1993 (10) TMI 66 - HC - Income Tax

Summary

Issues Involved:
The judgment addresses three questions of law arising from an order related to the assessment year 1976-77 under section 256(1) of the Income-tax Act, 1961.

Question 1: Deduction under Section 80P(2)
The case involved a dispute over the deduction allowed under section 80P(2) of the Act, where the Tribunal permitted a deduction of Rs. 1,50,132 out of the claimed Rs. 4,60,385. The assessee's income was partly taxable and partly non-taxable, leading to a revision of the return to claim the deduction from the gross income without deducting proportionate administrative and managerial expenses. The Tribunal reduced the expenses to Rs. 3,10,253 based on the Gujarat High Court's decision, allowing exemption for Rs. 1,50,132 only.

Question 2: Proportionate Expenditure Deduction
The Tribunal deducted 67% of the overhead expenditure from the income claimed under section 80P(2) for the exempted activity of supplying fertilizers to members. This decision was based on the Tribunal's finding that the assessee carried on separate and divisible businesses, with certain activities being exempted from taxation.

Question 3: Allowance of Entire Expenditure
The Tribunal did not allow the entire expenditure under section 57 of the Act against the taxable income, as the assessee's businesses were deemed separate and divisible. The Tribunal's decision was in line with the Gujarat High Court's ruling that only a proportionate amount of profit from non-taxable activities can be reduced after deducting related expenses.

The judgment emphasized the need to distinguish between taxable and non-taxable income, ensuring that expenses are allocated appropriately to determine the true profit. It highlighted the strict interpretation of exemption clauses in tax statutes and the requirement to deduct expenses incurred in earning exempted income. The Tribunal's decision to allow deductions based on separate and divisible businesses was upheld, denying the assessee's claim for the entire amount of income without deducting related expenses.