Commissioner Of Income Tax - Ltu v. Reliance Industries Ltd

(Private Secretary) IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. INCOME TAX APPEAL NO. 993 OF 2016 Commissioner of Income Tax - LTU ..Appellant Versus Reliance Industries Ltd ..Respondent ................... Mr. Tejveer Singh for the Appellant Mr. Tejveer Singh for the Appellant Mr. Jehangir Mistry, Senior Counsel a/w Mr. Madhur Agrawal, Mr.P.C. Tripathi, Mr. Amit R. Mathur i/by A. Raj Darak for theRespondentMr. Jehangir Mistry, Senior Counsel a/w Mr. Madhur Agrawal, Mr.P.C. Tripathi, Mr. Amit R. Mathur i/by A. Raj Darak for theRespondent ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : JANUARY 15, 2019. P.C.: 1.Revenue is in the appeal against the Judgment of the Income Tax Appellate Tribunal ("the Tribunal" for short) dated16.9.2015. Following questions are presented for ourconsideration:- “(i) Whether on the facts and in the circumstances of the caseand in law, the Tribunal was right in deleting the addition ofRs. 6,00,00,000/- being provision for wealth tax, whilecomputing the Book profits u/S. 115JB of the Income TaxAct?and in law, the Tribunal was right in deleting the addition ofRs. 6,00,00,000/- being provision for wealth tax, whilecomputing the Book profits u/S. 115JB of the Income TaxAct? (ii) Whether on the facts and in the circumstances of the caseand in law, the Tribunal was right in deleting the addition ofand in law, the Tribunal was right in deleting the addition of Rs. 38,80,08,397/- being gain on extinguishment ofdebentures / bonds treated as income u/S 41(1) of theIncome Tax Act? (iii) Whether on the facts and in the circumstances of the caseand in law, the Tribunal was right in allowing commission /surcharge paid to State Oil Marketing Organization("SOMO"), an Iraqi Government Agency ignoring theVolcker Committee report (India being a member state ofthe UN) which was prepared after due diligence andinvestigation of documents as well as personnelinterviews?"and in law, the Tribunal was right in allowing commission /surcharge paid to State Oil Marketing Organization("SOMO"), an Iraqi Government Agency ignoring theVolcker Committee report (India being a member state ofthe UN) which was prepared after due diligence andinvestigation of documents as well as personnelinterviews?" 2.Question (i) pertains to Revenue's contention that forcomputing the assessee's Book profits under Section 115JBof the Income Tax Act, 1961 ("the Act" for short), provisionmade by the assessee for wealth tax should be excluded.The Tribunal was of the opinion that the section itself refersto the income tax paid or payable or the provisions madetherefore. This would not include the provision made forwealth tax. The Tribunal relied on a decision of this Court inthe case of CIT Vs. Echaj Forging Pvt Ltd[1] in which suchan issue had come up for consideration. 3.Learned counsel for the Revenue, however, submitted that the decision of this Court in the case of Echaj Forging1251 ITR 151251 ITR 15 Pvt Ltd (supra) proceeded on the concession made by theRevenue's counsel and the Tribunal, therefore, committed anerror in treating it as ratio of the High Court decision. Onthe other hand, the learned counsel for the assesseesubmitted that even otherwise, the statutory provision beingclear, there is no scope for interpretation. 4.Section 115JB of the Act pertains to special provision forpayment of tax by certain companies. As is well known,detailed provisions have been made to compute the bookprofit of the assessee for the purpose of the said provision.Explanation 1 contains list of amounts to be added whilecomputing assessee's book profit under Section 115JB of the Act. Clause (a) thereof reads as under:- "(a) the amount of income-tax paid or payable, and the provisiontherefor,"therefor," Likewise, clause (c) reads as under:- 4.Section 115JB of the Act pertains to special provision forpayment of tax by certain companies. As is well known,detailed provisions have been made to compute the bookprofit of the assessee for the purpose of the said provision.Explanation 1 contains list of amounts to be added whilecomputing assessee's book profit under Section 115JB of the Act. Clause (a) thereof reads as under:- "(a) the amount of income-tax paid or payable, and the provisiontherefor,"therefor," Likewise, clause (c) reads as under:- "(c) the amount or amounts set aside to provisions made formeeting liabilities, other than ascertained liabilities,"meeting liabilities, other than ascertained liabilities," In plain terms, clause (a) as noted above refers to amount of income tax paid or payable or the provision madetherefor. The legislature has advisedly not included wealth tax in this clause. By no interpretative process, the wealthtax can be included in clause (a). The Revenue, furthermade a vague attempt to bring this item in clause (c) notedabove. Clause (c) would include the amount set aside forprovisions made for meeting liabilities other than ascertainedliabilities. For applicability of this clause, therefore,fundamental facts would have to be brought on record whichin the present case, the Revenue has not done. In fact, theentire thrust of the Revenue's argument at the outsetappears to be on clause (a) which refers to the income taxwhich according to the Revenue would also include wealthtax. This question, therefore, is not required to beentertained. 