Deputy Commissioner of Vs. Mittal Appliances (P.) Limited - Court Judgment

Excerpt:
1. this appeal is preferred by the revenue against the order of the cit(a) pertaining to the assessment year 1992-93.2. during the course of arguments, the learned counsel for the assessee, shri m.c. mehta, at the outset challenged the maintainability of this appeal on the ground that since the appeal for the same assessment year has been dismissed as withdrawn in view of the certificate issued by the commissioner of income-tax under section 90(2) read with section 91 of the finance act, 1998 in respect of kar vivad samadhan scheme, the revenue's appeal should also be deemed to have been withdrawn.3. the learned departmental representative, shri brijesh gupta, on the other hand, has opposed the above preliminary objection on the ground that both the appeals are distinct as these are filed on different grounds and the assessee has availed the benefit of kvss in respect of those issues which were raised in its appeal and not with regard to the issues raised in the revenue's appeal. as such, the revenue's appeal cannot be deemed to have been withdrawn in view of the certificate issued by the commissioner of income-tax admitting, the declaration in respect of the assessee's appeal.4. since the question of maintainability of the revenue's appeal in view of the certificate granted by the c1t under kvss has been raised before us as a preliminary objection, we would prefer to adjudicate this objection before dealing with the merits of the case.5. in support of his contention mr. mehta has relied on the judgment of the delhi high court in the case of all india federation of tax practitioners v. union of india[1999] 236 itr l/[1998] 101 taxman 401 and the judgment of the andhra pradesh high court in the case of dr.mrs. renuka datla v. cit [1999] 240 itr 463/107 taxman 143. our attention was also invited to the scheme introduced by the finance (no.2) act, 1998 at 232 itr 79 (st.) and the press note/release issued by the cbdt at 234 itr 62 (st.). mr. mehta has emphatically argued that the hon'ble high court of delhi has struck down the proviso to section 92 of the finance (no. 2) act, 1998, according to which the assessees were not permitted to avail of the benefit of kvss in those cases in which the revenue's appeal is pending before the appellate authorities.after the judgment of the delhi high court, the assessees were independently allowed to avail the benefit of kvss in the revenue's appeal also, in the instant case, the assessee has availed the benefit of kvss and paid the taxes determined by the cit. on the basis of the certificate issued by the cit, the assessee's appeal was dismissed as withdrawn by the tribunal. since the dispute relating to income-tax for the impugned assessment year has been resolved under the kvss and the determined taxes were paid by the assessee, the appeals filed by the revenue be also deemed to have been withdrawn alongwith the assessee's appeal. in support of his contention, reliance on the following judgments is also placed by mr. mehta :-- (ii) asstl. c1t v. ferro concrete construction (india) (p.) ltd. [1998] 64 itd 291 (indore).6. the learned departmental representative, on the other hand, argued that the hon'ble high court of delhi has not only struck down the proviso to section 90(2) of the finance (no. 2) act, 1998 but also modified the definition of tax arrears' envisaged in clause (m) of section 87 of the said finance act. according to the said judgment, the definition of tax arrears should be so read as to mean the amount of tax, penalty or interest determined by any competent authority on or before march 31, 1998 though such determination might have been set aside at a later stage, if such setting aside has not been accepted by the department and continues to remain under challenge before a court or tribunal. if the judgment is read in toto, one would find that after this judgment those assessees, who have been granted relief by the first appellate authority, but the order of the first appellate authority was not accepted by the revenue and the revenue went in appeal before the second appellate authority, may avail the benefit of the kvss though they were fully satisfied with the order of the first appellate authority. but from this judgment the inference drawn by the learned counsel for the assessee that if the assessee avails the benefit of kvss in its own appeal, the appeal of the revenue would automatically be deemed to have been withdrawn alongwith the assessee's appeal though the issues in both the appeals are different, cannot be accepted.7. on consideration of the rival submissions and from a perusal of the kar vivad samadhan scheme introduced by the finance (no. 2) act, 1998 and the aforesaid judgments, we find that the said scheme was introduced to afford an opportunity to the assessee to get their disputes settled with some relaxation. since the consequential effect of the aforesaid judgment of delhi high court has been interpreted by both the parties in their own fashion for giving effect to the kvss, we feel it proper to reproduce the relevant section, which was effected by the aforesaid judgment:-- "92. appellate authority not to proceed in certain cases.--no appellate authority shall proceed to decide any issue relating to the disputed chargeable expenditure, disputed chargeable interest, disputed income, disputed wealth, disputed value of gift or tax arrear specified in the declaration and in respect of which an order had been made under section 90 by the designated authority or the payment of the sum determined under that section : provided that in case an appeal is filed by a department of the central government in respect of such issue relating to the disputed chargeable expenditure, disputed chargeable interest, disputed income, disputed wealth, disputed value of gift or lax arrear (except where the tax arrear comprises only penalty, fine or interest), the appellate authority shall decide the appeal irrespective of such declaration." as per the original section 92, as brought by the legislature lo the scheme, no appellate authority shall proceed to decide any appeal of the assessee if he has availed the benefit of kvss by filing a declaration and made the payment of the sum determined by the cit under section 90 of the act but the proviso to this section puts a rider with respect to those appeals which were filed by the revenue and allowed the appellate authorities to proceed with the hearing of such appeals.by the judgment of the delhi high court, this rider has been lifted and the appellate authorities have been precluded from hearing all those appeals in which the declarations have been filed and lax determined by the cit, has been paid by the assessec. while lifting the rider, the hon'ble high court of delhi has modified the definition of 'tax arrears' given in clause (m) of section 87 of the said finance act.originally 'tax arrears' means in relation to the direct tax enactment, the amount of tax, penalty or interest determined on or before 31 st day of march, 1998, under that enactment in respect of an assessment year as modified in consequence of giving effect to an appellate order, but remaining unpaid on the date of declaration. by the aforesaid judgment of the delhi high court, the definition of 'tax arrear' has been modified and shall be read as to mean the amount of tax, penalty or interest determined by any competent authority on or before march 31, 1998 though such determinations might have been set aside at a later stage, if such setting aside has not been accepted by the department and continues to remain under challenge before a court or the tribunal.8. if we read the aforesaid relevant provisions of kvss in the light of the judgment of the delhi high court, which has elaborately discussed the scope and object of the scheme, we would find that prior to the judgment of the delhi high court the intention of the legislature was to give benefit of kvss only to those assessees who have gone in appeal before the appellate authorities and have not paid the tax. the intention of the legislature can very well be viewed from the phraseology used in the definition of 'tax arrears' and the introduction of proviso to section 92 of the act. the anamolies in the scheme were noticed by the hon'ble high court of delhi. while dealing with the vires of kvss, 1998, and their lordships of the delhi high court have removed the discrimination between the assessees, one who is prosecuting the litigation and the other who is defending before the appellate authorities by declaring the proviso to section 92 of the act as ultra vires and modifying the definition of 'tax arrears' in clause (m) of section 87 of the act. consequent to the judgment of the delhi high court, a press release was issued by the cbdt on 26-11-1998 reported at 234 itr 63 (st.) accepting the verdict of the delhi high court. subsequently, a letter dated 17-12-1998 containing procedural instructions was issued to all the chief commissioners of income-tax and director general of income-tax. a copy of the same is placed on record. after this press release, the assessees in the revenue's appeal, though they have been granted relief by the first appellate authority and no tax was due according to the order of the first appellate authority, were free to avail the benefit of kvss on the basis of tax determined by the competent authorities i.e., the assessing officer on or before march 31, 1998. nowhere in this section or in the judgment of the delhi high court it has been said that if the assessee files a declaration in his own appeal pending before the appellate authority and paid the taxes determined by the cit, the revenue's appeal would also be deemed to have been withdrawn alongwith the assessee's appeal on certificate issued by the cit on the basis of the declaration filed by the assessee. from a plain reading of the relevant provisions of the scheme modified by the judgment of the delhi high court and from a careful perusal of the judgments referred to by the assessee, we are of the opinion that the assessees may avail the benefit of kvss in its own appeal as well in the appeals filed by the revenue by filing separate declarations in both the appeals if the issues are not common in these appeals. if the issues are common in both the appeals, the dispute may be resolved by filing one declaration. the disposal of declaration in one appeal will not have any bearing on other cross-appeal and the appellate authorities may proceed with the hearing of the said cross-appeal in which the declaration under kvss was not filed or if filed, the dispute was not resolved under kvss. we find that the issues in both the cross-appeals filed by the assessee and the revenue are different. the assessee's appeal has been rightly dismissed as withdrawn as he has availed the benefit of kvss, but with regard to the revenue's appeal, no declaration was filed on behalf of the assessee. as such, we are of the view that the issues raised in the revenue's appeal are still unresolved and the tribunal is within its right to proceed with the hearing of the revenue's appeal. we, therefore, reject the preliminary objections raised by the learned counsel for the assessce and proceed to decide the appeal on merits.9. ground no. 1 relates to the direction of the cit(a) to the assessing officer to allow deduction under sections 80hh and 80-i on the interest income which was disallowed by the assessing officer treating the same as income from other sources.10. we have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on record.11. it is noticed from the order of the cit(a) that the assessee has purchased some fdrs for obtaining letter of credit for making the purchases from bharat aluminium corporation and calcutta mint. on these fdrs the assessee has earned interest income of rs. 4,14,950. this interest income was considered to be the income from other sources and deduction under sections 80hh and 80-i was not allowed by the assessing officer, but the cit(a) allowed the deduction under sections 80hh and 80-i of the act on the interest income after treating the same as directly related to the business of the assessee.12. the findings of the cit(a) are challenged by the revenue with the submission that the interest income may be treated as business income but it cannot be treated as income from industrial undertaking for allowing deductions under sections 80hh and 80-i of the act in view of the judgment of the jurisdictional high court in the case of cit v.paras oil extraction ltd. [1998] 230 itr 266/96 taxman 234 (mp) and cit v. pandian chemicals ltd. [1998] 233 itr 497 (mad.). in support of his contentions, the ld. departmental representative has also placed reliance on the order of the tribunal in the case of decora tubes ltd. v. dy. cit [it appeal no. 675 (indore) of 1995] in which the tribunal has discussed an identical issue in the light of the aforesaid judgments of both the high courts. a copy of the order is placed on record for our perusal.13. the learned counsel for the assessee has conceded that in view of the aforesaid judgments, the interest income cannot be treated as income from industrial undertaking but the said income should be considered as business income in view of the order of the tribunal in decora tubes ltd. (supra) but while treating the business income, netting should be allowed between the interest paid and the interest received.14. the ld. departmental representative in rebuttal has contended that while allowing netting, the nexus is required to be proved between the money borrowed and its investment in fdrs. 15. we have considered the rival submissions of the parties and carefully perused the orders of the authorities below and the material placed on record. we have considered an identical issue in the case of decora tubes ltd. (supra) and are of the opinion that the interest earned on fdrs can only be treated as business income and while allowing netting between the interest received and the interest paid on the borrowings, the nexus is required to be proved by the assessee.since requisite information is not available on record, we set aside the issue to the assessing officer with the direction to examine the nexus between the borrowings and its investment in fdrs before allowing netting between the interest paid and the interest received by the assessee.16. ground no. 2 relates to the direction of the cit(a) to the assessing officer to allow deduction under section 80-i on the gross total income i.e., prior to deduction under section 80hh of the act especially keeping in view the provisions of section 80hh(9) of the act.17. our attention was invited during the course of arguments that the issue is squarely covered by the judgment of the apex court in the case of j.p. tobacco products (p.) ltd. v. cit [1998] 229 itr 123 in which their lordships have held that deduction under section 80-i is to be allowed on the gross total income and not the income reduced by the deductions under section 80hh of the act. since the findings of the cit(a) are in consonance with the judgment of the jurisdictional high court, we find no justification in interfering with the same.accordingly, we subscribe the same.18. in the result, the appeal is partly allowed for statistical purposes.

