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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” Bench, Mumbai Before S/Shri B.R.Baskaran (AM) & Amarjit Singh (JM)
I.T.A. No. 4613/Mum/2016 (Assessment Year 2010-11)
DCIT 4(1)(2) M/s. Deegee Orchards 6th Floor, Room No. Vs. Pvt. Ltd. 640 4th Floor, Central Aayakar Bhavan Building No. 3, Master M.K. Road Bomanji Lane, Mumbai-400 020. Kalbadevi Mumbai-400 002. (Appellant) (Respondent)
C.O. No. 166/Mum/2018 (Assessment Year 2010-11)
M/s. Deegee Orchards DCIT 4(1)(2) Pvt. Ltd. Vs. 6th Floor, Room No. 4th Floor, Central 640 Building No. 3, Master Aayakar Bhavan Bomanji Lane, Kalbadevi M.K. Road Mumbai-400 002. Mumbai-400 020. (Appellant) (Respondent)
PAN : AABCD3086F
Assessee by Shri Jitendra Jain Department by Ms. N. Hemalatha Date of Hearing 28.6.2018 Date of Pronouncement 08.8.2018
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the revenue and the cross objection filed by the assessee are directed against the order passed by Ld CIT(A) and it relates to the assessment year 2010-11.The revenue is aggrieved by the decision of Ld CIT(A) in holding that the Sales tax incentive received by the assessee is capital receipt and not liable to tax. The assessee has filed Cross objection contending therein that the Sales tax subsidy, being capital receipt, should be excluded while computing book profit u/s 115JB of the Act.
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The registry has noted down that the appeal of revenue is barred by limitation by 365 days. The Ld D.R submitted that the date of receipt of order of Ld CIT(A) has been wrongly mentioned as 06-05-2015 in From No.36 and hence the Registry has computed the delay accordingly. He submitted that the Ld CIT(A) has passed the order on 04-05-2016 and the same has been received by the AO on 13.5.2016. The present appeal has been filed on 04-07-2016 and hence there is no delay in filing the appeal. On perusal of the record, we find that the submissions made by Ld D.R to be correct. Accordingly we hold that the appeal has been filed by the Revenue within the time prescribed under the Act.
The cross objection filed by the assessee is also barred by limitation by 543 days. The assessee has moved a petition before the bench praying the bench to condone the delay. The Ld A.R submitted that the assessee has taken a specific ground before Ld CIT(A) that the Sales tax incentive is a Capital receipt. Further in the financial statements also, the assessee has specifically stated that the sales tax incentive is not exigible to tax both under the normal provisions and also for computing book profit u/s 115JB. However, the said claim was omitted to be pressed before the AO during the course of assessment proceedings. The said mistake was pointed out by the Counsel to whom the appeal work relating to Tribunal was entrusted. Accordingly, as per the advice given by the new Counsel, the assessee has filed the cross objection. The Ld A.R submitted that the delay in filing cross objection has occurred due to inadvertence of the Counsel who represented before the lower authorities. Accordingly he prayed that the delay in filing cross objection may be condoned. The Ld A.R, in this regard, placed reliance on the decision rendered by Hon’ble Supreme Court in the case of N. Balakrishnan Vs. M. Krishnamurthy (1998)(7 SCC 123), wherein it is held that the length of delay is no matter, acceptability of explanation is the only criterion. The Ld A.R also placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Khatiji and
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others (167 ITR 471)(SC) in order to contend that the substantial justice should be preferred over the technical considerations.
The Ld D.R, on the contrary, objected to the petition filed by the assessee. The ld D.R submitted that the assessee has not raised any specific plea with regard to computation of book profit u/s 115JB of the Act before the lower authorities. He submitted that the assessee is being assisted by professionals and accordingly submitted that the plea of the assessee should not be accepted.
