The Income Tax Appellate Tribunal (ITAT), New Delhi Bench while deleting the addition against Hindustan Coca Cola Beverages held that no tax is applicable on securities premium even if used to set off losses.
The assessee, Hindustan Coca Cola Beverages Pvt. Ltd. is a private limited company engaged in the business of manufacture and sale of aerated soft drinks under the brand name Coca Cola, Fanta, Limca, and manufacture and sale of packaged drinking water under the brand name Kinley.
It filed its return of income for the relevant assessment year declaring loss of Rs.282,90,29,838 while its liability as determined in Form No.29B for the purpose of levy of MAT was nil.
During the course of assessment proceedings, the AO noted that the assessee has claimed amortization of a non-compete fee of Rs.48.34 crores. Following his order for Assessment Year 2002-03 wherein such payment of non-compete fee was held to be capital expenditure, the AO disallowed the claim of Rs.48,34,13,706 as non-compete fee which was claimed by the assessee as revenue expenditure. The alternate claim of the assessee that depreciation should be allowed was also rejected by the AO.
The coram consists of R.K. Panda and Kuldip Singh while deleting the addition has held that security premium account, being part of the capital of the company is not in the nature of an entry bearing the character of income and since it has not been credited by debiting the Profit and Loss Account of the company, its reversal in any subsequent year is not required to be reflected in the profit and loss account.
In other words, applicability of clause (b) of Explanation to section 115JB(2) was ruled out.
The ITAT held that clause (c) of said Explanation has no applicability since securities premium account is not in the nature of provision; In any case, no addition can be made to the book profits since the securities premium account was never debited to the profit & loss account.
The tribunal considered the decision of the Supreme Court in the case of Apollo Tyres wherein it was held that the AO does not have the jurisdiction to go beyond the net profit shown in the Profit & Loss Account except to the extent provided in the Explanation to section 115J which has been relied on by the CIT(A).
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