Judgment:
1. This appeal is preferred by the revenue against the order of the CIT(A) pertaining to the assessment year 1992-93.

2. During the course of arguments, the learned counsel for the assessee, Shri M.C. Mehta, at the outset challenged the maintainability of this appeal on the ground that since the appeal for the same assessment year has been dismissed as withdrawn in view of the certificate issued by the Commissioner of Income-tax under section 90(2) read with section 91 of the Finance Act, 1998 in respect of Kar Vivad Samadhan Scheme, the revenue's appeal should also be deemed to have been withdrawn.

3. The learned Departmental Representative, Shri Brijesh Gupta, on the other hand, has opposed the above preliminary objection on the ground that both the appeals are distinct as these are filed on different grounds and the assessee has availed the benefit of KVSS in respect of those issues which were raised in its appeal and not with regard to the issues raised in the revenue's appeal. As such, the revenue's appeal cannot be deemed to have been withdrawn in view of the certificate issued by the Commissioner of Income-tax admitting, the declaration in respect of the assessee's appeal.

4. Since the question of maintainability of the revenue's appeal in view of the certificate granted by the C1T under KVSS has been raised before us as a preliminary objection, we would prefer to adjudicate this objection before dealing with the merits of the case.

5. In support of his contention Mr. Mehta has relied on the judgment of the Delhi High Court in the case of All India Federation of Tax Practitioners v. Union of India[1999] 236 ITR l/[1998] 101 Taxman 401 and the judgment of the Andhra Pradesh High Court in the case of Dr.

Mrs. Renuka Datla v. CIT [1999] 240 ITR 463/107 Taxman 143. Our attention was also invited to the scheme introduced by the Finance (No.2) Act, 1998 at 232 ITR 79 (St.) and the press note/release issued by the CBDT at 234 ITR 62 (St.). Mr. Mehta has emphatically argued that the Hon'ble High Court of Delhi has struck down the proviso to section 92 of the Finance (No. 2) Act, 1998, according to which the assessees were not permitted to avail of the benefit of KVSS in those cases in which the revenue's appeal is pending before the appellate authorities.

After the judgment of the Delhi High Court, the assessees were independently allowed to avail the benefit of KVSS in the revenue's appeal also, In the instant case, the assessee has availed the benefit of KVSS and paid the taxes determined by the CIT. On the basis of the certificate issued by the CIT, the assessee's appeal was dismissed as withdrawn by the Tribunal. Since the dispute relating to income-tax for the impugned assessment year has been resolved under the KVSS and the determined taxes were paid by the assessee, the appeals filed by the revenue be also deemed to have been withdrawn alongwith the assessee's appeal. In support of his contention, reliance on the following judgments is also placed by Mr. Mehta :-- (ii) Asstl. C1T v. Ferro Concrete Construction (India) (P.) Ltd. [1998] 64 ITD 291 (Indore).

6. The learned Departmental Representative, on the other hand, argued that the Hon'ble High Court of Delhi has not only struck down the proviso to section 90(2) of the Finance (No. 2) Act, 1998 but also modified the definition of tax arrears' envisaged in clause (m) of section 87 of the said Finance Act. According to the said judgment, the definition of tax arrears should be so read as to mean the amount of tax, penalty or interest determined by any competent authority on or before March 31, 1998 though such determination might have been set aside at a later stage, if such setting aside has not been accepted by the department and continues to remain under challenge before a Court or Tribunal. If the judgment is read in toto, one would find that after this judgment those assessees, who have been granted relief by the first appellate authority, but the order of the first appellate authority was not accepted by the revenue and the revenue went in appeal before the second appellate authority, may avail the benefit of the KVSS though they were fully satisfied with the order of the first appellate authority. But from this judgment the inference drawn by the learned counsel for the assessee that if the assessee avails the benefit of KVSS in its own appeal, the appeal of the revenue would automatically be deemed to have been withdrawn alongwith the assessee's appeal though the issues in both the appeals are different, cannot be accepted.

7. On consideration of the rival submissions and from a perusal of the Kar Vivad Samadhan Scheme introduced by the Finance (No. 2) Act, 1998 and the aforesaid judgments, we find that the said scheme was introduced to afford an opportunity to the assessee to get their disputes settled with some relaxation. Since the consequential effect of the aforesaid judgment of Delhi High Court has been interpreted by both the parties in their own fashion for giving effect to the KVSS, we feel it proper to reproduce the relevant section, which was effected by the aforesaid judgment:-- "92. Appellate authority not to proceed in certain cases.--No appellate authority shall proceed to decide any issue relating to the disputed chargeable expenditure, disputed chargeable interest, disputed income, disputed wealth, disputed value of gift or tax arrear specified in the declaration and in respect of which an order had been made under section 90 by the designated authority or the payment of the sum determined under that section : Provided that in case an appeal is filed by a Department of the Central Government in respect of such issue relating to the disputed chargeable expenditure, disputed chargeable interest, disputed income, disputed wealth, disputed value of gift or lax arrear (except where the tax arrear comprises only penalty, fine or interest), the appellate authority shall decide the appeal irrespective of such declaration." As per the original section 92, as brought by the Legislature lo the scheme, no appellate authority shall proceed to decide any appeal of the assessee if he has availed the benefit of KVSS by filing a declaration and made the payment of the sum determined by the CIT under section 90 of the Act but the proviso to this section puts a rider with respect to those appeals which were filed by the revenue and allowed the appellate authorities to proceed with the hearing of such appeals.

By the judgment of the Delhi High Court, this rider has been lifted and the appellate authorities have been precluded from hearing all those appeals in which the declarations have been filed and lax determined by the CIT, has been paid by the assessec. While lifting the rider, the Hon'ble High Court of Delhi has modified the definition of 'tax arrears' given in clause (m) of section 87 of the said Finance Act.

Originally 'tax arrears' means in relation to the direct tax enactment, the amount of tax, penalty or interest determined on or before 31 st day of March, 1998, under that enactment in respect of an assessment year as modified in consequence of giving effect to an appellate order, but remaining unpaid on the date of declaration. By the aforesaid judgment of the Delhi High Court, the definition of 'tax arrear' has been modified and shall be read as to mean the amount of tax, penalty or interest determined by any competent authority on or before March 31, 1998 though such determinations might have been set aside at a later stage, if such setting aside has not been accepted by the department and continues to remain under challenge before a Court or the Tribunal.

8. If we read the aforesaid relevant provisions of KVSS in the light of the judgment of the Delhi High Court, which has elaborately discussed the scope and object of the scheme, we would find that prior to the judgment of the Delhi High Court the intention of the Legislature was to give benefit of KVSS only to those assessees who have gone in appeal before the appellate authorities and have not paid the tax. The intention of the Legislature can very well be viewed from the phraseology used in the definition of 'tax arrears' and the introduction of proviso to section 92 of the Act. The anamolies in the scheme were noticed by the Hon'ble High Court of Delhi. While dealing with the vires of KVSS, 1998, and their Lordships of the Delhi High Court have removed the discrimination between the assessees, one who is prosecuting the litigation and the other who is defending before the appellate authorities by declaring the proviso to section 92 of the Act as ultra vires and modifying the definition of 'tax arrears' in clause (m) of section 87 of the Act. Consequent to the judgment of the Delhi High Court, a press release was issued by the CBDT on 26-11-1998 reported at 234 ITR 63 (St.) accepting the verdict of the Delhi High Court. Subsequently, a letter dated 17-12-1998 containing procedural instructions was issued to all the Chief Commissioners of Income-tax and Director General of Income-tax. A copy of the same is placed on record. After this press release, the assessees in the revenue's appeal, though they have been granted relief by the first appellate authority and no tax was due according to the order of the first appellate authority, were free to avail the benefit of KVSS on the basis of tax determined by the competent authorities i.e., the Assessing Officer on or before March 31, 1998. Nowhere in this section or in the judgment of the Delhi High Court it has been said that if the assessee files a declaration in his own appeal pending before the appellate authority and paid the taxes determined by the CIT, the revenue's appeal would also be deemed to have been withdrawn alongwith the assessee's appeal on certificate issued by the CIT on the basis of the declaration filed by the assessee. From a plain reading of the relevant provisions of the scheme modified by the judgment of the Delhi High Court and from a careful perusal of the judgments referred to by the assessee, we are of the opinion that the assessees may avail the benefit of KVSS in its own appeal as well in the appeals filed by the revenue by filing separate declarations in both the appeals if the issues are not common in these appeals. If the issues are common in both the appeals, the dispute may be resolved by filing one declaration. The disposal of declaration in one appeal will not have any bearing on other cross-appeal and the appellate authorities may proceed with the hearing of the said cross-appeal in which the declaration under KVSS was not filed or if filed, the dispute was not resolved under KVSS. We find that the issues in both the cross-appeals filed by the assessee and the revenue are different. The assessee's appeal has been rightly dismissed as withdrawn as he has availed the benefit of KVSS, but with regard to the revenue's appeal, no declaration was filed on behalf of the assessee. As such, we are of the view that the issues raised in the revenue's appeal are still unresolved and the Tribunal is within its right to proceed with the hearing of the revenue's appeal. We, therefore, reject the preliminary objections raised by the learned counsel for the assessce and proceed to decide the appeal on merits.

