Court In The Case Of Commissioner Of Income-Tax v. Nirma Ltd. Reported In [20

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 25 of 2002 With TAX APPEAL NO. 109 of 2002With TAX APPEAL NO. 26 of 2002With TAX APPEAL NO. 110 of 2002With TAX APPEAL NO. 27 of 2002 With TAX APPEAL NO. 111 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE KS JHAVERISd/- O/TAXAP/25/2002 JUDGMENT DY. C.I.T. (ASSTT.)....Opponent(s) ================================================================ Appearance: MR JP SHAH, ADVOCATE for the Appellant(s) No. 1MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 10/10/2014 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 2.While admitting the matter on 08.03.2002, the Court raised the following substantial questions of law :-Tax Appeal No.25/2002 with Tax AppealNo.109/2002“(1) Whether the lease rent expenses O/TAXAP/25/2002 JUDGMENT of Rs.1,19,85,261=00 in respect of Soda Ash Project was allowable revenue expenditure? (2) Whether the eligible income for 80HHC relief is to be reduced by carryforwardlossof Rs.7,49,97,152/-, both for the purposes of section 143(3) assessment as also for purposes of section 115J? (3) Whether assessee was entitled to carry forward of this year's unabsorbeddepreciationof Rs.2,05,11,385/- as the same is not set off under section 115J?” Tax Appeal No.26/2002 with Tax AppealNo.110/2002 “(1) Whether the lease rent expenses of Rs.53,17,0301=00 in respect of Soda Ash Project was allowable revenue expenditure? (2) Whether the hire purchase charges of Rs.12,51,008/- in respect of Soda Ash Project was allowable revenue expenditure? (3) Whether the eligible income for 80HHC relief is to be reduced by carry forward loss for the purposes of section 143 (3) assessment? (4) Whether the Tribunal was right in law in excluding the above income of Rs.1,49,68,875/- from business income computing the relief under section 80HHC?” Tax Appeal No.27/2002 with Tax AppealNo.111/2002 “(1) Whether the eligible income for 80HHC relief is to be reduced by carry forward investment allowance? (2) Whether the Tribunal was right in law in excluding the above income of Rs.22,91,640/- from business income for computing the relief under section 80HHC? (3) Whether the Tribunal erred in not admitting the additional ground regarding the sales tax and central sales tax for not being a part of total turnover for the purposes of section 80HHC? (4) Whether the Tribunal erred in not excluding on its own the excise component in the total turnover for the purpose of section 80HHC?” 3.The case of the appellant in all the Appeals is that the Income Tax Appellate Tribunal has erred in holding that the lease rent expenses in respect of Soda Ash Project was capital expenditure and not allowable revenue expenditure and further that the Soda Ash Project was not a new business but was part and parcel of the same business, and therefore, the said expenditure was allowable revenue expenditure. The appellant's case is that the ITAT failed to appreciate the distinction between a different project and a different business, that though Soda Ash Project was the different project it was not a different business than the existing business, and therefore, the expenditure was revenue expenditure. O/TAXAP/25/2002 JUDGMENT For the above reasons, it is the case of the appellant that the ITAT erred in holding that the hire purchase charges in respect of Soda O/TAXAP/25/2002 JUDGMENT For the above reasons, it is the case of the appellant that the ITAT erred in holding that the hire purchase charges in respect of Soda appellant that the ITAT erred in holding that the hire purchase charges in respect of Soda Ash Project was capital expenditure and not allowable revenue expenditure. Further, it is stated that the ITAT erred in reducing 80-HHC relief by carried forward loss, both for the purposes of section 143(3) assessment also for purposes of section 115J inspite of direct decisions to the contrary and also that the ITAT sought not to have considered the sales tax and excise duty as part of turnover for purposes of section 80HHC relief. 4.Learned Counsel for the appellant Mr. J.P. Shah contended that all the three issues are squarely covered by the decision of this Court in the case of Commissioner of Income-Tax v. Nirma Ltd. reported in [2014] 367 ITR 12 (Guj). Relevant part of the decision reads as under :- “If the facts as recorded by the Commissioner of Income-Tax (Appeals) and the Tribunal can be said to have achieved finality, it would emerge that the assessee through its existing administrative mechanism started a new facility for production of soda ash and had also set up facility for production of a material called “lab” for its captive consumption for the purpose of its existing manufacturing business. It O/TAXAP/25/2002 JUDGMENT is no doubt that the assessee is engagedinthebusinessof manufacture of soap and the soda ash and “lab” so produced is used by way of captive consumption. When such facts viewed in light of the findings of the Commissioner of Income-tax (Appeals) and the Tribunal, we have no reason to interfere with the ultimate conclusion. Had it been a case of entirely a new project undertaken by the assessee as canvassed by the Counsel for the Revenue, a serious question of claim pre-operative expenditure of interest by way of revenue expenditure would arise. However, when the authorities below found that it was an expansion of the existing business, applying the tests laid down by this Court in the case of Alembic Glass Industries Ltd. (supra) in view of the decision of the Supreme Court in the case of Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194 (SC), the fact whether the borrowing is capital or revenue expenditure would be of no consequence.” It is submitted that the question about lease rent is covered by the above decision. 