SOUTH INDIA CORPORATION LTD. vs. ASST. COMMISSIONER, INCOME TAX

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ITA/74/2008HC KeralaKLHC01026979200807 January 2019Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON9 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held in favour of the assessee on the common issue regarding Section 80-IA. Citing CBDT Circular No. 1/2016, dated February 15, 2016, which clarifies Section 80-IA(5), the Court ruled that the 'initial assessment year' is the first year opted for by the assessee to claim the deduction. The assessee is entitled to notional carry forward from that chosen year, provided the claim is continuous and within the prescribed slab of years. The Tribunal's order on this point was reversed. Regarding the sales tax refund (assessment year 2002-03), the Court found no reason to interfere with the Tribunal's direction, noting sufficient safeguards were made for potential future claims if the Supreme Court decided against the assessee. This question was answered against the assessee. For the office repairs (assessment year 2003-04), the Court held that the expenditure provided an enduring benefit and thus constituted capital expenditure, affirming the Tribunal's order in favour of the Revenue. The appeals were therefore partly allowed.

What were the facts?

The appeals by South India Corporation Ltd. (the assessee) are against the orders of the Income Tax Appellate Tribunal (ITAT) for assessment years 2002-03 and 2003-04. The common issue concerns the claim for deduction under Section 80-IA of the Income Tax Act, 1961, related to a windmill established by the assessee. The assessee had incurred losses on the windmill which were absorbed by other businesses and notionally carried forward. The dispute with the Revenue and the ITAT's initial finding was on the period from which this notional carry forward should be calculated. Additionally, for assessment year 2002-03, the issue pertains to the treatment of a refunded sales tax liability of Rs. 88,44,425/-. For assessment year 2003-04, the dispute is whether expenditure on office repairs constitutes revenue or capital expenditure.

What were the issues?

1. (Mixed law and fact) Whether the notional carry forward of losses for claiming deduction under Section 80-IA should be from the date of commencement of the windmill business or from the initial assessment year chosen by the assessee for claiming the deduction, as per Section 80-IA(2) and (5)? - Assessee's contention: The assessee argued that the initial assessment year for claiming deduction under Section 80-IA is the year opted for by the assessee, and notional carry forward should commence from that year. - Revenue's contention: The Revenue, and initially the Tribunal, contended that the carry forward should be from the date of inception of the windmill business. 2. (Mixed law and fact) Whether a refunded sales tax liability of Rs. 88,44,425/-, which was subject to a pending appeal before the Supreme Court, should be treated as income under Section 41(1) in assessment year 2002-03? - Assessee's contention: The assessee claimed it should be kept as a contingent liability as an appeal was pending. - Revenue's contention: Not recorded. 3. (Mixed law and fact) Whether expenditure incurred on repairs to the office building using Plaster of Paris, providing enduring benefit, is revenue or capital expenditure in assessment year 2003-04? - Assessee's contention: The assessee likely argued it was revenue expenditure. - Revenue's contention: The Revenue likely argued it was capital expenditure.

Which sections of the Income-tax Act were involved?

Section 80-IA,Section 41(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 07TH DAY OF JANUARY 2019 / 17TH POUSHA, 1940 ITA.No. 74 of 2008 AGAINST THE ORDER/JUDGMENT IN ITA 45/2006 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: SOUTH INDIA CORPORATION LTD. RANI MEYYAMMAI BUILDING, KPK MENON, ROAD, WILLINGDON ISLAND, ERNAKULAM,, COCHIN-03. BY ADVS. SMT.LATHA ANAND S.SRIDHAR RESPONDENT/S: ASST. COMMISSIONER, INCOME TAX ERNAKULAM, COCHIN. OTHER PRESENT: JOSE JOSEPH,SC THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.01.2019, ALONG WITH ITA.75/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.74/2008 & 75/2008 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 07TH DAY OF JANUARY 2019 / 17TH POUSHA, 1940 ITA.No. 75 of 2008 AGAINST THE ORDER/JUDGMENT IN ITA 455/2006 of I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S.SOUTH INDIA CORPORATION LTD. RANI MAYYAMMAI BUILDING, KPK MENON ROAD, WILLINGDON ISLAND, ERNAKULAM, COCHIN-03., BY ADVS. SRI.B.S.KRISHNAN (SR.) SMT.LATHA ANAND SRI.K.ANAND (SR.) RESPONDENT/S: THE COMMISSIONER OF INCOME TAX, ERNAKULAM, COCHIN. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07.01.2019, ALONG WITH ITA.74/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.74/2008 & 75/2008 3 JUDGMENT I.T.A.Nos. 74 of 2008 and 75 of 2008 Vinod Chandran, J A common question arise in both the appeals for the years 2002-03 and 2003-04 and a separate question also arise in each of the said years. The common issue is with respect to the claim under Section 80 IA of the Act. The assssee admittedly established a wind mill in an earlier year and started claiming deduction under Section 80 IA from 2002-03 onwards. It is an admitted fact that the loss incurred by the assessee on installation of wind mill and absorbed by the other businesses of the assessee has to be notionally carried forward for the purpose of claiming the deduction under Section 80 IA. There is no dispute on that aspect. But however, the Tribunal found that such carry forward has to be from the date of inception

ITA Nos.74/2008 & 75/2008 4 of the wind mill, which is the commencement of the business. 2. As of now, the question stands covered in favour of the assessee by virtue of Circular No.1/2016 dated 15.02.2016 issued by the Central Board of Direct Taxes (CBDT). The CBDT had extracted sub-section (5) of Section 80 IA and declared so which is binding on the department and its officers: “The matter has been examined by the Board. It is abundantly clear from sub-section (2) that an assessee who is eligible to claim deduction under Section 80 IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years,as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction under Section 80

ITA Nos.74/2008 & 75/2008 5 IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfilment of conditions prescribed in the section. Hence the term “initial assessment year” would mean the first year opted for by the assessee for claiming deduction under Section 80 IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.” 3. Hence the question of law has to be answered in favour of the assessee and against the Department. The initial year for the purpose of Section 80 IA, is the initial assessment year from which the claim of deduction is commenced and the assessee is entitled to the notional carry forward from that particular year. The order of the Tribunal is reversed to that extent.

ITA Nos.74/2008 & 75/2008 6 4. One other question arising in the year 2002-03 is as to the claim under Section 41(1) of the Income Tax Act. The assessee had in an earlier year paid up an amount of Rs.88,44,425/- as sales tax liability which was refunded to them in the subject assessment year by virtue of a decision of the jurisdictional High Court. The assessee claimed that it has to be kept as a contingent liability since an appeal is pending before the Hon'ble Supreme Court. The Tribunal found that as and when and if the Supreme Court decides against the assessee, the assessee would be able to claim the amount again as expenditure. We find that sufficient safeguards have been made by the Tribunal to that end and we find no reason to interfere with the directions of the Tribunal. The question stands answered against the assessee. 5. In the year 2003-04 the question is as to whether the expenditure incurred insofar as carrying out repairs of the office of the assessee should be a revenue expenditure or a capital expenditure. The

ITA Nos.74/2008 & 75/2008 7 expenditure incurred was insofar as making repairs of the office building itself, by using Plaster of Paris. The same having an enduring benefit to the business of the assessee has to be treated as capital expenditure and hence we find no reason to interfere with the order of the Tribunal. The question of law raised is answered in favour of the Revenue and against the assessee. The appeals would stand partly allowed. No order as to costs.

Sd/-

K.VINOD CHANDRAN Judge Sd/-

ASHOK MENON

Judge jma

ITA Nos.74/2008 & 75/2008 8 APPENDIX OF ITA 74/2008 PETITIONER'S/S EXHIBITS: ANNEXURE-1 TRUE COPY OF ASSESSMENT ORDER FOR THE YEAR 2002-2003. ANNEXURE-2 TRUE COPY OF APPELLATE ORDER DATED 11/05/2006 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE-3 TRUE COPY OF ORDER DATED 18/01/2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH.

ITA Nos.74/2008 & 75/2008 9 APPENDIX OF ITA 75/2008 PETITIONER'S/S EXHIBITS: ANNEXURE-1 TRUE COPY OF ASSESSMENT ORDER FOR THE YEAR 2003-04. ANNEXURE-2 TRUE COPY OF APPELLATE ORDER DATED 11/5/06 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ANNEXURE-3 TRUE COPY OF ORDER DATED 18/1/2008 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH.

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