5.Question (ii) relates to Revenue's attempt to bring asum of Rs. 38.80 Crores (rounded off) under Section 41(1) ofthe Act. This issue has a brief history which can be noted asunder:- The assessee had issued Foreign Currency Bonds in theyears 1996 and 1997 carrying a coupon rate of interestranging between 10% to 11% having maturity period of 30 to 100 years. The interest would be payable half yearly.According to the assessee, on account of the attack on WorldTrade Centre at USA on 11.9.2001, financial market collapsedand the investors of debentures and bonds started sellingthem which in turn, brought down the market price of suchbonds and debentures which were traded in the market at avalue less than the face value. The assessee, therefore,purchased such bonds and debentures from the market andextinguished them. In the process of buy back, the assesseegained a sum of Rs. 38.80 Crores. The Assessing OfÏcertreated this as assessable to tax in terms of Section 41(1) ofthe Act. The CIT(A) and the Tribunal, however, deleted thesame. The Tribunal in its detail discussion came to theconclusion that the liability arising out of the issuance ofbonds was not a trading liability and therefore, Section 41(1)of the Act would have no applicability. The Tribunal relied onand referred to a decision of the Division Bench of this Courtin the case of Mahindra & Mahindra Ltd Vs. CIT[2]. TheTribunal held that the ratio of the decision of the SupremeCourt in the case of CIT Vs. Sundaram Iyengar & Sons[3] 2261 ITR 501 3222 ITR 344 would not apply. It is against this decision, the Revenue hasfiled this appeal. 2261 ITR 501 3222 ITR 344 would not apply. It is against this decision, the Revenue hasfiled this appeal. 6.Having heard the learned counsel for the parties andhaving perused the documents on record, we do not see anyerror in the view taken by the Tribunal. Sub-section (1) ofSection 41 provides that where an allowance or deductionhas been made in the assessment for any year in respect ofloss, expenditure or trading liability incurred by the assesseeand subsequently, during any previous year, such liabilityceases, the same would be treated as the assessee's incomechargeable to tax as income for previous year under whichsubject extinguishment took place. The foremostrequirement for applicability of sub-section (1) of Section 41,therefore, is that the assessee has claimed any allowance ordeduction which has been granted in any year in respect ofany loss, expenditure or trading liability. In the present case,the Revenue has not established these basic facts. In otherwords, it is not even the case of the Revenue that in theprocess of issuing the bonds, the assessee had claimeddeduction of any trading liability in any year. Any extinguishment of such liability would not give rise toapplicability of sub-section (1) to Section 41 of the Act. 7.We may also notice that the decision of this Court in thecase of Mahindra and Mahindera Ltd (supra) came to beconfirmed by the Supreme Court in the case ofCommissioner Vs. Mahindra & Mahindra Ltd[4]. It wasreiterated that for applicability of Section 41(1) of the Act, itis a sine qua non that there should be an allowance ordeduction claimed by the Assessee in any assessment yearin respect of loss, expenditure or trading liability incurred bythe assessee. Then, subsequently, during any previous year,if the creditor remits or waives any such liability, then the Assessee is liable to pay tax Under Section 41 of the IT Act . This question, therefore, does not require anyconsideration. 8.The last surviving question pertains to Revenue'sobjection to the assessee's claim of deduction towards thepayment for purchase of oil. Revenue argues that theassessee had paid illegal commission for purchase of such oil4[2018] 404 ITR 1 (SC) and therefore, such expenditure was not allowable. TheCIT(A), however, in detail order while reversing thedisallowance made by the Assessing OfÏcer, observed thatthere was no evidence that the assessee had paid any suchillegal commission. He noted that except for the VolckerCommittee Report, there was no other evidence for makingsuch addition. He noted that even in the said report, there isno finding that the assessee had made illegal payment. Itappears that the payments were made by an agent andthere was no evidence to suggest that the assessee hadmade any illegal commission payment to Iraqi government.The Tribunal confirmed this view of the CIT(A). The entireissue is thus based on appreciation of materials on recordand is a factual issue. No question of law arises. 9.In the result, the appeal is dismissed. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]