D.C.I.T. Cir - 8,Kolkata, Kolkata V. M/s Bhagawati Oxygen Ltd., Kolkata

ITA 92/KOL/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0495 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 15-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MINAJ D SHAH
• Keywords: Capital asset; Business income; Capital receipt
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI, P . K BANSAL , ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH , J UDICIAL MEMBER ITA NO. 92 / KOL / 2013 ASSESSMENT YEAR : 2009 - 10 DCIT, CIRCLE - 8, KOLKATA V/S . M/S BHAGAWATI OXYGEN LTD., 67, PARK STREET, KOLKATA - 16 [ PAN NO.AABCB 2164 N ] / APPELLANT .. / RESPONDENT / BY APPELLANT SHRI KANHIYA LAL KANAK, SR - DR / BY RESPONDENT SHRI MINAJ D. SHAH, FCA / DATE OF HEARING 26 - 05 - 2015 / DATE OF PRONOUNCEMENT 09 - 06 - 2015 / O R D E R PER P .K. BANSAL , ACCOUNTANT MEMBER: - THIS APPEAL HAS BEEN FILED BY THE REVENUE BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - VIII, KOLKATA DATED17 - 10 - 2012 FOR THE ASSESSMENT YEAR 2009 - 10. 2. ONLY ISSUE INVOLVED IN THIS APPEAL OF REVENUE RELATE TO THE DELETION OF ADDITION OF 95 LAKH MADE BY THE ASSESSING OFFICER BY APPLYING THE PROVISION OF SECTION 28( IV ) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). ITA NO. 92/KOL/2013 A.Y. 2009 - 10 DCIT CIR - 8, KOL. V. M/S BHAGAWATI OXYGEN LTD. PAGE 2 3. BRIEF FACTS RELATING TO THE GROUND ARE THAT ASSESSEE FILED ITS RETURN AT A LOSS OF 27,94,518/ - . THE AO MADE THE ADDITION AND MADE AN ASSESSMENT ON AN INCOME OF 85,21,310/ - - ONE OF T HE ADDITION WHICH IS UNDISPUTED BEFORE US RELATES TO THE ADDITION OF 95 LAKH U/S 41(1) / 28(IV) OF THE ACT. THE AO NOTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF INDUSTRIAL GASES AND POWER. THE ASSESSEE HAS CREDITED A SUM OF 95,01,602/ - IN ITS PROFIT AND LOSS ACCOUNT UNDER THE HEAD OTHER INCOME ON ACCOUNT OF LIABILITIES NO LONGER REQUIRED WRITTEN BACK. WHILE COMPUTING TOTAL INCOME FOR INCOME TAX PURPOSE, THE ASSESSEE EXCLUDED THE SAID ITEM. THE AO THEREFORE ISSUE A SHO W CAUSE D NOTICE WHEN ENQUIRED OF THE ASSESSEE SUBMITTED THAT THE SAID AMOUNT REPRESENTS THE BALANCE BROUGHT FORWARD ON ACCOUNT OF ADVANCES RECEIVED FROM M/S PRAKAS INDUSTRIES LTD., FOR SEVERAL YEARS BY THE ASSESSEE. BUT DUE TO SOME DISPUTE THE SAID SALE OF MACHINERY HAD NOT YET TAKEN PLACE. THE ASSESSEE HAS NOT CLAIMED A DEDUCTION IN RESPECT OF SAID AMOUNT EARLIER AND AS EXPENDITURE OR TRADING LIABILITY. THEREFORE IT CANNOT BE BROUGHT TO TAX U/S 41(1) OF THE ACT AND THE PROVISION OF SEC. 28(IV) RELATED AN D NOT APPLICABLE AS THE ADVANCES WERE RECEIVED IN CASH AND NOT IN NON - MONETARY TERMS. THE AO DID NOT AGREE WITH THE SUBMISSION OF THE ASSESSEE AND ALSO NOTED THAT TAX AUDITOR OF THE ASSESSEE HAS CATEGORICALLY MENTIONED IN CLAUSE (20) OF THE FORM NO. 3CD TH AT THE AMOUNT OF 95,01,602/ - REPRESENTED LOAN LIABILITY NO LONGER REQUIRED WRITTEN BACK AND IS A PROFIT CHARGEABLE TO TAX U/S 41(1) OF THE ACT. THE ASSESSEE WENT IN APPEAL BEFORE CIT(A), THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: - 5.2.1.2 IN THE APPEAL PROCEEDINGS THE APPELLANT DISPUTED THE FINDING OF THE ASSESSING OFFICER THAT NO EVIDENCE IN SUPPORT OF THE DISPUTE WITH PRAKASH INDUSTRIES LTD W A S FILED BEFORE THE ASSESSING OFFICER. THE APPELLANT FILED A COPY OF THE LETTER DATED 04/04/1997 DULY RECEIVED BY PRAKASH INDUSTRIES LTD AND ALSO SUBMITTED THAT THE SAID LETTER WAS FILED IN THE ASSESSMENT PROCEEDINGS. AS THERE WAS CONFLICT IN THE STAND I CALLED FOR THE ASSESSMENT RECOR D S AND ON VERIFICATION IT WAS SEEN THAT THE LETTER DATED 04/04/1997 WAS AVAILABLE ON RECORD. IT THEREFORE APPEARS THAT THE ASSESSING OFFICER HAD MISSED OUT THE SAME BEFORE PASSING THE ASSESSMENT ORDER. 5.2.1.3 I FIND THAT THE FACTS ARE UNDISPUTED THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF I NDUSTRIAL GASES. THE APPELLANT S BUSINESS IS NOT A TRADE IN OXYGEN PLANTS. I ALSO FIND THAT THE AMOUNT OF RS.95,00,000/ - WAS RECEIVED ON ADVANCE FOR SUPPLY OF USED 25 TPD OXYGEN ITA NO. 92/KOL/2013 A.Y. 2009 - 10 DCIT CIR - 8, KOL. V. M/S BHAGAWATI OXYGEN LTD. PAGE 3 PLANT AND AS THE BUYER LOST INTEREST IN THE PURCHASE OF THE SAME THE APPELLANT WROTE BACK THE AMOUNT IN ITS BOOKS OF ACCOUNTS AFTER A LAPSE OF 17 ODD YEARS. THIS BEING THE FACTUAL BACKGROUND, I AM OF THE OPINION THAT THE SAID AMOUNT OF RS.95,00,000 CANNOT BE BROUGHT TO TAX U/S 41(1) OR SECTION 28(IV) OF THE IT ACT 1961. IN ORDER OR A SUM TO BE TAXABLE U/S. 41(1) OF THE IT ACT 1961 THE SAME NEEDS TO BE REMISSION, REFUND OR CESSATION OF DEDUCTION OR BENEFIT OF ALLOWANCES IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE APPELLANT. NONE OF THESE CONDITIONS WERE SATISF IED IN THE CASE OF THE APPELLANT HENCE THE SUM OF RS.95,00,000/ - CANNOT BE ADDED U/S. 41(1) OF THE IT ACT 19611. IN ORDER TO TAX A SUM U/S. 28(IV) OF THE IT ACT 1961 SUCH HAS TO BE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION. IN THE CASE OF THE APPELLANT THIS AMOUNT IS NOT ARISING FROM ITS BUSINESS LEAVE APART IT BEING A BENEFIT OR PERQUISITE ARISING FROM BUSINESS. THE CASE LAWS RELIED BY THE ASSESSING OFFICER ARE ALL ON T HE FACT THAT THE RECEIPTS WHICH WERE ARISING FROM REGULAR TRADING BUSINESS CAN BE TAXED U/S. 28(IV) THERE IS NO DISPUTE WITH THAT POSITION. BUT IT IS SEEN IN THE INSTANT CASE OF THE APPELLANT THAT THE SUM OF RS.95,00,000/ - IS NOT ARISING FROM ITS BUSINESS HENCE THE PROVISIONS OF SECTION 28(IV) OF THE IT ACT 1961 CANNOT BE ATTRACTED. I THEREFORE HAVE NO HESITATION IN DELETING THE ADDITION OF RS.95,00,000/ - . 4. WE HAVE HEARD RIVAL SUBMISSION AND CAREFULLY CONSIDERED THE SAME. IN OUR OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT(A). THIS IS A UNDISPUTED FACT THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF INDUSTRIAL GASES AND POWER AND ASSESSEE S BUSINESS IS NOT SELLING THE OXYGEN PLANT. THE ASSESSEE RECEIVED THE SAID ADV ANCE FOR THE SALE OF ITS OLD OXYGEN PLANT UNDER THE AGREEMENT WITH M/S PRAKASH INDUSTRIES LTD. FOR A SUM OF 10 CRORES. AS PER THE TERMS OF THE AGREEMENT 10% OF THE TOTAL AMOUNT I.E., 1 CRORE WAS GIVEN AS AN ADVANCE AND M/S PRAKASH INDUSTRIES LTD. WAS T O ARRANGE TO GET IRREVOCABLE LETTER OF CREDIT FOR THE BALANCE AMOUNT OF 90% I.E., 9 CRORES. THE OPENING OF THE LETTER OF CREDIT (LC FOR SHORT) WAS DELAYED AND THE ASSESSEE WAS REQUESTED TO PAY A SUM OF 5 LAKH FOR LC AND ACCORDINGLY ASSESSEE PAID THE SU M OF 5 LAKH BY CHEQUE NO.274377 DATED 05 - 11 - 1996 DRAWN ON CENTRAL BANK OF INDIA. M/S PRAKASH INDUSTRIES LTD. FAILED TO OPEN THE LC AND ASSESSEE ALSO AGAIN AND AGAIN REQUESTED BUT IN THE ABSENCE OF M/S PRAKASH INDUSTRIES LTD. NOT TAKING THE PLANT AND MACH INERY THE ASSESSEE HAS ULTIMATELY WRITE OFF THE ADVANCE DURING THE IMPUGNED ASSESSMENT YEAR. THE PROVISION OF SECTION 41(1) ARE APPLICABLE IF ALLOWANCE O R DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIA BILITY INCURRED BY THE ASSESSEE AND SUBSEQUENTLY ITA NO. 92/KOL/2013 A.Y. 2009 - 10 DCIT CIR - 8, KOL. V. M/S BHAGAWATI OXYGEN LTD. PAGE 4 DURING ANY PREVIOUS YEAR ASSESSEE GOT WHETHER ANY CASH OR IN ANY MANNER WHATSOEVER AN AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSION THEREOF. THE CASE OF THE ASSESSEE IS NOT THE SAME, SO THAT IT CAN FALL WITHIN THE PURVIEW U/S 4 1(1) OF THE ACT. THE ASSESSEE HAS NOT EARLIER BEEN ALLOWED A DEDUCTION IN RESPECT OF THIS AMOUNT BY WAY OF LOSS EXPENDITURE OR TRADING LIABILITY IN THE EARLIER ASSESSMENT YEAR. THEREFORE, SUCH LIABILITY CANNOT BE ASSESSED U/S 41(1) OF THE ACT. THE PROVISION OF SEC. 28(IV) ALSO, IN OUR OPINION, NOT APPLICABLE IN THE INSTANT CASE, AS IN ORDER TO TAXATION U/S 28(IV), THE SUM HAS TO BE VALUE OF ANY BENEFIT OR PERQUISITES, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM THE BUSINESS OR EXERCISE OF PROFESSION. THEREFORE, FOR THE APPLICABILITY OF SEC. 28(IV) TWO CONDITIONS MUST BE ESTABLISH E D (I) THERE SHOULD BE BENEFIT OR PERQUISITES WHETHER CONVERTIBLE INTO MONEY OR NOT AND (II) SUCH BENEFIT OR PERQUISITES MUST ARISE FROM THE BUSINESS OR EXERCISE OF A PROFESSION. THE EXPRESSION THAT SUCH BENEFIT MUST RISE FROM BUSINESS OR THE EXERCISE OF A PROFESSION IMPLIES THAT THE BENEFIT OR PERQUISITES MUST BE IN THE NATURE OF A BUSINESS RECEIPTS OR REVENUE RECEIPT. THE CAPITAL RECEIPT, IN OUR OPINION, CANNOT FALL WITHIN THE PURVIEW OF SEC. 28(IV) OF THE ACT. OUR AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF CO - ORDINATE BENCH IN THE CASE OF INCOME TAX OFFICER WARD - 7(3), KOLKATA V. KYAL DEVELOPERS (P) LTD. IN ITA NO.627/KOL/2012, IN WHICH THIS TRIBUNAL VIDE ORDER DATED 19 - 12 - 2013 HELD