1987-VIL-64-ITAT-
Equivalent Citation: [1988] 24 ITD 495
Income Tax Appellate Tribunal CALCUTTA
IT APPEAL NO. 1743(CAL.) OF 1986
Date: 20.07.1987
RALLIS INDIA LTD.
Vs
INCOME-TAX OFFICER.
BENCH
Member(s) : B. C. MITRA., S. K. JAIN.
JUDGMENT
Per Shri S. K. Jain, Judicial Member - Aggrieved by the order of the CIT (Appeals) the assessee-company had come up in appeal.
2. The assessee is a resident public company. The year of assessment is 1983-84 accounting period ending on 31-8-1982.
3. Ground Nos. 1 & 2 : The assessee claimed Rs. 12,50,000 as a revenue deduction being the amount of premium @ 5 per cent payable on redemption of 15 per cent non-convertible debentures of face value of Rs. 2.5 crores issued during the instant year which were due to redemption in 1989 i.e., to say after seven years. The ITO held that the premium payable at the end of seventy year could not be regarded as expenditure relevant to the instant assessment year and it could not be regarded as an accrued liability of the year. He, therefore, disallowed the claim. The CIT (Appeals) endorsed the order of the ITO. He also rejected the alternative contention of the assessee that at least 1/7th of the amount of the premium should be allowed in the instant year.
4. Contention of learned representative for the assessee is that the said amount of premium is in the nature of an inducement to the prospective subscribers and as such it partakes the character of cost of borrowing. Thus, according to him it is revenue expenditure and as such is allowable in the instant year. Alternatively, it is urged by him that the amount should be spread over the year. He is support placed reliance upon M. P. Financial Corpn. v. CIT (1987) 165 ITR 765 (MP). Learned departmental representative, on the other hand, supported the orders of the tax authorities below.
5. M. P. Financial Corpn.'s case was the case of issue of bonds at a discount. It has been observed by the Hon'ble High Court that in the case of issue of bonds at a discount the same principle as are applicable in the case of issue of debentures at discount would be attracted. It is to be further seen that the same principle would be applicable in the case of issue of debentures repayable at a premium or debentures issued at a discount and repayable at a premium. In this connection, following is stated in Spicer & Pegler's Book Keeping and Accounts (Seventeenth Edition) at page-240 :
"Debentures repayable at a premium These debentures will stand in the Balance-Sheet as a liability at their nominal amount, with a note of the amount at which they are repayable, any discount or premium on issue being treated as described above. If a sinking fund is raised to provide for repayment it should include provision for the payment of the premium on redemption. If no sinking fund is created, the premium should be provided for out of profits over the period of the debentures. Debentures may even be issued at a discount and repayable at a premium."
6. We, therefore, hold that the amount of premium of Rs. 12,50,000 should be allowed as a revenue reduction over the period of debentures, i.e., to say seven years and as such 1/7th of it should be allowed in the instant year.
7. Ground Nos. 3 & 4 : The assessee by an agreement dated 5.12.1979 obtained assignment of the trade mark "Kleertone" together with the goodwill of the business attached thereto from NELCO. By another agreement of even date the assessee was appointed as agents by NELCO for collecting the outstanding debts of NELCO aggregating to Rs. 16 lakhs as on 31.8.1979 which related to the said business of "Kleertone". The assessee thereby deposited Rs. 16 lakhs with NELCO free of interest and was entitled to retain the said debts collected up to 31.8.1982. In case the assessee was unable to recover the entire debts by 31.8.1982. In case the assessee was unable to recover the entire debts by 31.8.1982 it was entitled to refund from NELCO out of the said deposit of Rs. 16 lakhs but such refund was agreed to be limited to Rs. 10 lakhs. According to the assessee, they could recover Rs. 3,95,717 out of the total debts of Rs. 16,00,874 and out of the balance of Rs. 12,05,157 NELCO promised to return Rs. 10 lakhs only. Thus, there was a loss of Rs. 2,05,157 which was written off by the assessee as trading loss. The ITO declined the claim of the assessee to treat it as a trading loss. The assessee went in appeal before the CIT (Appeals) who endorsed the order of the ITO. He also dismissed the alternative stand of the assessee for treating the same as bad debt.
