ACIT CEN CIR 17 & 28, MUMBAI V. G.M. BREWERIES LTD, MUMBAI

ITA 4929/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1382 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 27-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M KESHKAMAT
• Keywords: Business income; Bad and doubtful debts; TDS; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. BEFORE S/SHRI S.V.MEHROTRA, AM & V.DURGA RAO,JM I.T.A. NOS.4776 /MUM/2009 ASSESSMENT YEAR: 2006-07 G.M.BREWERIES LTD., V. THE ACIT, CENT. CIRCLE-17 , GANESH NIWAS, VEER SAVARKAR MARG, MUMBAI. MUMBAI-25. PA NO.AAACG 1653 N I.T.A. NOS.4929 /MUM/2009 ASSESSMENT YEAR: 2006-07 THE ACIT, CENT. CIRCLE-17, V. G.M.BREWERIES LTD., MUMBAI. MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SATISH MODY REVENUE BY : SHRI K.M.KESHKAMAT O R D E R PER S.V.MEHROTRA, AM THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENU E ARE DIRECTED AGAINST THE ORDER DATED 30.6.2009 OF LD CIT (A)-IV, MUMBAI FO R THE ASSESSMENT YEAR 2006-07. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY, IN THE RELEVANT ASSESSMENT YEAR, CARRIED ON THE BUSINESS OF MANUFACTURING OF INDIAN MADE COUNTRY LIQUOR(IMCL) AND INDIAN MADE FOREIGN LIQUOR (IMFL). IT HAD FILED RE TURN OF INCOME DECLARING TOTAL INCOME AT RS.19,80,53,185/-. THE AO NOTICED THAT THE ASSE SSEE HAD WRITTEN OFF OF RS.7,25,411/- UNDER THE FOLLOWING HEADS:- I) INTEREST RECEIVABLE : RS.40,50,411/- II) AMOUNT SHORT RECEIVED : RS.29,75,000/- AS REGARDS WRITE OFF OF INTEREST RECEIVABLE, THE AO NOTICED THAT THE ASSESSEE HAD GIVEN LOAN ON INTEREST TO M/S SHREENATH DEVELOPERS AT 6% P.A. THE INTEREST ON THIS LOAN WAS OFFERED FROM A.Y. 1995-96 TO A.Y. 2000-2001. HOWEV ER, AS PER CONSENT TERM FILED BEFORE THE HONBLE BOMBAY HIGH COURT, THE ASSESSEE AGREED TO RECEIVE ONLY TOWARDS ITA NO.4776/M/09 ITA NO.4929/M/09 M/S. G.M.BREWERIES LTD.,. 2 PRINCIPAL AMOUNT RS.1,00,00,000/-. HE NOTED THAT THE CONSENT TERM WAS DATED 11.12.2003, WHICH WAS APPROVED BY THE HONBLE BOMBA Y HIGH COURT ON 19.12.2003. AS PER THE CONSENT TERM, AN AMOUNT OF RS.40,50,411/- B EING INTEREST WAS AGREED TO BE FORGONE BY THE ASSESSEE. THIS WAS DISALLOWED BY TH E AO FOR THE FOLLOWING REASONS:- I) IT APPEARS THAT INTEREST ON INTEREST HAD BEEN CHAR GED BY CAPITALIZING THE INTEREST AMOUNT TO THE PRINCIPAL AMOUNT. II) THE AMOUNT TO BE WRITTEN OFF, IF AT ALL, SHOULD HAV E BEEN IN THE ASSESSMENT YEAR 2004-05 AND NOT A.Y. 2006-07. III) THE LOAN WAS NOT GIVEN DURING THE COURSE OF ASSESSE ES BUSINESS. GIVING LOAN AND EARNING OF INTEREST WAS NOT BUSINESS OF TH E ASSESSEE. AS REGARDS THE CLAIM OF RS.29,75,000/- BEING AMOUNT SO RECEIVED, THE AO NOTICED THAT THE ASSESSEE HAD SOLD SOME PROPERTY TO OR THROUGH M /S. SIDDHIVINAYAK BUILDERS FOR RS.1,25,00,000/-. HE NOTED THAT AS PER THE CONSENT TERM DATED 11.12.2003 AND APPROVED BY THE HONBLE BOMBAY HIGH COURT ON 19.12. 2003, THE ASSESSEE AGREED TO RECEIVE SHORT AMOUNT BY RS.29,75,000/-. HE FURTHER NOTED THAT THE ASSESSEE HAD SHOWN PROFIT ON SALE OF PROPERTY UNDER THE HEAD SHORT TE RM CAPITAL GAIN. HE REJECTED THE ASSESSEES CLAIM FOR THE FOLLOWING REASONS:- I) THE AMOUNT TO BE WRITTEN OFF AT ALL SHOULD HAVE BEE N IN THE ASSESSMENT YEAR 2004-05 AND NOT A.Y. 2006-07. II) PURCHASE AND SELLING OF IMMOVABLE PROPERTY WAS NOT THE BUSINESS OF THE ASSESSEE. THEREFORE, THE ASSESSEES CLAIM OF WRITI NG OFF THE AMOUNT RECEIVED WAS NOT CORRECT AND NOT ALLOWABLE FOR COMP UTING THE INCOME UNDER THE HEAD CAPITAL GAINS. 3. THE CIT (A) IN PRINCIPLE AGREED WITH THE ASSESSE E THAT THE IMPUGNED AMOUNTS WERE RIGHTLY CLAIMED IN A.Y. 2006-07 BECAUSE THE OT HER PARTY HAD NOT ACTED UPON THE SAME AND HAD DISPUTED THE CONSENT TERM BY FILING CH AMBER SUMMONS WHICH WERE FINALLY DISPOSED OFF IN THE YEAR 2005 BY THE HONBLE HIGH C OURT AND PURSUANT TO THE SAME, THE OTHER PARTY STARTED PAYING THE CONSENTED AMOUNT TO THE ASSESSEE FROM OCTOBER, 2005. 4. AS REGARDS THE ASSESSEES CLAIM FOR WRITING OFF OF RS.40,50,411/- BEING INTEREST NOT RECEIVED, THE CIT (A) CONFIRMED THE FINDINGS OF THE AO OBSERVING THAT THE SAID ITA NO.4776/M/09 ITA NO.4929/M/09 M/S. G.M.BREWERIES LTD.,. 3 AMOUNT WAS IN THE CAPITAL ACCOUNT AS THE ASSESSEE W AS NOT IN MONEY LENDING BUSINESS AND HAD NEVER OFFERED THE INCOME UNDER THE HEAD BU SINESS INCOME. AS REGARDS THE ADDITION OF RS.29,75,000/-, THE CIT (A) AGREED WITH THE ASSESSEE THAT THE SAID BAD DEBTS /BUSINESS LOSS WAS DIRECTLY ARISING FROM THE BUSINE SS ACTIVITY OF THE ASSESSEE. REFERRING TO THE WRITTEN SUBMISSIONS, HE POINTED OUT THAT SHO RT TERM CAPITAL GAIN HAD ARISEN IN THE LIGHT OF THE DEEMING PROVISIONS OF SECTION 50 OF TH E I.T.ACT INSPITE OF THE SAME BEING DIRECTLY CONNECTED TO THE BUSINESS OF THE ASSESSEE. BEING AGGRIEVED, BOTH THE SIDES ARE IN APPEAL BEFORE US. 5. AS REGARDS THE FIRST ISSUE REGARDING DISALLOWANC E OF RS.40,50,411/- BEING INTEREST RECEIVABLE BUT NOT RECEIVED, LD COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE MONEY WAS PAID FOR PURCHASE OF PROPERTY FOR BUSINESS PURPOSES . THE BUILDER FAILED TO HONOUR THE COMMITMENT AND IN LIEU THEREOF, AGREED FOR PAYMENT OF INTEREST. ACCORDINGLY, THE SAME WAS OFFERED FOR TAX FROM A.Y. 1995-96 TO 2000-2001 UNDER THE HEAD INCOME FROM OTHER SOURCE AS THE ASSESSEE WAS FOLLOWING MERCANTILE SY STEM OF ACCOUNTING. HE FURTHER SUBMITTED THAT TDS WAS ALSO DEDUCTED BY OTHER PARTY . LD COUNSEL SUBMITTED THAT IN SUBSTANCE, THE NATURE OF INTEREST INCOME IS BUSINES S INCOME AS THE SAME IS ON ACCOUNT OF BUSINESS DEALING. HE REFERRED TO THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF CIT V. COCANADA RADHASWAMI BANK LTD.,57 ITR 306 (SC) TO SUBMIT THAT IN SUBSTANCE THE NATURE OF RECEIPT IS DIFFERENT AND CO NSOLIDATED INCOME IS NOT RELEVANT WHEN LOSSES ARE SET OF. HE ALSO RELIED ON THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF WESTERN STATES TRADING CO. P. LTD V. CI T, 80 ITR 21(SC), WHEREIN, IT WAS HELD THAT IF SHARES WERE HELD AS STOCK IN TRADE, DIVIDEND WAS ASSESSABLE AS INCOME FROM OTHER SOURCES. HE RELIED ON THE DECISION OF THE HO NBLE MP HIGH COURT IN THE CASE OF CIT V. SHRIKISHAN CHANDMAL, 60 ITR 303 (MP) FOR THIS PR OPOSITION. HE, THEREFORE, IN SUM AND SUBSTANCE, SUBMITTED THAT THE IMPUGNED AMOUNT WAS I N THE NATURE OF BUSINESS LOSS OF THE YEAR THOUGH OFFERED IN EARLIER YEARS AS INCOME FROM OTHER SOURCES. HE FURTHER SUBMITTED THAT, IN ANY CASE, THE INTRA HEAD LOSSES HAVE TO BE ALLOWED SINCE IT WAS THE LOSS OF THE YEAR. FINALLY, LD COUNSEL SUBMITTED TH AT EVEN OTHERWISE EQUITY DEMANDS THAT SINCE THE AMOUNT WAS NOT REALIZED, IT SHOULD HAVE B EEN ALLOWED. 6. LD D.R. SUBMITTED THAT THE ASSESSEE WAS IN THE B USINESS OF MANUFACTURING OF LIQUOR AND INVESTMENT IN PROPERTY WAS NOT THE ASSES SEES BUSINESS. THE INVESTMENT IN PROPERTY WAS MADE OUT OF SURPLUS FUNDS; THEREFORE, THE ASSESSEE HIMSELF HAD OFFERED THE ITA NO.4776/M/09 ITA NO.4929/M/09 M/S. G.M.BREWERIES LTD.,. 4 SAME AS INCOME FROM OTHER SOURCES. IF THE AMOUNT I S NOT RECEIVED, IT CANNOT BE CLAIMED U/S.30 TO 37. HE FURTHER SUBMITTED THAT EVEN OTHER WISE THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT THESE ARE BUSINESS ASSETS. 7. AS REGARDS THE SECOND ISSUE, LD D.R. POINTED OU T THAT IT IS STRANGE THAT THE ASSESSEE SOLD THE PROPERTY TO THE SAME PARTY, ALT HOUGH THE PARTY HAD NOT HONOURED ITS STATEMENT. AS REGARDS DISALLOWANCE OF RS.29,75,000 /-, LD D.R. SUBMITTED THAT IT IS NOT CLEAR AS TO HOW THE BAD DEBTS/BUSINESS LOSS WAS AR ISING FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. HE SUBMITTED THAT THE CIT (A)S CONT ENTION BY INVOKING SECTION 50 IS WRONG. 8. IN THE REJOINDER, LD COUNSEL REFERRED TO PAGE 3 OF PAPER BOOK TO DEMONSTRATE THAT THE SHORT TERM CAPITAL GAIN OF RS.29,75,000/- WAS WITH REFERENCE TO BUSINESS ASSETS. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORDS OF THE CASE. ADMITTEDLY, THE ASSESSEE WAS ENGAGED IN THE BUSINES S OF MANUFACTURING INDIAN MADE COUNTRY LIQUOR AND INDIAN MADE FOREIGN LIQUOR AND W AS NOT IN THE REAL ESTATE BUSINESS OR MONEY LENDING BUSINESS. AS REGARDS THE FIRST ISS UE REGARDING UNRECOVERED INTEREST CLAIM, FACTS ARE THAT THE ASSESSEE HAD ADVANCED AN AMOUNT OF RS.1 CRORE TO SHREENATH DEVELOPERS FOR PURCHASE OF PROPERTY ALLEGEDLY FOR B USINESS PURPOSES. HOWEVER, AS THE ASSESSEE COULD NOT RECEIVE THE SAID PROPERTY, THE D EVELOPER PROMISED TO PAY INTEREST ON THE SAID AMOUNT AT THE RATE OF 6%. THE ASSESSEE WA S FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, HAD ACCOUNTED FOR INTERE