5.The question about the eligibility of income tax is squarely covered against the assessee as reflected in the decision in the case of Mahalaxmi Fabric Mills Ltd. v. Assistant Comissioner of Income-Tax reported in [2009] 309 Income Tax Report 63 (Gujarat), wherein relevant parts of judgment reads as under :- O/TAXAP/25/2002 JUDGMENT “The learned advocate for the appellant Shri Manish J. Shah very fairly invited attention to the decisions of the apex court in the case of Synco Industries Ltd. v. Assessing Officer (Income-tax) [2008] 299 ITR 444 andCIT v. Shirke Construction Equipment Ltd. [2007] 291 ITR 380 (SC) to submit that the controversy is no longer res integra. According to the learned advocate, in the light of the aforesaid two decisions of the apex court, the question is required to be answered again against the appellant-assessee. O/TAXAP/25/2002 JUDGMENT “The learned advocate for the appellant Shri Manish J. Shah very fairly invited attention to the decisions of the apex court in the case of Synco Industries Ltd. v. Assessing Officer (Income-tax) [2008] 299 ITR 444 andCIT v. Shirke Construction Equipment Ltd. [2007] 291 ITR 380 (SC) to submit that the controversy is no longer res integra. According to the learned advocate, in the light of the aforesaid two decisions of the apex court, the question is required to be answered again against the appellant-assessee. In the case of Synco Industries Ltd. v. Assessing Officer (Income-tax) [2008] 299 ITR 444, the apex Court has discussed the scheme of the Act with reference to the provisions of section 80B(5) of the Act which defines “gross total income”. The controversy before the Court was in relationtoworkingoutthe deductions under sections 80HH and 80-I of the Act – whether such deductions are allowable before setting off the business losses of earlier years or not. The Supreme Court has come to the conclusion that if the resultant figure, after setting off the business losses of earlier years, is nil, no deduction under sections 80HH and 80-I can be granted. In the case ofCIT v. Shirke Construction Equipment Ltd. [2007] 291 ITR 380, the Supreme Court was called upon to determine whether section 80AB of the Act can be applied to section 80HHC of the Act and whether the profits under section 80HHC of the Act are required to be computed O/TAXAP/25/2002 JUDGMENT after setting off unabsorbed business losses of earlier years under section 72 of the Act. The Supreme Court, after referring to its earlier decision in the case ofIPCA Laboratory Ltd. v. Deputy CIT [2004] 266 ITR 521, has reiterated as under (page 530) : “Section 80AB is also in Chapter VI-A. It starts with the words 'where any deduction is required to be made or allowed under section of this Chapter'. This would included section 80HHC. Section 80AB further providesthat'notwithstanding anything contained in that section'. Thus, section 80AB has been given an overriding effect over all other sections in Chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provisions of the Act. Section 80HHC would thus be governed by section 80AB. The decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration.” 6.The third issue regarding loss is covered by decision of the Hon'ble Apex Court in the case of Karnataka Small Scale Industries Development Corporation Ltd. v. Commissioner of Income-tax reported in [2002] 258 ITR 770 and which is against the assessee. 7.In the premise, Tax Appeals No.25/2002 and 109/2002 is partly allowed qua the issues No.2 and 3 and hence, both the appeals stand disposed of. 8.In Tax Appeal No.26/2002 with Tax Appeal No.110/2002, issues No.1 and 2 will be No.110/2002, issues No.1 and 2 will be covered by the decision of this Court in Commissioner of Income-Tax (supra). Issues No.3 and 4 are covered against the assessee in light of the decisions in the case of Mahalaxmi Fabric Mills Ltd. (supra) and 6.The third issue regarding loss is covered by decision of the Hon'ble Apex Court in the case of Karnataka Small Scale Industries Development Corporation Ltd. v. Commissioner of Income-tax reported in [2002] 258 ITR 770 and which is against the assessee. 7.In the premise, Tax Appeals No.25/2002 and 109/2002 is partly allowed qua the issues No.2 and 3 and hence, both the appeals stand disposed of. 8.In Tax Appeal No.26/2002 with Tax Appeal No.110/2002, issues No.1 and 2 will be No.110/2002, issues No.1 and 2 will be covered by the decision of this Court in Commissioner of Income-Tax (supra). Issues No.3 and 4 are covered against the assessee in light of the decisions in the case of Mahalaxmi Fabric Mills Ltd. (supra) and Karnataka Small Scale Industries Development Corporation Ltd. (supra). However, Issue No.4 is already remanded back by the Tribunal and we are not required to answer the said question. 9.In Tax Appeal No.27/2002 with Tax Appeal No.111/2002, the issues No.1 and 2 is covered by the decision of the division Bench of this Court in the case of Commissioner of Income- Tax-IV v. Shah Alloys Ltd. reported in [2014] 48 Taxmann.com 51 (Gujarat). As far as issue No.2 is concerned, learned Counsel for the appellant has submitted that in view of the observations made in Paragraph 16 of the decision, the questions framed will not arise in view of the observations made by the O/TAXAP/25/2002 JUDGMENT Income Tax Appellate Tribunal. Issues No.3 and 4 are squarely covered by the decision of the Supreme Court in Karnataka Small Scale Industries Development Corporation Ltd. (supra). Therefore, Issue No.3 and 4 – namely the Sales Tax and the Central as well as Excise is to be avoided from the total turnover. Therefore, issues No.3 and 4 are answered in favour of the assessee. 10.In the premise, all the Appeals are partly allowed. Sd/- (K.S. JHAVERI, J.) CAROLINE Sd/- (K.J. THAKER, J)