Commissioner of Income Tax v. Bharat Heavy Electrical Ltd.

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The Tax Publishers2013 TaxPub(DT) 0368 (Del-HC) : (2013) 352 ITR 0088 : (2012) 080 DTR 0007 INCOME TAX ACT, 1961 --Business expenditureAllowability Provision for wage revision--Assessee, a public sector unit, had claimed deduction on account of wage revision. Assessing officer held that the same could not be allowed as the exact liability was unacertainable and that the deduction was allowable when actually the entire quantum of liability could be calculated. Held: Was not justified as Tribunal found that provision for wage revision was based on past experience, interim Pay Commission of Government Employees, previous Pay Commission's reports of public sector employees, union demands and other relevant factors. It was also held that with the expiry of one wage settlement of agreement, invariably, there was a time lag when another fresh wage revision agreement was negotiated and entered. Therefore, the deduction claimed for that period cannot be termed as contingent because the wage and the probable revision or rates of revision would be within the fair estimation of the employer. Thus liability could not be characterized as contingent but was, in fact, ascertained, the quantification, however, had not happened. There was no infirmity with the reasoning of the Tribunal about the deduction claimed on account of wage revision being permissible. Income Tax Act, 1961 Section 37(1) INCOME TAX ACT, 1961 --Exemption under section 10(15)(iv)(h)Allowability Interest on tax-free bonds between the date of their application and the date of their allotment--Assessee had claimed exemption in respect of interest earned on tax free bonds for the period between the date of application and the date of allotment of bonds. Assessing officer held that the character of income was different and, therefore, it could not claim the benefit of exemption. Held: Was not justified as the expression 'in respect of' in section 10(15)(iv)(h) unlike the term 'on' in section 10(15)(iv)(a)(b)(v), (e) and (f) had a wider connotation and that interest would include hedging transaction charges payable on account of currency fluctuation. Such being the amplitude of the provision, the fact that interest was paid for a brief period of about six days in the present case would not make it any less an amount of interest payable 'in respect of the bonds' in question. According to the circumstances and intendment of the statute, the interest income in respect of tax-free bonds would be exempt. A juxtaposition of the terms 'interest payable ...... on monies' [apparent from section 10(15)(iv)(a), (b), (c), (e) and (f)], on one hand, with the term 'interest payable........ by a public sector company in respect of such bonds.......', on the other, would reveal a different intention in dealing with the kind of deposit envisioned in section 10(15)(iv)(h). Interest payable on 'bonds or deposits' (referred to in section 10(15)(iv)(fa)) would mean interest earned by such amount or deposit. On the other hand, interest paid in respect of such bonds, as is the case with tax-free interest bonds under section 10(15)(iv)(h), connotes an entirely different intention. The expression 'in respect of,' unlike the term 'on,' has a wider connotation and would embrace a larger subject-matter. On the other hand, 'interest ...on the bond or deposit' would mean what is actually yielded by the bonds and nothing else. The Tribunal noticed and in our opinion correctly that interest would include hedging transaction charges payable on account of currency fluctuation. Such being the amplitude of the provision, the fact that interest was paid for a brief period of about six days in the present case would not make it any less an amount of interest payable 'in respect of the bonds' in question. If, in fact, the assessee had sought to claim the benefit of tax exemption for a larger period and there was some material on record to show that the amount deposited towards the bond and kept for that purpose was for an unreasonably long period of time, the conclusion by the assessing officer might have been justified.[Para 12] Having regard to these circumstances and the intendment of the statute which was to generally exempt such kind of income, Court is satisfied that the Tribunal's order on this aspect does not call for any interference. [Para 13] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0368 (Del-HC) : (2013) 352 ITR 0088 : (2012) 080 DTR 0007

INCOME TAX ACT, 1961

--Business expenditureAllowability Provision for wage revision--Assessee, a public sector unit, had claimed deduction on account of wage revision. Assessing officer held that the same could not be allowed as the exact liability was unacertainable and that the deduction was allowable when actually the entire quantum of liability could be calculated. Held: Was not justified as Tribunal found that provision for wage revision was based on past experience, interim Pay Commission of Government Employees, previous Pay Commission's reports of public sector employees, union demands and other relevant factors. It was also held that with the expiry of one wage settlement of agreement, invariably, there was a time lag when another fresh wage revision agreement was negotiated and entered. Therefore, the deduction claimed for that period cannot be termed as contingent because the wage and the probable revision or rates of revision would be within the fair estimation of the employer. Thus liability could not be characterized as contingent but was, in fact, ascertained, the quantification, however, had not happened. There was no infirmity with the reasoning of the Tribunal about the deduction claimed on account of wage revision being permissible.

Income Tax Act, 1961 Section 37(1)

INCOME TAX ACT, 1961

--Exemption under section 10(15)(iv)(h)Allowability Interest on tax-free bonds between the date of their application and the date of their allotment--Assessee had claimed exemption in respect of interest earned on tax free bonds for the period between the date of application and the date of allotment of bonds. Assessing officer held that the character of income was different and, therefore, it could not claim the benefit of exemption. Held: Was not justified as the expression 'in respect of' in section 10(15)(iv)(h) unlike the term 'on' in section 10(15)(iv)(a)(b)(v), (e) and (f) had a wider connotation and that interest would include hedging transaction charges payable on account of currency fluctuation. Such being the amplitude of the provision, the fact that interest was paid for a brief period of about six days in the present case would not make it any less an amount of interest payable 'in respect of the bonds' in question. According to the circumstances and intendment of the statute, the interest income in respect of tax-free bonds would be exempt.

A juxtaposition of the terms 'interest payable ...... on monies' [apparent from section 10(15)(iv)(a), (b), (c), (e) and (f)], on one hand, with the term 'interest payable........ by a public sector company in respect of such bonds.......', on the other, would reveal a different intention in dealing with the kind of deposit envisioned in section 10(15)(iv)(h). Interest payable on 'bonds or deposits' (referred to in section 10(15)(iv)(fa)) would mean interest earned by such amount or deposit. On the other hand, interest paid in respect of such bonds, as is the case with tax-free interest bonds under section 10(15)(iv)(h), connotes an entirely different intention. The expression 'in respect of,' unlike the term 'on,' has a wider connotation and would embrace a larger subject-matter. On the other hand, 'interest ...on the bond or deposit' would mean what is actually yielded by the bonds and nothing else. The Tribunal noticed and in our opinion correctly that interest would include hedging transaction charges payable on account of currency fluctuation. Such being the amplitude of the provision, the fact that interest was paid for a brief period of about six days in the present case would not make it any less an amount of interest payable 'in respect of the bonds' in question. If, in fact, the assessee had sought to claim the benefit of tax exemption for a larger period and there was some material on record to show that the amount deposited towards the bond and kept for that purpose was for an unreasonably long period of time, the conclusion by the assessing officer might have been justified.[Para 12] Having regard to these circumstances and the intendment of the statute which was to generally exempt such kind of income, Court is satisfied that the Tribunal's order on this aspect does not call for any interference. [Para 13]