In the rejoinder, the Ld A.R further submitted that the purpose of tax appeal and grounds urged therein is to determine the correct tax liability of the assessee, since tax appeal cannot be considered as a lis between the assessee and the revenue. He submitted that the Hon’ble Madras high Court has held in the case of CIT Vs. Indian Express (Madurai) P Ltd (1983)(140 ITR 0705) that the assessee is not precluded from raising new contentions and the Tribunal was not precluded from examining and determining those contentions, merely on the score that it had not been put forward at the earlier stages of the proceedings in assessment and in the first appeal. He further submitted that the issue urged in the Cross objection is a legal issue and all the facts relating thereto are available on record. Accordingly he prayed that the delay be condoned and the Cross objection be admitted.
We have heard rival contentions on this preliminary issue. From the copy of return of income filed by the assessee, we notice that the assessee has put a specific note that the sales tax incentive is a capital receipt and the claim for exclusion of the same shall be made at the time of assessment. We notice that both the assessee as well as the assessing officer ignored the note so put in the statement of total income. Though the assessee claimed the sales tax incentive as capital receipt before Ld CIT(A), yet it did not putforth its claim for exclusion of same for the purposes of computing book profit u/s 115JB of the Act. The submission of the assessee is that the earlier counsel of the assessee did not
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pursue this issue properly before the tax authorities. When a new counsel was engaged for the Tribunal work, the new counsel has pointed out this omission and accordingly the present cross objection came to be filed belatedly. Even though it is the duty of the assessee to put forth correct claims, yet we are of the view that there is mistake on the part of earlier counsel also. Considering the facts discussed above and further considering the fact that the assessee has sought to raise a claim in the Cross objection, which were already mentioned in the return of income filed before the AO, we are of the view that there is reasonable cause for the delay in filing cross objection. Accordingly, we condone the delay and admit the cross objection.
We shall first take up the appeal filed by the revenue, wherein the revenue is contesting the decision rendered by Ld CIT(A) in holding that Sales tax incentive received by the assessee is a capital receipt and hence not liable for tax.
We heard the parties on this issue. We notice that the Ld CIT(A) has followed the decision rendered on an identical issue in the assessee’s own case by the Tribunal in ITA Nos.125 to 129, 60 & 261/Nag/2013 for assessment years 2003-04 to 2009-10, vide its order dated 31-07-2015. The Ld CIT(A) has noticed that the Tribunal had followed its decision rendered in the case of M/s Narendra Vegetable Products P Ltd (ITA No.118 to 124/Nag/2013) in this regard. Before ld CIT(A), the assessee has also placed reliance on the decision rendered by Special Bench of Tribunal in the case of Reliance Industries ltd (88 ITD 273), which was also followed in the case of NarendraVegetable Products P Ltd. Accordingly, the Ld CIT(A) has held that the sales tax incentive, being a capital receipt, cannot be assessed to tax.
At the time of hearing, the Ld A.R submitted that the Mumbai bench of Tribunal has already decided an identical issue in the hands of the assessee in AY 2011-12, vide its order dated 21-03-2018 passed in ITA
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No.4618/Mum/2016 by following the decision rendered by the Tribunal in the earlier years.
Since the Tribunal is consistently holding that the Sales tax incentive is a capital receipt by following the decision rendered by the Special bench in the case of Reliance Industries Ltd (supra) and since the Ld CIT(A) has followed the decision rendered by the Tribunal in the assessee’s own case, we do not find any infirmity in the order passed by Ld CIT(A) on this issue.
We shall now take up the Cross objection filed by the assessee, wherein the assessee is contending that the Sales tax incentive, being a capital receipt, should be excluded from Net profit, while computing Book profit u/s 115JB of the Act.
The Ld A.R submitted that the assessee has credited the Sales tax incentive to the credit of Profit and Loss account and hence the same is included in the net profit. Since the capital receipts are not liable to be taxation, the same should be excluded while computing book profit u/s 115JB of the Act. In this regard, he placed reliance on host of case laws, more particularly, the decision rendered by Mumbai bench of Tribunal in the case of Alok Industries Ltd (ITA No.1017/Mum/2017 dated 21-05-2018); the decision rendered by Kolkata bench of Tribunal in the case of Tata Metaliks Ltd (2016)(48 ITR (Trib)(272) and the decision rendered by Jaipur bench of Tribunal in the case of Shree Cement Ltd (2014)(31 ITR (Jaipur-Trib) 0513).
The Ld D.R, on the contrary, submitted that the provisions of sec. 115JB is a code by itself. Hence what is allowed to be deducted from Net profit alone could be deducted. He submitted that the provisions of sec. 115JB do not provide for deduction of capital receipts and hence the claim of the assessee should be admitted.
We heard the parties on this issue and perused the record. In the cases relied upon by the assessee, it has been held that the Capital receipt should be
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excluded for the purpose of computing book profit u/s 15JB of the Act. For the sake of convenience, we extract below the observations made by the co- ordinate bench in the case of M/s Alok Industries Ltd (supra):-
Contention of learned AR was as under:- i. Section 115JB should be considered subject to charging provision under Section 4 read with definition of an “income: under Section 2(24).
ii. The definition of income under Section 2(24) has been amended by the Finance Act 2015 to include subsidy within its scope, but only with prospective effect from A.Y. 2016-17.
iii. Therefore, such subsidy which is capital in nature cannot be brought within the purview of Section 115JB as the charging provision fails.
iv. Also, the intention of the legislature in bringing Section 115JB on statute should also be considered [Refer Memorandum explaining Finance Bill 1987 165 ITR (St) 152 at 167. It is only when the company is claiming deductions under the Profits and Gains from Business or Profession and/ or deductions under Chapter VIA, the alternative scheme of taxation attempts to bring the book profit to tax. The impugned transaction does not result into any such deductions but results into a receipt not having character of - income.
v. Thirdly, clause ii to Explanation 1 to Section 115JB which excludes exempt income referred to in Section 10 should also be logically extended to exclude the receipt which does not have the character of income at all.
Further, from the judgments as discussed above, it becomes crystal clear that the subsidy received by the company under the TUF Scheme of the Ministry of Textile, Government of India is for helping the growth of textile industries and therefore capital in nature and outside the ambit of section 4 of Income Tax Act. Accordingly, the said receipt cannot be taxed as income of the Company. Article 265 of the Constitution of India lays down that no taxes shall be levied or collected except with the authority of law. Further, entry 82 of the Seventh Schedule to the Constitution of India lays down that the Central Government has the right to levy tax on income. Further, section 4 of the Income Tax Act 1961 which provides for the charge, specifies that every assessee shall be charged for any assessment year income tax in respect of the total income of the previous year.
The main charging section provides for levy of income tax only in respect of income of the assessee. Once an item is not considered as income of the person as the same constitutes capital receipt, it shall not be subjected to tax under this Act, Therefore, once the subsidy received under the TUF scheme is held to be capital in nature, it comes outside the meaning of the term 'income' and therefore outside the ambit of section 4 i.e, the charging section. Unless, specifically made taxable such subsidy cannot be taxed as
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income. Once the subsidy received cannot be taxed under section 4, there cannot arise any taxability under section 115JB of the Act, which merely provides for an alternate mechanism for computation of income and tax thereon. Thus, an item which is not otherwise taxable cannot be subjected to tax under the MAT provision without any express authority in this behalf. Also, if we look at Explanation 1 to section 115JB(2), We find that the legislature has defined ‘book profit’. For calculation of such book profit, one has to reduce certain items, which inter alia include, item ‘ii’ which states that "the amount of income to which any of the provisions of section ’10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profit and loss account". Thus, what can be discerned from above item is that, for calculation of book profit one has to reduce those items of income which do not from part of total income under normal provisions. If that be the case, then it logically follows that those items which do not constitute income at all cannot form part of book profit and no MAT can be levied thereon at all. Even sub-section (5) of section 115JB states that 'Save as otherwise provided in this section, all provisions of this Act shall apply to every assessee, being a company, mentioned in this section. Thus, provisions of section 4 and section 2(24) shall necessarily apply for computation of book profit and MAT u/s 115JB and as such provisions of section 115JB cannot override the provision of section 4, which is the basic charging section. Accordingly, looked at from whichever angle, the subsidy has to be reduced from the book profit for computation of MAT under section 115JB.
