Batliboi Limited Vs DCIT (ITAT Mumbai)
Issue regarding non-taxability of Rs.4,27,43,000/- by treating the same as capital receipt for the purpose of Section 115JB of the Act though not claimed before the lower authorities by the assessee, is being claimed for the first time before this Tribunal. We find that this is purely a legal issue and does not involve verification of any facts and hence, the same can be claimed for the first time before this Tribunal. Reliance in this regard is placed on the decision of Hon’ble Supreme Court in the case of NTPC Ltd., reported in 229 ITR 383 and CIT vs. Sinhgad Technical Education Society reported in 397 ITR 344 and the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt Ltd., reported in 349 ITR 336 (Bom). We also find that the Hon’ble Calcutta High Court in the case of PCIT vs. Ankit Metal and Power Ltd., reported in 109 Taxmann.com 93 dated 09/07/2019 had specifically held that where the receipt is not in nature of income, it cannot be included in book profits u/s.115JB of the Act. The relevant portion of the said judgment is reproduced hereinabove.
“26. Now the second issue which requires adjudication is as to whether the aforesaid incentive subsidies received by the assessee from the Government of West Bengal under the schemes in question are to be included for the purpose of computation of book profit under Section 115 JB of the Income Tax Act, 1961 as contended by the revenue by relying on the decision in the case of Appollo Tyres Ltd. (supra).
27. In this case since we have already held that in relevant assessment year 201011 the incentives ‘Interest subsidy’ and ‘Power subsidy’ is a ‘capital receipt’ and does not fall within the definition of ‘Income’ under Section 2(24) of Income Tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit under Section 115JB of the Act, 1961. In the case of Appollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961.”
Respectfully following the Co-ordinate Bench decision of JSW Ltd., and the decision of the Hon‟ble Calcutta High Court in the case of Ankit Metal and Power Ltd., referred to supra, we hold that the sum of Rs. 4,27,43,000/- to be a capital receipt and not liable to tax while computing books profits u/s.115JB of the Act. Accordingly, the ground Nos. 2 & 3 raised by the assessee are allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal in ITA No.5428/Mum/2015 for A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-4, Mumbai in appeal No.CIT(A)-4/IT-202/DCIT.2(1)/2013-14 dated 21/09/2015 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 31/01/2014 by the ld. Dy. Commissioner of Income Tax, Circle-2(1), Mumbai (hereinafter referred to as ld. AO).
2. Though the assessee had raised several grounds, the only effective issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the taxability of Rs 4.27 crores received by the assessee from the welfare trusts under normal provisions of the Act as well as while computing the book profits u/s 115JB of the Act, in the facts and circumstances of the case.
3. We have heard the rival submissions and perused the materials available on record. The undisputed facts are that the assessee is a public limited company engaged in the business of manufacturing of machine tools, textile machines, Air conditioning & Refrigeration work , Casting & Job work for Air Conditioning & Humidification , Air Control Equipment and Trading in Engineering goods. The return of income for the Asst Year 2011-12 was filed by the assessee company on 28.9.2011 declaring Nil income under normal provisions of the Act and book profit of Rs 5,30,89,000/- u/s 115JB of the Act. In the year ended 30th September 1980, the assessee company established 33 irrevocable trusts to provide medical benefits, scholarships and educational assistance and for the general welfare of its employees and made an aggregate contribution of Rs 12,50,000/- in the year ended 30th September 1981 (relevant to Asst Year 1982-83) and an aggregate contribution of Rs 10,00,000/- in the year ended 30th September 1983 (relevant to Asst Year 1984-85) to the said welfare trusts. While filing its return of income for the Asst Years 1982-83 and 1984-85, the assessee company claimed the said contributions of Rs 12,50,000/- and Rs 10,00,000/- respectively as deductions.
3.1 The contributions received by the welfare trusts were partially invested in equity shares of listed / unlisted companies on which the trusts received dividends which were duly offered to tax in the respective years by the trusts and also claimed credit for Tax deducted at source thereon. Similarly part of the contributions received by the welfare trusts were advanced by way of loans to parties on which interest was received, which was also duly offered to tax in the respective years by the trusts and also claimed credit for Tax deducted at source thereon. The welfare trusts have been duly assessed to income tax by the income tax authorities on the income returned by them.
3.2. The Finance Act, 1984, with retrospective effect from 1st April 1980, inserted sub section (9), (10) and (11) to section 40A of the Act. Sub section (9) of section 40A of the Act provided for disallowance of amounts contributed to welfare trusts, other than recognized provident funds, approved superannuation funds and approved gratuity funds. Consequently, in the assessments of the assessee company for Asst Years 1982-83 and 1984-85 , the ld AO disallowed the contributions of Rs 12,50,000/- and Rs 10,00,000/- respectively made to the welfare trusts by the assessee company.
3.3. Sub section (11) of section 40A of the Act inserted by Finance Act 1984 provided as follows:-
“(11) Where the assessee has, before the 1st day of March, 1984, paid any sum to any fund, trust, company, association of persons, body of individuals, society or other institution referred to in sub-section (9), then, notwithstanding anything contained in any other law or in any instrument, he shall be entitled—to claim that so much of the amount paid by him as has not been laid out or expended by such fund, trust, company, association of persons, body of individuals, society or other institution (such amount being hereinafter referred to as the unutilised amount) be repaid to him, and where any claim is so made, the unutilised amount shall be repaid, as soon as may be, to him;
(i) to claim that any asset, being land, building, machinery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individuals, society or other institution out of the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him.”
