Saturday, July 30, 2011

HC: TRADE ADVANCE vs BAD DEBT: S. 37 vs 36(1)(VII)

1. Mohan Meakin Limited vs CIT (HC) Dated: 11.05.2011

TRADE ADVANCE vs BAD DEBT: S. 37 vs 36(1)(VII)

To bolster his submissions that the non-recovery of trade advances amounted to business loss and were allowed to be deducted under Section 28 and Section 37 of the Act, learned counsel has placed reliance on the cases of Chenab Forest Co. v. Commissioner of Income-Tax, Patiala, 96 ITR 568; and Commissioner of Income-Tax, Mysore v. Mysore Sugar Co. Ltd., 46 ITR 649. On the other hand, learned counsel appearing for the Revenue submitted that the advances, which had been made, cannot be regarded as expenditure and it would be in the nature of debt. As it was not such a debt which would come within the purview of Section 36, so the assessee cannot claim any deduction on this account. With regard to submissions of assessee regarding applicability of Section 28 and Section 37, it was submitted by learned counsel for the Revenue that the “assessee cannot seek protection under Sections 28 and 37 because when Section 36 is applicable, then Section 37 will not be applicable.”

HELD In view of the discussion as made by the Division Bench of J&K High Court and the Honble Supreme Court, as quoted above, that the advances made by the assessee in the case were certainly of a type which would be within the contemplation of the words "laid out or expended wholly and exclusively for the purposes of the business". As no portion of the said advances could be stated to be loss of capital expenditure, but it being a plain case of business loss, it would certainly be allowable to be deducted under the provisions of Section 37 of the Act. (observed : When the assessee had written off the dues recoverable from the Corporation and the same were accepted by the Department and it had also so written off, the advances made to M/s.Kanpur Boot House in its books of accounts, what else could be the proof with the assessee for its being unable to recover the same...In any case, the Revenue could not compel the assessee to have recourse to litigation to recover the amount against dead person or his legal heirs when in the given circumstances, the same may not be recoverable.; ... “Merely because the claim was not made out under one particular provision of the Act, but was so made out under another provision of law, we failed to understand as to how the assessee could be debarred to raise such legal question. Having regard to all this, we are of the considered view that it was legally permissible to raise question of deduction under Section 37 of the Act even if it was not raised before the authorities below”

Applied: CIT vs MAHALAKSHMI TEXTILE MILLS LTD (1967) 066 ITR 0710 (SC)

2. CIT vs ITC Ltd. & C J International Hotels Ltd (HC)
Dated: 11.05.2011

Whether AO was justified in treating the amounts of tips under the head “Salary” within the meaning of Section 15 and Section 17 of the Act in the hands of respective staff and held that the assessees were liable to deduct taxes at source from such payments under Section 192 of the Act. Held, Yes

We need to see as to whether the tips paid to the employees by the assessees would constitute salary within the meaning of Sections 15 and 17 of the Act, as alleged by the Revenue or it would not be so as submitted by the assessees. As per the Webster Comprehensive Dictionary, „tip means small gift of money for service given, to a servant, waiter, porter or alike. Once the tips are paid by the customers either in cash directly to the employees or by way of charge to the credit cards in the bills, the employees can be said to have gained additional income.

Once the tips are paid by the customers either in cash directly to the employees or by way of charge to the credit cards in the bills, the employees can be said to have gained additional income. When the tips are received by the employees directly in cash, the employer hardly has any role and it may not be even knowing the amounts of tips collected by the employees. That would outrightly be out of the purview of responsibility of the employer under Section 192 of the Act. But, however, when the tips are charged to the bill either by way of fixed percentage of amount, say 10% or so on the total bill, or where no percentage was specified and amount is indicated by the customer on the bill as a tip, the same goes into the receipt of the employer and is subsequently disbursed to the employees depending upon the nature of understanding and agreement between the employers and the employees

From the above interpretation of the provisions of Section 2(24), Section 15 and Section 17, we may see that the tips would constitute income within the meaning of Section 2(24) and thus taxable u/s 15.

Applying SC order in Karamchari Union v. Union of India and others, 243 ITRS 143 it is held that the advantage to the hotel employees in the form of monies received as banquet tips or other outlet tips would be covered by the inclusive definition of „salary and there cannot be two opinions in view of the said judgment of the Supreme Court...From the above discussion, we may conclude that the receipt of the tips constitute income at the hands of the recipients and is chargeable to the income tax under the head “salary” under Section 15 of the Act. That being so, it was obligatory upon the assessees to deduct taxes at source from such payments under Section 192 of the Act.

3. CIT vs M/s. HLS India Ltd (Now HLS Asia Ltd.) (HC)
Dated: 11th May 2011

Deduction u/s 80IA and definition of manufacture.

The issue, which we are concerned with, is a fiscal issue which is concerned with a central statute. It is desirable that in such a matter there should be uniformity of the judicial opinion. Even on merits, the analogy has some substance. ....Ld counsel for the respondent assessee has submitted before us that the assessee is an industrial undertaking engaged in the business of retrieving and producing valuable information in respect of the sub-terranean of the oil fields of mineral oil concern. He has fervently pleaded that the printed logs and statements being final product of data processing amounts to manufacturing of an article or a thing to satisfy the statutory requirement in regards to the concerned claims made by the assessee. In order to fortify his case, a plethora of judicial decisions have been cited before us by the Ld. counsel for the assessee to support the contention that the “activity carried on by the assessee with respect of collecting and transmitting of data amounted to manufacturing and producing of an article or thing”. During the course of arguments, a specifically emphasized limb of his argument has been the analogy between the production of logs by using wireline logging equipments on the one hand and the production of X-Ray and ultrasound report sheets using X-Ray and Ultrasound machines on the other hand which have been held to be eligible for investment allowance under section 32A in various judicial pronouncements.

16. Following judgments have been cited by the learned counsel for the assessee to support its contention:
1. CIT Vs. IBM World Trade Corporation [130 ITR 739 (Bom)]
2. CIT Vs. Datacons (P) Ltd. (1985) 155 ITR 66
3. CIT Vs. Peerless Consultancy Services Pvt. Ltd. [186 ITR 609 (Cal)]
4. CIT Vs. Shaw Wallace and Co. Ltd. [201 ITR 17 (Cal)
5. Ship Scrap Traders Vs. CIT [251 ITR 806 (Bom)]
6. CIT Vs. Emirates Commercial Bank Ltd. [ 262 ITR 55 (Bom)]
7. CIT Vs. Professional Information Systems and Management. [274 ITR 242 (Guj)]
8. CIT Vs. Oracle Software India Ltd. [320 ITR 546 (SC)]

HELD in HLS Asia (supra): Having analyzed the submissions of learned counsel of both the parties and the material available for our perusal and the cited case law, we find force in the submissions learned counsel for the assessee...We, therefore, in the light of aforestated, decide this issue in the favour of the assessee and against the revenue.

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