] 366 ITR 505 (Bom.) held that where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities, no disallowance under section 14A of the Act can be made. We further find that the Hon'ble Supreme Court in South Indian Bank Ltd. vs CIT, [2021] 438 ITR 001 (SC) held that disallowance under section 14A of the Act would not be warranted where interest-free own funds exceed the investment in tax-free securities and in such a case the investment would be presumed to be made out of assessee's own funds. Therefore, respectfully following the law laid down by the Hon'ble Supreme Court and the Hon'ble jurisdictional High Court in cases cited supra, we find no infirmity in the impugned order in deleting the disallowance made under section 14A. Accordingly, ground no.5, raised in Revenue‟s appeal is dismissed.
The issue arising in ground no.6, raised in assessee‟s appeal, is pertaining to the apportionment of Head Office expenses to the Units eligible for deduction under section 80IA of the Act.
Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‟s own case for the assessment year 2003–04 cited supra, while deciding similar issue in favour of the assessee by following the decision rendered in the preceding year, observed as under:–
―109. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 14/12/2021, passed in assessee‘s own case for the assessment year 2002–03, while following the decision rendered in the preceding year, decided the similar issue in favour of the assessee, by observing as under:– ―109. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02 in favour of the assessee. While deciding the issue in favour of the assessee the Coordinate Bench of the Tribunal in ITA.No. 4083/Mum/2003 dated 22.10.2014 held as under: - ―54. The issue in ground No. 18 pertains to the apportionment of head Office expenses while computing deduction u/s 80IA of the Act. Page | 31
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006
55. This issue has been dealt with by the ld. CIT(A) vide his order in page 15-16, para 23.5 & 23.6. We found that the issue has been decided by the Tribunal in assessee‘s own case in its favour in assessment years 1994-95 to 1998-99 and the Department is not in appeal against the order of the Tribunal. Respectfully following the order of the Tribunal, we do not find any reason to interfere with the order of ld. CIT(A) on this issue..‖ 110. Respectfully following the above decision, we do not find any reason to interfere with the order of the Ld.CIT(A) and dismiss the ground raised by the revenue. We order accordingly.‖ 110. The learned DR could not show us any reason to deviate from the aforesaid decision rendered in assessee‘s own case and no change in facts and law was alleged in relevant assessment year. This issue has been decided in favour of the assessee in the preceding years also. Therefore, respectfully following the judicial precedent in assessee‘s own case cited supra, ground no.9, raised in Revenue‘s appeal is dismissed.‖
In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. We find that this issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.6, raised in Revenue‟s appeal is dismissed.
The issue arising in ground no.7, raised in assessee‟s appeal, is pertaining to the claim of deduction under section 80IA of the Act in respect of profit derived from Rail System at Raipur, and Hotgi.
Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench, vide order dated 23/06/2023, passed in assessee‟s own case for the assessment year 2004–05 cited supra, while deciding a similar claim in favour of the assessee in respect of Rail System at Raipur and Hotgi, observed as under:–
―107. Having considered the submissions of both sides and perused the material available on record, we find that the coordinate bench of the Tribunal, vide order dated 13/06/2023, passed in assessee‘s own case for the assessment year 2003–04 cited supra, while deciding similar claim in favour of the assessee in respect of Rail System at Raipur, observed as under:– ―122. We have considered the submissions of both sides and perused the material available on record. In the present case, it is undisputed that the assessee has a cement plant in Raipur District. It is the claim of the assessee that to facilitate the inward and upward movement of goods, the assessee company developed an infrastructure facility for the rail system and the same satisfies the conditions for deduction under section 80-IA of the Act. We find that the assessee on this aspect made detailed submissions before the AO, Page | 32
