TMI Blog2015 (1) TMI 1024X X X X Extracts X X X X X X X X Extracts X X X X ..... r calculating the deduction under section 80HHC of the Income Tax Act, 1961. - Decided in favour of the assessee. - Tax Appeal No. 447 of 2000, Tax Appeal No. 522 of 2009, Tax Appeal No. 2033 of 2009 - - - Dated:- 9-12-2014 - K. S. Jhaveri And K. J. Thaker,JJ. For the Petitioner : Mr K M Parikh, Adv. For the Respondent : Mr J P Shah, Adv. ORDER (Per : Honourable Mr. Justice KS Jhaveri) Tax Appeal Nos.447 of 2000 and 2033 of 2009 1. Both these appeals are filed against the decision of the tribunal whereby the tribunal has decided the appeals in favour of the assessee and against the department. 2. Short facts giving rise to Tax Appeal No.447 of 2000 are as under: 2.1 Return declaring loss of ₹ 1,79,21,14,270/- was filed on 30.6.1986. Gujarat Government and Gujarat State Fertilizers Company are holding 51% shares and rest of the share are held by others. Notices under Section 143 (2) and 142 (1) of the Income Tax Act along with detailed questionnaires were issued. With regard to the assessment, books of account and relevant documents were checked. The assessee company has written off expenditure amounting to ₹ 19,29,010/- in the profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure of ₹ 32.05 lacs incurred on feasibility study of PET product? [2] Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in directing the exclusion of 90% of net interest for calculating the deduction under section 80HHC of the Income Tax Act, 1961? 6. Counsel for the appellant has taken us through the order of AO and Commissioner of Income Tax (Appeals) and contended that while discussing the question of interest, the view taken by the Assessing Officer and the CIT (A) is just and proper. However, he contended that the view taken by the tribunal with regard to disallowance of capital expenditure treating the same as revenue expenditure is contrary to the decision of the Supreme Court reported in Commissioner of Income Tax, Madras v. Madras Auto Service (P) Ltd. (233 ITR 468 : AIR 1998 SC 2667), wherein the Supreme Court has held that the expenses which are incurred for expansion are to be taken in the capital account. 7. Counsel for the respondents supported the order of the tribunal and contended that the in view of the fact that the permission is not granted by the Central Government for the envis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the decisions which have been relied upon by the assessee, in our opinion, the Assessing Officer should have allowed the expenditure as revenue expenditure. 9. While passing the order impugned in Tax Appeal No.2033 of 2009, the Income Tax Appellate Tribunal has observed as under: 14. Coming to the issue raised in Ground No.3, it is noticed that the CIT (A) has decided this issued in para3 of his order, which reads as under: 10.5 I have considered the rival submission and arguments of both the sides and I find that the appellant company has incurred an expense of ₹ 32.05 Lakh on the feasibility of PET project which is a new line of business whereas a sum of ₹ 42.53 Lakhs has been incurred on power and steam unit which is for the purposes of extension of the existing business. The treatment of expenditure on both the items is different because I am of the view the Techno economic feasibility studies to identity projects that may be taken up by an assessee would be allowable as a revenue expenditure, since the expenses could be treated as facilitating trading operation for carrying on the business more efficiently giving advantage in revenue field. It was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the assessee has brought on record the memorandum of association from which we find that the main object of the assessee company is to carry out business of all types of fertilizers, chemicals, petro chemicals, all organic and inorganic chemical, synthetic chemicals, byproducts etc. Incidental, or ancillary to the attainment of the main objects are to purchase, take on lease, mortgage or in exchange hire, or otherwise acquire any movable or immovable property. In clauseC of the memorandum, the other objects have been incorporated. Item No.2 has already been quoted above by u. On perusal of the same, we find that one of such object was to manufacture, produce, tubes, pipes, sheets etc. The management of the existing company and the proposed company of Seamless steel Tube project was same. The expenditure incurred by the assessee from the same fund of the present company. There was a unity of control and common business organization, common administration, by the existing Board of Directors and the present employees of the company were involved in the said project. The company's common place of business was supposed to be used to establish the Seamless Steel Tube Project. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rent receipts has been correctly excluded from business income by the assessing Officer. Coming to the interest received on bonds, debentures and deposit amounting to ₹ 38,67,889 + 11,71,49,444/-, I find that the interest income has been received on the investments made by the appellant in bonds, debentures and deposits which is assessable under the head 'income from other sources'. Therefore, interest received 90% of the gross receipt has been correctly excluded from the business income by the AO. Interest paid on borrowings pertains to the business expenditure whereas the interest received is from the investment made and assessed under the head 'Income from other sources'. The Kerala High Court in CIT Vs. Jose Thromas, 253 ITR 553 has held that interest on deposits etc. does not constitute business income for the purpose of deduction under Section 80HHC of the IT Act. Therefore, in my opinion, the AO has rightly excluded 90% of the gross interest receipts of ₹ 38,67,889 + ₹ 11,71,49,444/- from the business income for calculating deduction under section 8OHHC of the IT Act. Accordingly, the decision of the A0 is confirmed on this Issue. 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the income mentioned in this Section. The Constitution Bench held that the Court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the legislature and so construed the words such income by way of dividends in subsection (1) of Section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income so included. Similarly, Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in Explanation (baa), the words receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head Profits and Gains of Business or Profession referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the deduction under section 80HHC of the Income Tax Act, 1961. TAX APPEAL No.522 of 2009 15. This appeal is filed against the decision of the tribunal in ITA No.1227/Ahd/2005 taking a contrary view then the view taken in Income Tax Appeal No.1350 and 1351/Ahd/2005 for the assessment year 200001 and 200102. 16. At the time of admission of this appeal, following question of law is framed. Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding the expenditure incurred on the feasibility report to be capital expenditure? 17. Aforesaid order in Income Tax Appeal No.1350 and 1351/Ahd/2005 was the subject matter of Tax Appeal No.2033 of 2009, whereby the tribunal itself allowed these expenses. However, the tribunal has taken a different view in the present matter. Upholding the order of tribunal which was under challenge in Tax Appeal No.2033 of 2009, we are reversing the view taken by the tribunal in this appeal. Therefore, in view of above, this appeal is allowed. Accordingly, we hold that the expenditure incurred on the feasibility report is to be treated as revenue expense and the Income Tax Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X
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