AS UNDER: - 6. NOW, W E HAVE TO GO THROUGH THE CLAUSE (IV) OF SECTION 28 WHICH LAYS DOWN AS UNDER: SECTION 28 SETS OUT THE INCOMES WHICH ARE CHARGEABLE TO INCOME - TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSIONS , AND CLAUSE (IV) THERETO REFERS TO THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM THE BUSINESS OR EXERCISE OF A PROFESSION. IT IS CLEAR FROM THE ABOVE PROVISION THAT BESIDES THE PROFITS AND GAINS FROM BUSINESS SAND PROFESSION CARRIED ON BY THE ASSESSEE AT A NY TIME DURING THE PREVIOUS YEAR OR ANY OTHER BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, IS ALSO CHARGEABLE TO TAX UNDER THIS HEAD OF INCOME. A PLAIN READING OF THIS PROVISION SHOWS TWO CONDITIONS PRECEDENTS FOR SUCH TAXABILITY I.E. (I) THAT THERE SHOULD BE BENEFITS OR PERQUISITES AND, (II) THAT SUCH BENEFITS OR PERQUISITES SHOULD ARISE FROM THE BUSINESS OR EXERCISE OF THE PROFESSION. THE EXPRESSION ITA NO. 92/KOL/2013 A.Y. 2009 - 10 DCIT CIR - 8, KOL. V. M/S BHAGAWATI OXYGEN LTD. PAGE 5 ARISING FROM THE BUSINESS; ESSENTIALLY IMPLIES THAT THE BENEFIT OR PERQUISITE MUST BE IN THE NATURE OF A BUSINESS RECEIPT OR REVENUE RECEIPT. NO MATTER HOW WIDE BE THE SCOPE OF SECTION 28(IV) OF THE ACT, THE DIFFERENCE BETWEEN A CAPITAL RECEIPT AND REVENUE RECEIPT CANNOT BE OVERLOOKED. IN THE CASE OF MAHINDRA & MAHINDRA LTD. V. CIT [2003] 261 ITR 501 / 128 TAXMAN 394 , HON BLE BOMBAY HIGH COURT HAS, IN THE CONTEXT OF THIS SIGNIFICANT DISTINCTION BETWEEN REVENUE AND CAPITAL RECEIPTS, HELD THAT WAIVER OF PRINCIPAL AMOUNT IN RESPECT OF IMPORTS OF PLANT AND MACHINERY COULD, BY NO STRETCH OF LOGIC, BE TREATED AS BUSINESS INCOME , AND, THEREFORE, AS AN INCOME TAXABLE UNDER SECTION 28(IV) OF THE ACT. ONE MUST BEAR IN MIND THE FACT THAT SECTION 28 OF THE ACT ONLY REFERS TO THE TERM INCOME WHICH CAN BE CHARTED TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION , AND, THEREFORE, WHEN A PARTICULAR ADVANTAGE, PERQUISITE OR RECEIPT IS SNOT IN THE NATURE OF INCOME, THERE CANNOT BE ANY OCCASION TO BRING THE SAME TO TAX UNDER SECTION 28(IV) OF THE ACT. 7. HON BLE SUPREME COURT, IN TH E CASE OF PADMARAJE R KADAMBANDE V. CIT [1992] 195 ITR 877/62 TAXMAN 456 OBSERVED THAT, WE HOLD THAT THE AMOUNTS RECEIVED BY THE ASSESSEE DURING THE FINANCIAL YEAR IN QUESTION HAVE TO BE REGARDED AS CAPITAL RECEIPTS, AND, THEREFORE, ARE NOT INCOME WIT HIN MEANING OF SECTION 2(24) OF THE INCOME TAX ACT. (EMPHASIS BY UNDERLINING SUPPLIED BY US). THIS CLEARLY SHOWS, AS IS THE SETTLED LAW THAT A CAPITAL RECEIPT, IN PRINCIPLE, IS OUTSIDE THE SCOPE OF INCOME CHARGEABLE TO TAX. OF COURSE, THERE ARE SPECIFIC PR OVISIONS UNDER THE INCOME TAX ACT WHICH PROVIDE THAT CERTAIN CAPITAL RECEIPTS CAN ALSO BE CONSIDERED AS INCOME, SUCH AS UNDER SECTION 2(24)(VI) OF THE ACT WHICH COVERS ANY CAPITAL GAINS CHARGEABLE UNDER SECTION 45 , BUT RIGHT NOW WE ARE CONFINED