DCIT, CHENNAI V. M/s. Chemplast Sanmar Ltd., CHENNAI

ITA 1675/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64332 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 08-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 143(3); 147; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT ME MBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1662/MDS/2010 (ASSESSMENT YEAR: 2003-04 ) CHEMPLAST SANMAR LTD., 9, CATHEDRAL ROAD, CHENNAI-600 086. PAN: AAACC3000F VS. ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, 1775 JAWAHARLAL NEHRU INNER RING ROAD, ANNA NAGAR WEST.EXTN. CHENNAI-600 101. (APPELLANT) (RESPONDENT) ITA NO.1675/MDS/2010 (ASSESSMENT YEAR: 2003-04 ) ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, 1775 JAWAHARLAL NEHRU INNER RING ROAD, ANNA NAGAR WEST.EXTN. CHENNAI-600 101. VS. CHEMPLAST SANMAR LTD., 9, CATHEDRAL ROAD, CHENNAI-600 086. PAN: AAACC3000F (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. R.VIJAYARAGHAVAN, ADV OCATE REVENUE BY : MR. S.DASGUPTA, JCIT DATE OF HEARING : 24 TH SEPTEMBER, 2012 DATE OF PRONOUNCEMENT : 24 TH SEPTEMBER, 2012 O R D E R PER VIKAS AWASTHY, JM: THE PRESENT SET OF APPEALS I.E. ITA NO.1662/MDS/201 0 & ITA NO.1675/MDS/2010 HAVE BEEN FILED BY THE ASSE SSEE AND THE REVENUE RESPECTIVELY IMPUGNING THE ORDER OF THE CIT(A), LTU, CHENNAI DATED 20.07.2010. ITA NO.1662 & 1675/MDS/2010 2 2. THE ASSESSEE HAD FILED ITS RETURN OF INCOME RELE VANT TO THE ASSESSMENT YEAR 2003-04 ON 28.11.2003 ADMITTING INCOME AS ` 18,02,88,739/-. THE RETURN OF THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1). SCRUTINY ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 29.3.2006 DETERMINI NG THE TOTAL INCOME OF THE ASSESSEE AT ` 18,44,27,232/-. THEREAFTER, THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 1 48 TO THE ASSESSEE ON 28.3.2008. THE ASSESSING OFFICER COMPLE TED THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 1 47 OF THE ACT ON 30.12.2008 BY MAKING ADDITIONS ON ACCOUNT O F : I) RECEIPT OF MONTREAL PROTOCOL COMPENSATION; & II) AMOUNTS TRANSFERRED TO THE GENERAL RESERVE U/S. 28(IV) OF THE ACT. AGGRIEVED AGAINST THE ASSESSMENT ORDER, TH E ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) V IDE ORDER DATED 20.7.2010 PARTLY ALLOWED THE APPEAL OF THE AS SESSEE. AGGRIEVED AGAINST THE ORDER OF THE CIT(A) BOTH THE REVENUE AND ASSESSEE HAVE FILED RESPECTIVE APPEALS BEFORE T HE TRIBUNAL. ITA NO.1662 & 1675/MDS/2010 3 3. AT THE OUTSET SHRI R.VIJAYARAGHAVAN APPEARING O N BEHALF OF THE ASSESSEE SUBMITTED THAT SINCE THE MAI N GROUND OF APPEAL BEFORE THE CIT(A) I.E. ISSUE RELATING TO ADDITION ON ACCOUNT OF AMOUNTS TRANSFERRED TO GENERAL RESERVE H AS BEEN ALREADY ALLOWED BY THE CIT(A), IT WOULD BE ACADEMIC TO PRESS REMAINING GROUNDS BEFORE THE TRIBUNAL. THEREFORE, T HE APPEAL OF THE ASSESSEE BE DISMISSED AS INFRUCTUOUS. 4. SHRI S.DASGUPTA, APPEARING ON BEHALF OF THE REVE NUE SUBMITTED THAT AS REGARDS THE APPEAL OF THE REVENUE IS CONCERNED, IT HAS A SUBSTANTIAL ISSUE, THEREFORE, I T NEEDS ADJUDICATION BY THE TRIBUNAL. HE SUBMITTED THAT THE ONLY GROUND OF APPEAL RAISED BY THE REVENUE IS DELETION OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AMOUNT TRANSFERRED BY THE ASSESSEE FROM SPECIAL RESERVE AC COUNT TO GENERAL RESERVE. HE SUBMITTED THAT THE ADDITION IN GENERAL RESERVE WAS DUE TO INCREASE IN THE NET ASSET VALUE ON ACCOUNT OF THE SCHEME OF DEMERGER. ANY INCREASE IN THE GEN ERAL RESERVE IS TAXABLE UNDER SECTION 28(IV). IN ORDER T O SUPPORT HIS CONTENTIONS, HE RELIED ON THE JUDGEMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ARIES ADVERTISING (P) LTD. ITA NO.1662 & 1675/MDS/2010 4 REPORTED AS 255 ITR 510(MAD) WHEREIN,THE HONBLE MA DRAS HIGH COURT HAS HELD THAT ANY AMOUNT TRANSFERRED TO GENERAL RESERVE WOULD BE OUT OF PROFITS ALONE. ONCE THE ASS ESSEE TRANSFERRED THE AMOUNT TO THE GENERAL RESERVE, IT T REATED THE SAME AS THE PROFIT. 5. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT TRAN SFER BETWEEN THE SPECIAL RESERVE AND GENERAL RESERVE IS MERELY A BOOK ENTRY. IT IS A TRANSFER BETWEEN TWO HEADS OF A CCOUNT. HE FURTHER CONTENDED THAT THE ASSESSEE HAS BEEN RECEIV ING COMPENSATION FROM MULTILATERAL FUNDS UNDER MONTREAL PROTOCOL FOR PHASING OUT THE PRODUCTION OF ITS PRODUCTS OVE R THE PERIOD OF 11 YEARS STARTING FROM THE CALENDAR YEAR 1999. TILL DECEMBER, 2002 IT HAD RECEIVED A SUM OF ` 1119.15 LAKHS AND HAS CREDITED THE SAME TO THE SPECIAL RESERVE AC COUNT. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE H AD TRANSFERRED THIS SUM FROM SPECIAL RESERVE TO GENERA L RESERVE ACCOUNT. THE ASSESSEE BY WAY OF NOTES TO ACCOUNTS H AS STATED THIS FACT IN ITS ANNUAL ACCOUNTS WHICH HAS B EEN DULY AUDITED AND APPROVED BY THE SHAREHOLDERS IN ITS ANN UAL ITA NO.1662 & 1675/MDS/2010 5 GENERAL MEETING. HE STRONGLY SUPPORTED THE ORDER O F THE CIT(A) ON THE ISSUE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPECTIVE PARTIES AND HAVE PERUSED THE ORDERS OF T HE LOWER AUTHORITIES AND THE JUDGEMENT CITED BY THE D.R. AS IS EVIDENT FROM THE RECORDS, THE ASSESSEE HAS BEEN RECEIVING F UNDS UNDER MONTREAL PROTOCOL FOR PHASING OUT THE PRODUCT ION OF CHLOROFLUOROCARBON AND CARBON TETRA CHLORIDE MANUFA CTURED BY THE ASSESSEE COMPANY. THESE SUBSTANCES ARE RESPONSI BLE FOR DEPLETING OZONE LAYER AND ARE CONSIDERED TO HAZARD OUS FOR THE ENVIRONMENT. HENCE BEING PHASED OUT IN A SYSTE MATIC MANNER OVER THE PERIOD OF 11 YEARS BETWEEN 1999 AND 2009 THE ASSESSEE HAD RECEIVED A SUM OF ` 1119.15 LAKHS DURING THE PERIOD 1999-2002 FOR THE SAME. THE ASSESSEE HA S BEEN CREDITING THE AMOUNT RECEIVED FROM MULTILATERAL FUN D UNDER MONTREAL PROTOCOL TO SPECIAL RESERVE ACCOUNT. THE CIT(A) HAS GIVEN HIS FINDING THAT THE ASSESSEE HAS NOT DER IVED ANY BENEFIT ON ACCOUNT OF DEMERGER THAT CAN BE TAXED UN DER THE PROVISIONS OF SECTION 28(IV). THE AMOUNT TRANSFERRE D FROM SPECIAL RESERVE ACCOUNT TO GENERAL RESERVE IS MEREL Y A BOOK ITA NO.1662 & 1675/MDS/2010 6 ENTRY. THE ASSESSEE HAS NOT DERIVED ANY BENEFIT OR EARNED INCOME ON ACCOUNT OF TRANSFER OF THESE FUNDS RATHER THE PROVISO TO CLAUSE (VA) OF SECTION 28 PROVIDES THAT ANY SUM RECEIVED AS COMPENSATION, FROM MULTILATERAL FUND OF MONTREAL PROTOCOL ON SUBSTANCES DEPLETING THE OZONE LAYER, S UB-CLAUSE (A) SHALL NOT APPLY. HERE IT WOULD BE NECESSARY TO EXAMINE THE PROVISION S OF SECTION 28(VA). THE RELEVANT EXTRACT OF THE PROVIS IONS OF SECTION 28(VA)ARE REPRODUCED HEREIN BELOW:- 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', XXXXXXXXX [(VA) ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CASH OR KIND, UNDER AN AGREEMENT FOR (A) NOT CARRYING OUT ANY ACTIVITY IN RELATION T O ANY BUSINESS; OR (B) NOT SHARING ANY KNOW-HOW, PATENT, COPYRIGHT , TRADE- MARK, LICENCE, FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE OR INFORMATION O R ITA NO.1662 & 1675/MDS/2010 7 TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR PROVISION FOR SERVICES: PROVIDED THAT SUB-CLAUSE (A) SHALL NOT APPLY TO (I) ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CASH OR KIND, ON ACCOUNT OF TRANSFER OF THE RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G OR RIGHT TO CARRY ON ANY BUSINESS, WHICH IS CHARGEA BLE UNDER THE HEAD 'CAPITAL GAINS'; (II) ANY SUM RECEIVED AS COMPENSATION, FROM TH E MULTILATERAL FUND OF THE MONTREAL PROTOCOL ON SUBSTANCES THAT DEPLETE THE OZONE LAYER UNDER THE UNITED NATIONS ENVIRONMENT PROGRAMME, IN ACCORDANCE WITH THE TERMS OF AGREEMENT ENTERED INTO WITH THE GOVERNMENT OF INDIA. 7. AFTER PERUSAL OF THE PROVISIONS OF SECTION 28(VA ), WE ARE OF THE CONSIDERED OPINION THAT PROVISO TO CLAUSE 28 (VA) OF THE ACT SPECIFICALLY PROVIDES THAT ANY SUM RECEIVED AS COMPENSATION FROM THE MULTILATERAL FUND OF MONTREAL PROTOCOL IS NOT CONSIDERED AS INCOME UNDER THE HEAD PROFITS & GAINS OF ANY BUSINESS OR PROFESSION UNDER SECTION 28. THUS, IN THE INSTANT CASE, THE TRANSFER OF AMOUNT FROM SPEC IAL RESERVE ITA NO.1662 & 1675/MDS/2010 8 TO GENERAL RESERVE DID NOT AMOUNT TO TRANSFER ON AC COUNT OF ANY PROFITS ARISING FROM BUSINESS OF THE ASSESSEE. THE D.R. HAS RELIED ON THE JUDGEMENT OF THE HONB LE MADRAS HIGH COURT IN THE CASE OF ARIES ADVERTISING P.LTD. (SUPRA). IN THE SAID CASE, THE HONBLE HIGH COURT WAS DEALING WITH THE ISSUE WHERE THE UNCLAIMED AMOUNT O F THE CREDITORS WAS TRANSFERRED TO THE GENERAL RESERVE. T HE SAID AMOUNT WAS TREATED AS THE PROFIT OF THE ASSESSEE. THE FACTS OF THE CASE IN HAND ARE DISTINGUISHABLE. IN THE I NSTANT CASE, THE AMOUNT HAS BEEN TRANSFERRED TO GENERAL RESERVE FROM THE SPECIAL RESERVE AND THERE IS NO ELEMENT OF INCOM E/PROFIT IN THE SAID TRANSFER. MOREOVER, THE INITIAL AMOUNT CRE DITED TO THE SPECIAL RESERVE ACCOUNT WAS NOT BY THE APPROPRIATIO N OF PROFITS. IT IS THE AMOUNT OF COMPENSATION RECEIVED BY THE ASSESSEE FROM MULTILATERAL FUND UNDER MONTREAL PROT OCOL WHICH WAS BEING CREDITED TO SPECIAL RESERVE. AS IS EVIDENT FROM THE PROVISIONS OF SECTION 28(VA), SUCH RECEIPT S DO NOT CONSTITUTE INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. THEREFORE, WE UPHOLD THE F INDINGS OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. ITA NO.1662 & 1675/MDS/2010 9 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A S WELL AS ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON MONDAY, THE 24 TH DAY OF SEPTEMBER, 2012 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE) ( VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 24 TH SEPTEMBER, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.