UNITED PHOSPHOROUS LIMITED vs. JT.COMMISSIONER OF INCOME TAX

O/TAXAP/344/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 344 of 2002

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ UNITED PHOSPHOROUS LIMITED....Appellant(s) Versus JT.COMMISSIONER OF INCOME TAX....Opponent(s) ================================================================ Appearance: MRS SWATI SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 6

O/TAXAP/344/2002 JUDGMENT

Date : 11/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. While   admitting   the   appeal   on   24.12.2001,   the   following questions of law were formulated for our determination; “(i)  Whether, in the facts and circumstances of the case the ITAT was right in law in holding that the alleged income from Advance   License   Benefit   Receivable   ("ALBR"   for   short)   is taxable in the year under consideration even though the said income has accrued to the appellant in the subsequent years? (ii) Whether in the facts and circumstances of the case the ITAT was right in law in holding that the alleged income from the   Pass   Book   Scheme   is   taxable   in   the   year   under consideration? (iii) Whether in the facts and circumstances of the case the ITAT was right in law in holding that premium of leasehold land cannot be allowed on proportionate basis spread over the period of lease, which is totally contrary to the decision of Hon’ble the Supreme Court in the case of Madras Industrial Investment Corporation Limited v. CIT (225 ITR 802)? (iv) Whether, in the facts and circumstances of the case, the ITAT was right in law in allowing deduction u/s.80M after deducting   management   expenses   from   the   gross   dividend Page 2 of 6

O/TAXAP/344/2002 JUDGMENT received when no such expenses have been incurred by the appellant? (v) Whether, in the facts and circumstances of the case, the ITAT  was right  in law in not granting  set  off of interest expenditure   against   interest   income   for   the   purpose   of calculating deduction u/s.80HHC of the Act?

(vi) Whether, in the facts and circumstances of the case, the  ITAT was right in law in setting aside for fresh adjudication  the issue of the levy of interest u/s 234B of the Act though it  was  not  specifically  levied in the body  of the assessment  order and therefore the same could not be levied?"    2. Briefly stated, the facts are that the assessee had filed its  return of income for the A.Y. 1996­97 declaring total income at  Rs.Nil   on   28.11.1996.   Vide   order   dated   24.03.1999,   the   A.O  assessed   the   income   of   the   assessee   at   Rs.19,84,30,202/­.   The  assessee   challenged   the   said   order   by   filing   appeal   before   the  CIT(A). The CIT(A) partly allowed the appeal vide order dated  15.03.2000. Against the said order, the assessee filed appeal before  the Appellate Tribunal. The Appellate Tribunal, vide order dated  13.03.2002,   partly   allowed   the   appeal.   Being   aggrieved   by   the  order passed by the Appellate Tribunal, the present appeal has  been preferred. 3. We have heard learned counsel for both the sides. Insofar as  Page 3 of 6

O/TAXAP/344/2002 JUDGMENT questions   no.(i)   &   (ii)   are   concerned,   the   issues   are   already concluded   by   the   decision   of   the   Apex   Court   in   the   case   of Commissioner of Income­tax v. Excel Industries Ltd., [2013] 358 ITR 295  wherein, it has been held that where any real business income has not accrued but only hypothetical income has accrued to   the   assessee,   then   Section   28(iv)   of   the   Act   would   not   be applicable. In view of the principle propagated by the Apex Court, the questions no.(i) & (ii) are answered in favour of the assessee and against the Revenue. 4. Insofar as question no.(iii) is concerned, the issue is already concluded by the decision of Apex Court in the case of  Deputy Commissioner of Income­tax v. Sun Pharmaceuticals Ind. Ltd., [2010] 329 ITR 479 (Guj). In that case, the Appellate Tribunal found that the land in question was not acquired by the assessee. It was   held   that   merely   because   the   deed   was   registered,   the transaction in question would not assume a different character. The lease rent was very nominal and by obtaining the land on lease, the capital structure of the assessee did not undergo any change. It was further held that the assessee only acquired a facility to carry on business profitably by paying nominal lease rent and that the lease rent   paid   by   the   assessee   to   GIDC   was   allowable   as   revenue expenditure. In view of the above principle, the question no.(iii) is answered in favour of the assessee and against the Revenue. 5. Insofar as  question  no.(iv) is concerned,  the  assessee has claimed deduction u/s.80M. However, the assessee has not shown any  management  expenditure   or   office   expenditure,   which  was Page 4 of 6

O/TAXAP/344/2002 JUDGMENT necessary for earning dividend. The Apex Court in the case of CIT v. United General Trust Ltd., 200 ITR 488, has held that relief u/s.80M   must   be   allowed   on   net   dividend   after   deducting proportionate management expenditure. Similarly, in the case of Distributor, Vadodara Pvt. Ltd. v. Union of India, 156 ITR 120, the Apex Court held that relief u/s.80M was not available on gross amount   of   dividend   without   deduction   of   proportionate management   expenditure.   Accordingly,   question   no.(iv)   is answered in favour of the assessee and against the Revenue. 6. Insofar as question no.(v) is concerned, the issue is already concluded by the decision of the Apex Court in the case of  ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income­tax, [2012] 343 ITR 89 (SC)  wherein, it has been held that for the purpose of Section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit but, the sale value less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee. Accordingly, the question no.(v) is answered in favour of the assessee and against the Revenue. 7. Insofar   as   question   no.(vi)   is   concerned,   the   Appellate Tribunal has placed reliance upon the decision of the Apex Court in the case of CIT v. Ranchi Club Ltd., 164 CTR 200 wherein, it was held that in the absence of any specific mention by the assessing authority in the assessment order in respect of charging interest u/s.234A and 234B, no interest could be recovered merely by way of demand notice. However, subsequently, by Finance Act, 2001, Sections   140A   and   234A/B   were   amended   retrospectively   with Page 5 of 6

O/TAXAP/344/2002 JUDGMENT effect from 01.04.1989. In light of the above scenario, the Appellate Tribunal remitted the matter to the A.O for deciding the same afresh. In our opinion, the view taken by the Appellate Tribunal is just and appropriate considering the amendment of Section 234A/B of the Act. Accordingly, question no.(vi) is answered in favour of the assessee and against the Revenue. 8. In view of the aforesaid, the appeal stands disposed of. (K.S.JHAVERI, J.) (K.J.THAKER, J) Pravin/* Page 6 of 6