3.4. The Board of Directors of the assessee company, in terms of the above sub section, passed a resolution at their meeting held on 30.10.2010 falling in Asst Year 2011-12, for claiming back the unutilized amounts lying with the welfare trusts, consequent to which the Trusts withdrew the amounts given as loans to parties and sold the shares held by them and repaid the unutilized amounts of Rs 4,27,43,000/- to the assessee company.
3.5. The assessee company had irrevocably contributed the amounts to the trusts. As stated earlier, the earnings by way of dividends and interest from the amounts contributed by the assessee company had been duly offered to tax by the welfare trusts in the respective years while filing their returns of income and assessed as such. There is absolutely no dispute on this aspect.
3.6. Having given the contributions irrevocably to the Trusts, the assessee company never contemplated at the time when these amounts were given, that they would ever come back to the company. It was only by virtue of insertion of sub section (11) of section 40A of the Act, which overrides any instrument, that the assessee company was able to claim back the unutilized amount lying with the trusts. Besides, the earnings by way of dividend and interest on the amounts contributed have already been offered to tax by the trusts and hence cannot once again be taxed in the hands of the assessee company when received back by the assessee company. Accordingly, the assessee company sought reduction of the same from the taxable income while filing its return of income for the year under consideration. The claim of receiving back the money was made in the Asst Year 2011-12 and unutilized portion lying with the trust also was received back by the assessee company during the Asst Year 2011-12.
3.7. Upto this stage, the facts are undisputed and indisputable.
3.8. We find that the assessee company had resorted not to offer the amounts claimed back from the welfare trusts on the following grounds:-
a) The welfare trusts had already offered to tax the accretions on over and above the contributions received by it from Asst Years 1982-83 onwards in their returns of income for the respective years.
b) The contributions made by the assessee company to the irrevocable welfare trusts in Asst Years 1982-83 and 1984-85 were duly disallowed by the ld AO pursuant to the retrospective amendment brought in section 40A(9) of the Act. Hence the capital contributions made by the assessee company in the welfare trusts got duly disallowed.
c) The amounts claimed back from the welfare trusts by the assessee company was never contemplated at all to receive back, being irrevocable in nature, and hence the same would partake the character of a windfall receipt or a capital receipt and not liable to income tax.
d) Since the capital contributions made per se were disallowed in the hands of the assessee company and the amounts received back from welfare trusts would also partake the character of capital receipt not liable for capital gains u/s 45 of the Act and therefore would be outside the ambit of definition of „income‟ u/s 2(24) of the Act. Hence the entire accretion to the capital contributed would only be a windfall receipt in the capital field in the hands of the assessee company and moreover, the welfare trusts had already paid taxes on the accretion portion in the form of dividends, interest and capital gains in the respective years.
e) The said exemption from income tax was also claimed while computing book profits u/s 115JB of the Act during the course of assessment proceedings eventhough the same was offered to tax voluntarily by the assessee in the computation of book profits u/s 115JB of the Act while filing its return of income.
3.9. We find that the assessee company had placed reliance on the following decisions in support of its propositions that the amounts received back from welfare trusts was never in contemplation of the assessee and hence would be a windfall receipt :-
a) Decision of Privy Council in the case of The Commissioner of Income Tax, Bengal vs Shaw Wallace and Company reported in 2 Company Cases 276 vide order dated 14.3.1932
b) Decision of Hon‟ble Jurisdictional High Court in the case of Cadell Weaving Mill Co. Ltd vs CIT reported in 249 ITR 266 (Bom) which was subsequently affirmed by the Hon‟ble Supreme Court in the case of CIT vs D.P.Sandu Bros (Chembur) Pvt Ltd reported in 273 ITR 1 (SC)
c) Decision of Hon‟ble Jurisdictional High Court in the case of Mehboob Productions Pvt Ltd vs CIT reported in 106 ITR 758 (Bom)
d) Decision of Hon‟ble Supreme Court in the case of Universal Radiators vs CIT reported in 201 ITR 800 (SC)
3.10. We find that the ld AO did not appreciate the contentions of the assessee and observed that the receipt of Rs 4.27 crores cannot be regarded as „windfall‟ within the meaning of the word arrived at by the Hon‟ble Bombay High Court in the case of Mehboob Productions Pvt Ltd vs CIT supra because of the following reasons :-
a) It is not an unexpected receipt out of the ordinary contemplation of the party obtaining or receiving it. The provision of section 40A(11) of the Act was inserted by the Finance Act 1984, w.r.e.f. 1.4.1980 , whereas the contributions were all made by 1983. For all the years between 1984 to 2010, the assessee company had the option to recall the unutilized amount lying in the Trusts. It has consciously decided to recall it through a Board Resolution on 30.10.2010. The assessee company knows the unutilized amount lying in the Trusts and it has the right to exercise its option of recalling whenever it wants. Therefore this receipt of Rs 4.27 crores is out of the ordinary contemplation of the assessee. However in the case of Mehboob Productions supra, the company has no guarantee of the award given by the Government and hence it was out of its ordinary contemplation.
b) It is receipt directly attributable to or occurring by way of its business profits. The initial contributions to the trusts were made out of the business profits of the assessee. It was also intended to be used for the welfare of its employees who are contributing to its business profits.
3.11 We find that the ld. AO placed reliance on the decision of Hon‟ble Supreme Court in the case of Emil Webber vs CIT reported in 67 Taxman 532 (SC) to state that the definition of „income’ u/s 2(24) of the Act is an inclusive definition which adds several artificial categories to the concept of income. The ld. AO also placed reliance on the decision of Hon’ble Apex Court in the case of CIT vs G R Karthikeyan reported in 68 Taxman 145 (SC) to drive home the point that even if a receipt does not fall within the ambit of any of the sub-clauses of section 2(24) of the Act, it may still be income if it partakes the nature of income. Based on these observations, the ld AO brought to tax a sum of Rs 4.27 crores as income both under normal provisions of the Act as well as while computing book profits u/s 115JB of the Act.
3.12. We find that the ld. AO had also stated in his order that if the contention of the assessee is to be accepted, then every assessee would create a welfare trust and make an initial contribution to the said trust for investing it prudently and reclaim the unutilized amount in terms of 40A(11) of the Act and claim that the same is not exigible to tax on the accretions which has never suffered tax in anybody’s hands.
3.13 We find that the substance of the essence of the argument of the ld. AO is that every receipt would fall within the ambit of Section 2(24) unless it is specifically exempted under the provisions of the Act.
3.14. We find at the outset that the welfare trusts had duly paid its taxes on the accretions by way of dividends from investment in shares and interest on loans advanced in its income tax returns and the same were duly assessed as such in the hands of the said welfare trusts. This point is absolutely not in dispute before us. Hence the alternative contention of the ld. AO that this accretion has never suffered any tax in anybody’s hands is factually incorrect and does not hold water in the peculiar facts and circumstances of the instant case.
3.15. We find that the ld. AO had addressed the entire issue in dispute before us about the taxability of the amounts received back from welfare trust on the premise that it was not an unexpected receipt and the assessee was always in contemplation of receiving it from the welfare trusts, pursuant to provisions of Section 40A(11) of the Act. In this regard, we find that the mute point which the lower authorities had failed to address is that the contribution made by the assessee company to the welfare trust is fully irrevocable. This fact is already stated in the primary facts hereinabove which is not disputed at all by the lower authorities in any of the orders. Once, the contribution to welfare trusts which are created by the assessee company is irrevocable and the assessee gains the eligibility to get back its contributions from the said welfare trusts, being the unutilized amount, pursuant to an amendment brought in Section 40A(11) of the Act, which is by operation of law, the Act of the assessee cannot be faulted with. No doubt, there was a considerable delay on the part of the assessee in not claiming the said unutilized amounts from welfare trusts from the years 1984-2010. This delay however, in our considered opinion, does not change the character of the receipt per se. To put it differently, if this contention of the ld. AO is to be accepted then can it be said that had the assessee company claimed the said monies from the welfare trust in the year 1984, would it be treated as a capital receipt, and the same would take the character of a revenue receipt merely because it was claimed belatedly by the assessee company. Hence, the answer is an emphatic no and the period of delay alone would not determine the character of the receipt. What is to be seen, in our considered opinion, in the peculiar facts and circumstances of the instant case, is that the contribution having made in an irrevocable way to the trust fund by the assessee company was never in contemplation by the assessee company to get back the same. In the instant case but for the provision of Section 40A(11) of the Act, the assessee company would not be eligible at all to claim unutilized portion back from the welfare trust. Hence, it is the specific provision in the statute which had enabled the assessee to gain eligibility to claim the unutilized portions from the welfare trusts despite being the irrevocable contribution. Hence, it could be safely concluded that the said receipt was never in contemplation of the assessee company to get back the receipts from the welfare trusts. Once, the receipt falls under this category of never contemplated receipt in its ordinary course, the said receipt would not partake the character of the revenue receipt and would only had to be categorized as a windfall receipt. It is a trite law that every receipt is not income unless specified in the Act. No doubt the definition of income u/s.2(24) of the Act is an inclusive definition. It never says that every receipt would fall within the ambit of income u/s.2(24). First the nature of receipt should be “income” in the hands of the assessee or the revenue receipt in the hands of the assessee. The expression „inclusive‟ definition need to be understood in this perspective. The same definition does contemplate taxation of a capital receipt representing capital gain which is chargeable to tax specifically u/s.45 of the Act. The said definition does not contemplate taxation of all capital receipts other than capital gains u/s.2(24) of the Act. In our considered opinion, this should be the correct understanding of inclusive definition of income u/s.2(24) of the Act.
3.16. We find that the Hon‟ble Jurisdictional High court in the case of Maharashtra in the case of Mehboob Productions Pvt. Ltd., vs. CIT reported in 106 ITR 758 (Bom) had an occasion to consider the meaning of “non-recurring receipt” and it held that all receipts by the assessee would not necessarily be deemed to be income of the assessee and the question as to whether any particular receipt is income or not will have to be determined depending upon the nature of the receipts and the true scope and effect of the relevant taxing provision.
3.17. It also held that income is a monetary return expected by the assessee for the labour and/or skill bestowed, and/or capital invested by him; coming in from a definite source, which need not be a legal source, in the sense that the failure to pay the same need not be enforceable in a court of law; and excluding a receipt ‘in the nature of’ a mere windfall which, would mean a windfall in regard to its very nature and not in regard to its extent or quantum. When talking of a windfall receipt in connection with the consideration of a question whether such receipt would be income or not, we will have to restrict the concept of such windfall to a case where the unexpectedness of the advantage pertains to the factum of receipt and not to the quantum of receipt. What we are considering as “windfall” is some unexpected receipt not in the contemplation of the assessee and not directly attributable to or occurring by way of its business profits. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage or receipt is much more than could have been reasonably contemplated.
3.18. We find that the Hon’ble Jurisdictional High Court while rendering the aforesaid decision, had placed reliance on the decision of privy Council in the case of CIT vs. Shaw Wallace & Co. (1932) 2 Company Cases 276. The relevant operative portion of the judgement of Hon’ble Jurisdictional High Court are as under:-
32. In Commissioner of Income-tax v. Shaw Wallace & Co. it was observed that in order to be income, the receipts must be something which came in (1) periodically, (2) as a return, (3) with some sort of regularity or expected regularity, and (4) from a definite source. The Supreme Court in the case of Raghuvanshi Mills has indicated decisively that in order to constitute income, the receipt need not be one coming in with some sort of regularity or expected regularity and even a single payment received by the assessee may, in the circumstances of the case, constitute its income. In some cases it had been contended on behalf of the assessee that in order to constitute income, the receipt must not be gratuitous or ex gratia in character but must arise from some legal obligation on the part of the donor or a corresponding legal right to receive on the part of the donee. In Maharani of Morvi’s case , which decision being that of a Division Bench of this court is binding on us, it was been held that even a voluntary payment made entirely without consideration can be considered to fall within the category of “income” provided it is traceable to a real source and is not something dependent entirely on the whim of the donor. It was expressly held by the Division Bench that it is not necessary that in order that a payment may constitute income, it must proceed from a legal source, and it is not necessary that if payments are not made, the enforcement can be secured by the payee in a court of law. However, as indicated by Braund J. in Rani Amrit Kunwar’s case , a receipt must be one having the character of income according to the ordinary meaning of that word in the English language and not one which is in the nature of a windfall. The expression “windfall” had also been earlier used by Sir George Lowndes J. in shaw Wallace & Co.’s case . The result of all this discussion is that in order to constitute “income”, the receipt must be one which comes in, (a) as a return, and (2) from a definite source. It must also be of the nature which is of the character of income according to the ordinary meaning of that word in the English language and must not be one of the nature of a windfall.
33. At this juncture a few words are necessary in order to appreciate the true nature of what, according to me, would be a “windfall”, having relevance to the question being considered by us. In the Oxford English Dictionary, volume II, the word “windfall” has been given the meaning of a casual or unexpected acquisition or advantage. Now, it has to be made clear that when we are talking of a windfall receipt in connection with the consideration of a question whether such receipt would be income or not, we will have to restrict the concept of such windfall to a case where the unexpectedness of the advantage pertains to the factum of receipt and not to the quantum of receipt. By reason of the exigencies of the economic situation or political or international situation a trader or a businessman or an industry may make unduly large profits which are often loosely expressed as windfall profits. But this is not the nature of the windfall we are contemplating. Where the element of windfall or unexpectedness pertains only to the quantum of receipt, such element will not have any bearing on the question we are considering and such receipt will be profit or income of the assessee although unusually large. What we are considering as “windfall” is some unexpected receipt not in the contemplation of the assessee and not directly attributable to or occurring by way of its business profits. To put it in other words, if the assessee had produced the picture, Mother India, or if it can be said that it was producing motion pictures with the idea that they would be exempted from entertainment duty by the Government of Bombay and the amount attributable to the collections of entertainment duty would be paid over to the assessee, then such receipt, perhaps, may not be said to be a windfall received by the assessee. Similarly, if the assessee had produced a motion picture with a particular situation which becomes extremely successful commercially by reason of some extraneous fact, the extra profits received by the assessee or by the exhibitors may be called windfall profits loosely or in ordinary parlance, but would not be a “windfall” for our purposes. Where the obtaining of a particular advantage or receipt could not be said to be within the ordinary contemplation of the party obtaining or receiving it, then only would it be proper to characterise the advantage or receipt as a windfall. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage or receipt is much more than could have been reasonably contemplated.
34. That the advantage received must be attributable to some conscious process on the part of the assessee also appears to be implicit in the aspect of a “return”. Now, it must be made clear that when we talk of return in the context of this aspect of the question, we are not considering the return on any outlay or investment made by the assessee in the sense of capital employed. This may be one of the ways of securing a return, but not the only way. But, return will involve conscious outlay of resources or of the effort or of talent. It is the consciousness of the effort made which invests the receipt with the character of a return and removes it from the category of a windfall.
35. Mr. Joshi, on behalf of the revenue, urged that the receipts in the present case are receipts arising from business and even if in the nature of a windfall they would still be income and liable to tax unless the assessee can satisfactorily show that the income fell within the exemption. Alternatively it was submitted that even assuming that the receipts cannot be said to directly arise from the business of the assessee, the receipts in the present case are attributable to a definite source, viz., the Government notification, dated 25th October, 1957, and the various orders passed there-under. Accordingly, it was submitted that the receipts cannot be regarded as non-recurring or in the nature of a windfall and would have to be properly regarded as income of the assessee. The submission proceeded upon the footing that windfall receipts attributable to the business activity of the assessee are taxable as income. As indicated earlier, in my opinion, windfall receipts would have to be understood as falling into two broad categories; and receipts which are of the nature of a windfall as to the factum as explained by me earlier can normally be not regarded as income of the assessee. It becomes, therefore, necessary now to refer to a few decisions cited on behalf of the revenue in connection with this aspect of the matter.
36. One of these cases on which great reliance was placed by Mr. Joshi was Janab Syed Jalal Sahib v. Commissioner of Income-tax . In the said decision the assessee before the Madras High Court carried on the business of manufacturing and selling bidis but attended horse-races regularly every year and indulged in betting and also entering in the races, horses, some of which were his own and some of which he owned in partnership with others. He maintained a separate set of accounts for these racing activities. The excess of the receipts over expenditure in these activities amounted to a substantial amount. The question being considered by the Madras High Court was whether these amounts were taxable income of were casual and non-recurring receipts and exempt from tax under section 4(3)(vii) of the Act. It was held by the Madras High Court that whether taxable or not, the amounts constituted income. It was held further that the income was not taxable as it was income of a casual and non-recurring nature within the scope of exemption granted by section 4(3)(vii) of the Income-tax Act. The question is whether the decision of the Madras High Court in the above case really helps Mr. Joshi for the purpose of the decision to be given in the present case. When the assessee before the Madras High Court undertook racing and betting activities, he did so with an expectation of a return and the receipts received from these activities, although the activities could not be regarded as his business or vocation and even though the receipts or items of receipts could be regarded as casual or non-recurring, were attributable to definite sources, viz., these activities, and, therefore, would satisfy both the requirements as postulated by me. These receipts were in the nature of return as also from the definite source. In the ordinary parlance these receipts would comprise the assessee’s income from racing and betting activities. As indicated above, if these activities had been embarked upon with the hope of earning some money therefrom, the receipts could not be properly regarded as a windfall in the limited sense of the term “windfall” that I have enunciated. There was a definite expectation of an income, and it is irrelevant to consider whether in fact such expectation was based on a sound or unsound foundation. The above decision of the Madras High Court, therefore, really does not help Mr. Joshi.
37. Mr. Joshi also referred us to and relied on the case decided by the Calcutta High Court in In re Susil C. Sen [1941] 9 ITR 261 (Cal). In that case the assessee, an attorney and advocate, acting for a shareholder of a limited company, interviewed the managing agents of the company, attended a meeting of the shareholders of company as a proxy, made a speech at the meeting a secured a substantial issue of new shares to the public. The firm of stock-brokers who benefited by the issue of the new shares paid a sum of Rs. 10,000 to the assessee, even though the assessee had not acted for them and they were not legally bound to pay anything to the assessee. It was held that assuming that the receipt was of a casual and non-recurring nature, it arose from the exercise by the assessee of his profession as a lawyer and advocate and it was accordingly not exempt under section 4(3)(vii) of the Indian Income-tax Act. Now, it may be pointed out that the only question which arose in the reference before the Calcutta High Court was whether the amount received by the assessee was exempt under the provisions of section 4(3)(vii) of the Indian Income-tax Act, 1922, and that question was decided against the assessee in the court holding that the receipt could be said to be one arising from the exercise of profession, vocation or occupation. It is clear that the broader question similar to the one placed before us, viz., whether the receipts constitutes income at all, was not being directly considered by the Calcutta High Court. Further, according to the Calcutta High Court, the amount of Rs. 10,000 had been paid to a person, who was an advance and attorney, in appreciation of the part played by him in securing that benefit. In the words of the Calcutta High Court [1941] 9 ITR 261, 274 (Cal.) : “It was as anything could be that the causa causans of the payment was what Mr. Sen had done on the instructions of his client (shareholder whose proxy he held) at the shareholders’ meeting.” It was on that footing that it was held that the receipt arose from the exercise by the assessee of his profession as lawyer and advocate and, therefore, could not be exempt from taxation. To repeat, the broader question which we are considering was not canvassed before nor decided by the Calcutta High Court in the above decision.
38. Mr. Joshi also referred us to an English case, Herbert v. McQuade [1902] 4 TC 489, 500 (CA). The assessee concerned in that case was a vicar of the parish of St. John de Sepulchre in the city of Norwich and the assessments made upon him were in respect of a certain amount granted to him by the Queen Victoria Clergy Sustentation Fund (Norwich Diocese). This fund was established in the year 1997 and was incorporated under the above name by a charter. It was controlled entirely by the local diocesan council which reserved to itself the entire control over the apportionment and distribution of grants and the right to consider all the circumstances of the case where applications were made to it for grants from the fund. The assessee had applied for and received the grant from the fund each year since its institution. It was held that the payments received by the assessee were chargeable as they must be deemed to have accrued to him by reason of his office. According to the Master of the Rolls :
“… a payment may be liable to income-tax although it is voluntary on the part of the persons who make it, and that the test is whether from the standpoint of the person who receives it, it accrues to him in virtue of his office; if it does, it does not matter whether it as voluntary of whether it was compulsory on the part of the persons who paid it. That seems to me to be the test; and if we once get to his – that it has come to him by virtue of his office, accrued to him in virtue of his office – it seems to me that it is not negatived, that is not impossible merely by reason of the fact that there was no legal obligation on the part of the persons who contributed the money, to pay it.”
39. Now, bearing in mind the various facts as found by the High Court in Herbert’s case [1902] 4 TC 489 (CA) which need not be fully set out, it would be possible to say that the receipt of the amounts by the vicar were attributable to his vocation and arose in the circumstances of the case from a definite source, viz., the fund, and could not be regarded, although complete discretion did vest in the controlling council, to be in the nature of windfall. As a matter of fact, the object of the fund was to help clergymen who were in receipt of emoluments bellow a certain limit to make up for their loss. Such payments, although having the nature of subsidy, would rightly be regarded in the ordinary parlance as having the character of income and would be assessable to tax unless the said receipt would fall within any of the exemptions. This case, therefore, will have to be distinguished on its own facts as not detracting from the principle which I have indicated earlier, which appears to be the correct basis of considering whether the receipts could be properly regarded as income or not. On the same footing one would have to reject from consideration the decision in Seaham Harbour Dock Company v. Crook [1931] 16 TC 333 (HL), which also turns on its own facts. In that case the court was considering a subsidy given by the grants committee to the dock company and although the amount had been first credited to revenue in the account of the company, were held not to be profits or gains of trade bearing in mind the purposes for which the grants were made.
40. On the material before us there is nothing to show that assessee-company had produced the said picture Mother India with the slightest expectation that the same would be exempt from entertainment duty and that the amounts collected by the exhibitors as and by way of such duty would be directed to be paid over to it as producers by the Government of Bombay. It is true that we may consider the two notifications of the Government (annexures “A” and “A-1” to the statement of case) and the various letter or orders made pursuant to the later notification dated 25th October, 1957, as the definite source to which the receipts are attributable. The fact that the payments appear to be entirely at the discretion of the Government and that the exemption can be withdrawn by the Government even without any default on the part of the assessee (see clause 4 of annexure A1) would not be sufficient to disentitle the receipts from being considered as income. It is true that the object of the subsidy was to assist the producers (as annexure “A” shows) and to encourage future production of films of sufficiently high quality and which served a high social purpose. Bearing the factual position in mind, which has been indicated earlier in this judgment, I would hold that these receipts do not partake of the element of a return which is necessary for it to constitute income, and further that it was of the nature of a windfall-a windfall as to the factum and not a windfall as to mere quantum. On both the counts, therefore, the answer to the question whether these receipts constitute income of the assessee must be in the negative and in favour of the assessee, viz., that they did not constitute income.
41. To turn again to the test of the ordinary connotation of the word “income”, the proper approach to the question would be to regard the amount received by the assessee as some sort of a subsidy, subvention or grant given to them to encourage them to produce similar good pictures in future. The occasion to give grant to them or to pay them subsidy or subvention or what may be properly called a prize (though the computation of the quantum has been fixed in an uncertain manner, depending upon the entertainment duty payable by the patrons at the cinemas) was because they had produced the picture, Mother India. But from this it cannot be said that this was their income in the ordinary or normal sense of the term from the picture, Mother India. The income of the assessee from the picture, in the normal parlance of the expression, would be attributable to what their distributors and exhibitors have paid to them. This would be their income from the picture, Mother India, as also the income from their normal business activity. If the view canvassed for by the department were to prevail, then any prize or subsidy or award given to an individual or business concern for some aspect of their business activity would have to be comprised in its income and would be held taxable unless it qualified for any particular exemption as such.”
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52. It is unnecessary to consider the matter of exemption in any further detail in the view that I have taken that the receipt does not represent income and, therefore, the question of considering whether the assessee is entitled to exemption would not arise. It may just be indicated that the word “nonrecurring” does not mean that the receipt is a single one or which has in fact not been repeated, but only that there is no claim or right in the recipient to expect its recurrence. It is further to be noted that merely because the mode of payment in the instant case is one that would ensure to the assessee receipt of the amounts in driblets, it would not necessarily characterise the receipt as a recurring receipt. It is unnecessary to consider this aspect of the matter any further in the view that I have indicated regarding whether such receipts can be regarded as income of the assessee.
53. In the view that I have taken, the first question would have to be answered in favour of the assessee.”
3.19. Hence, from the detailed reading of the aforesaid decision of the Hon‟ble Jurisdictional High Court, it could be deciphered that unless the assessee was in contemplation to receive a particular receipt from a definite source, it would not fall within the ambit of income u/s.2(24) of the Act. In the instant case, as submitted in the preliminary facts hereinabove, the assessee company was never in contemplation to receive the unutilized portions back from the welfare trusts, in view of the fact that contributions were made to an irrevocable trust fund. But for the amendment in Section 40A(11) of the Act, the assessee could not have gained the eligibility to get back the unutilized monies back from the welfare trusts. Hence, it could be safely concluded that the said eligibility to receive the money was never in contemplation of the assessee company and that the said receipt would squarely fall within the ambit of expression “windfall” and hence, does not constitute income within the meaning of the Act. We also find that similar view was also taken by the Hon‟ble Supreme Court in the case of Universal Radiators vs. CIT reported in 201 ITR 800 (SC) wherein it was held as under:-
“Coming to the issue whether devaluation surplus earned by the assessee consequent on the settlement of the claim by the insurance company could be treated as revenue receipt, it may be stated that taxability on profit or deduction for loss depends on whether profit or loss arises in course of business. The Courts have maintained a distinction between insurance against loss of goods and insurance against loss of profits. The latter is undoubtedly taxable as is clear from the decision in Raghuvanshi Mills (supra) where any amount paid by the insurance company, `on account of loss of profit’ was held taxable. But what happens where the insurance company pays any amount against loss of goods. Does it by virtue of compensation become profit and is taxable as such. Taxability of the amount paid on settlement of claim by the insurance company depends both on the nature of payment and purpose of insurance. Raghuvanshi Mills’ decision is an authority for the proposition where the very purpose of insurance itself is profit or gain. Result may be the same where the payment is made for goods in which the assessee carried on business. Any payment being accretion from business, the excess or surplus accruing for any reason may be nothing but profits. [See The King vs. B.C. Fir and Cedar Lumber Co. Ltd. (1932) AC 441, Green (RM Inspector of Taxes) vs. J. Gliksten & Sons Ltd. (Reports of Tax Cases Vol. 14 p. 365), CIT vs. Popular Metal Works & Rolling Mills (1982) 30 CTR (Bom) 216 : (1983) 142 ITR 361 (Bom)]. But where payment is made to compensate for loss of use of any goods in which the assessee does not carry on any business or the payment is a just equivalent of the cost incurred by the assessee, but excess accrues due to fortuitous circumstances or is a windfall, then the accrual may be a receipt, but it would not be income arising from business, and, therefore, not taxable under the Act. In IRC vs. William’s Executors 26 Tax Cases 23, distinction was explained thus.
“A manufacturer can, of course insure his factory against fire. The receipts from that insurance will obviously be capital receipts. But supposing he goes further, as the manufacturer did in that case, and insures himself against the loss of profits which he will suffer while his factory is out of action; it seems to me it is beyond question that sums received in respect of that insurance against loss of profits must be of a revenue nature.”
10. The assessee did not carry on business of buying and selling ingots. The compensation paid to the assessee was not for any trading or business activity, but just equivalent in money of the goods lost by the assessee which it was prevented from using. The excess arose on such payment in respect of goods in which the assessee did not carry on any business. Due to fortuitous circumstances of devaluation of currency, but not due to any business or trading activity the amount could not be brought to tax.
11. The Tribunal in the instant case had found;
“the profit on account of devaluation is not business profit or income as it has nothing to do with the business or trading activity of the assessee. The profit arose since the claim was settled by the Insurance Company and the Indian rupee was devalued. Even without paying for the goods contracted for, the assessee by an extraordinary set of fortuitous circumstances earned a profit which by its very nature is casual and non-recurring. In this view of the matter the profit cannot be charged to tax.”
12. The High Court of Kerala in CIT vs. Union Engg. Works 1976 CTR (Ker) 45 : (1976) 105 ITR 311 (Ker) held :
“In the instance case, the excess profit, as found by the Tribunal, was not a receipt arising from business; nor was it, as admitted on both sides, capital gains. This was part of the compensation received by the assessee from the insurer for damage caused to its goods. The claim for the compensation for damage caused to the goods had been settled with the insurer and the sum so settled did not include any excess profit. The excess profit arose entirely due to the devaluation. This excess amount was in the nature of a windfall, being the unexpected fruit of devaluation, and it cannot, therefore, be regarded as a receipt arising from business though it may be said in a sense to be a receipt in the course of business. We hold that the Tribunal had correctly held that the sum of Rs. 13,455.75 received by the assessee was not a receipt arising from its business within the meaning of s. 10(3)(ii) of the IT Act, 1961.”
13. We are of the view that on the facts of that case, the High Court of Kerala was right in law in upholding the findings of the Tribunal, while on the facts found in the instant case, the High Court of Madras was wrong in law in reversing the well-considered order of the Tribunal.
14. For reasons stated by us this appeal succeeds and is allowed. Both the questions referred by the Tribunal to the High Court are answered in the affirmative, i.e., in favour of assessee and against the Department. The assessee shall be entitled to its costs.
3.20. It would also be relevant to consider the meaning of expression “casual” receipt which had been discussed in various decisions of Hon’ble High Courts and Hon’ble Supreme Court as under:-
130. RM. AR. AR. RM.AR.AR Ramanathan Chettiar v CIT (1967) 63 ITR 458(SC) The expression „casual‟ has not been defined in the Act and must, therefore, be construed in its plain and ordinary sense. According to the Shorter Oxford English Dictionary, the word „casual‟ is defined to mean; (i) subject to or produced by chance; accidental, fortuitous, (ii) coming at uncertain times; not to be calculated on, unsettled. A receipt of interest which is foreseen and anticipated cannot be regarded as casual even if it is not likely to recur again.
B. Malick v. CIT (1968) 67 ITR 616 (All.)
The word „casual‟ may have several meanings. It may be something which comes in at uncertain times and something which cannot be relied upon or calculated to produce income or it may be something which is the result of chance, or the result of a fortuitous circumstance. One test which has been laid down in some cases is whether the receipt is one which is foreseen, known and anticipated and provided for by agreement. If it is a result thereof, then it cannot be described as casual even if it is not likely to recur for a considerable time.
CIT vs. J.C. Wahal (1988) 170 ITR 635 (All.)
„Casual‟ means something which comes in at uncertain times and something which cannot be relied upon or calculated toproduce income or it may be something which is the result of chance or the result of a fortuitous circumstance.
3.21. Considering the totality of facts and circumstances of the instant case and the ratio decidendi of the aforesaid judgements and applying the same to the facts of the instant case, we have no hesitation to hold that unutilized portion lying in the trust funds which were claimed back by the assessee company was never in contemplation by the assessee company as assessee had all along treated the said contribution being made to an irrevocable trust fund and the eligibility to get back the monies got triggered only pursuant to insertion of provisions of Section 40A(11) of the Act in the statute and not otherwise. Hence, the said receipt of Rs.4.27 Crores, being the unutilized portions, received back from the welfare trusts by the assessee company would not partake the character of a revenue receipt constituting income and would merely have to be treated as a windfall or non-recurring receipt not liable to tax, though not exempted under specific provisions of the Act. It is not in dispute that the welfare trusts had duly suffered taxes on the accretions to the contributions received in the form of dividends and interest on loans in its regular returns and assessed as such. Hence, the accretion portion had already suffered taxes in the hands of the welfare trusts. Taxing the same again in the hands of the assessee company while getting back the unutilized portion would tantamount to double taxation. Accordingly, we hold that the receipt of Rs.4.27 Crores have to be excluded while computing total income of the assessee under normal provisions of the Act. Accordingly, ground Nos. 4 & 5 raised by the assessee are allowed.
4. The ground No.1 raised by the assessee is with regard to non- applicability of provisions of Section 115JB of the Act to the peculiar facts and circumstances of the instance case. The ground Nos. 2 & 3 raised by the assessee are with regard to non-taxability of the receipt of Rs.4,27,43,000/- from the welfare trusts by the assessee company while computing book profits u/s.115JB of the Act, even though the same was credited by it in its profit and loss account.
4.1. We have heard rival submissions and perused the materials available on record. At the outset, the ld. AR raised a preliminary argument that the provisions of Section 115JB of the Act are not applicable to the facts of the instant case in view of the fact that Section 115JB starts with a non-obstante clause by stating as under:-
“1.Notwithstanding anything contained in any other provision of the Act, where in the case of an assessee, being a company, the income-tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, (2012), is less than (eighteen and one-half per cent) of its book profit, (such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be amount of income-tax at the rate of (eighteen and one-half per cent).”
4.2. From the aforesaid reading of the provisions of the Act, the ld. AR argued that unless there is tax payable under normal provisions of the Act, and which is less than tax payable u/s.115JB of the Act, there would be no obligation for the assessee to get impleaded with the provisions of Section 115JB of the Act at all. In other words, when there is no income tax payable on the normal provisions of the Act for an assessee, charging provision u/s.115JB of the Act fails and accordingly, would not get attracted.
4.3. We find that if the argument advanced by the ld. AR is to be accepted, then the entire intention behind introduction of provisions of Section 115J, 115JA, 115JB of the Act gets completely defeated and becomes redundant, as these provisions were admittedly introduced in the statute to collect tax as per their book profits when they had declared loss or liable to pay zero tax under the normal computation of income. Moreover all the companies in India are governed by the very same provisions wherein if they suffered nil taxes or zero taxes under the normal provisions of the Act or the tax payable under normal provisions is less than tax @18.5% of book profits, then the provisions of Section 115JB of the Act would be applicable to those companies and assessee company alone cannot be singled out or isolated from the same. Moreover, we have also seen that these provisions are in force from the year 1987 onwards commencing from Section 115J which had gradually migrated to Section 115JB of the Act without digressing from the true intention behind introduction of these provisions in the Act. Hence, the primary argument that Section 115JB of the Act is not applicable to the assessee company in the instant case is hereby rejected. Accordingly, the ground No.1 raised by the assessee is dismissed.
5. Now, let us get into the aspect of taxability of the receipt of Rs.4,27,43,000/- being the amount claimed back from the welfare trusts by the assessee company, which was duly credited by it in its profit and loss account and offered to tax while computing book profits u/s. 115JB of the Act in the return of income filed by the assessee company.
5.1. We have already held hereinabove that the receipt of Rs.4,27,43,000/- by the assessee company received from the welfare trusts is a capital receipt not liable to income tax. Hence, a receipt which from its inception is not the income u/s.2(24) of the Act cannot be taxed u/s.115JB of the Act also. To put it differently, what cannot be taxed directly cannot be taxed indirectly. Moreover, this aspect has been elaborately dealt by the Co-ordinate Bench decision of this Tribunal in the case of JSW Steel Ltd. vs. ACIT in ITA Nos.923/BANG/2009 & 930/BANG/2009 for A.Y.2004-05 dated 13/01/2017. The facts before the case of JSW Steel Ltd., and the manner in which the same has been adjudicated by Mumbai Tribunal by taking into account the specific provisions of Section 115JB of the Act ; provisions of Companies Act, 1956 ; relevant accounting standards issued by the Institute of Chartered Accountants of India and the various decisions of Tribunals, Hon’ble High Courts and the Hon’ble Supreme Court are reproduced hereunder for the sake of convenience.
“4. The facts in brief qua the issue raised in the aforesaid grounds are that, assessee is a public limited company engaged in the business of manufacturing of hot rolled steel sheets and steel plates. For the assessment year 2004-05 assessee had filed its original return of income u/s 139(1) on 30.10.04, declaring loss of (-)Rs.262,53,15,582/-. Later on the said return was revised on 17.02.05 whereby “nil” income was declared under the normal provision of the Act and the tax liability under MAT provision of section115JB was shown at Rs.22,33,03,139/- on a book profit of Rs.297,73,75,188/-. In the course of the assessment proceedings, the Assessing Officer noted that assessee company had shown extraordinary item of income amounting to Rs.390,76,03,999/- on account of waiver of loan, which was obtained by the assessee in the earlier years. The breakup of this waiver amount was as under:—