ST OF RS.6,00,000/- RETURNED UNDER THE HEAD INCOME FROM OTHER SOURCES PER YEAR FROM A.YS. 1995-96 TO 2001-02. OUT OF THE TOTAL SUM OF RS.42 LAKHS, ON ACCOUNT OF INTERES T, THE ASSESSEE HAD RECEIVED ONLY A SUM OF RS.1,49,589/- FROM SHREENATH DEVELOPERS BEIN G INTEREST FOR THE PERIOD 1.4.1994 TO 30.6.1995 AND THE BALANCE AMOUNT WAS NOT REALIZE D. THE AO HAS PRIMARILY DISALLOWED THE ASSESSEES CLAIM ON TWO COUNTS. FIRSTLY, THE A MOUNTS SHOULD HAVE BEEN WRITTEN OFF, IF AT ALL, I A.Y. 2004-05 AND NOT 2006-07. SECONDLY, LOAN WAS NOT GIVEN DURING THE COURSE OF ASSESSEES BUSINESS, PARTICULARLY BECAUSE GIVING LOAN AND EARNING INTEREST WAS NOT THE BUSINESS OF THE ASSESSEE. ONLY SURPLUS FUNDS HAD BEEN GIVEN ON INTEREST AS LOAN. HOWEVER, LD CIT (A) HAS CONFIRMED THE FINDINGS OF T HE AO ON THE GROUND THAT SINCE THE LOAN GIVEN BY THE ASSESSEE WAS ON CAPITAL ACCOUNT, THEREFORE, THE SAME WAS NOT ALLOWABLE. AS FAR AS YEAR OF ALLOWABILITY IS CONCE RNED, NOW THERE IS NO DISPUTE ON THE ITA NO.4776/M/09 ITA NO.4929/M/09 M/S. G.M.BREWERIES LTD.,. 5 SAID COUNT AS THE LD CIT (A) HAS REVERSED THE FIND INGS OF THE AO AND DEPARTMENT HAS NOT DISPUTED THE SAME IN REGARD TO THIS DISALLOWANC E. 10. LD COUNSEL HAS SUBMITTED THAT SINCE THE ADVANCE WAS GIVEN FOR ACQUIRING THE PROPERTY FOR BUSINESS PURPOSES, THEREFORE, MERELY B ECAUSE INTEREST WAS RETURNED UNDER THE HEAD INCOME FROM OTHER SOURCES IN EARLIER YE ARS IS OF NO CONSEQUENCE AND THAT CANNOT ALTER THE TRUE NATURE OF INTEREST. WE FIND IT DIFFICULT TO ACCEPT THE ASSESSEES CONTENTION ON THIS COUNT FIRSTLY BECAUSE THERE IS N OTHING ON RECORD TO SUGGEST THAT AMOUNT HAD BEEN ADVANCED FOR ACQUIRING BUSINESS ASS ET AND SECONDLY, ADMITTEDLY, INTEREST INCOME WAS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES IN ERLIER YEARS. EVEN ASSUMING FOR ARGUMENT SAKE ONLY THAT T HE INTEREST INCOME HAD SOME RELATION WITH BUSINESS OF THE ASSESSEE, STILL UNDE R THE INCOME TAX ACT, WE HAVE TO CONSIDER THE ALLOWABILITY OF EXPENDITURE UNDER A PA RTICULAR HEAD OF INCOME AND MERELY ON THE BASIS OF NATURE OF INCOME, THE DEDUCTION CANNOT BE ALLOWED UNDER DIFFERENT HEAD. UNDER THE HEAD INCOME FROM OTHER SOURCES, THERE I S NO PROVISION FOR WRITING OFF AS IS UNDER THE HEAD INCOME FROM BUSINESS AS BUSINESS L OSS/BAD DEBT. WE ARE CONSCIOUS OF THE FACT THAT THIS WILL CAUSE UNDUE HARDSHIP TO TH E ASSESSEE BUT WHILE INTERPRETING THE TAXING STATUTE, THE HARDSHIP IS NOT A CRITERION IN DECIDING THE ISSUE IN HAND. IT IS FOR THE LEGISLATURE TO MAKE SUITABLE AMENDMENT IN THIS REGA RD PARTICULARLY, BECAUSE UNDER THE HEAD INCOME FROM OTHER SOURCES, THE INCOME IS TO BE ACCOUNTED FOR ON MERCANTILE BASIS LIKE THAT IN THE CASE OF BUSINESS INCOME. LD COUNSELS SUBMISSION THAT ON EQUITABLE GROUND THIS AMOUNT SHOULD BE ALLOWED, CANNOT BE ACC EPTED BECAUSE THE SAME CANNOT BE THE BASIS FOR DECIDING THE TAXING STATUTE. IN THIS REGARD WE MAY REFER TO THE CELEBRATED OBSERVATION OF LORD CAIRNS IN THE CASE OF PARTINT ON V A.G. (1869) LR 4 HL 100 AS UNDER:- IF THE PERSON SOUGHT TO BE TAXED COMES WITHIN THE LETTER OF THE LAW HE MUST BE TAXED, HOWEVER GREAT THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIND TO BE. ON THE OTHER HAND, IF THE CROWN SEEKING TO RECOVER THE TAX, CANNOT BRING THE SUBJECT WITHIN THE LETTER OF THE LAW, THE SUBJECT IS FREE, HOWEVER, APPARENTLY WITHIN THE SPIRIT OF LAW THE CASE MIGHT OTHERWISE APPEAR TO BE . IN OTHER WORDS, IF THERE BE ADMISSIBLE IN ANY STATUTE, WHAT IS CALLED AN EQUITA BLE, CONSTRUCTION, CERTAINLY, SUCH A CONSTRUCTION IS NOT ADMISSIBLE IN A TAXING S TATUTE WHERE YOU CAN SIMPLY ADHERE TO THE WORDS OF THE STATUE. IN THE CASE OF CAPE BRANDY SYNDICATE V IRC (1921) 1 KB 64, VISCOUNT SIMON OBSERVED AS UNDER:- ITA NO.4776/M/09 ITA NO.4929/M/09 M/S. G.M.BREWERIES LTD.,. 6 IN A TAXING ACT ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMENT. THERE IS NO EQUITY ABOUT A TAX . THERE IS NO PRESUMPTION AS TO TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE IMPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED. IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSEES APP EAL STANDS DISMISSED. 11. AS REGARDS TO THE DEPARTMENTS APPEAL, WE FIND THAT ADMITTEDLY, THE ASSESSEE HAD SOLD ITS BUSINESS ASSETS APPEARING IN ITS FIXED ASS ET SCHEDULE TO OR THROUGH M/S. SIDDHIVINAYAK BUILDERS FOR RS.1,25,00,000/- AND, TH EREFORE, THE SAME WAS ASSESSED AS SHORT TERM CAPITAL GAIN IN VIEW OF THE PROVISIONS O F SECTION 50 OF THE I.T.ACT. HOWEVER, WHEN THE AMOUNT WAS NOT FULLY REALIZED THEN THE INC OME RETURNED EARLIER IN THE FORM OF SHORT TERM CAPITAL GAIN HAD TO BE ALLOWED UNDER TH E HEAD BUSINESS INCOME. THE ASSESSMENT OF INCOME UNDER THE HEAD SHORT TERM CAP ITAL GAIN DOES NOT DEFACE THE BLOCK OF ASSET AS SUCH AND THE UNREALIZED AMOUNT IS TO BE SHOWN AS DEDUCTION IN THE SAID BLOCK. THEREFORE, IT WAS TO BE CLAIMED AS SH ORT TERM CAPITAL LOSS. THEREFORE, WE DIRECT THE AO TO ALLOW DEDUCTION OUT OF THE SHORT TERM CAPITAL GAIN RETURNED EARLIER. 12. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED AND THAT OF THE REVENUE STANDS DISMISSED. PRONOUNCED ON 30 TH JUNE, 2010 SD/- (V. DURGA RAO) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANTMEMBER) MUMBAI, DATED 30 TH JUNE, 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-IV, MUMBAI 4. COMMISSIONER OF INCOME TAX, C-II-, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.4776/M/09 ITA NO.4929/M/09 M/S. G.M.BREWERIES LTD.,. 7 DATE INITIALS 1. DRAFT DICTATED ON 25.6..2010 PS 2. DRAFT PLACED BEFORE AUTHOR 28.6.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER ITA NO.4776/M/09 ITA NO.4929/M/09 M/S. G.M.BREWERIES LTD.,. 8