TO NORMAL CONNOTATIONS OF THE EXPRESSION INCOME . HOWEVER LIBERAL OR NARROW BE THE INTERPRETATION OF EXPRESSION INCOME , IT CANNOT ALTER CHARACTER OF A RECEIPT, I .E CONVERT A CAPITAL RECEIPT INTO REVENUE RECEIPT OR VICE VERSA . THE CRUCIAL DISTINCTI O N BETWEEN CAPI TAL AND REVENUE CANNOT BE BLURRED OR NULLIFIED BY EVEN T H E MOST LIBERAL INTERPRETATION OF EXPRESSI O N INCOME . IT IS ALSO IMPORTANT TO BEAR IN MIND THAT, AS HELD BY HON BE SUPREME COURT IN THE CASE OF DR K. GEORGE THOMAS V. CIT [1985] 156 ITR 412/23 TAXMAN 46 , THE BURDEN IS ON THE REVENUE TO ESTABLISH THAT THE RECEIPT IS OF A REVENUE NATURE THOUGH ONCE A RECEIPT I FOUND TO BE OF REVENUE CHARACTER, WHETHER IT COMES UNDER EXEMPTION OR NOT, IT IS FOR THE REVENUE TO ESTABLISH . IT IS THUS CLEAR THAT CAPITAL RECEIPTS ARE INHERENTLY OUTSIDE THE SCOPE OF AN INCOME WHICH CAN BE TAXED UNDER SECTION 28(IV), AND HON BLE BOMBAY HIGH COURT, IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPRA) ALSO HOLDS SO. AS TO WHAT CONSTITUTES CAPITAL RECEIPT, WE FIND GUIDANCE FROM HON BLE MADRAS HIGH COURT S JUDGMENT IN THE CASE OF CIT V. SESHASAYEE BROS. (P) LTD. [1996] 222 ITR 818/89 TAXMAN 13 WHEREIN THEIR LORDSHIPS, AFTER ELABORATELY SURVEYING THE LEGAL PRECEDENTS ON THIS ISSUE, CONCLUDED THAT, THUS, A COMBINED READING OF THE ABOVE SAID JUDICIAL PRONOUNCEMENTS WOULD GO TO SHOW THAT WHEN A RECEIPT IS REFERABLE TO FIXED CAPITAL, IT IS NOT TAXABLE, AND IT IS TAXABLE AS A REVENUE RECEIPT WHEN IT IS REFERABLE TO CIRCULATING CAPITAL OR STOCK IN TRADE. RESPECTFULLY, FOLLOWING THE AFORESA ID DECISION, IT IS APPARENT THAT RECEIPT TO BE CHARGEABLE TO TAX WITHIN THE PRO VI SION OF SEC. 28(IV) OF THE ACT HAS TO BE REVENUE RECEIPT AND MUST ARIS E DURING THE COURSE OF CARRYING ON THE BUSINESS. THE ADVANCE WAS NOT RECEIVED BY THE ASSESSEE IN THE CASE OF CARRYING ON THE BUSINESS OF MANUFACTURING AND INDUSTRIAL GASES AND POWER BUT THE ADVANCE ITA NO. 92/KOL/2013 A.Y. 2009 - 10 DCIT CIR - 8, KOL. V. M/S BHAGAWATI OXYGEN LTD. PAGE 6 HAS BEEN RECEIVED FOR THE SALE OF CAPITAL ASSET I.E. OLD PL ANT AND MACHINERY. THEREFORE, WE DO AGREE WITH THE CIT(A) THAT SAID RECEIPT CANNOT TAX EITHER U/S 41(1) OR 28(IV) OF THE ACT. WE THEREFORE, CONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF REVENUE S APPEAL IS DISMISSED. 5. IN THE RESULT, APPEAL OF REVENUE IS STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 / 0 6 /201 5 SD/ - SD/ - ( MAHAVIR SINGH ) ( P .K. BANSAL ) ( JUDICIAL MEMBER ) ( ACCOUNTANT MEMBER) KOLKATA , *DKP - 09 / 0 6 / 201 5 / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT DCIT CIRCLE - 8, AAYAKAR BHAWAN, 5 TH FLOOR, P - 7, CHOWRINGHEE SQ., KOLKATA - 69 2 . / RESPONDENT M/S BHAGAWATI OXYGEN LTD., 67, PARK STREET, KOL - 69 3 . / CONCERNED CIT 4 . - / CIT (A) 5 . , , / DR, ITA T, KOLKATA 6 . / GUARD FILE. BY ORDER/ , /TRUE COPY/ / ,