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2023 (1) TMI 24 - AT - Income TaxDeduction u/s 80G - when to claim deduction u/s 80G? - Income from business of manufacturing of tea - AO was of the view that first total income is to be computed and thereafter, it has to be divided in 40 : 60 ratio and then claim of deduction u/s 80G has to be made against 40% shares. - HELD THAT:- AO was of the view that first total income is to be computed and thereafter, it has to be divided in 40 : 60 ratio and then claim of deduction u/s 80G has to be made against 40% shares. The stance of the assessee was that, first business income has to be determined after allowing all necessary deduction and thereafter, apportionment of 40:60 has to be made. It can be explained by a simple example i.e., An assessee has gross income of Rs.100/-. Out of that necessary expenditure and deductions are to be allowed and the assessee has deduction admissible under Chapter VI at Rs.10/- and also under 80G, 80IA or 80HHC, then that Rs. 10/- has to be excluded from Rs.100/- and from the balance Rs. 90/-, apportionment of 40:60 has to be made. AO did not accept this contention. However, the ld. First Appellate Authority has accepted this contention on the strength of the decision of the Hon’ble Madras High Court in the case of Periakaramalai Tea and Produce Co. Ltd. [1971 (8) TMI 46 - MADRAS HIGH COURT] After going through this well reasoned finding of the ld. CIT(A) based on the decision of the Hon’ble Madras High Court, we do not find any error in it. Accordingly, this ground of appeal is dismissed. Allowable business expenses - foreign of travel expenses of the wife of the Managing Director - CIT-A deleted the addition - HELD THAT:- No error in the finding of the ld. CIT(A) because various Hon’ble High Courts, namely, George Williamson (Assam) Ltd. [1998 (8) TMI 80 - GAUHATI HIGH COURT], Glaxo Laboratories (India) Ltd. [1986 (5) TMI 46 - ITAT BOMBAY-A] and Appolo Tyres Ltd.[1998 (8) TMI 68 - KERALA HIGH COURT] are unanimous in their opinion that presence of wife with the top level executives is to assist him for discharging his social cum business obligation and such expenditure are deductible u/s 37(1) of the Act. Finally, the ld. First Appellate Authority held that similar expenditure was allowed in the earlier Assessment Years, and no disallowance is called for. Sale of gunny bags - business income - HELD THAT:- As during the course of its business activity i.e., manufacturing of tea, certain scrap value has been generated. The assessee has sold gunny bags and other items, which are byproduct of its business activity as well as manufacturing activity. The Assessing Officer has treated sale proceeds of such gunny bags etc. as income from other source which the ld. CIT(A) has held as income from business. We find that identical issue came up in earlier years and these were held as integral part of assessee’s manufacturing process and gunny bags are necessary tools. Therefore, as the gunny bags go through wear and tear, they are bound to be sold out. This activity is interconnected with the business activity and hence such income deserves to be assessed as business income. CIT(A) has given right treatment to the above sale proceeds. We do not find any error in the order of the ld. CIT(A). Thus, this ground of appeal is rejected. Disallowance on account of Guest House expenses - basic reason for the Assessing Officer to make the disallowance is that such expenditure are to be disallowed towards maintenance of guest house - HELD THAT:- Stand of the assessee is that sum is not meant for guest house. Rather, it is with respect to transit flats given to the employees on transfers. The manufacturing activities of the assesse are such a place where it is difficult to find out any space to stay. The employees have to stay in the gardens where certain space is mandatory for the assessee to maintain. After considering the finding of the revenue, we do not find any error in this finding and accordingly, this ground of appeal is rejected. Deduction u/s 32 AB (1) (b) allowed in earlier years for direct utilization for purchase of plant and machinery - HELD THAT:- On due consideration of the above facts and circumstances, we are of the view that the ld. Assessing Officer has erred in construing the judgment of the Hon’ble High Courts. On the other hand, the ld. CIT(A) has rightly appreciated it and has rightly held that once choice of the date is left open for making any scheme applicable, then it will be applicable from that date which is finalized by the parties. In the present case, that date is 31/05/1993. The amalgamated company DDIL ceased to exist on 01/06/1993. Whatever, it has deposited will be falling to its successor i.e. Brooke Bond India Limited (amalgamated company and it is entitle for deduction u/s 33AB of the Act. The ld. CIT(A) has not committed any error in this regard. Accordingly, this additional ground of appeal is dismissed. Deduction u/s 32AB(1)(b) and 32AB(7) r.w.s. 33AB(8) - whether merger of two companies under the scheme of amalgamation would be construed as transfer of assets for denying benefit of Section 33AB and 33AB(8) r.w.s. 32AB(7)? - HELD THAT:- AO under the scheme of Section 33AB of the Act, the amalgamated company has made certain deposits and also purchased certain machineries which was required to be used for eight continuous years as contemplated in the Act. But since before completion of those eight years, the amalgamated company which had made deposits has been amalgamated with Brooke Bond India Ltd. and, therefore, all those benefits are to be treated as of the assessee company i.e., Brooke Bond India Ltd. The assessee has explained about two factual positions about years of purchase and utilization of the machineries as well as about the creation of the funds with NABARD and its withdrawal for utilization for business purposes. The amalgamation of erstwhile DDIL into Brooke Bond India Limited cannot be construed as transfer. It is just an amalgamating company which ceased to exist in the eyes of law and it excludes itself for all practical purposes. In other words, it merged in the new company along with all its assets and liabilities and the same treatment has to be given to the new company i.e., the amalgamating company. The ld. First Appellate Authority has discussed this issue thoroughly and after going through all these details, we do not find any reason to interfere in the findings of the ld. CIT(A) extracted supra.
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