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2016 (7) TMI 1301 - HC - Income TaxComputing deduction under sections 80HHC and 80-I - whether deductions u/s 35(1)(iv) are not to be deducted ? - Held that:- While determining profit of eligible industrial undertaking, the income and expenditure which has direct nexus with the industrial undertaking must be taken into account. It is not in dispute that research centre is an independent centre and that its main object is to conduct research for the business of the asses see. The research centre, therefore, in our opinion, is not directly linked with the eligible undertaking. Thus, for the purpose of computing deduc tion under sections 80HH and 80-I, profit from eligible undertaking is to be computed on the basis of gross income by reducing expenditure which has been incurred for the eligible undertaking out of the gross income derived from the industrial undertaking. In view of the aforesaid, question No. (A) is answered in favour of the assessee Allowable deduction on redemption premium payable on debenture - Held that:- The payment of ₹ 105 by the assessee- company against the collection of receipt of ₹ 100 from debenture-holders was not contingent upon the happening of any event in future. The company's obligation to pay ₹ 105 against receipt of ₹ 100 was certain in praesenti and known at the time when the debentures were issued and was to be payable in ordinary circumstances. It was only for the company to avoid payment of such liability if it decides to repurchase the debentures earlier. Such repayment prior to the due date, was contingent on exercise of option. It would not make the liability, which is certain in praesenti, to be contingent merely because on happening of a certain event, which could be avoided. In view of the aforesaid, the Tribunal was in error in con firming the order of the Assessing Officer of disallowing the expenditure towards redemption premium payable to the debenture-holders. Conse quently, we answer question No. (B) in favour of the assessee Disallowance of interest expenditure - Held that:- Commissioner of Income-tax (Appeals) correctly deleted the disallowance by following the decision of this court in the case of Deputy CIT v. Core Healthcare Ltd. reported in [2001 (4) TMI 46 - GUJARAT High Court]. The said decision of this court has been confirmed by the apex court by judgment rendered in Deputy CIT v. Core Health Care Ltd. reported in [2008 (2) TMI 8 - SUPREME COURT OF INDIA]. Thus, we answer question No. (B) in favour of the assessee and against the Revenue. Disallowance of interest on funds utilized for non-business advances - Held that:- Advance had been given for the purpose of business. It appears from the record that the assessee had earned income during the year to the extent of ₹ 36 crores. The assessee had submitted evidence to prove that it was having interest-free funds to the extent of ₹ 225.83 crores with it. How ever, the said fact was not appreciated by the Assessing Officer. Nothing was on record to prove that the borrowed funds had been diverted by the assessee for making advances to M/s. Baldevbhai Dosabhai group. Hence, we answer the question in favour of the assessee and against the Revenue. Deduction under section 80HHC computation - whether for computation of deduction under section 80HHC only net interest receipts should be excluded? - Held that:- This issue is covered by the decision of the apex court in the case of ACG Associated Capsules Pvt. Ltd. v. CIT [2012 (2) TMI 101 - SUPREME COURT OF INDIA] wherein, it has been held that ninety per cent. of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head "Profits and gains of business or profession", was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business. In view of the above decision, this question is also answered in favour of the assessee and against the Revenue.
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