TMI Blog2015 (1) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment beyond credit period is permissible as a business income and entitled to benefit under section 80(I). As far as the second limb i.e. interest on FDR, bank guarantees, deposits and miscellaneous receipts are concerned, the benefit of section 80I would be not available in view of the conclusion in CIT V. Shri Ram Honda Power Equipment and Ors., (2007 (1) TMI 86 - HIGH COURT, DELHI). The assessee would be entitled to clam a limited benefit of the expenditure of net interest by application of principles/conclusions Nos 8 and 9 in Shri Ram Honda Power Equipment and Ors. (supra). The matter is remitted to the AO to this limited extent to enable the assessee to prove the nexus as stipulated in Shri Ram Honda Power Equipment and Ors. (supra). - Decided partly in favour of assessee and revenue. Deduction u/s. 32AB - whether available on the profits of industrial undertaking and not on the aggregate profit of the assessee? - Held that:- It is pertinent to note that by Finance Act, 1989 the concept of eligible business and determination of profits of eligible business whose accounts have been maintained separately have been done away with prospectively with effect from 1/4/1991. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record - Decided in favour of assessee. - ITA No. 165/2001, ITA No. 170/2001 - - - Dated:- 19-1-2015 - Sanjiv Khanna And V. Kameswar Rao,JJ. For the Appellant : Mr. N. P. Sahni, Sr. Standing Counsel and Mr. Nitin Gulati, Jr. Standing Counsel. For the Respondent : Mr. Ajay Vohra, Sr. Advocate with Ms. Kavita Jha and Mr. Vaibhav Kulkarni, Advocates. ORDER Sanjiv Khanna, J. Revenue has preferred these two appeals under Section 260A of the Income Tax Act, 1961 (Act, for short) in the case of Kelvinator of India Ltd. (now known as Whirlpool India Ltd.). These appeals pertain to assessment years 1989-90 and 1990-91. The order impugned, common to both appeals, passed by the Income Tax Appellate Tribunal (Tribunal, for short) is dated 30th August, 2000. 2. By order dated 6th December, 2001, the following substantial questions of law were framed:- ITA 170/2001 (Assessment Year 1989-90) (A) Whether ITAT is correct in law in deleting the addition of ₹ 7,28,400/- being the guest house expenses relying on its earlier order when the same are not accepted by the Department and the same expenditure is clearly disallowable u/s 37(4) of the Act? (B) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance Detergents Ltd., (2011) 339 ITR 81 and CIT V. Jackson Engineers Ltd., (2012) 341 ITR 518. Accordingly, it is held in favour of the assessee that such interest received from customers due to late payment beyond credit period is permissible as a business income and entitled to benefit under section 80(I). As far as the second limb i.e. interest on FDR, bank guarantees, deposits and miscellaneous receipts are concerned, the benefit of section 80I would be not available in view of the conclusion in CIT V. Shri Ram Honda Power Equipment and Ors., (2007) 289 ITR 475. The assessee would be entitled to clam a limited benefit of the expenditure of net interest by application of principles/conclusions Nos 8 and 9 in Shri Ram Honda Power Equipment and Ors. (supra). The matter is remitted to the AO to this limited extent to enable the assessee to prove the nexus as stipulated in Shri Ram Honda Power Equipment and Ors. (supra). The question of law is accordingly answered in favour of the revenue but partly granting the relief to the extent indicated to the assessee by limited remand. The surviving question for consideration is as to the permission of deduction under section 32AB to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any amount in the deposit account under clause (a), in accordance with, and for the purposes specified in a scheme (hereafter in this section referred to as the scheme) to be framed by the Central Government, or if the assessee is carrying on the business of growing and manufacturing tea in India, to be approved in this behalf by the Tea Board, the assessee shall be allowed a deduction (such deduction being allowed before the loss, if any, brought forward from earlier years is set off under section 72) of- (i) a sum equal to the amount, or the aggregate of the amounts, so deposited and any amount so utilised; or (ii) a sum equal to twenty percent. of the profits of eligible business or profession as computed in the accounts of the assessee audited in accordance with sub-section (5), whichever is less. Provided that where such assessee is a firm, or any association of persons or any body of individuals, the deduction under this section shall not be allowed in the computation of the income of any partner, or, as the case may be, any member, of such firm, association of persons or body of individuals. (2) For the purposes of this section,-- (i) eligible business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregate of- (i) the amount of depreciation ; (ii) the amount of income-tax paid or payable, and provision therefor ; (iii) the amount of surtax paid or payable under the Companies (Profits) Surtax Act, 1964 (7 of 1964) ; (iv) the amounts carried to any reserves, by whatever names called ; (v) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities ; (vi) the amount by way of provision for losses of subsidiary companies ; and (vii) the amount or amounts of dividends paid or proposed if any debited to the profit and loss account ; and as reduced by any amount or amounts withdrawn from reserves or provisions, if such amounts are credited to the profit and loss account ; and (b) in a case where such separate accounts are not maintained or are not available, be such amount which bears to the total profits of the business or profession of the assessee after allowing depreciation in accordance with the provisions of sub-section (1) of section 32, the same proportion as the total sales, turnover or gross receipts of the eligible business or profession bear to the total sales, turnover or gross receipts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (ii) of Section 32AB(1),i.e. computation of 20% of the profits of eligible business or profession and the said profits audited in accordance with sub-section (5). The expression eligible business or profession‟ has been defined in sub-section (2) to Section 32AB, to exclude businesses mentioned in sub-clauses (a) and (b) to sub-section(2). 9. There is no dispute that the assessee was engaged in eligible business. In fact the respondent assessee was a multi-product company, having following separate divisions:- 1. Refrigeration 2. Compressor 3. lamination 4. control 5. control tool room 6. scooter 7. moped 8. pressing 9. cash register The cash register business/division was not an eligible business under section 32AB, thus, profits from the said business would not be eligible for the purposes of computation of deduction.Other divisions/businesses were eligible businesses. 10. In the assessment year 1989-90, the assessee had claimed deduction under Section 32AB at ₹ 3,95,85,158/- as the sum equivalent to 20% of profits earned from the eligible business. The aforesaid computation was made after taking into account only four eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parate accounts are not maintained or are not available. It would thus be seen that the quantification of the deduction has to be done with reference to the profits of eligible business or profession. It logically follows that no deduction u/s 32AB is to be allowed where there is no profit in an eligible business or there is a loss. It will be clear from the language of section 32AB that there is no warrant for aggregating the profits and losses of different businesses carried on by an appellant, as has been done by the assessing officer. The issue presently in appeal before us actually covered by clarifications issued by the Senior Departmental Officers in a session with ASSOCHAM. It will be useful to quote the relevant question and the answer:- Q. Where an aisessee operates a single business, 32AB deduction is available in a year in which profit ie earned. No allowance is made in a year of loss. In other words, the worst that can happen to an industry is a zero allowance in year of loss. In case of a multi business industry where profits are earned in some businesses and losses in others, the profits of eligible business would be entitled to the allowance while the losing busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness or profession‟ and clause (a) or (b) would apply to compute such eligible profit.The expression eligible business or profession‟ was defined in sub-section (2). Under sub-section (5) to Section 32AB, the assessee was required to get the accounts audited by an accountant defined in Explanation below Section 288(2) and furnishes a report of audit in the prescribed form and verified by the accountant. 15. When we collate and harmoniously read different sub-sections, it is clear that special deduction under Section 32AB has to be quantified under sub-section (1) clause (b)(ii) on a sum equal to 20% of the profits of eligible business. The assessee entitled to compute the deduction under the said clause with reference to the profits earned by the eligible business. The section did not have any reference to the losses suffered or aggregation of profits and losses from distinct and separate eligible businesses. We have already interpreted sub-section (1) and observed that it consists of two parts. First part relates to eligibility requirement that an assessee must have income chargeable under the head income from profits and gains from business or profession‟ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mentioned in the section. Third, from the profits and gains attributable to such business or industry, a deduction has to be allowed of an amount equal to eight per cent. of such profits and gains and effect must be given to this deduction when computing the total income of the company. The assessee in this case carries on two industries, both of which find places in the list in the Fifth Schedule and can, therefore, be described as priority industries. It is urged by the learned Additional Solicitor-General, appearing for the Revenue, that on a true application of section 80E, the profit in the industry of automobile ancillaries must be reduced by the loss suffered in the manufacture of alloy steel, and reference has been made to a number of cases to which we shall presently refer. After giving the matter careful consideration, we do not find it possible to accept the contention. It seems to us that the object in enacting section 80E is properly served only by confining the application of the provisions of that section to the profits and gains of a single industry. The deduction of eight per cent.is intended to be an index of recognition, that a priority industry has been set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act arose in the Commissioner of Income Tax vs. Pudumjee Agro Industries Ltd. (2006) 285 ITR 301 (Bom), and the plea of the Revenue was rejected, inter alia, observing:- 11. At the relevant time, deduction under Section 32AB(1) of the Act was available to an assessee who had income chargeable under the head Profit and gains of business or profession and out of the said business income, the assessee had either deposited certain amount with the industrial bank of India or utilised the business income for acquisition of certain assets before the expiry of 6 months from the end of the previous year or before furnishing the return of income whichever is earlier. On fulfilment of the above conditions, the assessee was entitled to deduction of a sum equal to the amount deposited/utilised or a sum equal to 20% of the profits of eligible business or profession computed under Section 32AB(3), whichever is lower. 12. Section 32AB(2) of the Act inter alia sets out the meaning of the word eligible business or profession used in Section 32AB(1) and Section 32AB(3) of the Act sets out separate methods for determining the profits of eligible business or profession in cases where the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1989 the concept of eligible business and determination of profits of eligible business whose accounts have been maintained separately have been done away with prospectively with effect from 1/4/1991. As a result from 1/4/1991, maintaining separate accounts has no relevance for the purpose of deduction under Section 32AB(1) of the Act and what is relevant from 1/4/1991 is the profits of business or profession of an assessee and not the profits of each business of the assessee. Therefore, for the AY 90-91 with which we are concerned in this appeal, the deduction under Section 32AB(1) of the Act in respect of the profits of the paper division has to be determined from the profits of the paper division as determined under Section 32AB(3)(a) of the Act without setting off the loss suffered by the agro division. 17. It is true that under Section 70 of the Act, while determining the total income chargeable to tax under the head profits and gains of business , the loss from the agro division has to be set off against the profits of the paper division. However, the said set off is not relevant for the purpose of computing 20% deduction under Section 32AB(1) of the Act, in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the assessee s claim. As explained by the assessee s representative, the nature of the income as shown under the head other income is summarized as under: I. Misc. Receipts Rs.52,56,000/- Which consists of insurance receipt on account of repairs, rebate on timely deposits of sales-tax, receipts on disposal of various scrap items, sale of tender forms and forfeiture of security deposit etc. II. Interest on debentures /FD Rs.20,775/- Represents interest on investments III. Interest from Banks/ other deposits Rs.1,36,389/- It represents interest on bank deposits which are compulsory required like margin money advance to supplier/telephone deptt. Etc. during the course of business. IV. Interest received from customers/Moped instalments Rs.4,43,11,016/- This represents interest received from the customers in the ordinary course of business. V. Interest loans inter corporate deposits Rs.86,16,571/- Represents interest on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee was factually correct. 22. Therefore, what was subject matter of the appeal before the Tribunal was only interest on debentures/fixed deposits of ₹ 20,775/-, interest on loan/inter-corporate deposits of ₹ 86,16,571/- and dividend of ₹ 3,01,460/-, totaling ₹ 89,38,806/-. The Tribunal in the impugned order decided the issue in favour of the assessee, inter-alia, observing that the issue was covered by finding of the tribunal in an appeal against the order under Section 263 of the Act relating to assessment year 1989-90, in which it was held as under:- We are of the opinion that for the purpose of deduction u/s 32AB, the benefit of said section will be available to all business income from whatever source, other than those mentioned in sub-section (a)(b) of clause (1) of sub sec.(ii) of the said section. Therefore, the view of the CIT (A) that income from other sources will not be considered is not correct in the matter. As such for the purpose of deduction u/s 32AB, the profit of the eligible business are not to be computed in accordance with the provisions of the I.T. Act but are to be computed in accordance with the requirement of si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also the submission of the assessee that these two businesses, namely, the business of buying and selling units of the UTI and the manufacture and sale of tyres are so intertwined and interlaced that the same cannot be separated and treated independently, therefore, this income from the UTI being part of its business income, it is entitled to claim the bene- fit of section 32AB. A perusal of section 32AB, as it stood at the relevant time, shows that if an assessee has a total income including income chargeable to tax under the head Profits and gains of business or profession and if the income from such business is derived from an eligible business and if the assessee has out of such income utilised any amount during the previous year for the purchase of new plant or machinery then it is entitled to a set off of a sum equal to 20 per cent. of the profit of such eligible business as computed in the accounts of the assessee which account has been audited in accordance with sub-section (5) of section 32AB. The dispute in the present case is in regard to the question whether the assessee s investment in the UTI is business, and if so, is it a business which qualifies to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly shown in Part II and II of the Sixth Schedule of the Companies Act. Identical view is found to have been taken by the Calcutta High Court in Britannia Industries Ltd. vs. JCIT (2004) 271 ITR 123, and the Madras High Court in Carborandum Universal Ltd. vs. CIT (2004) 265 ITR 372 (Mad.), where earlier decisions in CIT vs. Dinjoye Tea Estate (P) Ltd. (1997) 224 ITR 263 (Gauhati) and CIT vs. Warren Tea Ltd. (2001) 251 ITR 382 (Cal.) were dissented from and it was observed, they was no longer good law in view of the decision in Apollo Tyres (supra). The aforesaid ratio find resonance in subsequent decision of the Madras High Court in CIT vs. Tirupattur Coop. Sugar Mills Ltd. (2009) 310 ITR 360 (Mad.), CIT vs. McMillan India Ltd. (2007)295 ITR 67 (Mad) and DCIT vs. United Nilgiri Tea Estates Co. Ltd. (2005) 273 ITR 470 (Mad.). 26. A Full Bench of Kerala High Court in Perry Agro Industries Ltd. vs. CIT (2006) 156 Taxman 184 (Ker.), has taken a somewhat a different view after referring to the Part II of the Sixth Schedule of the Companies Act, inter alia, recording that by sub-section (3) to Section 32AB, the Legislature wanted profits from business and profession alone should ..... X X X X Extracts X X X X X X X X Extracts X X X X
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