High Court Of Delhi
CIT vs. Modi Industries Ltd.
Section 5, 28(i), 40A(5)(a) proviso, 40A(5)(c), 80J
Asst. Year 1976-77
A.K. Sikri & Ms. Reva Khetrapal, JJ.
IT Ref No. 251 of 1990
26th August, 2010
Counsel Appeared :
Sanjeev Sabharwal with Uppal Saha, for the Applicant : Ajay Vohra with Ms. Kavita Jha & Shukla, for the Respondent
JUDGMENT
A.K. SIKRI, J. :
Following four questions were formulated by this Court in the reference petition filed by the Department and the Tribunal was directed to prepare and transmit the statement of case based thereupon :
“1. Whether Tribunal was correct in law and on facts in holding that on the amount of salary and perquisites paid to Shri Umesh Kumar Modi, provisions of s. 40A(5)(c) were not applicable and the case was covered by first proviso to s. 40A(5)(a) of IT Act ?
2. Whether Tribunal was correct in law and on facts in holding that the 10 ton furnace division and steel unit ‘B’ constitute new industrial undertaking to enable the assessee to claim deduction under s. 80J of IT Act. Whether Tribunal was correct in law and on facts in holding that a sum of Rs. 1,02,037 being the excess price realized by the assessee on sale of sugar was not a revenue receipt in hands of assessee and as such not taxable in its hands ?
Whether Tribunal was correct in law and on facts in holding that assessee is entitled to initial depreciation under s. 32(1)(iv) on the cost of new residential quarters.”
2. Insofar as first question is concerned, learned counsel for the assessee has drawn our attention to the judgment of Supreme Court in the case of CIT vs. Continental Construction Ltd. (1998) 145 CTR (SC) 1 : (1998) 230 ITR 485 (SC) which squarely answered the question in affirmative i.e., in favour of the assessee and against the Revenue.
3. Second question relates to the claim of the assessee for deduction under s. 80J of the IT Act in respect of its new unit namely 10 ton furnace division and steel unit ‘B’. This case pertains to the asst. yr. 1976-77. Perusal of the order of the AO would reveal that for the first time, claim under s. 80J of the Act was made by the assessee in the asst. yr. 1973-74. The assessee was denied that claim by the AO. For this reason, the AO denied the claim in this assessment year as well, taking note of the fact that the matter pertaining to 1973-74 was pending before the Tribunal.
4. It is a matter of record that the appeal filed by the assessee for the asst. yr. 1973-74 was allowed by the Tribunal. The effect thereof was that the assessee was granted the requisite deduction under s. 80J of the Act for the asst. yr. 1972-73. The Department has sought reference under s. 256(1) of the Act which reference application was also rejected by the Tribunal. Likewise, for the asst. yrs. 1974-75 and 1975-76, the claims of the assessee were allowed. The assessee, once given the deduction under s. 80J of the Act is entitled to such a deduction for a period of 5 years. If the assessee has been allowed the benefit of s. 80J in the last three preceding years, there is no reason to deny the same for the instant assessment year. We, therefore, answer this issue also in favour of the assessee and against the Revenue.
5. As far as question No. 3 is concerned, the same arises in the following factual background : The assessee had challenged the fixation of price by the Government for sale of levy sugar under the Essential Commodities Ac by filing a writ petition in the High Court of Allahabad. The Allahabad High Court granted interim order in favour of the assessee. However, this order was subject to the condition that in case the writ petition is ultimately decided against the assessee, the assessee will have to refund the excess amount charged along with the interest to be calculated @ 12.5 per annum. Thus, in the relevant assessment year, the assessee had sold the levy sugar at a price in excess of the price fixed by the Government and in this manner calculated the excess amount of Rs. 1,02,037. The question is as to whether the receipt of this amount has to be treated as revenue receipt i.e., income at the hands of assessee or it has to be treated as contingent receipt which was the position taken by the assessee in the return filed by it.
6. The writ petition filed by the assessee was ultimately dismissed and the amount in question was refunded by the assessee along with the interest. Similar position, in the case of the assessee itself, had arisen in the asst. yr. 1975-76 also. In that year too, the Tribunal had decided the issue in favour of the assessee holding that the excess price charged by the assessee, while the writ petition was still pending, would not be treated as a revenue receipt in the hands of the assessee company, in as much as, the excess receipt was contingent upon the success in the writ petition filed by the assessee. The said decision of the Tribunal was upheld by the High Court of Allahabad in CIT vs. Modi Industries Ltd. IT Ref. No. 57 of 1989 in the following manner vide its decision dt. 2nd May, 2007 :
“So far as the second question is concerned, it is covered by a decision of a Division Bench of this Court in the case of CIT vs. Dhampur Sugar Mills Ltd. (2005) 194 CTR (All) 170 in favour of the assessee and against the Department. No good reason has been shown to us from the Department’s side to take a different view. Accordingly, the second question is answered in favour of the assessee and against the Department in the light of the aforesaid decision of a Division Bench of this Court. Reference is disposed of finally.” It is clear from the above that the High Court followed its decision in CIT vs. Dhampur Sugar Mills Ltd. (2005) 194 CTR (All) 170. We have been taken through the said judgment. In that case also, conditional stay order was granted in the writ petition filed by the respondent. The respondent in that case, vide interim order, was permitted to sell sugar at a price different from the price fixed by the Government. However, condition was imposed upon the respondent to furnish bank guarantee before the Registrar of that Court in respect of the difference between the price fixed by the Government and the price at which the sugar was actually sold by the respondent. It was also made clear that it would be open to the Court to deal with the bank guarantee and pass order as to how the amount is to be distributed at the time of final orders in the writ petition. Keeping in view that it was a conditional order passed by the High Court in the writ petition challenging the fixation of the price levy sugar, the High Court opined that the interim order was not unconditional and as it was hedged with certain condition, the excess price charged would not be treated as revenue receipt/income at the hands of the assessee.
