Commnr. of Income
Tax, Udaipur Vs. Mcdowell & Co. Ltd. [2009] INSC 992 (8 May 2009)
Judgment
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.2939 OF 2006 Commissioner
of Income Tax, Udaipur Rajasthan ...Appellant Versus Mcdowell & Co. Ltd.
...Respondent
Dr. ARIJIT PASAYAT,
J.
1.
Questioning
correctness of the judgment rendered by a Division Bench of the Rajasthan High
Court at Jodhpur, this appeal has been filed.
The questions raised
before the High Court are as follows:
(1) Whether on the
facts and in the circumstances of the case, the I.T.A.T. was justified in holding
that the unpaid amount of bottling fee has, on furnishing of the bank
guarantee, to be treated as actual payment and accordingly allowing the
deduction in respect of the same under Section 43B of the Act, even though the
sum has not been actually paid before the due date of filing the return under
Section 139(1) of the Act.
(2) Whether on the
facts and in the circumstances of the case, the I.T.A.T. was justified in
allowing the depreciation on research & development assets which related to
the closed business of fast food division/unit of the assessee-company as such
not used during the previous year? (3) Whether on the facts and in the
circumstances of the case, the I.T.A.T. was justified in deleting the addition
of Rs.2,77,887/- 2 being made treating the expenditure incurred in purchase of
new transformer as capital expenditure even when the old transformer still
exists in the blocks of asset and not sold, discarded or demolished or
destroyed?
2.
The
dispute in essence related to the applicability of Section 43B of the Income
Tax Act, 1961 (in short the `Act') The High Court held that the provision has
no application.
3.
The
dispute relates to the assessment year 1992-93. So far as the first two
questions are concerned, we have dealt with the issues in Civil Appeal No.3511
of 2007 relating to the assessment year 1991-92. Therefore, the answers given
in respect of those questions shall apply so far as the present assessment year
is concerned.
4.
The
last question relates to the nature of expenditure in purchase of new
transformers. According to the revenue, the expenditure incurred is in the
nature of capital expenditure when the old transformers are still included in
the block of assets and not sold or discarded or demolished or destroyed.
5.
Learned
counsel for the revenue placed strong reliance on Commissioner of Income Tax,
Madurai and Ors. v. Saravana Spinnig Mills (P) Ltd. (2007 (7) SCC 298). It was
highlighted that in Liquidators of Pursa Ltd. v. Commissioner of Income Tax,
Bihar (1954 (25) ITR 265), it was held that the test is whether it is actually
used.
6.
Learned
counsel for the assessee on the other hand submitted that the Saravana's case
(supra) related to a case under Section 31, obviously relatable to current
repairs. The assessee's claim on the other hand is relatable to Section 37 of
the Act. Strong reliance is placed on a decision of this Court in Commissioner
of Income Tax v. Ramaraju Surgical Cotton Mills ((2007)(294) ITR 328 (SC)). It
is fairly accepted by learned counsel for the assessee that nomenclature in
respect of the claim made is not really relevant, and what is relevant, is the
nature of the transaction and the expenditure made. Since neither the Tribunal
nor the High Court dealt with the factual aspect in detail, we remit the matter
to the Assessing Officer to consider the respective stands in the background of
what has been stated by this Court in Saravana and Ramaraju cases (supra).
7.
The
appeal is accordingly disposed of.
..........................................J. (Dr. ARIJIT PASAYAT)
..........................................J.
(Dr. MUKUNDAKAM SHARMA)
New
Delhi,
May
08, 2009 5
REPORTABLE IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.3471 OF
2007 Commissioner of Income Tax, Udaipur Rajasthan ...Appellant Versus Mcdowell
& Co. Ltd. ...Respondent
Dr. ARIJIT PASAYAT,
J.
1. Questioning
correctness of the judgment rendered by a Division Bench of the Rajasthan High
Court at Jodhpur this appeal has been filed.
Originally following
questions were framed for adjudication by order dated 24.5.2002:
1.
Whether
on the facts and in the circumstances of the case, the ITAT was justified in
deleting the addition of Rs.5,61,462/- by holding that unpaid amount of
bottling fee has, on furnishing of bank guarantee, to be treated as actual
payment and accordingly the deduction in respect of the same cannot be deemed
under section 43B of the IT Act, 1961?
2.
Whether,
on the facts and in the circumstances of the case, the ITAT was justified in
deleting the addition of Rs.61,412 made by the Assessing Officer on account of
disallowance of landscaping expenses not recovered u/s Section 35(1)(iv) of the
Income Tax Act by wrongly relying on the decision in ITA No.1546/JP95 dtd.
30.03.2001?"
2. Subsequently a
third question was framed which reads as follows:
3. "Whether, in
the facts and circumstances of the case, bottling fees chargeable from the
assessee under the Rules framed under the Rajasthan Excise Act, 1950 and
interest chargeable on late payment of bottling fees, amounts to tax, duty,
cess or fees within the meaning of Section 43B of IT Act, 1961, so as to
attract the said provisions while considering allowability of deduction of such
expenses."
3.
The
first dispute in essence related to the applicability of Section 43B of the
Income Tax Act, 1961 (in short the `Act') The High Court held that the said
provision has no application.
4.
The
second question was decided in favour of the revenue so far as it relates
landscaping expenses. That has become final.
5.
The
dispute relates to assessment year 1988-89. The question arose in the
background of the view Assessing Officer as well as the Commissioner of Income
Tax (Appeals), Jodhpur (in short `Commissioner') that the assessee was not
entitled to deductions in terms of Section 43B of the Act.
The amount in
question related to payability of excise duty on wastages.
The assessee took the
stand that the provision for excise duty made on wastage of IMFL in transit
which is debited to the customers account and credited to this account does not
bring in application of Section 43B of the Act. The Income Tax Officer as well
as the Commissioner held that the assessee's stand was not acceptable. An
appeal was filed before the Income- tax Appellate Tribunal, Jodhpur Bench,
Jodhpur (in short `ITAT') which decided the issues in favour of the assessee.
6.
Before
the High Court the assessee took the stand that a bank guarantee has been
furnished in respect of the amount and, therefore, there was no scope for
applying Section 43B of the Act. It was also submitted that Section 43B of the
Act applies to payments relatable to tax, duty, cess, or fee. But bottling fees
chargeable from the assessee under the Rajasthan Excise Act, 1950 (in short the
`Excise Act') and Rajasthan Excise Rules, 1962 (in short the `Rules') and the
interest chargeable for late payment of Rs.40,000/- does not amount to tax,
duty and cess. The High Court held that such fees are not covered under the
ambit of Section 43B.
7.
The
revenue is in appeal against the said view of the High Court which nevertheless
held that furnishing of bank guarantee is not the same as making payment as
stipulated in Section 43B of the Act.
8.
We
shall first deal with the question whether furnishing of bank guarantee amounts
to actual payment and fulfils the conditions stipulated in section 43B of the
Act. The requirement of Section 43B of the Act is the actual payment and not
deemed payment as condition precedent for making the claim for deduction in
respect of any of the expenditure incurred by the assessee during the relevant
previous year specified in Section 43B. The furnishing of bank guarantee cannot
be equated with actual payment which requires that money must flow from the
assessee to the public exchequer as required under Section 43B. By no stretch
of imagination it can be said that furnishing of bank guarantee is actual
payment of tax or duty in cash. The bank guarantee is nothing but a guarantee
for payment on some happening and that cannot be actual payment as required
under Section 43B of Act for allowance as deduction in the computation of
profits. Section 43B after amendment w.e.f. 1.4.1989 refers to any sum payable
by assessee by way of tax, duty or fee by whatever name called under any law
for the time being in force. The basic requirement, therefore, is that the
amount payable must be by way of tax, duty and cess under any law for the time
being in force. The bottling fees for acquiring a right of bottling of IMFL
which is determined under the Excise Act and Rule 69 of the Rules is payable by
the assessee as consideration for acquiring the exclusive privilege. It is
neither fee nor tax but the consideration for grant of approval by the
Government as terms of contract in exercise of its rights to enter a contract
in respect of the exclusive right to deal in bottling liquor in all its
manifestations.
9.
Section
43B as it stood on 1.4.1989 reads as follows:
"43B. Certain
deductions to be only on actual payment-- Notwithstanding anything contained in
any other provision of this Act, a deduction otherwise allowable under this Act
in respect of - (a) any sum payable by the assessee by way of tax, duty, cess
or fee, by whatever name called, under any law for the time being in force, or
(b) any sum payable by the assessee as an employer by way of contribution to
any provident fund or superannuation fund or gratuity fund or any other fund
for the welfare of employees, or (c) any sum referred to in Clause (ii) of Sub-section
(1) of Section 36; or (d) any sum payable by the assessee as interest on any
loan or borrowing from any public financial institution or a State Financial
Corporation or a State Industrial Investment Corporation, in accordance with
the terms and conditions of the agreement governing such loan or borrowing, or
(e) any sum payable by the assessee as interest on any term loan from a
scheduled bank in accordance with the terms and conditions of the agreement
governing such loan or advances, or (f) any sum payable by the assessee as an
employer in lieu of any leave at the credit of his employee, shall be allowed
irrespective of the previous year in which the liability to pay such sum was
incurred by the assessee according to the method of accounting regularly
employed by him only in computing the income referred to in Section 28 of that
previous year in which such sum is actually paid by him:
Provided that nothing
contained in this section shall apply in relation to any sum referred to in
Clause (a) or Clause (c) or Clause (d) or Clause (e) or Clause (f) which is
actually paid by the assessee on or before the due date applicable in his case
for furnishing the return of income under Sub-section (1) of Section 139 in
respect of the previous year in which the liability to pay such sum was
incurred as aforesaid and the evidence of such payment is furnished by the
assessee along with such return."
10.
It
would be pertinent to note that the expression now used in Section 43B (i)(a)
is "Tax, Duty, Cess or fee or by whatever name called". It denotes that
items enumerated constitute species of the same genus and the expression 'by
whatever name called' which follows preceding words 'Tax', 'Duty', 'Cess' or
'fee' has been used ejusdem generis to confine the application of the
provisions not on the basis of mere nomenclatures, but notwithstanding name,
they must fall within the genus 'taxation' to which expression 'Tax', 'Duty',
'Cess' or 'Fee' as a. group of its specie belong vis.
compulsory exaction
in the exercise of State's power of taxation where levy and collection is duly
authorised by law as distinct from amount chargeable on principle as
consideration payable under contract.
11.
The
principle of statutory interpretation is well known and well settled that when
particular words pertaining to a class, category or genus are followed by
general words, the general words are construed as limited to things of the same
kind as those specified. This rule is known as the rule of ejusdem generic. It
applies when:
(1) the statute
contains an enumeration of specific words;
(2) the subjects of
enumeration constitute a class or category;
(3) that class or
category is not exhausted by the enumeration;
(4) the general terms
follow the enumeration; and (5) there is no indication of a different
legislative intent.
12.
Reference
in this connection may be made to Amar Chandra v. Collector of Excise, Tripura
(AIR 1972 SC 1863) and Housing Board of Haryana v. Haryana (AIR 1996 SC 434)
13.
The
'Tax', 'Duty', 'Cess' or 'fee' constituting a class denotes to various kinds of
imposts by State in its sovereign power of taxation to raise revenue for the
State. Within the expression of each specie each expression denotes different
kind of impost depending on the purpose for which they are levied.
This power can be
exercised in any of its manifestation only under any law authorising levy and
collection of tax as envisaged under Article 265 which uses only expression
that no 'tax' shall be levied and collected except authorized by law.
14.
It
in its elementary meaning coveys that to support a tax legislative action is
essential, it cannot be levied and collected in the absence of any legislative
sanction by exercise of executive power of State under Article 73 by the Union
or Article 162 by the State. Under Article 366(28) "Taxation" has
been defined to include the imposition of any tax or impost whether general or
local or special and tax shall be construed accordingly.
"Impost"
means compulsory levy.
15.
The
well known and well settled characteristic of 'Tax' in its wider sense includes
all imposts. Imposts in the context have following characteristics:
(i) The power to tax
is an incident of sovereignty.
(ii) 'Law' in the
context of Article 265 means an Act of legislature and cannot comprise an
executive order or rule without express statutory authority.
(iii) The term 'Tax'
under Article 265 read with Article 366(28) includes imposts of every kind
viz., tax, duty, cess or fees.
(iv) As an incident
of sovereignty and in the nature of compulsory exaction, a liability founded on
principle of contract cannot be a "tax' in its technical sense as an
impost, general, local or special.
16.
This
Court in the light of decisions starting from State of Bombay v. F.N. Balsara
(AIR 1951 SC 318) held that the expression "fee" is not used in the
State excise laws or rules in the technical sense of the expression. By
`licence fee' or `fixed fee' under excise laws relating to potable liquors/intoxicant
is meant the price or consideration which the Government charges to the
licences for parting with its exclusive privilege and granting them to the
licencees. There is no fundamental right to do trade or business in
intoxicants. The State under its regulatory powers has the right to prohibit
absolutely every form of activity in relation to intoxicants, its manufacture,
storage, export, import, sale and possession in all their manifestations these
rights are vested in the State. The decision was re-iterated in Har Shankar v. Dy.
Excise and Taxation Commissioner (AIR 1975 SC 1121) and State of U.P. v.
Sheopat Rai (AIR 1994 SC 813).
17.
In
Ahmedabad Urban Development Authority v. Sharad Kumar Jayantgi Kumar Pasawalla
(AIR 1992 SC 2038) it was held that the crucial expression in Section 43B is
"by way of". Therefore, it was the duty of revenue authorities to
ascertain whether the deduction which is to be tested on the touchstone of
Section 43B(a) is the amount payable is by way of tax or duty or fee or cess.
The High Court was justified in holding that the amount does not fall within
the purview of Section 43B. The High Court's view is correct.
18.
The
appeal is dismissed.
.......................................J.
(Dr. ARIJIT PASAYAT)
.......................................J.
(Dr. MUKUNDAKAM SHARMA)
New Delhi,
May 08, 2009
REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL
APPEAL NO.3472 OF 2007 Commissioner of Income Tax, Udaipur Rajasthan
...Appellant Versus Mcdowell & Co. Ltd. ...Respondent
Dr. ARIJIT PASAYAT,
J.
1. Questioning
correctness of the judgment rendered by a Division Bench of the Rajasthan High
Court at Jodhpur this appeal has been filed.
The questions raised
before this Court are as follows:
1.
Whether
the unpaid amount of Rs.12,67,656/- furnishing of bank guarantee could be
allowed as a deduction under Section 43B of the IT Act, 1961?
2.
Whether
the furnishing of bank guarantee can be treated as actual payment for the
purpose of Section 43B of the IT Act, 1961?
3.
Whether
the High Court erred in law in not following its earlier decision in
Commissioner of Income Tax v. Rajasthan Patrika Ltd. (258 ITR 300) and thereby
holding that furnishing of bank guarantee was actual payment?
4.
Whether
the bottling fee payable by the assessee and chargeable under the Rajasthan
Excise Act, 1950 and the Rules framed there under being the consideration
receivable by the State for parting with its exclusive privilege to deal in
potable liquor, was in the nature of any sum payable by way of tax, duty, cess
or fee, by whatever name called, under any law for the time being in force had
to be actually paid in cash or by cheque for claiming deduction under Section
43B of the IT Act, 1961? 2. The questions raised before the High Court are as
follows:
(1) Whether on the
facts and in the circumstances of the case the ITAT was justified in deleting
the addition of Rs. 12,67,656/- by holding that unpaid amount of bottling fee
has, on furnishing of bank guarantee, to be treated as actual payment and
accordingly the deduction in respect of the same cannot be denied U/s. 43B of
the Income-tax Act, 1961? (2) Whether on the facts and in the circumstances of
the case the ITAT was justified in deleting the addition of Rs. 38,442/- made
by the Assessing Officer on account of disallowance of Research and Development
expenses not covered U/s. 35(1)(iv) of the Income-tax Act, by wrongly relying
on the decision in ITA No.1546/JP/95 dated 30.03.2001? (3) Whether on the facts
and in the circumstances the ITAT is justified in allowing the depreciation on
research & Development assets which related to the closed business of Fast
Food Division/unit of the assessee company and as such not used during the
previous year?"
(4) Whether in the
facts and circumstances of the case bottling fees chargeable from the assessee
under the Rajasthan Excise Act, 1950 and interest chargeable on late payment
of bottling fees amount to tax, duty, cess or fees within the meaning of
section 43B of I.T. Act, 1961 so as to attract the said provisions while
considering allowability of deduction of such expenses?
3. The dispute
relates to assessment year 1995-96. First dispute in essence related to the
applicability of Section 43B of the Income Tax Act, 1961 (in short the `Act'),
the High Court held that provision has no application.
4. The said issue in
the present appeal is revolving round the applicability of Section 43B of the
Act. In view of our decision in Civil Appeal No.3471 of 2007 relating to the
assessment year 1988-89 which has been disposed of today, the said issue is
answered in favour of the assesseee and against the revenue.
5.
So
far as the second issued is concerned in Civil Appeal No.3511 of 2007 relating
to assessment year 1991-92 and Civil Appeal no.3473 of 2007 relating to the
assessment year 1993-94, matter has been remitted to the Assessing Officer for
factual adjudication of the rival stands. Similar direction is given in the
present case.
6.
The
appeal is disposed of accordingly.
..........................................J.
(Dr. ARIJIT PASAYAT)
..........................................J.
(Dr. MUKUNDAKAM SHARMA)
New Delhi,
May 08, 2009
REPORTABLE IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.3473 OF
2007 Commissioner of Income Tax, Udaipur Rajasthan ...Appellant Versus Mcdowell
& Co. Ltd. ...Respondent
Dr. ARIJIT PASAYAT,
J.
1. Questioning
correctness of the judgment rendered by a Division Bench of the Rajasthan High
Court at Jodhpur, this appeal has been filed.
The questions raised
before this Court are as follows:
1.
Whether
the Division Bench of the High Court has not grossly erred in law in framing an
additional question which was not referred in the appeal filed by the
petitioner herein?
2.
Whether
in the facts and circumstances of the case, the Division Bench of the High
Court was not justified in law in affirming the findings of the ITAT whereby
ITAT deleted the addition of Rs.6 lakhs by holding the unpaid amount of
bottling fee, has on furnishing bank guarantee to be treated as actual payment
and accordingly holding that the deduction in respect of the same cannot be
denied under section 43B of the IT Act, 1961?
3.
Whether
the Division Bench of the High Court has not erred in law in holding that
deduction of an amount of liability of the assessee to pay bottling fee under
the Rajasthan Excise Act, 1950 read with Rule 69 of the Rajasthan Excise Rules
was not a fee in its technical sense and was allowable as revenue expenditure
as price paid to State for parting with its exclusive privilege as an incident
of trading activities by the State for the assessment year in question?
4.
Whether
in the facts and circumstances of the case, the Division Bench of the High
Court was justified in law in affirming the findings of the ITAT whereby it
deleted the addition of Rs.6,69,743/- made by the Assessing Officer on account
of disallowance of Research and development expenses holding that the same were
not covered under Section 35(1)(iv) of the IT Act, 1961 by wrongly relying on
the decision in ITA 1546/JP/95 dated 30.3.2001?
5.
Whether
in the facts and circumstances of the case, the Division Bench of the High
Court was justified in law in affirming the findings the ITAT allowing the
depreciation on research and development assets which related to the closed
business of Fast Food Division/Unit of the assessee company as such not used
during the previous year?
6.
Whether
in the facts and circumstances of the case, the Division Bench of the High
Court was justified in law in affirming the findings of the ITAT deleting the
addition of Rs.6,69,743/- made by the Assessing Officer on account of
disallowance of Research and development Expenses not covered under Section
35(1)(iv) of the IT Act, 1961 by wrongly relying on the decision in
ITA1546/JP/95 dated 30.3.2001? 2. Before the High Court following questions
were raised:
1.
"Whether
on the facts and, in the circumstances of the case the ITAT was justified in
deleting the addition of Rs.6 lacs by holding that unpaid amount of bottling
fee has, on furnishing of Bank Guarantee, to be treated as actual payment and
accordingly the deduction in respect of the same can not be denied under
section 438of the I.T. Act. 1961?"
2.
"whether
on the facts and in the circumstances of the case the ITAT was justified in
allowing the depreciation on Research and Development Assets which related to
the closed business of Fast Food Division/Unit of the Assessee company any as
such not used during the previous year"?
3.
"Whether
on the facts and in. the circumstances of the case the ITAT was justified in
deleting the addition of Rs.6,69,743/- made by the Assessing officer on account
of Disallowance of Research and Development expenses not covered under section
35(1)(iv) of the Income Tax Act, by wrongly relying on the decision in the ITA
No.1546/JP/95 dated 30.03.2001"?
4.
"Whether
on the facts and in the circumstances of the case the Hon'ble ITAT was
justified in deleting the disallowance of Rs.15,62,580/- holding that the
technical service charges (royalty] payment under consideration is allowable
based on subsequent agreement dated 10.04.1992 at higher rate then that based
on earlier agreement entered into in December, 1990 even though earlier
agreement entered into in December, 1990 was to be effective upto 2000, and had
neither been substituted nor rescinded"?
7.
3.
The dispute in essence related to the applicability of Section 43B of the
Income Tax Act, 1961 (in short the `Act') The High Court held that the said
provision has no application.
5.
The
dispute relates to the assessment year 1993-94. In addition to the issues which
are common to assessment year 1992-93 which was the subject matter in Civil
Appeal No.3511 of 2007 and Civil Appeal No.2939 of 2006 relatable to the
assessment year 1992-93, our answers to the questions given in relation to
Section 43B and depreciation on research and development machinery and
replacement of transformers shall apply to the facts of the present case also.
The additional issue here relates to technical service charges. According to
learned counsel for the revenue, the principles of novatio are applicable here
and there was no commercial expediency for entering into a fresh contract and
there is no financial benefit. We find that the High Court has noted that it is
not the case of the revenue that the assessee has not actually paid Rs.30 lacs
to McDowell. It is pointed out that though in two years the payments made under
the new agreement were more than what would have fallen due under the original
agreement, but for the subsequent years' transactions, the business expediency
claim of the assessee proved to be right. It has been noticed that for the
assessment year 1995-96 under the old agreement, the assessee would have been
required to pay Rs.45.56 lacs towards technical services charges to Mcdowell,
and during the assessment year 1996-97 it would have been required to pay
Rs.107.323 lacs as per the old agreement whereas the assessee has during these
two years paid Rs.30 lacs for each year. The Tribunal and the High Court
recorded a finding that the new agreement in April, 1992 was not a subterfuge
or clandestine device to reduce the tax liability but was an expenditure
incurred on business expediency and the decision of the parties to enter into
an agreement was based on commercial consideration. The finding is essentially
a finding of fact based on cogent assessment of the factual scenario. We find
nothing infirm in the decision of the Tribunal and the High Court to warrant
interference. The challenge of the revenue on that ground fails.
6.
The
appeal is disposed of accordingly.
..........................................J.
(Dr. ARIJIT PASAYAT)
..........................................J.
(Dr. MUKUNDAKAM SHARMA)
New Delhi,
May 08, 2009
REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL
APPEAL NO.3511 OF 2007 Commissioner of Income Tax, Udaipur Rajasthan
...Appellant Versus Mcdowell & Co. Ltd. ...Respondent
Dr. ARIJIT PASAYAT,
J.
1. Questioning
correctness of the judgment rendered by a Division Bench of the Rajasthan High
Court at Jodhpur, this appeal has been filed.
2. The assessment
year involved was 1991-92. The questions raised before the High Court are as
follows:
1. Whether on the
facts and in the circumstances of the case, the ITAT was justified in holding
that he unpaid amount of bottling fee has, on furnishing of the bank guarantee
to be treated as actual payment and accordingly allowing the deduction in
respect of the same under Section 43B of the Act, even though the sum has not
been actually paid before the due date of filing the return under Section
139(1) of the Act?
2. Whether on the
facts and in the circumstances of the case, the ITAT was justified in allowing
the depreciation on research and development assets which related to the
closest business of fast food division/unit of the assessee company as such not
used during the previous year?
3. The dispute in
essence related to the applicability of Section 43B of the Income Tax Act, 1961
(in short the `Act') The High Court held that the said provision has no
application.
4. The High Court
following its earlier view in respect of the assessment year 1988-89 held that
the amount of bottling fees which remain unpaid did not attract applicability
of Section 43B of the Act. The same question has been considered by us in Civil
Appeal No.3471 of 2007 disposed of separately today. The view expressed in
relation to Section 43B of the Act applies to this case also. The first
question has therefore to be decided against the revenue.
5. Coming to the
second question, it relates to claim of depreciation on research and
development assets. Stand of the revenue is that machinery in respect of R
& D centre related to the fast food unit which was closed and therefore the
assessee was not entitled to any depreciation because there was no actual user
of the machinery.
6. Stand of the
assessee on the other hand is that the machinery was used in respect of both
the fast food and the liquor units. This aspect needs to be factually examined.
7. We find that the
basic issue as to whether it related to both the units or only to fast food
unit which is admittedly closed has not been examined in detail. We, therefore,
remit the matter to the Assessing Officer to examine this aspect. The assessee
shall be permitted to place material in support of its claim that the machinery
was used for both the units. If it is established by material that whole or
part of the machinery was being used for the liquor unit, whether partly or
fully in respect of those machineries, the deduction can be made, as
permissible in law otherwise not. The matter is therefore remitted to the
assessing officer for doing necessary exercise.
8. The appeal is
disposed of accordingly.
.........................................J.
(Dr. ARIJIT PASAYAT)
.......................................J.
(Dr. MUKUNDAKAM SHARMA)
New
Delhi,
May
08, 2009
REPORTABLE IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.3512 OF 2007
Commissioner of Income Tax, Udaipur Rajasthan ...Appellant Versus M/s Udaipur
Distillary Co. Ltd., Udaipur ...Respondent
Dr. ARIJIT PASAYAT,
J.
1. Questioning
correctness of the judgment rendered by a Division Bench of the Rajasthan High
Court at Jodhpur this appeal has been filed.
The questions raised
before this Court are as follows:
1. Whether the High
Court is right in laws and on the facts of the case in dismissing the appeal of
the revenue?
2. Whether the High
Court has failed to consider the following substantial questions of law:
A. Whether on the
facts and in the circumstances of the case, the ITAT was justified in deleting
the addition of Rs.5,51,262/- by holding that unpaid amount of bottling fee
has, on furnishing of bank guarantee to be treated as actual payment and
accordingly the deduction in respect of the same cannot be denied under section
43B of the IT Act, 1961? B. Whether in the facts and in the circumstances of
the case, the ITAT was justified in law in deleting the addition of Rs.38,442/-
made by the assessing officer on account of disallowance of research and
development expenses not covered under Section 35(1)(iv) of the IT Act, 1961 by
wrongly relying on the decision in ITA 1546/JP/95 dated 30.3.2001? C. Whether
in the facts and in the circumstances of the case, the Division Bench of the
High Court was justified in law in affirming the findings of the ITAT allowing
the depreciation on research and development assets which related to the closed
business of Fast Food Division/Unit of the assessee company as such not used
during the previous year? D. Whether in the facts and in the circumstances of
the case, the Division Bench of the High Court was justified in affirming the
findings of ITAT deleting the disallowance of Rs.14,51,100/- holding that the
technical service charges (royalty) payment under consideration is allowable
based on subsequent agreement dated 10.4.1992 at higher rate than that based on
earlier agreement entered into in December, 1990 even though earlier agreement
entered into in December, 1990 was to be effective upto 2000 and had neither
been substituted nor rescinded?
3. The question
raised before the High Court are same as raised for assessment years 1991-92
and 1992-93.
4. The dispute in
essence related to the applicability of Section 43B of the Income Tax Act, 1961
(in short the `Act') The High Court held that the said provision has no
application. 5. The dispute relates to the assessment year 1994-95. In addition
to the issues which are common to assessment year 1991-92, 1992-93 which are
the subject matter in Civil Appeal No.3511 of 2007 and Civil Appeal No.2939 of
2006, our answers to the questions given in relation to Section 43B and
depreciation on research and development machinery and replacement of
transformers shall apply to the facts of the present case also.
The additional issue
here relates to technical service charges. According to learned counsel for the
revenue the principles of novatio are applicable here and there was no
commercial expediency for entering into a fresh contract and there is no
financial benefit. We find that the High Court has noted that it is not the
case of the revenue that the assessee has not actually paid Rs.30 lacs to
McDowell. It is pointed out that though in two years the payments made under
the new agreement were more than what would have fallen due under the original
agreement but for the subsequent years' transactions, the business expediency
claim of the assessee proved to be right. It has been noticed that for the
assessment year 1995-96 under the old agreement, the assessee would have been
required to pay Rs.45.56 lacs towards technical services charges to Mcdowell
and during the assessment year 1996-97 it would have been required to pay
Rs.107.323 lacs as per the old agreement
whereas the assessee
has during these two years paid Rs.30 lacs for each year. The Tribunal and the
High Court recorded a finding that the new agreement in April, 1992 was not a
subterfuge or clandestine device to reduce the tax liability but was an
expenditure incurred on business expediency and the decision of the parties to
enter into an agreement was based on commercial consideration. The finding is
essentially a finding of fact based on cogent assessment of the factual
scenario. We find nothing infirm in the decision of the Tribunal and the High
Court to warrant interference. The challenge of the revenue on that ground
fails.
6. The appeal is
disposed of.
..........................................J.
(Dr. ARIJIT PASAYAT)
..........................................J.
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