TMI Blog2015 (10) TMI 1282X X X X Extracts X X X X X X X X Extracts X X X X ..... section 43 of the Act can still be reduced from the cost of assets. - Decided in favour of assessee. Deduction u/s 80HHC - ITAT held that for the purpose of calculating deduction u/s 80HHC gross interest income without reducing therefrom the interest expenditure, is required to be excluded - Held that:- As decided in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax, [2012 (2) TMI 101 - SUPREME COURT OF INDIA] Ninety per cent of not the gross interest/rent but only the net interest/rent, which has been included in the profits of the business of the assessee as computed under the heads PGBP is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. Matter remanded back to A.O. to work out the deductions Decided in favor of assessee by way of remand - Tax Appeal/255/2007 - - - Dated:- 5-10-2015 - MS. HARSHA DEVANI AND MR. A.G.URAIZEE, JJ For the Petitioner : Mr SN Soparkar, Senior Advocate with Mrs Swati Soparkar, Advocate For the Respondent : Mr KM Parikh, Advocate JUDGMENT PER : HONOURABLE MS.JUSTICE HARSHA DEVANI 1. The appellant assessee in this appeal under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant submitted that the subsidy had been received in respect of the project which was set-up and commissioned in the year 1993-94. The plant and machinery and building and other investments which were made in the said plant were capitalised in 1993-94 as per the law prevailing on that day. The attention of the court was invited to the definition of written down value as contained in section 43(6)(c) of the Act, to submit that written down value in the case of block of assets means the opening written down value as increased or decreased by the two circumstances enumerated thereunder, namely, increase in the block of assets on account of acquisition of new asset, provided such asset is put to be use in the year under consideration; and decrease in case where the asset is sold or otherwise disposed of in the previous year. It was submitted that section 43(6)(c) of the Act does not permit any other adjustment to be made from the written down value. Accordingly, adjustment cannot be made in the written down value of the block of assets by reducing the same by the amount of subsidy. It was further submitted that at the time when the assets came to be purchased, Explanation 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of section 43 of the Act, the amount received by way of subsidy is required to be reduced from the actual cost of the assets. It was submitted that Explanation 10 has been brought on the statute book with effect from 1.4.1999 and the subsidy has been received subsequent thereto, and hence, the actual cost of the asset was required to be reduced in terms of the Explanation. The Tribunal was, therefore, justified in holding that the actual cost of the assets is to be reduced by the amount as per Explanation 10 to sub-section (1) of section 43 of the Act and the written down value of the assets has to be determined on the basis of the actual cost minus the depreciation allowed to the assessee from year to year and actual cost has to be the cost of the assets to the assessee minus the subsidy received by it. 5.1 In support of his submissions, the learned counsel placed reliance upon the decision of the Allahabad High Court in the case of Commissioner of Income Tax v. Paliwal Glass Works, 2010 (326) ITR 407 (All) wherein the court held that the subsidy received from the Government for the purpose of generator set was liable to be deducted to find out the actual cost of the asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32, depreciation actually allowed shall not include depreciation allowed under sub-clauses (a), (b) and (c) of clause (vi) of sub-section (2) of Section 10 of the Indian Income Tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written-down value for the purposes of the said clause (vi); (c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written-down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written-down value as so increased; and (C) xxxxxx 8. The facts of the case are required to be examined in the light of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e determined at the relevant time. Thereafter, the assets entered the block of assets and lost their independent identity and the cost of such assets merged with the other assets in the block. At the time when the actual cost of the assets came to be computed under section 43(1) of the Act, Explanation 10 was not on the statute book and therefore, the assessee was not required to reduce the amount of subsidy from the actual cost. Moreover, at that point of time, though the subsidy had been sanctioned, the same was not disbursed. The subsidy came to be actually given in the year under consideration; a long time after the actual cost of assets came to be determined under section 43(1) of the Act. The question that arises for consideration is as to whether Explanation 10 to section 43(1) of the Act can be given effect to in the facts and circumstances of this case, by reducing the actual cost of the assets by the amount of subsidy received by the assessee. To put it differently, whether at this stage it would be possible to ascertain the actual cost of such assets in terms of Explanation 10 to section 43(1) of the Act, inasmuch as, once such assets enter the block, the depreciation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be computed in terms of the law as existing at the relevant time. Nothing happened in the year under consideration so as to justify the action of reduction from the written down value of the block of assets. Explanation 10 to sub-section (1) of section 43 of the Act came into effect only from 1.4.1999 that too prospectively and, therefore, has no application, more so, when plant itself was set-up in assessment year 1993-94. 11. In the light of the above discussion, the first question is answered in the negative that is in favour of the appellant assessee and against the revenue. It is, accordingly, held that the Income Tax Appellate Tribunal was not right in law in holding that the amount of subsidy received prior to insertion of Explanation 10 to sub-section (1) of section 43 of the Act can still be reduced from the cost of assets. 12. As regards the second question, the Assessing Officer noticed that the assessee had income from interest of ₹ 18,81,874/- and miscellaneous income of ₹ 1,42,237/- which was not taken into consideration for deduction as per Explanation (baa) to sub-section (4B) of section 80HHC of the Act. It was the case of the assessee that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head Profits and Gains of Business or Profession from which deductions are to made under clauses (1) and (2) of Explanation (baa). 10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head Profits and Gains of Business or Profession . The expression included any such profits in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head Profits and Gains of Business or Profession . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted 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 the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 12. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gross rent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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