We may point out at this stage that the Supreme Court in the case of K.C.P. Ltd. vs. CIT (2000) 162 CTR (SC) 320 : (2000) 245 ITR 421 (SC) had occasion to deal with such type of matter. In that case, however, the Supreme Court was concerned with the interim order passed by the Andhra Pradesh High Court whereby operation of the notification issued by the Union of India was suspended during the pendency of the writ petition and the assessee was specifically permitted to sell the sugar at the rate prevailing prior to the impugned notification. Taking note of the fact that no condition was imposed which passing such an order, the Supreme Court held that receipt of the excess amount would be treated as revenue receipt as it was not hedged with any condition. The Supreme Court specifically drew distinction between the interim orders passed by the Courts where the stay orders were not hedged with conditions and the orders which were conditional like the case of the assessee here and this distinction is discussed by the Supreme Court in the following words : “Learned senior counsel for the assessee- appellant relied on three decisions by different High Courts and submitted that in identical facts and circumstances the price of sugar realized in excess of the levy price was held not to be a treading receipt of the assessee and hence not liable to tax. The decisions so relied on are: CIT vs. Mysore Sugar Co. Ltd. (1990) 82 CTR (Kar) 255 : (1990) 183 ITR 113 (Kar), CIT vs. Seksaria Biswan Sugar Factory (P) Ltd. (1991) 96 CTR (Bom) 36 : (1992) 195 ITR 778 (Bom) and CIT vs. Chodavaram Co-operative Sugars Ltd. (1985) 49 CTR (AP) 295 : (1987) 163 ITR 420 (AP). We have carefully perused the decisions. It is clear from the facts stated by the High Courts that in each of the cases the assessee’s right to realize the excess price was the subject matter of dispute pending in the High Court and the High Courts had passed different interim orders pursuant to which the respective assessees were collecting the excess price. Though the interim orders of the High Courts are differently worded in the three cases, one common feature of all the orders is that the realization of the excess price by the respective assessees was hedged by several conditions one of which was that the assessee shall refund the amount received in excess of the price fixed in the event of the pending dispute being decided adversely to the assessee by the Court. Thus, the receipt of the amount by the assessee was clearly associated with a liability to refund the amount by the assessee, which liability was ascertainable and quantified. Such is not the case at hand.”
9. In Dhampur Sugar Mills (supra) the Allahabad High Court took note of the aforesaid judgment of the Supreme Court in K.C.P. Ltd. (supra) and highlighted the distinction made by the Supreme Court. We may reproduce the following portion from that judgment for our benefit : “Applying the principles laid down by the apex Court in the cases of K.C.P. Ltd. vs. CIT (2000) 162 CTR (SC) 320 : (2000) 245 ITR 421 (SC) and Hindustan Housing & Land Development Trust Ltd. (1986) 58 CTR (SC) 179 : (1986) 161 ITR 524 (SC) to the facts of the present case, we find that here also the right to collect/realize extra levy sugar price was on account of the interim order dt. 27th July, 1972, passed by this Court which was hedged with certain conditions. Thus, the right to receive the payment had been in dispute. It, therefore, did not form part of the trading receipt of the respondent-assessee. We are in respectful agreement with the earlier decision of this Court, which is inter parties relating to the previous asst. yr. 1972-73. In this view of the matter, we answer the first question of the law in the affirmative, i.e., in favour of the assessee and against the Revenue.”
10. It is thus clear that in those cases where the interim orders are passed permitting the assessee to recover excess amount than the amount fixed by the Government for levy sugar without any condition of refund etc., such receipt of these amounts would be treated as revenue receipt.
11. On the other hand, where conditions are imposed and particularly the condition that this amount would be refunded in case the petitioner fails in the writ petition, the excess realization at the hands of the assessee is not to be treated as revenue receipt but contingent receipt. Thus we answer this question also in favour of the assessee and against the Revenue.
12. Question No. 4 which relates to the initial depreciation under s. 32(1)(iv) of the Act. The relevant portion of s.
32(1)(iv) is reproduced hereunder : “Sec. 32 Depreciation—(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of s. 34, be allowed……….. (iv) in the case of any building which has been newly erected after the 31st day of March, 1996, where the building used solely for the purpose of residence of persons employed in the business and the income of each such person chargeable under the head ‘Salaries’ is seven thousand five hundred or less, or where the building is used solely or mainly for the welfare of such persons as a hospital, crèche, school, canteen, library, recreational centre, shelter, rest room or lunch room, a sum equal to twenty per cent of the actual cost of the building to the assessee in respect of the previous year of erection of the building; but any such sum shall not be deductible in determining the WDV for the purposes of cl. (ii) of sub-s. (1).” Admittedly, the term “building” is not defined under the IT Act. Therefore, one will have to fall back on the meaning which is assigned to this term in common parlance. The English language dictionaries define the word “building” to mean any structure for whatsoever purpose and of whatsoever materials constructed and any part thereof, whether used as human habitation or not. Therefore, part of the structure is also known as building. This meaning should be taken along with the purpose for which the aforesaid provision was enacted, namely, to afford incentives to businesses to construct buildings for housing lowly paid employees. Providing such type of accommodation is now treated an important facet and part of corporate social responsibility. The avowed purpose of the aforesaid provision was to engage and in spire the corporate sector to discharge such social responsibility.
Having regard to these factors, we are of the opinion that the Tribunal rightly held that the assessee was entitled to initial deprecation under this section. We, thus, answer question No. 4 in affirmative i.e., in favour of the assessee and against the Revenue.
[Citation : 327 ITR 570]
