UNITED PHOSPHORUS LTD. V. ADDITIONAL COMMISSIONER OF INCOME TAX

TAXAP/184/2008

AI Insights

The case involves United Phosphorus Ltd., the appellant, challenging the order of the Income Tax Appellate Tribunal (ITAT), Ahmedabad, which partially allowed their appeal regarding the assessment year 1992-93. The primary issues revolved around the taxation of income from Advance License Benefit Receivable, the treatment of premium paid for leasehold land, and the eligibility for deductions under Sections 80I and 80IA of the Income Tax Act. The High Court examined these issues in light of previous judgments and legal provisions, ultimately favoring the appellant on most counts.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 694077 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-12-2014
• Assessment Year: misc
• Other Referred Cases: Madras Industrial Investment Corporation Limited vs. CIT, Commissioner of Income tax v. Excel Industries Ltd., Deputy Commissioner of Income tax v. Sun Pharmaceuticals Ind. Ltd., LIBERTY INDIA VS. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S UDHIR M EHTA
• Assessee Lawyers: S N SOPARKAR; B S SOPARKAR; SWATI SOPARKAR
• Keywords: Advance License Benefit Receivable; Income Tax; Industrial Undertaking; Leasehold land; Revenue expenditure
• Section: 80IA; 28(iv); 80I

Judgement Text

"O/TAXAP/184/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 184 of 2008 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ UNITED PHOSPHORUS LTD.....Appellant(s) Versus ADDITIONAL COMMISSIONER OF INCOME TAX....Opponent(s) ================================================================ Appearance: MR SN SOPARKAR, SR. ADVOCATE, MR BS SOPARKAR, MRS SWATI SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 05/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. This is an appeal by the appellant- assessee, seeking to challenge the order of the learned ITAT, Ahmedabad Bench-C, Ahmedabad (for short, ‘the Tribunal’), Dated : 03.11.2004, Page 1 of 7 O/TAXAP/184/2008 JUDGMENT rendered in ITA No.2970/Ahd/1997 for A.Y. 1992-93, whereby, it allowed the same in part. 2. The brief facts of the case are that the assessee filed its return of income for A.Y. 1992- 93 on 31.12.1992, declaring its total income at Rs.7,92,12,058/-. Subsequent thereto, the case of the assessee was examined and the AO concerned, assessed its income at Rs.9,80,48,251/-. Hence, the assessee approached the CIT(A) against the same and the CIT(A) allowed the same in part. It appears that, then, the assessee carried the matter before the Tribunal and the Tribunal, after hearing the parties, allowed the appeal of the assessee in part for statistical purpose. Hence, the present appeal. 3. At the time of admitting this Tax Appeal, following questions of law were framed by this Court; “(i) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the alleged income from Advance License Benefit Receivable is taxable in the year under consideration even though the said income has accrued to the appellant in the subsequent years? (ii) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law Page 2 of 7 O/TAXAP/184/2008 JUDGMENT in holding that premium paid for the leasehold land is not revenue expenditure and not allowable as such? (iii) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding premium of leasehold land cannot be allowed on proportionate basis spread over the period of lease which is totally contrary to the decision of Honourable the Supreme Court in the case o Madras Industrial Investment Corporation Limited vs. CIT (225 ITR 802)? (iv) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not holding that income from Advance License Benefit Receivable is derived from industrial undertaking and thus eligible for deduction under Sections 80I and 80IA of the Act?” 4. At the very outset, Mr. Soparkar, learned Sr. Advocate for the appellant-assessee, invited our attention to a decision of this Court in Tax Appeal No. 344 of 2002 in the case of “UNITED PHOSPHORUS LIMITED VS. JT. CIT”, Dated : 11.11.2014. Mr. Soparkar submitted that this Court has already decided the questions raised in this appeal, while disposing of Tax Appeal No. 344 of 2002. 5. In above view of the matter, we propose to deal with each question one by one. Page 3 of 7 O/TAXAP/184/2008 JUDGMENT 6. Mr. Soparkar submitted that so far as question No. (i) framed in this Tax Appeal is concerned, it is covered by the observation of this Court in Para-3 of Tax Appeal No. 344 of 2002, which reads as under; “3. We have heard learned counsel for both the sides. Insofar as questions no.(i) & (ii) are concerned, the issues are already concluded by the decision of the Apex Court in the case of Commissioner of Income tax v. Excel Industries Ltd., [2013] 358 ITR 295 wherein, it has been held that where any real business income has not accrued but only hypothetical income has accrued to the assessee, then Section 28(iv) of the Act would not be applicable. In view of the principle propagated by the Apex Court, the questions no.(i) & (ii) are answered in favour of the assessee and against the Revenue.” 7. Mr. Mehta, learned Advocate for the respondent-Revenue, does not dispute the aforesaid aspect. Hence, we answer question No.(i) in favour of the assessee and against the Revenue. 8. Mr. Soparkar, then, submitted that so far as question No.(ii) framed in this Tax Appeal is concerned, same is covered by the observations of this Court in Para-4 of Tax Appeal No. 344 of 2002, which reads as under; Page 4 of 7 O/TAXAP/184/2008 JUDGMENT “4. Insofar as question no.(iii) is concerned, the issue is already concluded by the decision of Apex Court in the case of Deputy Commissioner of Incometax v. Sun Pharmaceuticals Ind. Ltd., [2010] 329 ITR 479 (Guj). In that case, the Appellate Tribunal found that the land in question was not acquired by the assessee. It was held that merely because the deed was registered, the transaction in question would not assume a different character. The lease rent was very nominal and by obtaining the land on lease, the capital structure of the assessee did not undergo any change. It was further held that the assessee only acquired a facility to carry on business profitably by paying nominal lease rent and that the lease rent paid by the assessee to GIDC was allowable as revenue expenditure. In view of the above principle, the question no.(iii) is answered in favour of the assessee and against the Revenue.” 9. Mr. Soparkar, then, submitted that, since, question No.(ii) is covered by the decision of this Court in Tax Appeal No.344 of 2002, question No.(iii) shall not survive. 10. Mr. Mehta is unable to controvert the aforesaid aspect, hence, question No..(ii) is answered in favour of the assessee, whereas, so far as question No.3 is concerned, as stated above, since, question No.2 is answered in favour of the assessee, question No.(iii) will not survive. Page 5 of 7 O/TAXAP/184/2008 JUDGMENT 11. Insofar as question No.(iv), herein, is concerned, Mr. Soparkar, invited our attention to a decision of this Court in “LIBERTY INDIA VS. CIT”, 317 ITR 218, wherein, this Court has observed that DEPB / Duty drawback are incentives which flow from the schemes framed by the Central Government or from Section 75 of the Customs Act, 1962. Incentive profits are not profits derived from eligible business under section 80I-B : they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB / Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression “profits derived from industrial undertaking” under section 80-IB. He, therefore, submitted that the question No. (iv), herein, be answered in favour of the present assessee, accordingly. 12. In the result, question Nos. (i), (ii) and (iv) are answered in favour of the assessee and against the Revenue, accordingly, whereas, as stated above in view of our answer to question No. (ii), question No. (iii) does not survive. The appeal is ALLOWED to the aforesaid extent. No order as to costs. (K.S.JHAVERI, J.) Page 6 of 7 O/TAXAP/184/2008 JUDGMENT (K.J.THAKER, J) UMESH Page 7 of 7 "