The Commissioner Of Income Tax-2,Mumbai v. Raymond Ltd

srk IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.1559 OF 2010 The Commissioner of Income Tax-2,Mumbai ...Appellant Versus Raymond Ltd. ...Respondent Mr.Suresh Kumar for appellant. Mr.Percy J. Pardiwala, Senior Advocate with Mr.Mohan Salian, Ms.Vaijayanta Shete and Mr.Jainuddin Khan i/b. Gagrats for respondents. CORAM: DR.D.Y. CHANDRACHUD & M.S.SANKLECHA, JJ. March 21, 2012. P.C. 1.This appeal by the Revenue arises from a decision of the Income Tax Appellate Tribunal dated 1 May 2009; the Assessment Year to which the appeal relates being AY 1999-2000. The following questions of law are raised on behalf of the Revenue: (a)Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in deleting the addition made by disallowing VRS expenditure of Rs.452.26 lakhs by treating the same as revenue expenditure; (b)Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in deleting the addition made by adjustment on account of exempt income while computing book profit under Section 115JA, which is contrary to the provisions of Explanation (ii) to Section 115JA, which refers to the income to which the provisions of Chapter III apply, i.e. net income after reduction of the relevant expenditure? 2.As regards question (a), counsel appearing on behalf of the Revenue and the counsel appearing on behalf of the assessee state that the question would be covered in favour of the assessee and against the Revenue by the decision of the Supreme Court in The Employers in relation to the management of the Indian Cable Co. Ltd. Vs. Their Workmen[1]. In paragraph 20 of the judgment the Supreme Court held as follows: “20. The Tribunal has rejected this claim of the unions, and in our opinion, quite rightly. If there had been a retrenchment and compensation had been paid to all these workmen, the unions cannot raise any objection in law to the payment of such amount. If retrenchment had been restored, the junior most men under the principle "last come first go" would have been sent out of 1. AIR 1972 SC 2195 service. On the other hand, the Voluntary Retirement Scheme enabled the younger workmen to continue in service while it offered a temptation for the older employees to retire from service. The Voluntary Retirement Scheme has not been challenged as mala fide by the unions. We are in agreement with the view of the Tribunal that the payment of compensation to induce the workmen to retire prematurely was an item of expenditure incurred by the Company on the ground of commercial expense in order to facilitate carrying on of the business and it was an expenditure allowable under Section 37(1) of the Income-tax Act. It was not an expenditure of a capital nature. The Tribunal was justified in declining to add back this item of expenditure to the gross profits.” The same view has been taken by this Court in CIT Vs. Bhor Industries[2] 3.The appeal is admitted on question (b) and by consent is taken up for final hearing. 4.So far as question (b) is concerned, the provisions of the Explanation to Section 115JA of the Income Tax Act, 1961 stipulate that for the purposes of the section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by certain items specified in 2. [2003] 264 ITR 180 The same view has been taken by this Court in CIT Vs. Bhor Industries[2] 3.The appeal is admitted on question (b) and by consent is taken up for final hearing. 4.So far as question (b) is concerned, the provisions of the Explanation to Section 115JA of the Income Tax Act, 1961 stipulate that for the purposes of the section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by certain items specified in 2. [2003] 264 ITR 180 clauses (a) to (g) and and if any amount referred to in those clauses is debited to the profit and loss account, as reduced by the stipulations mentioned therein. Clause (f) covers the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies. Chapter III applies to dividend income. Hence the amount of expenditure relatable to such income would have to be added back to the net profits. Thereafter clause (ii) of the Explanation would require a reduction of the amount of income to which Chapter III applies, if such amount is credited to the profit and loss account. This exercise would have to be carried out. We accordingly restore question (b) to the Tribunal for reconsideration in the light of the provisions of Section 115JA. Question (b) would stand answered accordingly. The appeal is accordingly disposed of. There shall be no order as to costs. (DR.D.Y. CHANDRACHUD,J.) (M.S.SANKLECHA, J.)