FEM CARE PHARMA LTD ( NOW KNOWN AS DABUR INDIA LTD), MUMBAI V. ASST CIT 5(1), MUMBAI

ITA 4679/MUM/2012

• Counselvise Citation: 467919914 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 12-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R R PRASAD
• Assessee Lawyers: SUBHASH SHETTY
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 115JB; 32; 12; 10; 11

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI .. , ! ' # $$, % ', & BEFORE SHRI R.S.SYAL, AM AND SHRI SANJAY GARG, JM ITA NO.4679/MUM/2012 : ASST.YEAR 2009-2010 M/S.DABUR INDIA LIMITED (FORMERLY KNOWN AS FEM CARE PHARMA LIMITED), 43, NAGINDAS MASTER ROAD BALASARA HOUSE, FORT, MUMBAI- 400 001. PAN : AAACF0515A. THE ASSTT.COMMISSIONER OF INCOME-TAX CIRCLE 5(1) MUMBAI. ( '( / // / APPELLANT) * * * * / VS. ( +,'(/ RESPONDENT) '( - -- - . . . . / APPELLANT BY : SHRI SUBHASH SHETTY +,'( - . - . - . - . / RESPONDENT BY : SHRI R.R.PRASAD * - /! / / / / DATE OF HEARING : 20.08.2013 012 - /! / DATE OF PRONOUNCEMENT : 23.08.2013 ' 3 ' 3 ' 3 ' 3 / / / / O R D E R PER R.S.SYAL (AM) : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 18.0 5.2012 IN RELATION TO THE ASSESSMENT YEAR 2009-2010. 2. THE FIRST GROUND IS AGAINST THE DENIAL OF DEPREC IATION ON TENANCY RIGHTS AMOUNTING TO ` 2,90,948. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEPRECIATION ON TENAN CY RIGHTS. THE ASSESSING OFFICER REJECTED SUCH CLAIM FOLLOWING THE VIEW TAKEN BY HIM FOR THE ASSESSMENT YEARS 2003-2004 TO 2007-2008 . THE LEARNED CIT(A) UPHELD THE ASSESSMENT ORDER ON THIS ISSUE. ITA NO.4679/MUM/2012. M/S.DABUR INDIA LIMITED. 2 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE EARLI ER YEARS CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO.6050/MU M/2007 ETC. VIDE ORDER DATED 09.04.2010, THE TRIBUNAL HAS UPH ELD THE VIEW OF THE AUTHORITIES BELOW BY RELYING ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TECHNO SHARES & STOCKS LIMITED (2010) 323 ITR 69 (BOM.) . THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE HONBLE SUPREME COU RT HAS OVERRULED THIS JUDGMENT IN TECHNO SHARE AND STOCKS LTD. & ORS. V. CIT (2010) 327 ITR 323 (SC) AND THE EFFECT OF SUCH REVERSAL IS THAT THE DEPRECIATION SHOULD NOW BE ALLOWED. IN CANVASSING S UCH A VIEW FOR THE GRANT OF DEPRECIATION, HE REFERRED TO THE PROV ISIONS OF SECTION 32(1)(II) FOR BRINGING HOME THE POINT THAT THE TENA NCY RIGHTS FALL WITHIN THE AMBIT OF THE EXPRESSION ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE AS EMPLOYED IN DEFINING INTANGIBLE ASSETS. AU CONTRAIRE, THE LD. DR RELIED ON THE IMPUGNED ORDER. 4. WE ARE NOT CONVINCED WITH THE CONTENTION A DVANCED ON BEHALF OF THE ASSESSEE. THE MANIFEST REASON IS THE FOLLOWI NG DEFINITION OF THE TERM INTANGIBLE ASSET GIVEN IN EXPLANATION (3) TO SECTION 32(1) :- (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR AN Y OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE. 5. A BARE PERUSAL OF THE DEFINITION OF INTANGIBLE A SSETS ON WHICH DEPRECIATION IS AVAILABLE U/S 32 MAKES IT VIVID THA T THE INTANGIBLE ITA NO.4679/MUM/2012. M/S.DABUR INDIA LIMITED. 3 ASSETS SO CLASSIFIED ARE KNOW-HOW, PATENTS, COPYRIG HTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE. WE ARE REMINDED OF THE RULE OF NOSTICUR A SOCIIS WHICH SIMPLY MEANS THAT THE GENERAL WORDS ASSOCIATED WITH THE SPECIFIC WORDS DRAW THEIR MEANING FROM THE COMPANY THEY KEEP . THIS RULE HAS BEEN QUOTED WITH APPROVAL BY THE HONBLE SUPREME CO URT IN SEVERAL JUDGMENTS INCLUDING CIT VS. VENKETASWARA HATCHERIES (1999) 237 ITR 174 (SC), STONECRAFT ENTERPRISES VS. CIT (1999) 237 ITR 131 (SC) AND ARAVINDA PARAMILLA WORKS VS. CIT (1999) 237 ITR 28 4 (SC). GOING BY THIS RULE, THE EXPRESSION ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS AS EMPLOYED IN THE DEFINITION O F INTANGIBLE ASSETS AS PER THE ABOVE EXPLANATION, MUST MEAN ONLY THE INTANGIBLE ASSETS SIMILAR TO THOSE WHICH PRECEDE IT, THAT IS, KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES. TH E FORMER CATEGORY OF INTANGIBLE ASSETS INCLUDES SUCH ASSETS WITH WHI CH THE BUSINESS IS DIRECTLY CARRIED ON. IN OTHER WORDS, THESE ARE INTA NGIBLE ASSETS BY WHICH EITHER THE PERMISSION TO CARRY ON THE BUSINES S OR MANUFACTURE IS RECEIVED OR ARE USED FOR THE MANUFACTURE OR THE SAL E OF THE PRODUCTS MANUFACTURED. SUCH INTANGIBLE ASSETS DIRECTLY FACI LITATE THE PROFIT EARNING ACTIVITY. ON THE OTHER HAND, THE TENANCY RI GHTS HAVE NO SIGNIFICANCE WHATSOEVER EITHER WITH A RIGHT TO MANU FACTURE OR ACTUAL MANUFACTURE OF THE PRODUCTS OR THEIR SALE CARRYING BRAND NAME OR LOGO ETC. TENANCY RIGHTS SIMPLY PROVIDE A PLACE AT WHICH MANUFACTURING OR ADMINISTRATIVE ACTIVITY IS PERSUED. A BUSINESSMAN CAN CARRY ON MANUFACTURING AT ANY PLACE BUT THE BUSINESS CANNOT BE CARRIED ON WITHOUT LICENCE, OR WITHOUT SPECIFIC KNOW-HOW, COPY RIGHT, OR TRADE ITA NO.4679/MUM/2012. M/S.DABUR INDIA LIMITED. 4 MARK ETC. REVERTING TO THE EXTANT CASE, ONLY AN INT ANGIBLE ASSET OF THE NATURE OF KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS , LICENCES, FRANCHISES ETC. CAN BE BROUGHT WITHIN THE AMBIT OF ANY OTHER BUSINESS OR COMMERCIAL RIGHT. THE LEGISLATURE HAS MADE ITS INTENTION CRYSTAL CLEAR BY THE USE OF WORDS OF SIMILAR NATURE IMMED IATELY AFTER THE WORDS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS. TH IS MAKES THE POSITION BEYOND ANY PALE OF DOUBT THAT ANY OTHER B USINESS OR COMMERCIAL RIGHTS WOULD ONLY BE SUCH WHICH ARE OF THE NATURE OF KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCE S, FRANCHISES ETC. AS NOTICED SUPRA, THERE IS A VAST DIFFERENCE BETWEEN KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHI SES ETC. ON ONE HAND AND TENANCY RIGHTS ON THE OTHER, WE ARE OF TH E CONSIDERED OPINION THAT TENANCY RIGHTS CANNOT BE CONSTRUED AS INTANGIBLE ASSETS FALLING WITHIN THE MEANING OF EXPLANATION 3 TO SECT ION 32(1). THE RELIANCE OF THE LD. DR ON THE JUDGMENT OF THE HONB LE SUPREME COURT IN TECHNO SHARES (SUPRA) IS OF NO CONSEQUENCE. IN THAT CASE THE QUESTION WAS WHETHER DEPRECIATION CAN BE GRANTED ON THE BOMBAY STOCK EXCHANGE MEMBERSHIP CARD. AS THE OWNERSHIP OF SUCH MEMBERSHIP CARD IS SINE QUA NON TO CONDUCT THE BUSINESS ON THE FLOOR OF STOCK EXCHANGE, THE HONBLE SUPREME COURT HELD I T TO BE AN INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION. SUCH M EMBERSHIP CARD IS A PERMISSION TO DO THE BUSINESS AS SHARE BROKER AKIN TO `LICENCE AND NOT A PLACE FOR CARRYING ON SUCH BUSINESS AKIN TO `TENANCY RIGHT. IN OUR CONSIDERED OPINION, THIS JUDGMENT DOES NOT ADV ANCE THE CASE OF THE ASSESSEE ANY FURTHER. TO SUM UP, WE HOLD THAT S INCE THE TENANCY RIGHT CANNOT BE TREATED AS AN INTANGIBLE ASSET, THE RE IS NO QUESTION OF ITA NO.4679/MUM/2012. M/S.DABUR INDIA LIMITED. 5 ALLOWING DEPRECIATION ON IT. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE AUTHORITIES BELOW ON THIS ISSUE. THIS GROUND FA ILS. 6. SECOND GROUND OF THE APPEAL IS AGAINST THE CONFI RMATION OF ADDITION TO THE BOOK PROFIT U/S 115JB BY DISALLOWAN CE U/S 14A AMOUNTING TO ` 4,15,062. THE ASSESSEE EARNED EXEMPT INCOME OF ` 8.78 LAKH BUT DID NOT OFFER ANY DISALLOWANCE U/S 14 A. THE ASSESSING OFFICER COMPUTED DISALLOWANCE U/S 14A BY APPLYING R ULE 8D AT ` 4.15 LAKH. WHILE COMPUTING BOOK-PROFIT U/S 115JB, THE A. O. ADDED THIS DISALLOWANCE OF ` 4.15 LAKH AS PER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB. THE LEARNED CIT(A) UPHELD THE ASSES SMENT ORDER ON THIS POINT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. `BOOK-PROFIT U/S 115JB IS COM PUTED AS PER EXPLANATION (1) TO SUB-SECTION (2) OF SECTION 115JB. THIS EXPLANATION PROVIDES THAT BOOK PROFIT MEANS NET PROFIT AS SHO WN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PRE PARED UNDER SUB- SECTION (2) AS INCREASED BY CERTAIN AMOUNTS SPECIFI ED UNDER CLAUSES (A) TO (I) IF DEBITED TO THE PROFIT AND LOSS ACCOUN T AND CLAUSE (J) IF NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE AMOUNT SO DETERMINED IS FURTHER ADJUSTED BY REDUCING THE AMOUNTS SPECIFIED IN CLAUSES (I) TO (VII). THE AMOUNT WHICH EVENTUALLY RESULTS IS THE A MOUNT OF `BOOK PROFIT ON WHICH TAX LIABILITY IS DETERMINED U/S 11 5JB. CLAUSE (F) TO THE EXPLANATION (1) PROVIDES THAT THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT SHALL BE INCREASED BY : (F) THE AMOUNT OR AMOUNTS OF ITA NO.4679/MUM/2012. M/S.DABUR INDIA LIMITED. 6 EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTIO N 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE 38 THEREOF) OR S ECTION 11 OR SECTION 12 APPLY; . A BARE PERUSAL OF CLAUSE (F) OF EXPLANATION (1) MAKES IT ABUNDANTLY CLEAR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT INCOME, OTHER THAN SECTION 10(38), IS LIABL E TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. WHEN WE TURN TO THE LANGUAGE OF SECTION 14A, IT TRA NSPIRES THAT IT TALKS OF DISALLOWING ANY EXPENDITURE INCURRED `IN RELATION TO INCOME NOT INCLUDIBLE IN THE TOTAL INCOME. SUB-SECTION (1) OF THIS PROVISION PROVIDES THAT : FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE EXPRE SSION IN RELATION TO USED FOR MAKING DISALLOWANCE U/S 14A HAS BEEN EMP LOYED IN EXPLANATION (1) TO SECTION 115JB(2) AS EXPENDITURE RELATABLE TO , IN MORE OR LESS THE SAME FORM. IT IS MANIFEST THAT THE AMOUNT OF DIVIDEND IS EXEMPT U/S 10(33) [NOT SECTION 10(38)] OF THE AC T. THUS ANY EXPENDITURE ` RELATABLE TO THE EXEMPT DIVIDEND INCOME WOULD FALL UNDER CLAUSE (F). THE LD. AR ARGUED THAT UNLESS A N AMOUNT IS SPECIFICALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT IN RESPECT OF AN EXEMPT INCOME, THE SAME CANNOT BE BROUGHT WITHIN TH E PURVIEW OF CLAUSE (F) OF THE EXPLANATION 1 TO SECTION 115JB(2) . HE STATED THAT SINCE THE DISALLOWANCE U/S 14A IS COMPUTED AS PER R ULE 8D, THE ORIGIN OF THE EXPENSES DISALLOWED CANNOT BE TRACED TO THE PROFIT AND LOSS ACCOUNT AND HENCE IT CANNOT BE COVERED WITHIN THE M ISCHIEF OF CLAUSE (F) OF THE EXPLANATION. WE FAIL TO FIND ANY LOGIC I N THIS SUBMISSION ITA NO.4679/MUM/2012. M/S.DABUR INDIA LIMITED. 7 BECAUSE OF THE CLEAR LANGUAGE OF THE EXPLANATION 1, WHICH PROVIDES IN UNEQUIVOCAL TERMS THAT THE AMOUNT OF EXPENDITURE `RELATABLE TO THE EXEMPT INCOME SHALL BE ADDED BACK. NEITHER THE LAN GUAGE OF CLAUSE (F) EXPRESSLY REFERS TO THE AMOUNT SPECIFICALLY DEB ITED TO THE PROFIT AND LOSS ACCOUNT NOR THERE CAN BE AN IMPLICATION IN THI S REGARD. WHAT HAS BEEN CONTEMPLATED BY THE PROVISION IS THE AMOUNT OF THE EXPENDITURE `RELATABLE TO THE EXEMPT INCOME. FURTHER, THE AMOU NT DISALLOWABLE U/S 14A IS ALWAYS PART OF THE EXPENSES SPECIFICALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS AXIOMATIC THAT UNLES S ANY EXPENDITURE IS INCURRED AND CLAIMED AS DEDUCTION, THERE CAN BE NO QUESTION OF ANY HYPOTHETICAL DISALLOWANCE U/S 14A. IT, THEREFORE, FOLLOWS THAT THE AMOUNT DISALLOWABLE U/S 14A IS COVERED UNDER CLAUSE (F) OF EXPLANATION (1) TO SECTION 115JB(2). OUR VIEW IS FO RTIFIED BY THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN M/S.RBK SHARE BROKING PVT.LTD. V. ITO IN ITA NO.6678/MUM/2011 AND ANOTHER EARLIER ORDER DATED 29 AUGUST, 2012 PASSED BY THE M UMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ESQUIRE P. LTD, MUMBAI (ITA NO. 5688/MUM/2011) DECIDING THE ISSUE AGAINST THE ASSESSEE VIDE ITS O RDER DATED 24.07.2013. AS THE ASSESSMENT YEAR UNDER CONS IDERATION IS 2008-2009 IN WHICH DISALLOWANCE U/S 14A IS REQUIRED TO BE COMPUTED AS PER RULE 8D AND FURTHER IT IS IN THIS FASHION TH AT THE AMOUNT HAS BEEN DISALLOWED AND ALSO ADDED TO THE AMOUNT OF NET PROFIT FOR COMPUTING `BOOK-PROFIT U/S 115JB, WE SEE NO REASON TO DISTURB THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND IS NOT AL LOWED. ITA NO.4679/MUM/2012. M/S.DABUR INDIA LIMITED. 8 8. 4 /5 6 !4# - #/ 78 IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 23 RD DAY OF AUGUST, 2013. ' 3 - 012 9'*5 1 - $ SD/- SD/- (SANJAY GARG) (R.S.SYAL) % ' % ' % ' % ' / JUDICIAL MEMBER ! ' ! ' ! ' ! ' / ACCOUNTANT MEMBER MUMBAI ; 9'* DATED : 23 RD AUGUST, 2013. DEVDAS* ' 3 - +%/:; < ;2/ ' 3 - +%/:; < ;2/ ' 3 - +%/:; < ;2/ ' 3 - +%/:; < ;2// COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. +,'( / THE RESPONDENT. 3. = () / THE CIT, MUMBAI. 4. = / CIT(A) 9, MUMBAI. 5. ;@$ +%/%* , , / DR, ITAT, MUMBAI 6. $A / GUARD FILE. ' 3* ' 3* ' 3* ' 3* / BY ORDER, ,;/ +%/ //TRUE COPY// B B B B/ // /7 # 7 # 7 # 7 # ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI