M/s The State Fisheries Development Corporation Ltd., Kolkata V. D.C.I.T Cir - 2,kolkata., Kolkata

ITA 165/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4532 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 07-07-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 22-01-2013
• Court: TRIBUNAL
• Department Lawyers: TANUJ KUMAR NEOGI
• Assessee Lawyers: SOUMITRA CHOW DHURY
• Keywords: Business expenditure; Capital receipt
• Section: 143(3); 37(1); 37

Judgement Text

ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.C ORPN.LTD. A.Y.2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE HONBLE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER I.T.A. NO.165/KOL/2013 ASSESSMENT YEAR : 2006-07 THE STATE FISHERIES DEVELOPMENT CORPORATION LTD.BIKASH BHAWAN, FIRST FLOOR, NORTH BLOCK, BIDHAN NAGAR, KOLKATA-700 091 [ PAN NO. AABCT 2090 D ] V/S . D.C.I.T., CIRCLE-2, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA- 700069. /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SOUMITRA CHOWDHURY, ADVOCATE /BY RESPONDENT SHRI TANUJ KUMAR NEOGI, ADDL.CIT.SR.DR /DATE OF HEARING 25-08-2016. /DATE OF PRONOUNCEMENT 16 -09-2016. / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-XX, KOLKATA DATED 05.10.2012. ASSESSMENT WAS FRAMED BY A.C.I.T., CIRCLE-2, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS OR DER DATED 04-12-2008 FOR ASSESSMENT YEAR 2006-07. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ACTION OF THE LD AO IN ADDING A SUM OF RS.4,60,00,000/- AS GR ANTS-IN-AID FOR SALARY P.F. & FLOOD RELIEF TO THE TOTAL INCOME OF THE APPE LLANT, WITHOUT APPRECIATING THE FACT THAT THE GRANT-IN-AID IS A CA PITAL RECEIPT NOT LIABLE TO BE INCLUDED IN THE TOTAL INCOME OF THE APPELLANT AN D SUCH ACTION OF THE CIT(A) IS ARBITRARY, UNJUSTIFIED, UNWARRANTED AND I LLEGAL. ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 2 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN APPLY ING THE DECISION OF THE APEX COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. VS CIT (SC) REPORTED UNDER 228 ITR 253 AS THE FACTS OF THE APPELLANTS CASE ARE TOTALLY DIFFERENT AND SUCH ACTION OF THE CIT(A) IS ARBITRARY, UNJUSTIFIED, UNWARRANTED AND ILLEGAL. 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ACTION OF THE LD AO IN DISALLOWING INTEREST PAID OF RS.2,62,8 16 FOR DELAYED DEPOSIT OF P.F WITHOUT APPRECIATING THE FACT THAT SUCH INTERES T IS COMPENSATORY IN NATURE AND SUCH ACTION OF THE CIT(A) IS ARBITRARY, UNJUSTIFIED, UNWARRANTED AND ILLEGAL. 4. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE INTEREST OF RS.2,62,816/- FOR DELAY IN DEPOSIT OF P.F IS ALLOWA BLE UNDER SECTION 37(1) OF THE INCOME TAX ACT, 1961. 5. FOR THAT THE APPELLANT CRAVES INDULGENCE TO ADD, AMEND, ALTER AND/OR MODIFY THE GROUNDS ON OR BEFORE THE HEARING OF THE APPEAL. 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IN GROUN D NOS. 1 & 2 OF THIS APPEAL IS THAT LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE AO BY TREATING THE GRANT-IN- AID OF 4,60,00,000/- TOWARDS SALARY, PF AND FLOOD RELIEF A S REVENUE RECEIPT AND THEREFORE TAXABLE. 3. THE FACTS IN BRIEF AS CULLED OUT FROM THE ORDERS OF LOWER AUTHORITIES AND DOCUMENTS ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PUBLIC SECTOR UNDERTAKING AND ENGAGED IN THE BUSINESS OF PISCI-CU LTURE ACTIVITIES. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION FILED ITS RETURN OF INCOME DATED 25.11.2006 DECLARING A TOTAL INCOME AT NIL. THEREAF TER THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY THE NOTICES UNDER SECTION 143(2)/142(1) WERE ISSUE UPON THE ASSESSEE. THE ASS ESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE ACT AT TOTAL INCOME OF RS. 6,59,39,460.00 AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS R ECEIVED THE GRANT-IN-AID FROM GOVT. OF WEST BENGAL FOR THE FOLLOWING PURPOSE S AS DETAILED HEREUNDER:- A) THE GRANT-IN-AID FOR 3,00,00,000.00 WAS RECEIVED FOR THE PAYMENT OF SALARY OF THE EMPLOYEES, B) THE GRANT-IN-AID FOR 60,00,000/- FOR THE PAYMENT OF PF AND ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 3 C) THE GRANT-IN-AID FOR 1,00,00,000/- FOR THE PAYMENT FLOOD RELIEF THE ASSESSEE TREATED THE ABOVE SAID RECEIPTS FROM T HE GOVERNMENT OF WEST BENGAL AS CAPITAL IN NATURE AND THEREFORE THESE ARE NOT TAXABLE. HOWEVER, AO DURING THE ASSESSMENT PROCEEDINGS HAS DISREGARDED W ITH THE CLAIM OF THE ASSESSEE AND TREATED THE SAME AS REVENUE RECEIPT WH ICH IS LIABLE TO TAX. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHERE IT WAS SUBMITTED THAT ASSESSEE IS A SICK PUBLIC SECTOR UNDERTAKING AND THE GRANT WAS RECEIVED FROM THE GOVERNMENT FOR THE PAYMENT OF SALARY, PF DUES AND FLOOD RELIEF WITH THE PURPOSE TO KEEP WORKMEN IN EM PLOYMENT. THEREFORE IT IS A CAPITAL GRANT-IN-AID AND NOT LIABLE TO TAX. THE ASS ESSEE IS A GOVERNMENT COMPANY UNDER THE ADMINISTRATIVE CONTROL OF FISHERI ES DEPARTMENT OF WEST BENGAL. IT WAS NOT THE GENERAL SUBSIDY BUT IT WAS G IVEN TO KEEP THE COMPANY VIABLE. THE ASSESSEE IS OWNED BY THE STATE GOVERNME NT OF THE WEST BENGAL AND SUBSIDY WAS GIVEN AS OWNER. THEREFORE IN THE IN STANT CASE THE SUBSIDY CANNOT BE READ IN ANY WAY AS IT IS UNDERSTOOD IN IT S NORMAL PARLANCE. HOWEVER, LD.CIT(A) DISREGARDED THE SUBMISSION OF THE ASSESSE E BY OBSERVING IN PARA- 4.2 OF HIS ORDER, WHICH IS REPRODUCED BELOW:- 4.2. I HAVE PERUSED THE ASSESSMENT ORDER AND CON SIDERED THE SUBMISSION OF THE APPELLANT. THIS ISSUE HAS ALSO AR ISEN FOR THE A.Y.2005- 06 IN WHICH IT HAS BEEN DECIDED AGAINST THE APPELLA NT BY THE THEN CIT(A). THE MATTER IS NOW PENDING BEFORE THE ITAT, KOLKATA. BEING IDENTICAL ISSUE WHICH HAS BEEN DISCUSSED IN DETAIL BY THE CIT(A) IN HIS ORDER FOR A.Y. 2005-06. FOLLOWING THE VIEW TAKEN BY THE CIT(A) FOR THE A.Y. 2005-06, THIS GROUND OF APPEAL IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) THE ASS ESSEE CAME IN SECOND APPEAL BEFORE. THE LD. AR BEFORE US REITERATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED T HE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE FIND THAT THE INSTANT ISSU E HAS ALREADY BEEN DECIDED IN ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 4 FAVOUR OF ASSESSEE IN ITS OWN CASE IN ITA NO. 1281/ KOL/2009 VIDE ORDER DATED 19.4.2016. THE RELEVANT EXTRACT OF THE ORDER IS REP RODUCED BELOW : 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. AR FILED PAPER B OOK WHICH IS RUNNING FROM PAGES 1 TO 119 AND SUBMITTED THAT THE CASE REL IED BY THE LOWER AUTHORITIES DOES MATCH WITH THE FACTS OF THE CASE O F THE ASSESSEE. THE ABOVE CASE IS APPLICABLE TO THE SITUATIONS WHERE TH E GOVERNMENT GRANT WAS GIVEN TO THE CERTAIN CLASS OF INDUSTRIES. ON TH E CONTRARY THE LD. DR SUBMITTED THAT IN THE INSTANT CASE THE GRANT IN AID IS NOT FROM GOVERNMENT TO GOVERNMENT BUT GOVERNMENT TO CORPORAT E. THE GRANT WAS GIVEN TO THE ASSESSEE FOR THE PURPOSE OF MEETING TH E REVENUE EXPENSES WHICH ARE RECURRING IN NATURE. THE FACTS OF THE CAS E CITED BY THE ASSESSEE I.E. HANDICRAFTS AND HANDLOOM EXPORT CORPO RATION OF INDIA (SUPRA) ARE DIFFERENT FROM THE INSTANT CASE AS IN T HAT CASE THE HOLDING COMPANY HAS GIVEN CASH ASSISTANCE TO ITS SUBSIDIARY COMPANY THEREFORE THE SAME CANNOT BE RELIED UPON. FINALLY THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 6.1 FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE HAS RECEIVED A GRANT FROM THE GOVERNMENT OF WEST BENGAL WHICH IS HUNDRED PERCENT SOLE SHAREHOLDER OF THE ASSESSEE COMPANY. T HE PURPOSE OF THE GRANT WAS TO UTILIZE TOWARDS THE PAYMENT FOR SALARY AND PF OF THE EMPLOYEES. THE AO DURING ASSESSMENT PROCEEDINGS OBS ERVED THAT THE GRANT WAS GIVEN TO MEET THE REVENUE EXPENSES THEREF ORE IT IS FULLY LIABLE TO TAX. HOWEVER, THE ASSESSEE TREATED THE SAME AS C APITAL GRANT IN AID AND THEREFORE NOT LIABLE TO TAX. FROM THE FACTS WE FIND THAT THE LOWER AUTHORITIES HAVE MADE THE ADDITION ON ACCOUNT OF TH E FOLLOWING: 1) THE LOWER AUTHORITIES RELIED IN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF THE SAHNEY STEEL & PRESS WORKS (SUPR A) FOR TREATING THE GRANT IN AID AS THE REVENUE IN NATURE AND THERE FORE LIABLE TO TAX. 2) SIMILAR ADDITION FOR GRANT-IN-AID WAS MADE BY TH E AO IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR THE 2003-04 . NOW LET US SEE THE FACTS OF THE AFORESAID JUDGMENT. THE HONBLE SUPREME COURT HAS REFERRED TO SALIENT FEATURES OF V ARIOUS SCHEMES FORMULATED BY THE CENTRAL / STATE GOVERNMENTS AND T HE SUBSIDY RECEIVED THERE-UNDER, THE PURPOSE OF THE SAID SUBSI DY AND THEN DETERMINED WHETHER OR NOT IT WAS TAXABLE AS REVENUE RECEIPT. IT HAS BEEN HELD THAT THE PAYMENT MADE AS INCENTIVES OR SU BSIDIES BY WAY OF REFUND OF SALES TAX, POWER AND ELECTRICITY CONSUMED ON PRODUCTION, WATER RATE ETC. SHOULD BE TREATED AS REVENUE RECEIP TS. INCENTIVES AND SUBSIDY RECEIVED IN THE NATURE OF PRODUCTION EXPENS ES AFTER THE PRODUCTION HAS STARTED WERE NOT DIRECTLY OR INDIREC TLY FOR SETTING UP OF INDUSTRIES AND, HENCE, REVENUE IN CHARACTER. OPERAT IONAL SUBSIDIES WOULD BE REVENUE IN NATURE AND THEY AMOUNT TO TRADI NG RECEIPTS. FROM ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 5 THE AFORESAID DECISION WE OBSERVE THAT THAT THE SUB SIDIES WERE GIVEN TO THE CLASS OF INDUSTRIES AS PER THE SCHEMES DESIGNED BY THE RESPECTIVE GOVERNMENTS. THE PURPOSE OF THE AFORESAID SUBSIDIES WAS TO PROMOTE THE CERTAIN CLASS OF INDUSTRIES PROVIDED, THEY MEET THE ELIGIBILITY CRITERIA LAID DOWN IN THOSE SCHEMES. HOWEVER, IN THE INSTANT CASE WE FIND THAT THE GRANT IN AID WAS GIVEN TO THE ASSESSEE EXCLUSIV ELY AND THERE WAS NO SCHEME AS SUCH. THEREFORE IN OUR CONSIDERED VIEW TH E CASE LAW CITED BY AO IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. ( SUPRA) ARE DIFFERENT FROM THE INSTANT CASE OF ASSESSEE, AS IT WAS GIVEN FOR THE SPECIFIC PAYMENT OF SALARY AND PF. THE RELEVANT PORTION OF T HE SANCTIONED LETTER OF GOVERNMENT OF WEST BENGAL IS REPRODUCED BELOW:- GOVERNMENT OF WEST B ENGAL FISHERI ES DEPARTMENT WRITERS BUILDINGS, KOLKATA-1 NO.155-FISH(FS)/C-VI/2C-5/00-PT/1 DATED KOLKATA T HE 30 TH MARCH 2005 FROM: THE JOINT SECRETARY TO THE GOVT. OF WEST BEN GAL TO: THE TREASURY OFFICER, BIDHAN NAGAR TREASURY, ACCOUNTS DEPTT. JALSMPAD BHAVAN, SALT LAKE, KOLKATA-91. SUB: SANCTION OF A FUND WORTH RS.76.77 LAKH (RUPEES SEVENTY SIX LAKH AND SEVENTY SEVEN THOUSAND ONLY) AS GRANT-IN-A ID FOR THE PURPOSE OF PAYMENT OF ARREAR PROVIDENT FUND OF THE EMPLOYEES OF THE STATE FISHERIES DEVELOPMENT CORPORATION LTD. MEMORANDUM IN CONTINUATION OF THIS DEPTTS MEMO NO.87-FISH(FS) /C-VI DATED 16.2.2005, THE UNDERSIGNED IS DIRECTED BY ORDER OF THE GOVERNOR TO SAY THAT THE GOVERNOR HAS BEEN PLEASED TO ACCORD SANCTION TO A FURTHER SUM OF RS.76.77 LAKH (RUPEES SEVENTY SIX LAKH SEVENTY SEVEN THOUSAND) ONLY AS GRANT-IN-AID TO THE STATE F ISHERIES DEVELOPMENT CORPORATION LTD., A GOVT. COMPANY UNDER THE ADMINISTRATIVE CONTROL OF THE FISHERIES DEPTT., FOR THE PURPOSE OF PROVIDENT FUND ARREAR DUES IN RESPECT OF THE EMPLOY EES OF SEDC LTD., TO THE REGIONAL PROVIDENT FUND COMMISSIONER. 2. THE GOVERNOR HAS FURTHER BEEN PLEASED TO AUTHORI ZE THE MANAGING DIRECTOR, STATE FISHERIES DEVELOPMENT CORP ORATION LTD., TO ACT AS THE DRAWING AND DISBURSING OFFICER FOR THE AMOUNT SANCTIONED HEREINABOVE. HE IS ALSO REQUESTED TO DEP OSIT THE AMOUNT IN THE DEPOSIT ACCOUNT OPENED IN TERMS OF FI NANCE DEPTT. MEMO NO.1230-F DT. 3.2.84 BY TRANSFER OF CREDIT UND ER THE HEAD 8499-OTHERE DEPOSITS-00-120-DEOSITS OF GOVERNMENT COMPANIES AND CORPORATIONS THE ALLOTTED SUM OF RS.76.77 LAKH (RUPEES SEVENTY SIX LAKH SEVENTY SEVEN THOUSAND) ON LY TO BE DRAWN BY HIM FOR THE PURPOSE MENTIONED ABOVE. THE C HANGE OF ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 6 DEPOSIT ACCOUNT HAS BEEN COMMUNICATED IN TERMS OF F INANCE DEPTT. MEMO NO.8798-F, DATED 23.12.98 WEF 1.4.99. 3. THE MANAGING DIRECTOR, STATE FISHERIES DEVELOPME NT CORPORATION LTD., WILL PLEASE ENSURE IMMEDIATELY ON MAJOR UTILISATION OF THE ABOVENOTED FUND FOR THE PURPOSE STATED IN PARA 1 ABOVE AND SEND A COMPLIANCE REPORT TO THIS DEPTT. A S EARLY AS POSSIBLE. 4. THE CHARGE INVOLVED WILL PROCEED AGAINST THE HEA D 2405- FISHERIES-00-101-INLAND FISHERIES-NP-NON PLAN-007-S TATE CONTRIBUTION AS GRANTS TO SFDC/WBFC FOR PISCICULTUR E OPERATION 31-GRANTS-INI-AID-01-SLARY GRANTSN THE BUDGET FOR 2004-2005. 5. THIS ORDER ISSUES WITH THE CONCURRENCE OF THE FI NANCE DEPTT., OF THIS GOVT. VIDE THEIR U.O.NO.1141 GROUP A DT. 30.3. 05. 6. THE ACCOUNTANT GENERAL, WEST BENGAL AND OTHERS C ONCERNED ARE BEING INFORMED. SD/-ILLEGIBLE JOINT SECRETARY TO TH E GOVT. OF WEST BENGAL FROM THE ABOVE, WE FIND THAT THE GRANT GIVEN BY THE GOVERNMENT TO THE ASSESSEE WAS NOT AS PER THE SCHEME DESIGN FO R THE PROMOTION OF SOME CLASS OF INDUSTRIES BUT IT WAS GI VEN BY THE GOVERNMENT BEING A SOLE SHARE HOLDER OF THE ASSESSE E COMPANY. IN OUR CONSIDERED VIEW, THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. HANDICRAFTS AND HA NDLOOMS EXPORT CORPORATION OF INDIA LTD. (2014) 360 ITR 130 (DEL) IS APPLICABLE TO THE ASSESSEE. IN OUR VIEW THE CONTENT ION OF THE LD. DR THAT IN THIS CASE THE CASH ASSISTANCE WAS GIVEN BY THE HOLDING COMPANY TO THE SUBSIDIARY COMPANY THEREFORE THE FAC TS OF THIS CASE ARE DIFFERENT FROM THE ASSESSEE IS NOT TENABLE . THERE IS NO STRAIGHT JACKET PRINCIPLE TO DISTINGUISH A CAPITAL RECEIPT FROM A REVENUE RECEIPT. IT DEPENDS ON THE FACTS AND CIRCUM STANCES OF EACH CASE. THIS VIEW IS SUPPORTED BY THE DECISION O F HON'BLE SUPREME COURT IN THE CASE OF MEPCO INDUSTRIES 319 ITR 208 (SC) WHEREIN THE HON'BLEBLE APEX COURT HELD THAT IN EACH CASE ONE HAS TO DETERMINE THE NATURE OF SUBSIDY BASED ON THE ITS OWN FACTS. WE FIND THAT IN THE INSTANT CASE THE GOVERNM ENT BEING HUNDRED PERCENT SHAREHOLDER OF THE ASSESSEE COMPANY HAS GIVEN GRANT IN AID FOR HOLDING THE EMPLOYMENT. THE GRANT- IN-AID WAS GIVEN SPECIFICALLY TO THE ASSESSEE COMPANY AND THAT IT WAS NOT FOR CERTAIN CLASS OF INDUSTRIES. WE ARE ALSO RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF HANDICRAFTS AND ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 7 HANDLOOMS EXPORT CORPORATION OF INDIA LIMITED (SUPR A) WHEREIN THE RELEVANT PORTION IS REPRODUCED BELOW. WE HAVE HEARD LEARNED COUNSEL ON BOTH SIDES IN REG ARD TO THIS MATTER AND WE AGREE WITH THE CONCLUSION OF THE TRIB UNAL THAT THE SUM OF RS.11,70,000 STANDS ON NO DIFFERENT FOOTING FROM THE AMOUNTS RECEIVED FROM THE STC IN EARLIER YEARS. WE HAVE POINTED OUT THAT WHAT HAPPENED IN EARLIER YEARS WAS THAT TH E ASSESSEE, HAVING INCURRED CERTAIN LOSSES IN ITS EXPORT BUSINE SS, APPROACHED THE STC FOR ASSISTANCE TO ENABLE IT TO MEET ITS LIA BILITIES CONSEQUENT ON SUCH LOSSES AND THE STC AGREED TO DO SO BY REIMBURSING THE LOSSES INCURRED BY THE ASSESSEE. TH ERE WAS, THEREFORE, EVEN IN THOSE YEARS AN AGREEMENT ON THE PART OF THE STC TO RECOUP THE LOSSES MADE BY THE ASSESSEE. THE CIRCUMSTANCE, THEREFORE, THAT IN THE PRESENT YEAR, THERE WAS AN AGREEMENT DURING THE PREVIOUS YEAR BY WHICH THE STC AGREED TO GIVE FINANCIAL ASSISTANCE TO THE ASSESSEE WILL NOT, THEREFORE, MAKE ANY DIFFERENCE IN PRINCIPLE. WE ARE ALSO OF OPINION THAT THE OTHER DISTINGUISHING FEATURE POINTED OUT BY THE DEPARTMEN T DOES NOT ALSO MAKE A DIFFERENCE. AS POINTED OUT BY THE TRIBU NAL THE NATURE AND PURPOSE OF THE PAYMENTS BY THE STC TO THE ASSES SEE IS THE SAME IN EARLIER YEARS AS WELL AS THIS YEARS. IN ALL THE YEARS THE STC HAS ONLY PROVIDED MONIES TO THE ASSESSEE-CORPOR ATION WITH THE OBJECT OF ENABLING IT TO OFFSET THE LOSSES WHIC H IT HAD INCURRED IN THE CURSE OF ITS BUSINESS. THE FACT THAT THE CON TRIBUTION WHICH THE STC WAS PREPARED TO MAKE TO ENABLE THE ASSESSEE TO DO THIS WAS MEASURED IN TERMS OF A PERCENTAGE OF ITS EXPORT EARNINGS AND WAS NOT A FLAT OR ROUND SUM OF MONEY AS IN THE PRIO R YEARS DOES NOT, IT SEEMS TO US, MAKE ANY DIFFERENCE. IN ALL TH E YEARS IT IS ONLY A CASE OF A CENT PER CENT, HOLDING COMPANY COMING T O THE RESCUE OF ITS SUBSIDIARY WHICH HAS INCURRED LOSSES AND ENA BLING IT TO RECOUP THOSE LOSSES AND CONTINUE TO CARRY ON THE BU SINESS IN SPITE OF SUCH LOSSES. IN THE CIRCUMSTANCES, WHAT WE HAVE SAID IN OUR EARLIER JUDGMENT IN ITR NOS 17 AND 84/74 (ADDL. CIT V. HANDICRAFTS AND HANDLOOM EXPORT CORPORATION [1982] 133 ITR 590 (DELHI) WILL EQUALLY APPLY IN REGARD TO THE ASSISTA NCE RECEIVED BY THE ASSESSEE FROM THE STC DURING THE CURRENT YEARS. THE AFORESAID FINDINGS RECORDED BY THE HON'BLE HIGH COURT IN THE EARLIER DECISION I.E., HANDICRAFTS AND HANDLOOM EXP ORT CORPORATION OF INDIA V. CIT [1983] 140 ITR 532 (DEL ) MERIT ACCEPTANCE, EVEN WHEN WE APPLY THE PURPOSE TEST APP LIED IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. (SUPRA) A S EXPLAINED IN PONNI SUGAR AND CHEMICALS LTD. (SUPRA). IT CANNO T BE SAID THAT THE EARLIER DECISION OF THE DELHI HIGH COURT HAS BE EN OVERTURNED OR OVERRULE BY THE HON'BLE SUPREME COURT IN THE TWO DECISIONS MENTIONED ABOVE. ACCORDINGLY, WE ANSWER THE QUESTIO N OF LAW ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 8 AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THE LOWER AUTHORITIES HAVE ALSO MADE THE ADDITION ON THE GROU ND THAT SIMILAR DISALLOWANCE WAS MADE IN THE EARLIER ASSESSMENT YEAR 2003-04. IN THIS CONNECTION, WE FIND THAT THE AO MADE THE AD DITION OF GRANT IN AID FOR RS. 48,22,698/- IN THE ASSESSMENT YEAR 2 003-04 BUT THE AO IN THE ASSESSMENT YEAR 2004-05 HAS ALLOWED THE R ELIEF OF GRANT-IN-AID FOR RS. 44 LACS. FROM THE FACTS OF THE CASE WE FIND THAT GRANT IN AID FOR RS.48,22,698/- PERTAINING TO THE ASSESSMENT YEAR 2003-04 WAS ALLOWED IN THE IMMEDIATE SUBSEQUEN T ASSESSMENT YEAR 2004-05 FOR RS. 44 LACS. THE LEARNE D AR HAS PRODUCED THE COPIES OF THE ASSESSMENT ORDERS FOR TH E AYS 2003- 04 AND 2004-05 IN SUPPORT OF ITS CLAIM AND THE SAME ARE PLACED ON THE RECORD. SIMILARLY, WE ALSO FIND THAT THE GRA NT-IN-AID RECEIVED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2004-05 WAS NOT DISALLOWED BY THE AO. THE LD. DR FAILED TO BRING AN YTHING ON RECORD CONTRARY TO THE ARGUMENT OF THE LD. AR AND H E LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. IN VIEW OF AB OVE AND IN THE INTEREST OF JUSTICE, WE ARE INCLINED TO TREAT THE G RANT-IN-AID AS CAPITAL IN NATURE THEREFORE IT IS NOT LIABLE TO TAX . ACCORDINGLY WE REVERSE THE ORDER OF THE LOWER AUTHORITIES AND GROU ND RAISED BY THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE TRI BUNAL IN ITS OWN CASE, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW. HENCE T HIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 6. THE NEXT AND LAST ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY DISALLOWING THE INTEREST PAID FOR DELAYED DEPOSIT OF PF FOR AN AMOUNT OF RS. 2,62,816/- THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THA T THE ASSESSEE HAS PAID INTEREST OF RS. 5,51,228/- ON DELAYED PAYM ENT OF PF AMOUNT. THE AO DISALLOWED THE SAME ON THE GROUND THAT THIS INTERES T BEING PANEL IN NATURE AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT (A) WHO HAS UPHELD THE ACTION OF THE AO BY OBSERVING AS UNDER:- 6.2. I HAVE PERUSED THE ASSESSMENT ORDER AND CONSI DERED THE SUBMISSION OF THE APPELLANT. THE FACTS OF THE CASE IS THAT THE AO DISALLOWED INTEREST OF RS.2,62,816/- PAID BY THE AP PELLANT ON ACCOUNT OF DELAYED DEPOSIT OF PROVIDENT FUND. AFTER GOING THRO UGH THE FACTS OF THE CASE AND SUBMISSION OF THE APPELLANT, I AM OF THE V IEW THAT THE PAYMENT ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 9 OF INTEREST ON DELAYED DEPOSIT OF P.F. IS PENAL IN NATURE, THIS VIEW HAS BEEN UPHELD BY THE HONBLE HIGH COURT, ALLAHABAD IN THE CASE OF CIT VS. KAMALAPAT MOTHILAL 172 ITR 438 IN WHICH A REFERENCE WAS MADE BY THE ITAT, ALLAHABAD BENCH AT THE INSTANCE OF COMMISSION ER OF INCOME-TAX, KANPUR IN WHICH A QUESTION WAS REFERRED I.E. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE PAYMENT OF RS.31,572/- BY WAY OF DAMAGES FOR LATE PAYMENT OF PROVIDENT FUND D EDUCTIONS WAS MADE BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS AND WAS DEDUCTIBLE IN COMPUTING THE ASSESSEES TOTAL INCOME ? THE HONBLE COURT HAS HELD THAT FOLLOWING ORGANO CHEMICAL INDU STRIES CASE, AIR 1979 SC 1803, IT MUST BE HELD THAT THE APPELLATE TR IBUNAL WAS IN ERROR IN HOLDING THAT THE PAYMENT OF DAMAGES CANNOT BE EQ UATED WITH THE PAYMENT OF PENALTY AND THAT DAMAGES PAID UNDER SECT ION 14B ARE ALLOWABLE AS BUSINESS EXPENDITURE. QUESTION NO.(1) IS, THEREFORE, DECIDED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, THE APPEAL ON THIS GROUND IS DISMISSED. AGGRIEVED, BY THE ORDER OF LD. CIT(A), ASSESSEE IS IN SECOND APPEAL BEFORE US. 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. WE FIND THAT AO DURING THE COURSE OF ASSESS MENT ORDER FOUND THAT ASSESSEE HAS PAID A SUM OF RS.5,51,228/- AS INTERES T FOR NON-PAYMENT OF PF AND THIS FACT HAS ALSO BEEN MENTIONED IN ITS TAX AU DIT REPORT AT COLUMN- 17(E)(I) AS EXPENDITURE BY WAY OF PENALTY OR FINE F OR VIOLATION OF ANY LAW AND HE ADDED THE SAME BACK TO THE TOTAL INCOME OF ASSESSEE . CONSIDERING THE SAME, LD. CIT(A) CONFIRMED THE ACTION OF AO. LD. DR RELIE D ON THE ORDERS OF AUTHORITIES BELOW WHEREAS LD. AR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. FROM THE FACTS OF THE CASE WE FIND THAT THE INTERES T PAID ON THE LATE DEPOSIT OF PF IS COMPENSATORY IN NATURE THEREFORE IT SHOULD NO T BE DISALLOWED ON THE GROUND OF TREATING THE SAME AS PENAL IN NATURE. IN THIS CONNECTION WE ARE PUTTING OUR RELIANCE IN THE FOLLOWING THE DECISION OF HONBLE APEX COURT, IN THE CASE OF PRAKASH COTTON MILLS V. CIT (1993) 2174 AIR 983 (SC) WHEREAS THE HEAD-NOTE :- THE APPELLANT PAID RS.19635 IN THE ACCOUNTING YEAR FOR A.Y. 1966-67, ON ACCOUNT OF INTEREST, UNDER BOMBAY SALES TAX ACT, 19 51, FOR DELAY IN PAYMENT ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 10 OF SALES TAX, AND FOR DAMAGES FOR DELAYED PAYMENT O F CONTRIBUTION UNDER EMPLOYEES STATE INSURANCE ACT, 1947. THE ASSESSEE- APPELLANT IN THE RETURN OF INCOME, CLAIMED THE AMOUNT AS ALLOWANCE UNDER SE CTION 37(1) OF I.T. ACT. THE APPELLANT, ALSO CLAIMED THE ENTIRE ENTERTAINME NT EXPENSES, AMOUNTING TO RS.3865 AS ALLOWANCE UNDER SECTION 37(2) OF THE I.T . ACT THE INCOME-TAX OFFICER TREATED THE PAYMENT OF RS.19635 AS PENAL INTEREST AND DISALLOWED IT AS ALLOWANCE UNDER SECTION 37(1) OF I.T. ACT. OUT O F THE ENTERTAINMENT, EXPENSES, AMOUNTING TO RS.3865 INCURRED BY THE DI RECTORS OF THE ASSESSEE COMPANY, FOR ENTERTAINMENT AT THE DINERS CLUB AND C.C.1, THE I.T.O. REGARDED RS.1365 ONLY AS PERMISSIBLE DEDUCTION UNDER SECTION 37(2) OF I.T. ACT, TAKING THE VIEW THAT THE REMAINING SUM OF RS.2500 WAS ATTR IBUTABLE TO PERSONAL EXPENSES OF THE DIRECTORS OF THE ASSESSEE COMPANY A ND THEREFORE IMPERMISSIBLE DEDUCTION UNDER SECTION 37(2) OF THE I.T. ACT. THE ASSESSEE APPELLANT DID NOT SUCCEED IN APPEALS BEFORE THE A. A.C. AND IN THE INCOME TAX TRIBUNAL. APPLICATIONS UNDER SECTION 256 (1) OF THE I.T. ACT BEFORE THE TRIBUNAL AND UNDER SECTION 256 (2) IN BOMBAY HIGH C OURT WERE REJECTED. THE ASSESSEE FILED APPEAL BY SPECIAL LEAVE IN SUPREME C OURT. THIS COURT ALLOWED THE APPEAL PARTLY AND, HELD: 'MAT THE AUTHORITY CON CERNED HAS TO ALLOW DEDUCTION UNDER SECTION 37(1) OF THE I.T. ACT, WHER EVER THE CONCERNED IMPOST IS PURELY 983 984 COMPENSATORY IN NATURE. WHEREVER SUCH IMPOST IS FOUND TO BE OF A COMPOSITE NATURE, THAT IS PARTLY COMPE NSATORY AND PARTLY PENAL, THE AUTHORITIES ARE OBLIGATED TO BIFURCATE THE TWO COM PONENTS OF THE IMPOST AND GIVEN DEDUCTION TO THE COMPONENT, WHICH IS COMPENSA TORY IN NATURE AND REFUSE THE DEDUCTION FOR THE COMPONENT WHICH IS PE NAL IN NATURE. THEREFORE, WHENEVER ANY STATUTORY IMPOST PAID BY ASSESSEE BY W AY OF DAMAGES OR PENALTY OR INTEREST IS AIMED, THE ASSESSING AUTHORI TY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PR OVIDING FOR PAYMENT OF SUCH IMPOST, NOTWITHSTANDING THE NOMENCLATURE OF THE IMP OST AS GIVEN BY THE STATUTE TO FIND, WHETHER IT IS COMPENSATORY OR PENA L IN NATURE. IBIS COURT AGREED WITH THE VIEW TAKEN IN EARLIER DECISIONS BY THIS COURT AND BY THE ANDHRA PRADESH HIGH COURT, WHICH SETTLE THE LAW AS TO WHEN ANY AMOUNT PAID AS INTEREST DAMAGES OR PENALTY COULD BE REGA RDED AS COMPENSATORY (REPARATORY) AS WOULD ENTITLE THE ASSESSEE TO CLAI M ALLOWANCE UNDER SECTION 37 (1) OF I.T. ACT THIS COURT CONCLUDED THAT THE Q UESTION WHETHER THE IMPOST IS IN ESSENCE COMPENSATORY OR IS BY WAY OF PENALTY, HAS TO BE DECIDED HAVING REGARD TO THE RELEVANT PROVISIONS OF THE LAW UNDE R WHICH IT IS IMPOSED, THE REASONS GIVEN IN THE ORDER IMPOSING AND QUANTIFYIN G THE DAMAGES OR PENALTY. THE IMPOSITION THOUGH CALLED A PENALTY MAY BE COMPO SITE IN NATURE COMPRISING PENALTY AS WELL AS COMPENSATION FOR DELA YED PAYMENT. THE NOMENCLATURE OF THE LEVY AS INTEREST, DAMAGES OR PE NALTY IS NOT CONCLUSIVE. FROM THE AFORESAID JUDGMENT OF HONBLE SUPREME COUR T, WE FIND THAT THE INTEREST PAID FOR LATE DEPOSIT OF PF WITH THE AUTHO RITIES IS COMPENSATORY IN NATURE THEREFORE IT IS ENTITLED FOR DEDUCTION WHILE COMPUTING THE PROFIT UNDER THE BUSINESS HEAD. HOWEVER IT IS ALSO PERTINENT TO NOTE THAT THE LD. C IT(A) ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 11 DISALLOWED THE INTEREST AMOUNT RELYING IN THE JUDGM ENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KAMALAPAT MOTHILA L 172 ITR 438 AND ALLAHABAD HIGH COURT IN TURN RELIED IN THE JUDGME NT OF ORGANIC CHEMICAL INDUSTRIES CASE, AIR 1979 SC 1803 . HOWEVER WE FIND THAT AS PER THE JUDGMENT OF HONBLE SUPREME COURT SC IN THE CASE OF CIT VS. VEGETABLE PRODUCT LTD. (1973) 88 ITR 192 (SC) WHERE IT WAS HELD THAT IN CASE OF CONFLICTING VIEW, THE VIEW BENEFICIAL TO THE ASSESSEE SHOULD BE ADOPTED. THE R ELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW. INTERPRETATION OF STATUTESTAXING PROVISIONTWO RE ASONABLE CONSTRUCTIONS CONSTRUCTION WHICH FAVORS THE ASSESSEE MUST BE ADOPTE D IF THE LANGUAGE IS PLAIN , ABSURD CONSEQUENCE IS NOT A FACTOR TO BE TAKEN INT O ACCOUNT IN INTERPRETING A PROVISION. IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQU ENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TAKEN INTO ACCOUNT IN INTERPRETING A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE THE ABSUR DITY. ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. THIS IS A WEL L-ACCEPTED RULE OF CONSTRUCTION. IF IN CASE OF A TAXING PROVISION TWO REASONABLE CON STRUCTIONS ARE POSSIBLE, CONSTRUCTION WHICH FAVORS THE ASSESSEE MUST BE ADOPTED. WE ALSO FIND THAT THE ISSUE IS ALREADY COVERED IN T HE OWN CASE OF THE ASSESSEE IN ITA 1281/KOL/ 2009 VIDE ORDER DATED 19.4.2016. IN THIS VIEW OF TH E MATTER, WE REVERSE THE ACTION OF AUTHORITIES BELOW AND GROUND RAISED BY ASSESSEE IN APPEAL IS ALLOWED. 8. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 16 /09/2016 SD/- SD/- ( ') ( ') (NARASIMHA CHARY) (WAS EEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *RG.PS $- 16/09 //201 6 ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 12 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / 2 / CONCERNED CIT 4. 2- / CIT (A) 5. 5 /, /, KOLKATA / DR, ITAT, KOLKATA 6. ; / GUARD FILE. BY ORDER/ , / /, ITA NO.165/KOL/2013 M/S. THE STATE FISHERIES DEV.CO RPN. LTD. A.Y.2006-07 13