9. Ground No. 1 relates to the direction of the CIT(A) to the Assessing Officer to allow deduction under sections 80HH and 80-I on the interest income which was disallowed by the Assessing Officer treating the same as income from other sources.

10. We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on record.

11. It is noticed from the order of the CIT(A) that the assessee has purchased some FDRs for obtaining letter of credit for making the purchases from Bharat Aluminium Corporation and Calcutta Mint. On these FDRs the assessee has earned interest income of Rs. 4,14,950. This interest income was considered to be the income from other sources and deduction under sections 80HH and 80-I was not allowed by the Assessing Officer, but the CIT(A) allowed the deduction under sections 80HH and 80-I of the Act on the interest income after treating the same as directly related to the business of the assessee.

12. The findings of the CIT(A) are challenged by the revenue with the submission that the interest income may be treated as business income but it cannot be treated as income from industrial undertaking for allowing deductions under sections 80HH and 80-I of the Act in view of the judgment of the jurisdictional High Court in the case of CIT v.Paras Oil Extraction Ltd. [1998] 230 ITR 266/96 Taxman 234 (MP) and CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497 (Mad.). In support of his contentions, the ld. Departmental Representative has also placed reliance on the order of the Tribunal in the case of Decora Tubes Ltd. v. Dy. CIT [IT Appeal No. 675 (Indore) of 1995] in which the Tribunal has discussed an identical issue in the light of the aforesaid judgments of both the High Courts. A copy of the order is placed on record for our perusal.

13. The learned counsel for the assessee has conceded that in view of the aforesaid judgments, the interest income cannot be treated as income from industrial undertaking but the said income should be considered as business income in view of the order of the Tribunal in Decora Tubes Ltd. (supra) but while treating the business income, netting should be allowed between the interest paid and the interest received.

14. The ld. Departmental Representative in rebuttal has contended that while allowing netting, the nexus is required to be proved between the money borrowed and its investment in FDRs. 15. We have considered the rival submissions of the parties and carefully perused the orders of the authorities below and the material placed on record. We have considered an identical issue in the case of Decora Tubes Ltd. (supra) and are of the opinion that the interest earned on FDRs can only be treated as business income and while allowing netting between the interest received and the interest paid on the borrowings, the nexus is required to be proved by the assessee.

Since requisite information is not available on record, we set aside the issue to the Assessing Officer with the direction to examine the nexus between the borrowings and its investment in FDRs before allowing netting between the interest paid and the interest received by the assessee.

16. Ground No. 2 relates to the direction of the CIT(A) to the Assessing Officer to allow deduction under section 80-I on the gross total income i.e., prior to deduction under section 80HH of the Act especially keeping in view the provisions of section 80HH(9) of the Act.

17. Our attention was invited during the course of arguments that the issue is squarely covered by the judgment of the Apex Court in the case of J.P. Tobacco Products (P.) Ltd. v. CIT [1998] 229 ITR 123 in which their Lordships have held that deduction under section 80-I is to be allowed on the gross total income and not the income reduced by the deductions under section 80HH of the Act. Since the findings of the CIT(A) are in consonance with the judgment of the jurisdictional High Court, we find no justification in interfering with the same.

Accordingly, we subscribe the same.

18. In the result, the appeal is partly allowed for statistical purposes.