We found that issue is covered by the following decision of the Tribunal / High Court, wherein it was held that under the MAT provisions u/s.115JB is not applicable to capital receipts / exempt income.
Sr. Decision ITAT/High Citation/ITA Nature of income held to Relevant No Court No. be not includible in book para of profit the decision 1 Krishi Rasayan Kolkata ITAT ITANo.883/Kol/ Interest subsidy being a 19 to 21 Exports Pvt. Ltd. 2014 capital receipt 2 Shree Cement Ltd. Jaipur ITAT 614,615 & Sales tax subsidy for 13.1, 635/JP/2010 substantial expansion 13.4 & 13.8 3 Shree Cement Ltd. Jaipur ITAT 152 ITD 561 Sales Tax Subsidy and receipt from Carbon Credit 4 Sicpa India(P) Ltd. Kolkata ITAT 80 taxmann.com Excise Duty Subsidy 24 to 26 87 (exemption) 5 JSW Steel Ltd. Mumbai ITAT 923/Bang/2009 Waiver of loan taken 21, 23 from acquisition of a capital asset 6 L.H. Sugar Factory Lucknow 46 CCH 354 Sales of carbon credit 50 ITAT being a capital receipt 7 Binani Industries Ltd. Kolkata ITAT 178 TTJ 658 Forfeiture of share 4.3.1, .3.2, warrants 4.4, 4.5 & 4.6
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8 Nilgiri Tea Estate Cochin ITAT 65 SOT 14 Profit on sale of 7&8 Ltd. agricultural land which is not a capital asset
9 Shivalik Venture Pvt. Mumbai ITAT 173 TTJ 238 Profit arising on transfer 26 to 28 Ltd. of development rights
10 Metal & Chromium Madras ITAT 76 taxmann.com Long-term capital gain 6 & 7 Plater (P) Ltd. 229 exempt u/s. 54EC
11 Sutlej Cotton Mills Kolkata 45 ITD 22 Capital gain resulting 19.2 19.5 Ltd. Special bench from sale of capital asset which was exempt 12 Frigsales (India) Ltd. Mumbai ITAT 4 SOT 276 Profit on sale of 3.2 depreciable asset which was not taxable due to purchase of another depreciable asset as provided in Section 50 13 Mcnally Bharat Kolkata ITAT 100/Kol/2011 Retention money 41 to 43 Engineering Co. Ltd.
14 Delhi Gymkhana Delhi ITAT 3585/Del/2006 Income exempt as per 13 Club Ltd. doctrine of mutuality
15 Goldgerg Finance Mumbai ITAT 7496/Mum/2013 Share from AOP which 11 Pvt. Ltd. was not taxable under normal provisions as per section 86
More importantly, the decision of the Jaipur Tribunal in the case of Shree Lement Ltd. (ITA No. 614 / JP / 2010) has exhaustively discussed the issue under consideration and also referred to the order of Rajasthan High Court wherein the ground taken up by the revenue on this issue was not admitted as not having a substantial question of law. Thus, it can be concluded that this issue is now being settled by a judgment of the Rajasthan High Court. It also distinguished the decision of Apollo Tyres Ltd. vs. CIT 255 A- _ and Rain Commodities Ltd. vs. DCIT 41 DTR 449. Also very recently, Madras HC in the case of Metal & Chromium Plater (P) Ltd. (TCA No. 359 of 2008) has also decided the said issue in the favour of the assessee. The case of Krishi Rasayan Exports Pvt. Ltd. vs. ACIT (ITA No. 883 / Kol / 2014 is on the similar interest subsidy which was required to be excluded from Book profit. We accordingly direct AO to exclude the TUF subsidy while computing book profit u/s.115JB.
Consistent with the view taken in the above cited cases, we hold that the capital receipts in the form of sales tax incentive should be excluded from net profit for the purposes of computing book profit u/s 115JB of the Act. We direct the AO accordingly.
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In the result, the appeal of the revenue is dismissed and the cross objection of the assessee is allowed.
Order has been pronounced in the Court on 8.8.2018.
Sd/- Sd/- (AMARJIT SINGH) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 8/8/2018
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Senior Private Secretary) PS ITAT, Mumbai