1997 (9) TMI 162 - AT - Income Tax

Summary

Issues Involved:
1. Assessability of Excise Duty Incentive/Rebate (EDI) as Business Income.
2. Allowability of Expenditure on Maintenance of Guesthouse.
3. Assessability of Interest Received from Bank on Molasses Storage Fund.

Detailed Analysis:

1. Assessability of Excise Duty Incentive/Rebate (EDI) as Business Income:
The primary controversy for the assessment year 1986-87 was whether the EDI of Rs. 1,24,05,255 received by the assessee was assessable to tax as business income. The assessee argued that the EDI was a capital receipt and not taxable, relying on the Supreme Court decision in CIT v. P.J. Chemicals Ltd. The Departmental Representative countered that the EDI was a benefit arising from business and thus taxable under section 28(iv) of the Income-tax Act, 1961.

The Tribunal concluded that the EDI was indeed assessable as business income. It reasoned that the benefit received by the assessee from the government was a gain and thus income under section 2(24)(i) and section 2(24)(vd) read with section 28(iv) of the Act. The Tribunal emphasized that the purpose of the rebate or concession determines its nature, and since the EDI was to recoup revenue expenditure already incurred, it was a revenue receipt and not a capital receipt. The Tribunal also rejected the assessee's claim of diversion of income by over-riding title, noting that the reduction in borrowings did not substantiate the claim.

2. Allowability of Expenditure on Maintenance of Guesthouse:
The Tribunal addressed the issue of whether the expenditure on the maintenance of the guesthouse, including depreciation, was allowable. It referred to the provisions of sub-section (4) read with sub-section (5) of section 37 of the Income-tax Act, 1961, which clearly debarred the assessee from claiming any expenditure incurred on the maintenance of the guesthouse. The Tribunal agreed with the lower tax authorities that the expenditure on the maintenance of the guesthouse was not allowable for both the assessment years 1986-87 and 1987-88.

3. Assessability of Interest Received from Bank on Molasses Storage Fund:
Regarding the assessability of bank interest on the Molasses Storage Fund, the Tribunal found in favor of the assessee. It referenced a previous decision of the Tribunal in the case of Dy. CIT v. Ambur Co-operative Sugar Mills Ltd., which relied on the Karnataka High Court's decision in CIT v. Pandavapura Sahakara Sakkare Kharkane Ltd. The Tribunal concluded that the interest received from the bank on the Molasses Storage Fund was not assessable to tax, thus siding with the assessee on this point.

Conclusion:
The Tribunal's judgment resulted in a partial allowance of the appeal for the assessment year 1986-87 and dismissal of the appeal for the assessment year 1987-88. The EDI was deemed taxable as business income, the expenditure on the maintenance of the guesthouse was disallowed, and the interest on the Molasses Storage Fund was not taxable.