8. We find no merit in the contention of learned authorised representative that the instant case should be taken on the analogy of taking over predecessor's business with all its assets and liabilities. The authority of Veerabhadra Rao, K. Koteswara Rao & Co. (1985) CIT v. T. 155 ITR 152 (SC) is not applicable to the facts of the instant case. In that case the predecessor's business was taken over with all its assets and liabilities inasmuch as that the debts of the predecessor became assets of the assessee and interest income accrued thereon was assessed in the hands of the assessee. In the instant case, the assessee took over the trade mark together with the goodwill of NELCO. The agreements of taking over the trade mark and the goodwill on one hand and appointment of the assessee as agents of NELCO for recovery of debts on the other were though separate but they were even dated and obviously contemporaneous. There is a reference of the agreement of assignment of trade make and goodwill in the agreement appointing the assessee as agents of NELCO for recovery of debts. Moreover, the assessee would not have entered into agreement of agency with NELCO on payment of Rs. 16 lakhs in advance for making recovery of the debts of NELCO for recovery of debts. Moreover, the assessee would not have entered into agreement of agency with NELCO on payment of Rs. 16 lakhs in advance for making recovery of the debts of NELCO to the tune of Rs. 16 lakhs. Taking all these circumstances together, it is evident that the agency agreement obviously being unprofitable adventure, was part and parcel of the agreement to take over the trade mark and the goodwill. Thus, the consideration of the agency agreement was part of the agreement to take over the trade mark and the goodwill which was a capital asset. the loss thus suffered by the assessee was in the capital field. It is not the case that the assessee had taken over the debts of its predecessor. The assessee was merely appointed as agent for realising the debts of NELCO and as such, the said debts remained the debts of NELCO for all the time. It is also not that it was any trade agreement resulting in a trade loss. As discussed above, it was an agreement in conjunction with the assignment of trade mark and goodwill. Thus, the assessee cannot get deduction of Rs. 2,05,157 either as a trading loss or as a bad debt. The order of the CIT (Appeals) on this point is, therefore, upheld.
9. Ground Nos. 5 & 6 : The assessee-company was engaged in the manufacture of electric fans and parts thereof. It was paying Excise Duty on the basis of wholesale prices claimed and approved from time to time. However, it became intelligent after delivery of judgment by the Hon'ble Supreme Court on 1.12.1972 in Voltas' case (sic.). It claimed refund of Excise Duty paid from the Central Excise department and for that purpose field a writ petition No. 844 of 1981 in the Bombay High Court. The Hon'ble High Court, inter alia, passed an interim order on 29-6-1981 directing the Central Excise department to deposit in Court Rs. 1,23,13,843 relating to the period from 1.9.1971 to 31.3.1981 with a liberty to the assessee to withdraw the same on furnishing to the Central Excise Department a bank guarantee to the extent of such amount withdrawn. On appeal by the Central Excise department the Hon'ble High Court by an interim order dated 7-10-1981 reduced the figure of Rs. 1,23,16,843 to Rs. 67 lakhs. The said amount of Rs. 67 lakhs was withdrawn by the assessee in November 1981 after furnishing the necessary bank guarantee. It may further be noticed as a the subsequent event that the Hon'ble High Court by order dated 14.12.1983 directed the assessee to refund Rs. 37 lakhs to the Central Excise department in two equal instalments of Rs. 18.5 lakhs by 14.1.1984 and 14.3.1984 respectively. The Hon'ble High Court further directed on 23.8.1985 to make further refund of Rs. 10 lakhs - Rs. 5 lakhs by 15-10-1985 and Rs. 5 lakhs by 30-11-1986 to the Central Excise department. The writ petition No. 844 of 1981 filed by the assessee before the Hon'ble Bombay High Court in which these orders were passed is still pending. The ITO treated the receipt of Rs. 67 lakhs as income of the assessee. On appeal by the assessee the CIT (Appeals) upheld the order of the ITO treating this amount as income of the assessee under section 41(1) of the Income-tax Act.
10. Contention of learned representative for the assessee is that the said amount cannot be treated as income since the Hon'ble High Court permitted the assessee to withdraw the said amount on furnishing bank guarantee without making any final decision if the assessee was ultimately entitled to the same. Further, according to him the subsequent events show that the assessee was required to refund Rs. 53 lakhs out of Rs. 67 lakhs and the matter is still sub-judice. He is support placed reliance upon judgment of the Hon'ble Supreme Court in the case of CIT v. Hindustan Housing & Land Development Trust Ltd. (1986) 161 ITR 524.
11. In reply, it is contended by the learned departmental representative that the said amount of Rs. 67 lakhs was in fact cash receipt and should be included in the income of the assessee. It is further contended by him that in the event of repayment the assessee can well claim it as a deduction.
12. Since the said amount was received by the assessee on the basis of ad interim order of the court on furnishing bank guarantee it could not be taken as finally received by the assessee. The assessee was mere custodian of the said amount which it was obliged to refund at any time by the order of the court. The principle contained in Hindustan Housing & Land Development Trust Ltd.'s case is applicable to the instant case. The addition of Rs. 67 lakhs to the income of the assessee is, therefore, deleted.
13 to 16. (These paras are not reproduced here as they involved minor issues.)
17. Ground No. 10 : Rs. 14,832 were deducted at source of which the ITO did not allow credit on the ground that the said amount was not credited to the Central Govt. by the person deducting it. Contention of learned counsel for the assessee is that since the amount of tax was legally deducted the ITO should have allowed credit for the same. He in support relied upon the judgement of the Hon'ble Rajasthan High Court in the case of Addl. CIT. CIT v. Farasol Ltd. (1987) 163 ITR 364. Learned departmental representative on the other hand, relying upon judgement of the Hon'ble Calcutta High Court in the case of CIT v. Mahabir Finance Ltd. (1970) 75 ITR 83 contended that the assessee was not entitled to the credit of the said deduction since the amount was not credited to the Central Govt.
18. None of the judicial pronouncements relied upon by the parties is in point. The Hon'ble Rajasthan High Court in Farasol Ltd.'s case referred to the section 192 to 195 in context with a question which directly related to interpretation of section 40(a)(i). The Hon'ble Calcutta High Court in the case of Mahabir Finance Ltd. clearly stated that if any refund is to be made to the shareholder the refund would be naturally limited to the amount which the Central Govt. had actually received and cannot be extended to an amount which the Government has not receive. This observation was made by the Hon'ble Mr. Justice Mitra while he was considering if the dividend income received by the shareholder was liable to the grossed up with the tax deducted at source. The interpretation of section 199 which is directly in point in this case was not before the Hon'ble High Court. It reads as under :
"Any deduction made in accordance with the provisions of section 192 to 195 and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made ....".
In conjunction with section 199 it is necessary to read section 237 which is as under :
"If any person satisfies the Income-tax Officer that the amount of tax paid by him or on his behalf treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess."
Further, it is significant to note that in the Form No. 19A of certificate of deduction of tax and in the similar forms of certificate of deduction of tax following has been mentioned :
"The amount deducted at source has been paid to the credit of the Central Government on .... will be paid to the Central Government by ...."
And above all, there is section 205 putting bar against, direct demand on the assessee which mentions "where tax is deductible at source ... the assessee shall not be called upon to pay tax himself to the extent to which tax has been deducted from that income." It is thus abundantly clear from the aforesaid provisions that the assessee from whose income-tax has been deducted at source in accordance with the provisions contained in the Income-tax Act, he is entitled to credit of the said tax irrespective of whether the person deducting the tax has credited the same to the Central Government or not. The person deducting the tax at source is in a sense statutory agent of the Central Govt. and for his default no assessee can be made to suffer. The words used in section 199" and paid to the Central Government". In this view of the matter the assessee is entitled to deduction of Rs. 14,832 as tax paid. There is no dispute that the assessee has furnished necessary certificate of the deduction before the ITO. The ITO is directed to give credit to Rs. 14,832.
19. In the result the appeal is partly allowed.
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