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 which have been recorded in para 21.3 of the assessment order. Similarly, the assessee also made submissions before the learned CIT(A), which have been recorded in para 16.4-16.13 of the impugned order, as under:- ―16.4 The appellant made detailed submission with regard to the issue in dispute before the undersigned. It stated that the appellant company had established a cement plant in Raipur. The nearest available Railway Siding was at a distance of around 20 kilometres from the plant. To facilitate inward and outward movement of goods, the appellant developed infrastructure facility of Rail System. which was made operative in September 1999. The appellant company duly entered into an agreement with Southern East Railway, which is a part of Government of India. It was submitted that there was option available u/s 801A with the appellant to claim deduction for any 10 consecutive years at its own choice. The appellant has opted for claiming the deduction from AY2003- 04 onwards. The income offered for tax by the appellant includes income from Rail System. 16.5 The appellant further submitted that the Rail System is a 'Profit Centre'. The Rail System is engaged in business of providing transportation facility to the cement plant, profit of which is embedded in the profit of the appellant company as a whole. By developing this infrastructure facility, there has been a saving in transportation cost and all over profits of the Company has increased due to such savings. All the businesses of the appellant company are interconnected. interlaced and there is common management, funds and control. Profits of the Rail System are embedded in the overall profit of the company. In support of contention that treatment of a transaction in books of account cannot govern the tax statement, the appellant relied on the decisions of the Supreme Court 82 ITR 363 Kadernath Jute Mfg. Co. Ltd Vs. CIT and 227 ITR 172 Tuticurin Alkali Chemical Ltd. 16.6 The appellant further submitted that Sec. 80IA(8) itself contemplates a situation where goods or services are transferred by an eligible undertaking to non eligible undertaking and vice versa. In such cases, deduction is to be allowed based on the market value of such goods or services. It was submitted that Section Itself envisages situation of captive consumption. Reliance was placed 59 ITR 514(Gui.) Anil Starch Ltd. vs CIT. 254 ITR 187(Bom.) CIT vs. Win Laboratories Pvt Ltd and 48 ITR 123(SC) Tata Iron & Steel Co. Ltd. vs State of Bihar. 16.6 Further, it was submitted that the facility of Rail System consists of all that is required to carry on the railway activity in an organised and systematic manner. The activity of Rail System is real and substantial and it is carried on with a said purpose, namely, transportation of goods from one place to another and thereby augmenting profits of the company as a whole by saving transportation cost which it would have otherwise incurred. The profits derived from the Rail System are clearly arising out of the business of developing, operating and maintaining the Rail System. 16.7 The appellant submitted that substantial investment has been made in setting up the Rail System. All the assets are new assets and were not used for any purpose by any person earlier. There is an agreement with the Government for operating and maintaining the Rail System. It employees required personnel directly or through the railway authorities and is bearing the salary cost. relating thereto. Rail System is developed on the basis of entirely different technology and employs different equipment and machinery from those applied by the cement Page | 33
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 unit for cement production. It was also submitted that the Rail System is not formed by splitting up on reconstruction of a business already in existence or by the transfer to a new business of machinery previously used for any purpose. It was therefore, argued that the Rail System is not a part of the cement unit but is an independent unit. 16.8 The appellant submitted that the conditions specified in Section 801A (4)() in respect of an infrastructure facility are fully satisfied in the present case. The Rail System is owned by the appellant company which is a company registered in India. The appellant has entered into an agreement with the Central Government for operating and maintaining the new infrastructure facility. It has started operating and maintaining the infrastructure facility after 1st April 1995. 16.9 The appellant submitted that there is no basis on which the Assessing Officer has mentioned that the legislature's intention was to cover organisations like Konkan Railway, Delhi Metro Corporation, etc. There is no such specific mention in the Act. The appellant relied on the decision of the Bajaj Tempo Ltd vs CIT 156 ITR 188(SC). 16.10 Regarding maintenance of separate books of account, the appellant submitted that there is no such condition for grant of tax holiday benefit. Although separate books of account are not maintained, profit of the eligible business has been computed based on the memorandum books of account and other details maintained by the appellant. The Balance Sheet and Profit & Loss account of the eligible business has been audited by the Chartered Accountant. The appellant has filed along with its Return of Income the form No. 10CCB, duly audited, as per the provisions of Section 801A(7). In the case of CIT vs Dunlop Rubber Co (1) Ltd. 107 ITR 182 (Cal.) it was held that for the purpose of tax holiday benefits it is not necessary that the eligible unit must maintain separate books of account. 6.12 The appellant submitted that the number of employees directly employed in the eligible business is not relevant at all. There is an agreement with the railway authority for operation and maintenance of the Rail System and under the said agreement, the operations and maintenance is to be carried out by the railways and the appellant bears the cost of the employees deputed by the railway authorities for this purpose. It is settled position that in order to compute the number of workers, casual and other workers appointed through the contractors have to be taken into consideration. The number of employees, including appointed through the railway authorities, would far exceed 10. The appellant relied 152 ITR 152(Kar.), K.G. Yediyurappa & Co, and 99 Taxmann 229 Vikshana Tdg & Investment Pvt Ltd. In any case, the condition of employing a minumum of 10 workers is not applicable to an infrastructure enterprise. 16.13 The appellant argued that the AO's allegations that it has no control over the operations of the Rail system, is baseless and without merits. Merely because the workers are deputed by the railway under the operations and maintenance agreement, does not mean that the appellant has no control over the Rail System. It is not open for the railway authority to use the faclity for any purpose other than for the purpose of appellant's business. The entire loading and unloading is done under the insistence of and supervision of the appellant. The appellant decides the destination to which the material is to be transported. Entire risk and reward in relation to the Rail Sytem are of the appellant.
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 Therefore, it was submitted that the appellant has effective and total control over the Rail System.‖ 123. After considering the aforesaid submission, the learned CIT(A) vide impugned order came to the conclusion that all the 3 conditions required to be fulfilled as per section 80-IA(4)(i) of the Act are satisfied by the assessee. At the outset, it is pertinent to note that in respect of the same rail terminal at Rawan District, Raipur, deduction under section 80-IA of the Act was allowed in the case of assessee‘s subsidiary company in UltraTech cement Ltd v/s DCIT, in ITA No. 1412/Mum./2018, etc., vide order dated 14/12/2021, by the coordinate bench of the Tribunal.
In the assessment order, the AO held that in the present case, the rail system does not have any agreement with the authorities mentioned above. On the contrary, the learned DR though agreed that the assessee has entered into an agreement with South-Eastern Railway administration on 10/04/2000 for the Rail System at Rawan District, Raipur, however, submitted that the same is subsequent to the commencement of operations on 25/09/1999. The learned DR also submitted that since the infrastructure facility was made operational during the financial year 1999-2000, therefore, the claim of benefit under section 80-IA for the alleged infrastructure facility is to be examined as per the provisions of the Act relevant for the financial year 1999-2000. The learned DR also submitted that as per the provisions of section 80-IA (4)(i)(b) of the Act, as applicable for the financial year 1999-2000, such undertaking was required to be transferred to the Central Government, State Government, local authority or such other statutory body. However, the agreement dated 10/04/2000 does not have any such clause and therefore the same is not in conformity with the provisions of the Act. From the perusal of the record, it is evident that aforesaid submissions made by the learned DR were not the basis for disallowance under section 80-IA of the Act. In this regard, the following observations of the Special Bench of the Tribunal in Mahindra and Mahindra Ltd vs DCIT, [2009] 30 SOT 374 (Mumbai) (SB), becomes relevant:- ―In our considered opinion the learned Departmental Representative has no jurisdiction to go beyond the order passed by the Assessing Officer. He cannot raise any point different from that considered by the Assessing Officer or CIT(A). His scope of arguments is confined to supporting or defending the impugned order. He cannot set up an altogether different case. If the learned DR is allowed to take up a new contention de hors the view taken by the Assessing Officer that would mean the learned A.R. stepping into the shoes of the CIT exercising jurisdiction under section 263. We, therefore, do not permit the learned DR to transgress the boundaries of his arguments.‖ 125. Therefore, on this preliminary basis only, as noted by the Special Bench of the Tribunal in the aforesaid decision, the contention of the learned DR is rejected. Even otherwise, it is an accepted position that the assessee did not make any claim in the first year of its operation and the claim was made for the first time in the year under consideration, i.e. assessment year 2003-04. Therefore, we are of the considered view that in order to determine the eligibility of the assessee for deduction under section 80-IA of the Act, the provisions of the Act as applicable for this year become relevant. We find that vide Finance Act 2001, w.e.f. 01/04/2002, the provisions of section 80-IA (4) of the Act were amended and the same reads as under:- ―(4) This section applies to— (i) any enterprise carrying on the business of (i) developing or ( ii) operating and maintaining or (iii) developing, operating and Page | 35
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 maintaining any infrastructure facility which fulfils all the following conditions, namely :—
(a) it is owned by a company registered in India or by a consortium of such companies;
(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;
(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995:‖
We find that all the aforesaid conditions are satisfied in the present case for claiming deduction under section 80-IA of the Act. As regards the submission of the learned DR that the assessee has constructed a private siding for captive use, we find that similar submission was rejected by the coordinate bench of the Tribunal in the case of assessee‘s subsidiary company in UltraTech cement Ltd (supra), vide order dated 14/12/2021. Further, even though the agreement was entered on 10/04/2000, and the operations commenced in September 1999, it is pertinent to note that the parties to the agreement have honoured the said agreement, and the rights granted therein were not revoked for this reason and the said agreement was still valid in the year under consideration. In view of the aforesaid findings and respectfully following the decision of the coordinate bench cited supra, we find no infirmity in the impugned order allowing deduction under section 80-IA of the Act to the assessee in respect of profits from the rail system. As a result, ground no.11 raised in Revenue‘s appeal is dismissed.‖ 108. The learned DR made similar submissions, as were made in the preceding assessment year. The learned DR reiterated that the operations commenced prior to entering of the agreement by the assessee with the concerned Railway Authorities. We find that the coordinate bench of the Tribunal in the preceding year duly considered similar arguments of the learned DR and found no merits in the same. We also find that as per section 80IA(4) of the Act, one of the conditions for applicability of the section is that there has to be an agreement entered with the other Statutory Body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facilities. No material has been brought on record to show that such an agreement does not exist in the present case and the only plea raised by the learned DR is that such an agreement is post the commencement of operation and, therefore, the assessee does not satisfy the conditions as provided in section 80IA(4) of the Act for availing the benefit of the said section. However, we find that the language of the section does not support the submissions so made by the learned DR, as there is no specific requirement in the section that such an agreement should be prior to the operation. We find that the said section only requires that there has to be an agreement, which condition as noted by the coordinate bench of the Tribunal in the preceding year is duly satisfied. In the absence of any allegation of change in facts and law as compared to the preceding year, we find no reason to deviate from the view so taken by the coordinate bench in the preceding year. Therefore, respectfully following the decision of the coordinate bench cited supra rendered in assessee‘s own case, we find no infirmity in the impugned order in allowing deduction under section 80IA of the Act to the assessee in respect of profits from Rail System, Raipur, and Hotgi. As a result, ground no.7, raised in Revenue‘s appeal is dismissed.‖
Grasim Industries Ltd. ITA no.3517/Mum./2006 ITA no.3854/Mum./2006 80. In the absence of any allegation regarding the change in facts or in law in the present case, we find no reason to deviate from the conclusion so reached by the coordinate bench in the preceding year. Therefore, respectfully following the judicial precedent in assessee‟s own case cited supra, ground no.7, raised in Revenue‟s appeal is dismissed.
Ground no.8, being general in nature, and hence, no adjudication is required.
In the result, the appeal by the Revenue is dismissed.
To sum up, the appeal by the assessee is partly allowed for statistical purposes, while the appeal by the Revenue is dismissed. Order pronounced in the open Court on 04/07/2023
Sd/– Sd/– AMARJIT SINGH SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER