CLARIANT CHEMICALS INDIA LTD ( FORMERLY KNOWN AS COLOUR CHEM LTD), MUMBAI V. ADDL CIT RG 1(1), MUMBAI

ITA 4281/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8190 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 26-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K KARDA M
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Scheme of amalgamation; Surrender of tenancy right; Unabsorbed depreciation; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDI CIAL MEMBER . / ITA NO. 4281 /MUM./ 2011 ( / ASSESSMENT YEAR : 20 06 - 07 ) M/S. CLARIANT CHEMICALS (I) LTD. (FORMERLY KNOWN AS COLOUR CHEM LTD.) 194, CHURCHGATE RECLAMATION RAVINDRA ANNEXE, D.V. ROAD MUMBAI 400 020 .. / APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE - 1(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAAC C5602P . / ITA NO. 4983 /MUM./2011 ( / ASSESSMENT YEAR : 2006 - 07 ) ADDL. COMMISSIONER OF INCOME TAX RANGE - 1(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S M/S. CLARIANT CHEMICALS (I) LTD. (FORMERLY KNOW N AS COLOUR CHEM LTD.) 194, CHURCHGATE RECLAMATION RAVINDRA ANNEXE, D.V. ROAD MUMBAI 400 020 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACC5602P / ASSESSEE BY : SHRI FAROO Q IRANI / REVENUE BY : SHRI A.K. KARDAM / DATE OF HEARING 06 .08.2014 / DATE OF ORDE R 19.09 .2014 M/S. CLARIANT CHEMICALS (I) LTD. 2 / ORDER , / PER AMIT SHUKLA , J.M. THE SE CROSS APPEALS ARE DIRECTED AG AINST THE IMPUGNED ORDER DATED 13 TH JANUARY 2010, PASSED BY THE LEA RNED COMMISSIONER (APPEALS) I , MUMBAI, FOR THE QUANTUM OF ASSESS MENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) , FOR THE ASSESSMENT YEAR 20 06 - 07 . WE FIRS T PROCEED TO DISPOSE OFF THE REVENUES APPEAL, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF ` 33,30,000 ON ACCOUNT OF EN TRANCE FEES PAID TO CLUB? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING HE DISALLOWANCE OF ` 88,00,992 U/S 14A R/W RULE 8D? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF EXPENDITURE OF SOFTWARE CHARGES AMOUNTING TO ` 3,74,37,137? 2. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUES INVOLVED IN THIS APPEAL ARE SQUARELY COVERED BY THE D ECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001 02 AND 2004 05, PASSED IN ITA NO.270/MUM./2005, ITA NO.4982/MUM./2011 AND ITA NO.4280/MUM./2011, ORDER DATED 9 TH MAY 2014. M/S. CLARIANT CHEMICALS (I) LTD. 3 3. FACTS IN BRIEF : THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DYES AND INTERMEDIATES, SPECIALTY, CHEMICALS, TEXTILES, PLASTIC, ETC. REGARDING DISALLOWANCE ON ACCOUNT OF INTEREST AND FEE PAID TO THE CLUB, THE ASSESSING OFFICER NOTED THAT IN THE TAX AUDIT REPORT, THE ASSESSEE HAD SHOWN PAYMENT OF ` 33,30,000, AS ENTRANCE FEES FOR MEMBERSHIP OF CRICKET CLUB OF INDIA, WHICH WAS CLAIMED AS REVENUE EXPENDITURE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE SAID PAYMENT HAS BEEN MADE IN THE NORMAL COURSE OF BUSINESS PR OMOTION AND DOES NOT GENERATE ANY ASSET. THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM AFTER REFERRING TO THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN GUJARAT STATE EXPORT CORPORATION LTD. V/S CIT, [ 1994 ] 209 ITR 649, AND THE DECISION OF HON'BLE KAR ALA HIGH COURT IN FRAMATONE CONNECTOR OEN LTD. V/S DCIT , [2007] 294 ITR 559 (KER.). 4. BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN OTIS ELEVATOR CO. INDIA LTD. V/S CIT, [1992] 195 ITR 682 (BOM.). BESIDES THIS, RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CIT V/S SAMTEL COLOR LTD. [2010] 326 ITR 425 (DEL.), WHEREIN IT WAS HELD THAT CORPORATE MEMBERSHIP FEE TO THE CLUB IS A REVEN UE EXPENDITURE. THE LEARNED COMMISSIONER (APPEALS), FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN OTIS M/S. CLARIANT CHEMICALS (I) LTD. 4 ELEVATOR CO. INDIA LTD. (SUPRA), ALLOWED THE ASSESSEES CLAIM AS REVENUE EXPENDITURE. 5. BEFORE US, BOTH THE PARTIES AGREED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2004 05, IN ASSESSEES OWN CASE WHEREIN THE TRIBUNAL WHILE ALLOWING THE ASSESSEES CLAIM HAS FOLLOWED THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN ELEVATOR CO. INDIA LTD. (S UPRA). THUS, IN VIEW OF THE AFORESAID ADMITTED POSITION AND ALSO THE JUDICIAL PRECEDENCE OF THE EARLIER YEAR, WE ALSO HOLD THAT SUCH AN EXPENDITURE INCURRED ON ACCOUNT OF PAYMENT OF MEMBERSHIP ENTRANCE FEE PAID TO THE CLUB IS AN ALLOWABLE EXPENDITURE AND, ACCORDINGLY, WE AFFIRM THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS). THUS, GROUND NO.1, AS RAISED BY THE REVENUE IS DISMISSED. 6. IN GROUND NO.2, THE ISSUE RAISED BY THE REVENUE RELATES TO THE DISALLOWANCE UNDER SECTION 14A. 7. IT IS SEEN THAT THE ASSES SEE HAS RECEIVED DIVIDEND INCOME OF ` 2,97,82,326, WHICH WAS CLAIMED AS EXEMPT. NO DISALLOWANCE ON ACCOUNT OF EXPENDITURE RELATING TO SUCH INCOME WAS MADE BY THE ASSESSEE. THE ASSESSING OFFICER HAD MADE THE DISALLOWANCE UNDER SECTION 14A, AFTER APPLYING RU LE 8D. 8. THE LEARNED COMMISSIONER (APPEALS) FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S M/S. CLARIANT CHEMICALS (I) LTD. 5 DCIT, [2010] , 328 ITR 081 (BOM .) , HELD THAT RULE 8D, CANNOT BE MADE APPLICABLE IN THE ASSESSMENT YEAR 2006 07, AN D SOME REASONABLE DISALLOWANCE HAS TO BE MADE. THUS, HE DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE ON ACCOUNT OF DIRECT AND INDIRECT EXPENDITURE ON ACCOUNT OF EXEMPT INCOME AND WORKED OUT SOME REASONABLE BASIS IN ACCORDANCE WITH THE RATIO LAID DOWN IN GODREJ & BOYCE MFG. CO. LTD. (SUPRA). 9. BEFORE US, BOTH THE PARTIES ADMITTED THAT THIS ISSUE WAS SET ASIDE BY THE TRIBUNAL TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. HOWEVER, THE LEARNED COUNSEL SUBMITTED THAT FIRSTLY IN THE ASSESSMENT YEAR S 2000 01 AND 2002 03, THE DISALLOWANCE WAS RESTRICTED TO 2% OF THE DIVIDEND INCOME AS REASONABLE BASIS, THEREFORE, THE SAME SHOULD BE ADOPTED AS A CONSISTENT AND REAS ONABLE BASIS FOR THIS YEAR ALSO BEING CONSISTENT WITH THE EARLIER YEAR. 10. A FTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THE TRIBUNAL HA S SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. IN THIS YEAR, THE LEARNED COMMISSIONER (APPEALS) HAS ALREADY GIVEN DIRECTION TO THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE ON SOME REASONABLE BASIS. THUS, WE DO NOT WISH TO INTERFERE IN SUCH A FINDING OF THE LEARNED COMMISSIONER (APPEALS) AND THE PLEA OF DISALLOWANCE BEING RESTRICTED TO 2% OF THE DIVIDEND INCOME CAN BE TAKEN BEFORE THE ASSESSING OFFI CER FOLLOLWING THE EARLIER YEARS M/S. CLARIANT CHEMICALS (I) LTD. 6 PRECEDENCE . ACCORDINGLY, GROUND NO.2, AS RAISED BY THE DEPARTMENT STANDS DISMISSED AS THE LEARNED COMMISSIONER (APPEALS) HAS ALREADY GIVEN DIRECTION TO THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE ON SOME REASONABLE B ASIS. 11. IN GROUND NO.2, THE ISSUE RELATES TO DISALLOWANCE OF EXPENDITURE OF SOFTWARE CHARGES AMOUNTING TO ` 3,74,37,137. 12. THE ASSESSING OFFICER HELD THAT SIMILAR DISALLOWANCE WAS MADE IN THE ASSESSMENT YEAR 2001 02 IN THE CASE OF AMALGAMATING COMPANY CLARI ANT INDIA LTD., WHEREIN THE LEARNED COMMISSIONER (APPEALS) HAS ALSO CONFIRMED THE SAME. T HE MATTER IS SUBJUDICE BEFORE THE TRIBUNAL. IN THE ASSESSMENT YEAR 2002 03, HOWEVER, SIMILAR ADDITION WAS DELETED BY THE LEARNED COMMISSIONER (APPEALS) AGAINST WHICH T HE DEPARTMENT IS IN APPEAL. THUS, HE DISALLOWED THE SAID EXPENDITURE WITHOUT CONSIDERING THE ASSESSEES EXPLANATION FILED BEFORE HIM. 13. T HE LEARNED COMMISSIONER (APPEALS) IN THIS YEAR FOLLOWING EARLIER ORDER IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YE AR 2002 03, DELETED THE SAID ADDITION. 14. BEFORE US, BOTH THE PARTIES ADMITTED THAT THIS ISSUE NOW HAS BEEN DECIDED BY THE TRI BUNAL IN FAVOUR OF THE ASSESSEE IN THE EARLIER YEARS. M/S. CLARIANT CHEMICALS (I) LTD. 7 15. AFTER CONSIDERING THE FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMI SSIONER (APPEALS) AND ALSO THE EARLIER YEAR ORDER S OF THE TRIBUNAL, WE FIND THAT THE TRIBUNAL HAS RELIED UPON VARIOUS DECISIONS OF THE HIGH COURT , INCLUDING THAT OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S RAYCHEN RPG LTD., [ 2012 ] 3 46 ITR 183 (BOM.) FOR COMING TO THE CONCLUSION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE SOFTWARE WAS IN THE NATURE OF THE REVENUE EXPENDITURE. THE RELEVANT OBSERVATION AN D THE FINDINGS OF THE TRIBUNAL ARE AS UNDER: 13. APROPOS GROUND NO5; TH IS ISSUE IS DISCUSSED BY A.O IN PARA - 3 AT PAGES 9 & 10 OF ASSESSMENT ORDER. A SUM OF RS.23,30,926/ - WAS CLAIMED BY THE ASSESSEE AS SOFTWARE EXPENSES. THIS AMOUNT REPRESENT PAYMENT MADE TO CLARIANT INTERNATIONAL LTD. TOWARDS ACQUISITION OF RIGHT TO USE THE SOFTWARE LOTUS NOTES DEVELOPED BY CLARIANT INTERNATIONAL LTD. WHICH ACCORDING TO ASSESSEE IS POWERFUL, MULTIFACETED SOFTWARE THAT HELP TO WORK EFFECTIVELY. IT EXTENDS THE POWER OF MESSAGING AND DATA EXCHANGE TO BRING ALL INFORMATION WHETHER FROM NOTES OR FROM INTERNET AND OFFERS VERY USEFUL TOOLS LIKE E - MAIL, CALENDER, TO - DO LISTS ETC. ALL CLARIANT GROUP COMPANIES ARE INTER CONNECTED WITH LOTUS NOTE AND CONNECTIVITY IS EFFECTED, ADMINISTERED. THE AO REJECTED THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE BEING IN THE NATURE OF REVENUE AND HELD THAT AS IT HAD PROVIDED ENDURING BENEFIT AND THE EXPENDITURE BEING ON ACCOUNT OF CAPITAL, THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ONLY. HE PROVIDED DEPRECIATION @ 25% AND THE BALANCE AMOUNT OF RS.17,48,195/ - WAS ADDED TO THE INCOME OF THE ASSESSEE. THE LD. CIT(A) HAS SUSTAINED THE ACTION OF A.O. THE ASSESSEE IS AGGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUNDS. 13.1 IT WAS SUBMITTED BY LD. AR THAT SIMILAR EXPENSES IN RESPECT OF A.Y 2002 - 03 AND 2003 - 04 WERE HELD TO BE ALLOWABLE AS REVENUE EXPENDITURE BY LD. CIT(A). HE FURTHER SUBMITTED THAT THE EXPENDITURE IS IN THE NATURE OF USER OF SOFTWARE WHICH BY NO STRETCH OF IMAGINATION CAN BE SAID TO BE OF EXPENDITURE IN THE NATURE OF CAPITAL. IT DID NOT PROVIDE ANY E NDURING BENEFIT TO THE ASSESSEE AND WAS A POWERFUL TOOL TO CARRY OUT THE WORK OF THE ASSESSEE EFFECTIVELY. RELIANCE WAS PLACED ON THE FOLLOWING M/S. CLARIANT CHEMICALS (I) LTD. 8 DECISIONS TO CONTEND THAT THE EXPENDITURE WAS IN THE NATURE OF REVENUE. (I) CIT VS. RAYCHEM RPG LTD., 346 ITR 183 (BOM) ( II ) CIT VS. ASAHI INDIA SAFETY GLASS LTD. 346 ITR 329(DEL) (III) CIT VS.AMWAY INDIA ENTERPRISES, 346 ITR 341(DEL) (IV) SANGHVI SALVI STOCK BROKER LTD, ITAT MUMBAI (UN REPORTED) 13.2 ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY A .O AND LD. CIT(A). 13.3 WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREFULLY BEEN CONSIDERED. ACCORDING TO DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RAYCHEM RPG LTD.(SUPRA), IF THE EXPENDITURE INCURRED ON SOFTWARE ARE TO FACILIT ATE THE ASSESSEES BUSINESS OR ENABLING THE MANAGEMENT TO CONDUCT THE BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY THEN IT CANNOT BE SAID TO BE IN THE NATURE OF PROFIT MAKING AND HAS TO BE TREATED AS REVENUE EXPENDITURE. SIMILARLY, HONBLE DELHI HIGH COURT IN THE CASE OF ASAHI INDIA SAFETY GLASS LTD (SUPRA) HELD THAT SOFTWARE EXPENDITURE WERE REVENUE IN NATURE. IN THE CASE OF CIT VS. AMWAY INDIA ENTERPRISES (SUPRA) ALSO IT WAS HELD THAT PURCHASE OF SOFTWARE IS REVENUE EXPENDITURE. THE CONTENTIONS RAISED BY THE ASSESSEE BEFORE AO WERE THAT THIS EXPENDITURE WAS INCURRED BY THE ASSESSEE TO EFFECTIVELY CARRY ON ITS BUSINESS HAS NOT BEEN CONTROVERTED BY ANY MATERIAL BROUGHT ON RECORD. IN THIS VIEW OF THE SITUATION, WE HOLD THAT LD. CIT(A) WAS NOT RIGHT IN UPHOLDI NG THE ACTION OF AO. THE EXPENDITURE INCURRED BY THE ASSESSEE ON SOFTWARE WAS IN THE NATURE OF REVENUE, HENCE, ALLOWABLE AS AN EXPENDITURE. THIS GROUND OF THE ASSESSEE IS ALLOWED. 16. THUS, CONSISTENT WITH THE VIEW TAKEN IN THE EARLIER YEARS BY THE TRIBUNAL, WE ALSO HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON THE SOFTWARE IS TO BE TREATED AS REVENUE EXPENDITURE AND, ACCORDINGLY, THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS AFFIRMED. GROUND NO.3, RAISED BY THE REVENUE IS DISMISSED. 17. 17. IN THE RESULT, REVENUES APPEAL IS DISMISSED. M/S. CLARIANT CHEMICALS (I) LTD. 9 IN ASSESSEES APPEAL BEING ITA NO. 4281/MUM./2011, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE APPELLANT COMPANY TO SET OFF OF ` 30,00,000 OF THE BROUGHT FORWARD LOSS OF THE AMALGAMATING COMPANY AGAINST THE LONG TERM CAPITAL GAIN. HE OUGHT NOT TO HAVE DONE SO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE PAYMENTS MADE TO EX MANAGING DIRECTORS OF ` 1,97,12,000 ON THE GROUND THAT THE ALLOWABILITY OF THE SAID EXPENDITURE WAS UNEXPLAINED B Y THE APPELLANT COMPANY. HE OUGHT NOT TO HAVE DONE SO. 18. BRIEF FACTS, QUA THE ISSUE INVOLVED, AS STATED IN THE ASSESSMENT ORDER AS WELL AS IN THE IMPUGNED ORDER ARE THAT , AS PER THE SCHEME OF MERGER, FOLLOWING COMPANIES NAMELY , CLARIANT INDIA LTD. , VANANIL DYES AND CHEMICALS LTD., BPT PVT. LTD. AND KUNDALIKA INVESTMENT LTD., GOT MERGED INTO COLOURCHEM LTD. THEREAFTER, THE AMALGAMATED COMPANY WAS RENAMED AS CLARIANT CHEMICALS INDIA LTD. WITH EFFECT FROM 1 ST APRIL 2005. IN THE TAX AUDIT REPORT, IT WAS SHOWN T HAT LONG TERM CAPITAL LOSS OF ` 60,19,436, AND ` 3,15,541 FOR THE ASSES SMENT YEAR S 2005 06 AND 2004 05 OF THE ERSTWHILE AMALGAMATING COMPANY WAS CLAIMED TO BE BROUGHT FORWARD AND SET OFF AGAINST THE LONG TERM CAPITAL GAIN OF THE AMALGAMATED COMPANY . IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAS BROUGHT FORWARD THE TOTAL AMOUNT OF ` 63,34,977, AND SET OFF AN AMOUNT OF ` 30 LAKHS AGAINST THE LONG TERM CAPITAL GAIN FOR M/S. CLARIANT CHEMICALS (I) LTD. 10 TH IS YEAR , WHICH WAS ON ACCOUNT OF SURRENDER OF TENANCY RIGHTS AND ALSO SOUGHT TO CAR RY FORWARD THE BALANCE LONG TERM CAPITAL LOSS OF ` 33,34,977 , FOR THE FUTURE. . THE ASSESSING OFFICER HELD THAT ASSESSEES CLAIM IS NOT CORRECT , BECAUSE THE PROVISION OF SECTION 72A, WHICH DEALS WITH ACCUMULATION OF LOSS OF AMALGAMATING COMPANY ARE ALLOWED TO BE BROUGHT FORWARD AND SET OFF ONLY UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION AND SUCH A CARRIED FORWARD ARE SUBJECT TO CERTAIN CONDITIONS , WHEREAS IN SECTION 74, THERE IS NO SUCH STIPULATION OF CARRIED FORWARD IN CASE OF AMALGAMATION . THE ASSESSEES CASE BEFORE THE ASSESSING OFFICER WAS THAT THERE IS NO BAR OR PROHIBITION IN SECTION 74 WITH REGARD TO CLAIM OF LOSSES UNDER THE HEAD CAPITAL GAINS O F THE AMALGAMATING COMPANIES. 19. BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE HAD CONTENDED THAT WHILE INTRODUCING VARIOUS AMENDMENT BROUGHT BY THE FINANCE ACT, 1999, THE FINANCE MINISTER IN HIS BUDGET SPEECH FOR THE YEAR 1999, STATED THAT SUCH A PROVISION WAS PROPOSED TO MAKE BUSINESS RE ORGANIZATION FULLY TAXED NEUTRAL AND FISCAL CONC ESSION WILL SURVIVE FOR THE UNEXPIRED PERIOD IN THE CASES OF AMALGAMATION AND DEMERGERS. EVEN UNDER SECTION 74, THERE IS NO BAR FOR THE LOSSES UNDER THE HEAD CAPITAL GAIN S TO BE SET OFF AND CARRIED FORWARD AGAINST CAPITAL GAINS BELONGING TO AMALGAMATING CO MPANY TO AMALGAMATED COMPANY. M/S. CLARIANT CHEMICALS (I) LTD. 11 20. THE LEARNED COMM ISSIONER (APPEALS), HOWEVER, REJECTED THE ASSESSEES CONTENTION AFTER OBSERVING AND HOLDING AS UNDER: 8.3 I HAVE CONSIDERED THE A.OS ORDER AS WELL AS THE APPELLANTS A/R SUBMISSION. CONSIDERING THE SAME, I DO NOT FIND ANY MERITS IN THE ARGUMENTS OF THE APPELLANT. I AGREE WITH THE A.O. THAT AS PER SECTION 72A, ACCUMULATED LOSSES OF AMALGAMATED COMPANIES ARE ALLOWED TO BE BROUGHT FORWARD AND SET OFF IN THE ASSESSMENT OF THE AMALGAMATED COMPANY SUBJECT TO CERT AIN CONDITIONS, WHICH THE APPELLANT DOES NOT FULFILL. FURTHER I FIND THAT THE APPELLANTS CLAIM IS AGAINST THE PROVISION OF LAW. IN MY VIEW I AGREE WITH THE A.O. THAT ACCUMULATED LOSS PERTAINS ONLY TO BUSINESS LOSSES AND CAPITAL LOSSES CANNOT BE ALLOWED TO BE CARRIED FORWARD. ACCORDINGLY, I CONSIDER IT PROPER AND APPROPRIATE TO HOLD THA T THE A.O. WAS JUSTIFIED IN REJECTING THE CLAIM OF THE APPELLANT. THUS, THIS GROUND OF APPEAL IS DISMISSED. 21. BEFORE US, THE LEARNED COUNSEL , SHRI FAROO Q IRANI, FOR THE ASS ESSEE SUBMITTED THAT , SECTION 74 PER SE DOES NOT BAR THE SET OFF AND CARRIED FORWARD OF LOSSES UNDER THE HEAD CAPITAL GAINS OF THE AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY. THERE IS NO SPECIFIC CLAUSE IN SECTION 74 THAT THERE SHOULD BE THE SAME ASSE SSEE FOR CLAIMING SET OFF OF CARRIED FORWARD LOSS UNDER THE HEAD CAPITAL GAIN . THE SECTION PROVIDES THAT , IF THERE IS A LOSS TO THE ASSESSEE THEN THE WHOLE LOSS SUBJECT TO THE OTHER PROVISIONS SHALL BE CARRIED FORWARD. ON THE OTHER HAND, I N SECTION 72, T HERE IS A SPECIFIC MENTION OF IDENTITY OF THE ASSESSEE AS THERE THE PHRASE USED IS HE' FOR THE ASSESSEE , WHICH MEANS THAT IT IS FOR THE SAME ASSESSEE. IN SECTION 74, THERE IS NO SUCH SPECIFIC IDENTIFICATION OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE P ROVISIONS OF SECTION 72A, WAS BROUGHT IN THE STATUTE FOR THE PURPOSE OF SETTING OFF THE ACCUMULATED LOSSES UNDER THE HEAD PROFIT M/S. CLARIANT CHEMICALS (I) LTD. 12 AND GAIN OF BUSINESS OR PROFESSION BY THE FINANCE ACT, 1999, SO AS TO HELP BUSINESS RE ORGANIZATION AND IT WAS TAX NEUTRAL . T HE SAID PROVISION WAS NOT BROUGHT TO WITHDRAW ANY FINANCIAL CONCESSION WHICH WAS AVAILABLE TO ERSTWHILE AMALGAMATING COMPANIES. HENCE, IT SHOULD NOT BE INFERRED THAT SECTION 74, IS NOT APPLICABLE FOR THE SET OFF AND CARRIED FORWARD OF LOSS UNDER THE HEAD C APITAL GAIN IN THE CASE OF AMALGAMATION . 22. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE SPECIFIC PROVISION RELATING TO CARRIED FORWARD AND SET OFF OF ACCUMULATED LOSS AND UNABSORBED DEPRECIATION IN THE CASES OF AMALGAMATION AND DEMERGER HAS BEEN BROUGHT IN THE STATUTE BY INSERTING OF SECTION 72A, WHICH PROVIDES FOR THE VARIOUS CONDITIONS UNDER WHICH ACCUMULATED LOSS CAN BE CARRIED FORWARD AND SET OFF. CLAUSE (A) OF SUB SECTION (7) OF SECTION 72A, CLEARLY PROVIDES THAT ACCUMU LATED LOSS IS ONLY FOR THE PURPOSE OF COMPUTATION UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OF PROFESSION . THE STATUTE HAS NOT PROVIDED A N Y SUCH SIMILAR PROVISIONS FOR THE PURPOSE OF SECTION 74 , AND, THEREFORE, SECTION 72A SHOULD NOT BE READ INTO SECTIO N 74 . HE THUS STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW. THE MAIN ISSUE INVOLVED HERE IS , M/S. CLARIANT CHEMICALS (I) LTD. 13 WHETHER THE A SSESSEE COMPANY WHICH IS AN AMALGAMATED COMPANY SHOULD BE ALLOWED TO SET OFF AND CARRY FORWARD OF THE LOSS ES COMPUTED UNDER THE HEAD CAPITAL GAINS WHICH HAD ARISEN TO THE ERSTWHILE AMALGAMATING COMPANIES UNDE R THE PROVISIONS OF SECTION 74. THE SAID SECTI ON PROVIDES THAT IN RESPECT OF ANY ASSESSMENT YEAR IF THE NET RESULT OF THE COMPUTATION UNDER THE HEAD CAPITAL GAIN IS LOSS TO THE ASSESSEE, THEN SUCH A LOSS IS TO BE CARRIED FORWARD AND SET OFF IN THE MANNER PROVIDED THEREIN. THE RELEVANT PROVISIONS READS AS UNDER: SECTION 74 [LOSSES UNDER THE HEAD CAPITAL GAINS 74. [(1) WHERE IN RESPECT OF ANY ASSESSMENT YEAR, THE NET RESULT OF THE COMPUTATION UNDER THE HEAD CAPITAL GAINS IS A LOSS TO THE ASSESSEE, THE WHOLE LOSS SHALL, SUBJECT TO THE OTHER PROVIS IONS OF THIS CHAPTER, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR, AND ( A ) IN SO FAR AS SUCH LOSS RELATES TO A SHORT - TERM CAPITAL ASSET, IT SHALL BE SET OFF AGAINST INCOME, IF ANY, UNDER THE HEAD CAPITAL GAINS ASSESSABLE FOR THAT ASSESSMENT YEA R IN RESPECT OF ANY OTHER CAPITAL ASSET; ( B ) IN SO FAR AS SUCH LOSS RELATES TO A LONG - TERM CAPITAL ASSET, IT SHALL BE SET OFF AGAINST INCOME, IF ANY, UNDER THE HEAD CAPITAL GAINS ASSESSABLE FOR THAT ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET NOT BEING A SHORT - TERM CAPITAL ASSET; ( C ) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND SO ON.] (2) NO LOSS SHALL BE CARRIED FORWARD UNDER THIS SECTION FOR MORE TH AN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. 24. FROM THE PERUSAL OF THE ABOVE SECTION, IT IS SEEN THAT THE LOSS UNDER THE HEAD CAPITAL GAIN IS ALLOWABLE TO AN ASSESSEE ALONE . THERE M/S. CLARIANT CHEMICALS (I) LTD. 14 IS NO MENTIO N ABOUT THE SITUATION AND THE CONDITION UNDER WHICH SUCH A LOSS IS ALLOWED TO BE SET OFF AND CARRIED FORWARD IN THE CASE OF AMALGAMATION , THAT IS, TO ALLOW LOSS OR SET OFF LOSS OF ONE ASSESSEE WHICH HAS MERGED WITH ANOTHER ASSESSEE. LIKEWISE, IN SECTION 72 , THE PROVISIONS OF CARRIED FORWARD AND SET OFF OF LOSS ES COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION OF AN ASSESSEE HAS BEEN GIVEN. HERE ALSO, THERE IS NO SUCH PROVISION RELATING TO CARRIED FORWARD AND SET OFF OF BUSINESS LOSS IN THE CASE S OF AMALGAMATION OR DEMERGER. IN ORDER T O COVER SUCH BENEFIT OF CARRIED FORWARD AND SET OFF OF ACCUMULATED LOSSES UNDER THE HEAD BUSINESS INCOME, SPECIFIC PROVISION WAS BROUGHT IN THE STATUTE BY FINANCE ACT, 1977, BY WAY OF INSERTION OF SECTION 7 2A. S UCH A PROVISION WAS BROUGHT TO OVER COME THE DIFFICULTY IN THE CASES WHERE , IF A BUSINESS CARRIED ON BY ONE ASSESSEE IS TAKEN OVER BY ANOTHER, THEN THE UNABSORBED DEPRECIATION AND BUSINESS LOSS ES COULD NOT BE SET OFF AND CARRIED FORWARDED UNDER THE SC HEME OF AMALGAMATION WITHIN THE AMBIT OF SECTION 72. THEREFORE, T HE ENTIRE CODE OF SECTION 72A, WAS BROUGHT IN THE STATUTE FOR EXTENDING OR RELAXING THE PROVISION S RELATING TO CARRIED FORWARD AND SET OFF OF ACCUMULATED BUSINESS LOSSES AND UNABSORBED DEPREC IATION ALLOWANCE IN THE CASE OF AMALGAMATION OF COMPANIES. A COMPLETE CODE WAS ENACTED AND CERTAIN TERMS AND CONDITIONS WERE LAID DOWN UNDER WHICH SUCH A BENEFIT COULD BE GIVEN UNDER THE SCHEME OF AMALGAMATION. THE SAID PROVISION OF SECTION 72A WAS AMENDED FROM M/S. CLARIANT CHEMICALS (I) LTD. 15 TIME TO TIME SO AS TO INCLUDE CERTAIN MORE CONDITIONS OR TO RELAX SUCH CONDITIONS. HOWEVER, THE ENTIRE CODE OF SECTION 72A WAS ONLY RESTRICTED T O CARRIED FORWARD OF ACCUMULATED LOSS ES AND UNABSORBED DEPRECIATION WHICH ARE TO BE SET OFF WHILE COMPUTIN G THE INCOME UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION AND NOT FOR ANY OTHER HEAD OF INCOME INCLUDING LOSSES COMPUTED UNDER THE HEAD CAPITAL GAINS OR SPECULATION BUSINESS. SECTION 72A, ENVISAGES SEVERAL TERMS AND CONDITIONS AND THE CIRCUMS TANCES UNDER WHICH THE BUSINESS LOSS OR DEPRECIATION IS ALLOWED TO BE SET OFF OR CARRIED FORWARD. SPECIFIC RULE 9C UNDER INCOME TAX RULES, 1962, HAS ALSO BEEN ENACTED FOR THIS PURPOSE . THUS, ONCE THE LEGISLATURE HAS ENACTED A DIFFERENT CODE ALL TOGETHER FO R A SPECIFIC PURPOSE AND INTENTION, THEN SUCH A CODE LAYING DOWN THE TERMS AND CONDITIONS AND THE CIRCUMSTANCES , CANNOT BE IMPORTED OR READ INTO OTHER GENERAL PROVISION S OR SECTIONS . THE INTENTION OF LEGISLATURE FOR ENACTING A PARTICULAR STATUTE OR PROVISI ON HAS TO BE KEPT IN MIND WHILE INTERPRETING A PARTICULAR PROVISION OF THE ACT . IN THE CASES OF AMALGAMATION WHEREVER THE STATUTE HAS PROVIDED CERTAIN CONDITIONS OR BENEFITS OR RESTRICTIONS, THE SAME HAS BEEN PROVIDED CATEGORICALLY. FOR E.G., SECTION 47, D EALING WITH TRANSACTIONS NOT RE GA RDED AS TRANSFER, HAS PROVIDED SPECIFIC CLAUSES (VI) TO (VID) FOR THE CASES OF AMALGAMATION AND DEMERGER. IT IS NOT THE ROLE OF THE COURTS SPECIFICALLY THE TRIBUNAL TO READ SUCH A SPECIFIC PROVISION S INTO GENERAL PROVIS I O NS . THE CASUS OMISSUS CANNOT BE SUPPLIED BY THE M/S. CLARIANT CHEMICALS (I) LTD. 16 COURTS I.E., THE TRIBUNAL IS NOT EMPOWERED TO READ DOWN THE PROVISION OF SECTION 72, BY IMPORT ING THE PROVISIONS OF SECTION 72A, INTO THE SAID SECTION. WHAT IS APPARENT FROM THE CLEAR LANGUAGE OF THE SECTION AN D INTENTION OF THE LEGISLATURE HAS TO BE INFERRED AND IS TO BE APPLIED. HAD THE LEGISLATURE INTENDED TO ALLOW SET OFF AND CARRY FORWARD OF LOSS OF CAPITAL GAINS IN THE CASE OF AMALGAMATION OR DEMERGER, THE LEGISLATURE C OULD HAVE PROVIDED SPECIFICALLY. THUS , IN OUR HUMBLE OPINION, SECTION 74, CANNOT BE READ OR INTERPRETED SO AS TO GIVE BENEFIT OF SET OFF AND CARRIED FORWARD OF LOSSES UNDER THE HEAD CAPITAL GAINS IN THE CASE OF AMALGAMATION AND DEMERGER, SANS ANY SPECIFIC PROVISION THEREIN . NO CASE LAWS TO TH E CONTRARY HAS BEEN BROUGHT BEFORE US BY THE ASSESSEE. THUS, THE VIEW TAKEN BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS) IS LEGALLY CORRECT AND IS ACCORDINGLY AFFIRMED. GROUND NO.1, RAISED BY THE ASSESSEE IS DISMISSED. 25. IN G ROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF PAYMENTS MADE TO EX MANAGING DIRECTORS FOR SUMS AGGREGATING TO ` 1,97,12,000. 26. THE ASSESSING OFFICER, FROM THE PERUSAL OF THE PROFIT & LOSS ACCOUNT IN SCHEDULE XI, NOTED THAT REMUNERATION OF ` 125 .09 LAKHS HAS BEEN PAID TO EX MANAGING DIRECTOR, ` 6.50 LAKHS HAS BEEN PAID TO NON WHOLE TIME DIRECTORS OF ERSTWHILE CLARIANT INDIA LTD. , AND ` 62.20 LAKHS HAS BEEN PAID TO THE PRESENT MANAGING DIRECTOR AS A CONSULTANT M/S. CLARIANT CHEMICALS (I) LTD. 17 OF THE COMPANY. IN RESP ONSE TO THE SH OW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE SAID PAYMENTS WERE IN THE NATURE OF NON COMPETE FEE. HOWEVER, LATER ON, IT WAS SUBMITTED THAT THE NON COMPETE FEES IS ACTUALLY PAID TO K.J. BHARYCHA, IN THE FINANCIAL YEAR 2006 07, RELEVANT TO ASSESSMENT YEA R 2007 08. FURTHER, REMUNERATION OF ` 56.01 LAKHS WAS PAID TO HIM AS VICE CHAIRMAN AND MANAGING DIRECTOR AS APPROVED BY THE AGM. HOWEVER, THE ASSESSING OFFICER HELD THAT THE NATURE AND PURPOSE OF THE PAYMENT A ND ALSO THE LEGAL VALIDITY OF SUCH PAYMENTS WAS NOT PROPERLY EXPLAINED. HENCE, THE PAYMENT OF AMOUNT OF ` 197.12 LAKHS WAS DISALLO WED BY HIM. 27. BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE EXPLAINED THE NATURE OF PAYMENTS AND ALSO THE DETAILS OF REMUNERATION PAID TO DIFFERENT PERSONS. THE ASS ESSING OFFICER WITHOUT GIVING FURTHER OPPORTUNITY HAS DISALLOWED THE SAME. THE ASSESSEE EXPLAINED THE REASON AS TO WHY SUCH PAYMENT IS TO BE ALLOWED, WHICH HAS BEEN ELABORATED BY THE LEARNED COMMISSIONER (APPEALS) IN PARA 8.2 OF THE APPELLATE ORDER. HOWEVE R, THE LEARNED COMMISSIONER (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CONTENTION WITH ANY PROPER BASIS O R EVIDENCE. 28. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE ENTIRE DETAILS AND THE NATURE OF PAYMENTS ALONG WITH EVIDENCE S M/S. CLARIANT CHEMICALS (I) LTD. 18 WERE FILED BEFORE THE LEARNED COMMISSIONER (APPEALS) WHICH TOO HAVE BEEN NOTED BY HIM IN PARA 8.2. WITHOUT CONSIDERING THESE EVIDENCES, THE LEARNED COMMISSIONER (APPEALS) HAS MERELY ENDORSED THE VIEW OF THE ASSESSING OFFICER. HE SUBMITTED THAT THOUGH INITIALLY BY MISTAKE ASSESSEE HAD GIVEN WRONG EXPLANATION BEFORE THE ASSESSING OFFICER, HOWEVER, THE CORRECT POSITION WAS CLARIFIED IN THE REPLY FILED BEFORE HIM. ALL THESE CLARIFICATION S AND DETAILS HAVE NEITHER BEEN CONSIDERED BY THE ASSESSING OFFICER NOR BY THE LEARNED COMMISSIONER (APPEALS). 29. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELYING UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) , SUBMITTED TH AT THE ASSESSEES EXPLANATION NEEDS TO BE SUBSTANTIATED , WHICH HE HAD NOT DONE PROPERLY . IN ANY CASE, IF THE ASSESSEES EVIDENCE AND DETAILS HAVE NOT BEEN CONSIDERED, THEN THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. 30. AFTER CONS IDERING THE RIVAL SUBMISSIONS AND ALSO ON A PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE ASSESSEE IN THE EXPLANATION FILED BEFORE THE LEARNED COMMISSIONER (APPEALS) HAS CLEARLY EXPLAINED THE NATURE OF EXPENDITURE AND WHY SUCH A PAYMENT HAS BEEN MADE ALO NG WITH THE APPROVAL AND MINUTES OF THE AGM AND THE MINUTES OF THE BOARD MEETING. ALL THESE EVIDENCES HAVE NOT BEEN PROPERLY CONSIDERED OR APPRECIATED BY THE LEARNED COMMISSIONER (APPEALS) . T HEREFORE, IN THE INTEREST OF JUSTICE, WE FEE L THAT THIS ISSUE NEE DS TO BE REMANDED M/S. CLARIANT CHEMICALS (I) LTD. 19 BACK TO THE FILE OF THE ASSESSING OFFICER , WHO SHALL EXAMINE THE DETAILS, NATURE OF PAYMENT AND THE EVIDENCES THEREOF AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING DUE AND PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THU S, G ROUND NO.2, AS RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 31. 31. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 32. D , 32 . TO SUM UP , ASSESSESS APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS DISMISSED. 19 TH SEPTEMBER 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 19 TH SEPTEMBER 2014 SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 19 TH SEPTEMBER 2014 M/S. CLARIANT CHEMICALS (I) LTD. 20 / COPY OF THE ORDER FORWARDED TO : (1) / THE AS SESSEE ; (2) / THE REVENUE; (3) ( ) / THE CIT(A ) ; (4) / THE CIT, MUMBAI CITY CONCERNED ; (5) , , / THE DR, ITAT, MUMBAI ; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI