Case Law Details

Case Name : Tamil Nadu State Transport Corporation (Kum Div I) Limited Vs JCIT (ITAT Chennai)
Appeal Number : I.T.A No. 1718/Mds/2009
Date of Judgement/Order : 13/06/2011
Related Assessment Year : 2001- 02
Courts : All ITAT (4236) ITAT Chennai (212)

Tamil Nadu State Transport Corporation (Kum Div I) Limited Vs JCIT (ITAT Chennai) – With regard to deemed profits and gains u/s 41(1)(a), it was argued that the accumulated interest payable to Government which was converted as share capital during the year was treated as deemed profit u/s 41(1)(a). In fact, it was interest accrued from 1995-96 to 31.10.2000. The ld. CIT(A) has confirmed this addition on the ground that it is a clear case of cessation of liability. But it was fairly conceded by both sides that this issue stands covered in favour of the assessee by the decision of this Bench in the case of Metropolitan Corporation (Chennai) Ltd in I.T.A.No. 2012/Mds/2006, order dated 16.11.2007 for assessment year 2001- 02.

In that case, under identical facts, the Tribunal has deleted the addition made by the Assessing Officer. While doing so, the Tribunal has relied on the G.O.No.18, Transport(Tl)Department, dated 7.3.2001 of Government of Tamil Nadu. Since the G.O is common to all the State Transport Undertakings and covers Kumbakonam Division- I also vide Sl. No. 14 of the said G.O. We have gone through the Tribunal order. The Tribunal has held that the assessee-company has discharged its interest liability and instead of making payment in cash it has issued share capital to the Government as per the G.O. in question. Hence, the provisions of section 41(1)(a) of the Act are not attracted at all. Therefore, the conversion of the payment in the share capital has to be treated as proper discharge of interest payments. This decision is applicable to the facts of this case mutatis mutandis. In view of the above decision, we are of the considered opinion that this issue stands allowed in favour of the assessees in all these appeals.

Whether there is no requirement to obtain permission from committee on disputes for pursuing litigation between PSUs and the Government –– Whether the assessee is entitled to carry forward and set off of brought forward business loss and unabsorbed depreciation u/s 72A in the scheme of an amalgamation though the assessee is not an industrial undertaking. – Assessee’s appeal partly allowed.

IN THE INCOME TAX APPELLATE TRIBUNAL

CHENNAI BENCH ‘B’ : CHENNAI

[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND

SHRI HARI OM MARATHA, JUDICIAL MEMBER]

M.P.No. 31/Mds/2011 &

I.T.A No. 1718/Mds/2009

Assessment year : 2001- 02

Tamil Nadu State Transport Corporation (Kum. Div.I) Limited vs The Jt. CIT

M.P. Nos. 35,36,37,38,39 &

40/Mds/2011 &

I.T.A Nos. 1722,1723,1724,

1725, 1726 & 1727/Mds/09

Assessment years : 2003-04, 2004-05

& 2005-06 & 2006-07

Tamil Nadu State Transport Corporation (Kumbakonam) Limited vs The Jt. CIT

M.P. No. 32/Mds/2011 &

 I.T.A No. 1719/Mds/2009

Assessment year : 2001-02

Tamil Nadu State Transport Corprn. (Kum.) Limited, vs The ACIT

M.P. No. 33/Mds/2011 &

I.T.A No. 1720/Mds/2009

Assessment year : 2001-02

Tamil Nadu State Transport Corprn. (Kum.) Limited vs The ACIT

M.P. No. 34/Mds/2011 &

I.T.A No. 1721/Mds/2009

Assessment year : 2001-02

Tamil Nadu State Transport Corprn.(Kum.) Limited vs The ACIT 

ORDER

PER BENCH

The above captioned miscellaneous petitions have been filed by the assessees for recalling of the common order of the Tribunal dated 15.12.2009, vide which the appeals of the petitioners were dismissed for want of permission of the Committee on Disputes(COD). The assessees were given liberty to get the order recalled once it obtains the requisite COD permission.

2. It has been pleaded that in view of the decision of Hon’ble Supreme Court rendered recently in the case of Electronics Corporation of India Ltd vs Union of India, 2011-TIOL-18-SC-CX-CB, judgment dated 17.2.2011, in Civil Appeal Nos.1883 of 2011 and 1903 of 2008, SLP© No.2538 of 2009, it has been categorically held that for pursuing litigation between PSUs and the Government, there is no longer a need to obtain permission of COD. The reason for arriving at the above conclusion has been stated to be that although the object in getting COD permission is laudatory but the mechanism involved in the process leads to delays in litigation and as such, the mechanism has outlived its utility. A copy of the above mentioned judgement has been placed for our perusal. Although we are aware of this decision, yet we have treaded once again through it. It has been observed by their Lordships that in the changed scenario the existing directions to obtain COD permission has outlived so it is being recalled and hereinafter, there is no need for such permission of COD to pursue litigation between PSUs and Government. Since the judgement of Apex Court becomes the law of the land in view of Article 141 of the Constitution of India, it would be deemed that on the date of judgement passed on 15.12.2009 by this Bench there was no need for permission of the COD to pursue the dispute by the petitioner against the Income-tax Department of Government of India. Therefore, in that view of the matter, we recall the Tribunal order dated 15.12.2009 passed in these cases.

3. At the same time, in order to avoid further delay in the disposal of the appeals, the Bench was of the opinion that the appeals should also be heard simultaneously as most of the issues involved in these cases were stated to be covered in favour of the assessee and no further facts are required to be brought on record. None of the parties raised any objection in this regard.
4. The Government of Tamil Nadu, as a measure of restructuring the various Transport Corporations in Tamil Nadu, decided, interalia, that the existing three State Transport Corporations namely (a) the Tamil Nadu State Transport Corporation, Kumbakonam Division-II Ltd., having its registered office at Peria Milaguparai, Tiruchirappalli-1, (b) The Tamil Nadu State Transport Corporation (Kumbakonam Division-III) Ltd., having its registered office at Maruthupathi, Managiri Road, Karaikudi-630 302 and (c) the Tamil Nadu State Transport Corporation (Kumbakonam, Division-IV) Ltd, having its registered office at 51/1, Thirumayam Road, Pudukortai-622 001 be amalgamated into one Transport Corporation namely (Tamil Nadu State Transport Corporation(Kumbakonam) Div-I Ltd., for the purpose of effective and efficient use of the depots, equipment, personnel, material and other infrastructure facilities for ensuring co-ordination in policy and for the efficient functioning of road transport services in Tamil Nadu. The Government of Tamil Nadu directed these three Transport Corporations to initiate appropriate steps for merger of these 3 companies into one Transport Corporation i.e. TNSTC Kumbakonam Div-1 Ltd. In pursuance of the above mentioned State Government order and after complying with all the statutory requirements under the Companies Act, 1956, the above referred erstwhile three Tamil Nadu State Transport Corporations, applied to the Department of Company affairs, Ministry of Law and Company Affairs for amalgamation of these companies into the fourth company in the name of Tamil Nadu State Transport Corporation Kumbakonam Division-I Ltd., (a Government Company incorporated under the companies Act,1956,) having its registered office at Railway Station, New Road, Kumbakonam – 612 001. The above said application for approval of the scheme of amalgamation was submitted to the Department of Company Affairs on 17.0 1.2002.

5. After considering the suggestions and objections the Central Government in exercise of the powers conferred by Sub-section (1) & (2) of the sec. 396 of the Companies Act, 1956 passed an order S.O. 1477(E) dated 30.12.2003, approving the amalgamation of the said three companies namely TNSTC Div-TI, Div-ITT and Div-TV into TNSTC Kumbakonam Div-T.

6. For assessment year 2000-01, all the above four Divisions are in appeal. As almost common issues are involved in these appeals. We narrate the facts as obtaining in the case of TNSTC(Kumbakonam Division TTT) Ltd. [Karaikudi]. For the assessment year 2001-02, assessment order was passed on 24.12.2008. The Assessing Officer has added the following amounts:

a) Deemed profits and gains u/s 41(1)(a)

b) Additions towards pension and provident fun

c) Addition towards insurance fund

d) Gratuity.

7. Against these additions, the assessee preferred appeal and the ld. CTT(A), Trichy, vide order dated 20. 10.2009, disposed of the appeal by confirming all the additions except the amount towards insurance fund which he directed to be allowed after verification on actual payment basis. Being aggrieved, the assessee is in appeal before us.

8. With regard to deemed profits and gains u/s 41(1)(a), it was argued that the accumulated interest payable to Government which was converted as share capital during the year was treated as deemed profit u/s 41(1)(a). In fact, it was interest accrued from 1995-96 to 31.10.2000. The ld. CIT(A) has confirmed this addition on the ground that it is a clear case of cessation of liability. But it was fairly conceded by both sides that this issue stands covered in favour of the assessee by the decision of this Bench in the case of Metropolitan Corporation (Chennai) Ltd in I.T.A.No. 2012/Mds/2006, order dated 16.11.2007 for assessment year 2001-02. In that case, under identical facts, the Tribunal has deleted the addition made by the Assessing Officer. While doing so, the Tribunal has relied on the G.O.No.18, Transport(Tl)Department, dated 7.3.2001 of Government of Tamil Nadu. Since the G.O is common to all the State Transport Undertakings and covers Kumbakonam Division —I also vide Sl. No. 14 of the said G.O.

9. We have gone through the Tribunal order. The Tribunal has held that the assessee-company has discharged its interest liability and instead of making payment in cash it has issued share capital to the Government as per the G.O. in question. Hence, the provisions of section 41(1)(a) of the Act are not attracted at all. Therefore, the conversion of the payment in the share capital has to be treated as proper discharge of interest payments. This decision is applicable to the facts of this case mutatis mutandis. In view of the above decision, we are of the considered opinion that this issue stands allowed in favour of the assessees in all these appeals.

10. The second issue which is common in all these appeals is regarding addition made on account of contribution to pension fund. As per the Department, such contribution is neither approved under the Act nor the same is a recognised fund. The case of the assessee is that this contribution is made in pursuance of a settlement reached with the employees and the management u/s 12(3) of the Industrial Disputes Act. This being one time contribution at 1,000/- per employee. It was brought to our notice that the same officer has been allowing such contribution in favour of the assessee. This fact was not controverted successfully by the Department rather it was allowed by the same officer. Therefore, we order to delete the addition made on this account in all the cases.
11. The next issue is regarding contribution to insurance fund. This amount refers to the amount actually paid to victims in case of accident, either death or disability/ injury, either by way of ‘no fault liability’ or ‘third party liability’. But in the Profit & Loss Account, the nomenclature stated is ‘Contribution to Insurance Fund in accordance with the Government Order’.

12. Both the parties heard and it was found that when an accident occurs during a financial year, as per the provisions of the Motor Vehicles Act, No fault liability for each fatal and for each injury become payable by the owner of the vehicle. The owner of the vehicle in this case being the assessee, on whom such a duty is cast by the Motor Vehicles Act. In such cases, the Act says that even if there is no fault of the owner or in other words, whether the fault is on the part of the owner/victim and whether the vehicle is own by the public/private transport, such minimum amounts being 50,000/- in the case of death and 25,000/- in case of injury have to be paid. The assessee has booked these amounts based on the number of accidents occurred during the relevant financial year(s). The Corporation is exempted from insuring the vehicles against the third party liability with the Insurance Companies as per the G.O. But in case higher claim is made by the victim for payment as per the court order, the same is booked under the head ‘Accident Compensation’ against third party claims. In that case, no fault liability amount shall also be included in that based on the judicial pronouncements of the appropriate judicial authorities and as accepted by the assessee. This issue is also covered in favour of the assessee by the decision of the Tribunal rendered in the case of Cholan Roadways Corporation Ltd for assessment years 1994-95 and 1995-96 in I.T.A.No. 158 and 159/Mds/1999 dated 14.2.2005. Subsequently, the Assessing Officer has been allowing this claim in favour of the assessee. From different angles it was found that in fact this payment is not made to an employee by an employer and therefore, the provisions of section 40A(9) of the Act are not attracted. Hence, we find that this provision would not apply in such cases. It does not mean that the assessee is not entitled to such a claim. On the other hand, the issue stands covered by the aforementioned Tribunal order in favour of the assessee. Accordingly, we decide this issue in favour of the assessee(s) as per our above observation.

13. The last issue relates to gratuity which is a liability to a recognized gratuity fund. Since the assessee did not pay the contribution, it has disallowed this amount in the memo of adjustment but the Assessing Officer has again disallowed the same. In this way, he has taxed the same amount twice.
14. After considering the rival submissions and understanding the issue in detail, we find that the assessee itself has disallowed this amount in the memo of adjustment and hence, there is no question of disallowance of the same amount again. Hence, we decide this issue in favour of the assessee.

15. In all these appeals, almost common issues are involved. We choose to decide the issue in favour of the assessee(s) in view of our above observations. The amounts added under different heads definitely be different in these cases, but we do not feel necessary to mention the exact amounts. These are verily given in the assessment order(s) of each case. Consequently, we allow all these grounds taken in all the appeals in favour of the assessee.

16. In assessment year 2001-02, in the case of TNSTC, Kumbakonam Division IV) [Pudukottai], initn 1721/Mds/2009, apart from the grounds decided above, there are other additions like addition towards interest of 8,26,885/-; and advance received assessed as income of 9,20,565/-. In so far as addition on account of interest is concerned, this amount represents outstanding liability payable to Tamil Nadu Transport development Finance Corporation Limited for the month of March, 2001 which is paid in Apri1 2001. Since the due date is in April and the liability relates to March 2001, as per the mercantile system of accounting, the assessee has claimed this sum as deduction.
17. After hearing both sides, we find that the Assessing Officer has himself mentioned in the assessment order that “the assessee has credited a sum of Rs.  8,26,885/- to the account of interest accrued but not due. Since the assessee is following mercantile basis, this accrued interest is added to the total income’. This amount has been paid to the concerned authorities within the due date of filing the return of income and the same has been assessed to tax in the subsequent year. Therefore, this amount cannot be considered for addition in this year. The same is allowed in this year. In our opinion, the Assessing Officer has erred to judge the expenditure and the same stands deleted.
18. Regarding the advance of 9,20,565/- received from sale of bus passes etc. made on the last couple of days in the year ending 31.3.2001 for which the travel date will commence after 31.3.2001. Even if mercantile system is followed, this amount cannot be assessed in the year under consideration. The assessee has offered this amount in the next assessment year and hence, this amount cannot be added in the hands of the assessee in this year and the same stands deleted.
19. In the result, all the appeals for assessment year 2001-02, being I.T.A. Nos. 17 18/Mds/2009, 17 19/Mds/2009, 1720/Mds/2009 and 1721/Mds/2009 stand allowed.
20. For assessment years 2003-04, 2004-05, 2005-06 & 2006-07, the  assessee M/s Tamilnadu State Transport Corporation (Kumbakonam) Limited, is in appeal.

I.T.A.No. 1722/Mds/2009 – A.Y 2003-04

21. For assessment year 2003-04, the assessee has filed return ofincome on 27.3.2006 declaring a total income of 26,85,29,558/-.This total income was comprised of four divisions viz. TNSTC, Div‑I(Ku mbakonam), Div-II(Trichy), Div- III (Karaikudi) and Div- ­IV (Pudukottai). It was observed that the above mentioned four divisions got merged by an amalgamation recognised by Ministry of Finance, Government of India, as stated in the earlier part of this order. The original return in the name of TNSTC(Kum.Div-I) Ltd., wasfiled on 20.11.2003 as effect for amalgamation was not given in the original return, the assessee has filed revised return of income on 27.3.2006 declaring net income of 26,85,29,558/- comprising of the four units.  However, the assessee-company has set off of un absorbed business loss and unabsorbed depreciation brought forward from earlier years against income declared 26,85,29,558/- thereby net income was shown at NIL. Besides this, the assessee had also claimed carry forward for set off against future year profits business loss and  unabsorbed depreciation amounting to ~40,72,49,036/- and 1,44,59,30,027/- respectively. Since the assessee has filed return of income belatedly on 27.3.2006, the return was lodged. Moreover, the assessee had made a claim of adjustment of earlier year business loss and un absorbed depreciation losses u/s 72A of the Act on account of amalgamation. The Assessing Officer observed that since the assessee is not an industrial company, no adjustment of earlier years losses can be adjusted as per section 72A. On account of these reasons, the Assessing Officer was of the view that there was escapement of income. He, therefore, issued notice u/s 148 on 28.12.2007 calling for assessee’s revised return in response to which the assessee, vide letter dated 23.1.2008 stated that the return of income filed on 27.3.2006 be treated as return filed in response to notice u/s 148. After considering the submissions of the assessee, the Assessing Officer has completed the assessment on protective basis since the substantive assessment was done in the case of M/s TNSTC (Kumbakonam Div.I) Ltd for assessment year 2003-04 by denying brought forward business losses/ unabsorbed depreciation.

22. On appeal, the ld. CIT(A) has confirmed the action of reopening of assessment by the Assessing Officer. The ld. CIT(A) has observed that the assessee is only a transport operator for carrying passengers and therefore, it is not entitled for such carry forward of accumulated losses and un absorbed depreciation which is eligible for industrial undertakings only u/s 72A of the Act. Aggrieved, the assessee is in appeal before us.
23. The legal issue in regard to reopening of assessment was not seriously contested hence, the ground raised in this respect is rejected.
24. The next issue relates to business loss/un absorbed depreciation. While completing the assessment, the Assessing Officer has not considered set off of brought forward business loss and un absorbed depreciation on the ground that the assessee is not an industrial undertaking. The ld. CIT(A) has confirmed the action of the Assessing Officer.
25. After considering the rival submissions, we find it for a fact that the assessee is running vehicles on hire, but it is entitled to carry forward and set off of brought forward business loss and un absorbed depreciation in view of the very purpose of the various units and in view of the purpose of section 72A, where the concept of the ‘business’ has to be understood in broader sense.
26. In the result, the appeal is partly allowed.
I.T.A. No.  1723/Mds/2009 A.Y 2004-05
27. The first issue is regarding prior period expenses amounting to ~ 21,74,857/-. The facts apropos this issue are that the Assessing Officer, while completing the assessment has disallowed this amount as they are not crystallised during the year under consideration. The ld. AR submitted that the entire expenses were crystallised during the year only.
28. After hearing both sides, we are of the considered opinion that the issue needs to be clearly spelt out by the assessing authorities. Consequently, we restore this issue to the file of the Assessing Officer for verifying the claim of the assessee and decide the issue as per law.
29. The other issue raised in this appeal is regarding addition of ~ 17,23,90,009/- towards pension contribution is decided in favour of the assessee in view of our finding in assessment year 2001- 02.
30. The last issue raised in this appeal relates to dis allowance of expenses relating to share capital increase amounting to 37,50,000/-. The facts apropos this issue are that the Assessing Officer has disallowed this expenditure of the assessee treating it to be capital in nature and in view of the Honourable Supreme Court’s decision in the case of Brooke Bond India, the same amount needs to be capitalised. The assessee submitted before the Assessing Officer that only due to amalgamation, the authorised capital of the company was increased for which fees were paid. The ld. CIT(A) has confirmed this dis allowance.
31. After considering the rival submissions, we find that the authorised capital of the company was increased due to amalgamation of the four Divisions. Therefore, we direct to delete the dis allowance made by the Assessing Officer.
32. In the result, the appeal for assessment year 2004-05 is partly allowed and partly allowed for statistical purposes.

I.T.A. No. 1724/Mds/2009 – A.Y 2004-05

33. The first issue regarding reopening of assessment was not seriously contested, hence, the same stands dismissed.

33. The next issue relates to prior period expenses. In view of our finding in assessment year 2003-04, the issue is restored to the file of the Assessing Officer for verification as directed in assessment year 2003-04.

35. The next issues relate to Gratuity amount of 4,65,16,458/- paid to an approved Gratuity Fund and 15,13,52,550/- to Insurance Fund. These issues stand covered in favour of the assessee in view of our order for assessment year 2001- 02.

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

I.T.A. No. 1725/Mds/2009 A.Y 2005-06

37. The legal issue regarding reopening of assessment was not seriously pressed at the time of hearing, hence, the same is rejected.
38. As regards the claim of un absorbed depreciation, the same is allowed in view of our above order in I.T.A.No. 1722/Mds/2009.
39. The assessee has raised grounds in relation to dis allowance of Gratuity amounting to 5,69,51,044/, Insurance Fund amounting to ~ 14,65,27,889/-. These issues stand covered in favour of the assessee in view of our order for assessment year 2001- 02.
40. In the result, the appeal is partly allowed.

I.T.A. No. 1726/Mds/2009 – A.Y 2005-06

41. The first issue relates to prior period expenses amounting to ~ 23,93,899/-. The Assessing Officer, while completing the assessment, has disallowed 23,93,899/- under this head. The assessee has submitted that the entire expenses were crystallized during the year only.
42. After hearing the rival submissions, we restore this issue to the file of the Assessing Officer for verification as directed above in our order for assessment year 2003-04.
43. The next issue relates to addition of 17,16,72,947/- towards pension contribution. In view of our order for assessment year 2001- 01, we delete this addition.
44. In the result, the appeal is partly allowed and partly allowed for statistical purposes.

I.T.A. No. 1727/Mds/2009 – A.Y 2006-07

45. The first issue regarding unabsorbed depreciation is allowed in view of our order in I.T.A.No. 1722/Mds/2009.
46. The next issues regarding Gratuity payment of 96,87,795/-, and Insurance Fund of 13,49,51,019/- are allowed in view of our order for assessment year 2001-02.
47. The last issue is against addition of 57,000/- made towards Employees Retirement Benefit Scheme. The contribution was made in pursuance of a settlement reached with the Employees and the Management u/s 12(3) of the Industrial Disputes Act. The assessee submitted that during assessment year 2001-02, similar claim in the case of Trichy Division was allowed by the same Assessing Officer.
48. After considering the rival submissions, in view of our finding in assessment year 2001-02, this addition is deleted.

49. In the result, the appeal is allowed.

50. To summarise the result‑

I.T.A. Nos. 1718/Mds/2009, 17 19/Mds/2009, 1720/Mds/2009, 1721/Mds/2009 and 1727/Mds/2009 are allowed.

I.T.A. Nos. 1723/Mds/2009, 1724/Mds/2009 and 1726/Mds/2009 are partly allowed and partly allowed for statistical purposes.

I.T.A. Nos. 1722/Mds/2009 & 1725/Mds2009 are partly allowed.

Order pronounced in the open court on 13.06.2011.

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