TMI Blog2007 (2) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the Tribunal was right that the recovery of rent made from salaries to managerial personnel, lease rentals, other income and service charges should be included as business profits but excluded from total turnover? 4. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is eligible for benefit of depreciation on assets which were sold to the transport corporation though the transaction was termed as lease ?" 2. T.C.Nos.404 and 405 of 2004 are relating to 1990-91 assessment period. The substantial questions of law formulated for consideration are as follows:- 1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that excise duty should be deducted from the total turnover for the purpose of computation of benefits under Section 80 HHC? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that unabsorbed loss should not be deducted to arrive at the profits for the purpose of calculation of deduction under Section 80 HHC? 3. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the premium payable on redem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the claim for deduction under Section 80 HHC, the Assessing Officer reworked the calculation. Aggrieved by the said order, the assessee went on appeal. The Commissioner of Income Tax Appeals, upholding the order of the Assessing Authority and following the order for the earlier year, confirmed the view of the Assessing Authority that the lease was in reality a sale. 6. On the question of deduction under Section 80 HHC as regards the commission paid to the dealers, the Appellate Authority rejected the appeal for deduction. The assessee preferred two appeals. One was against the regular assessment made and the other as against the revision made. 7. On the question of lease transactions taken as a sale, the Tribunal noted that leasing of vehicles was the predominant business activity carried on by the assessee. It also noted the written lease agreement executed between the parties and that the assessee company had collected deposits. The lease rentals were adjusted against the deposits made by the lessee company. The Tribunal further noted that the assessee company was assessed to Maharashtra sales tax on these lease transactions which clearly showed that the exact nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of business profit for the purpose of Section 80 HHC. 11. As regards lease rentals, the Tribunal noted that these were derived from the vehicles owned by the assessee let out to other parties. The Tribunal viewed that although it is a business income, it does not form part of the turnover. Hence, the Tribunal directed the Assessing Officer not to include the lease rentals as part of the computation of business profit for the purpose of Section 80 HHC. 12. As regards service charges and other income, the Tribunal held that these two amounts shall be treated as assessee's business income, but do not form part of its turnover. Thus the Tribunal allowed the claim of the assessee. 13. The Revenue has come on appeal on the questions of law relating to the working of deduction under Section 80 HHC as well as on the recovery of rent made from salaries to managerial personnel, lease rental, other income and service charges on bills discounted relief. The Revenue has also raised the question as regards the nature of transaction that the assessee had with MSRTC. 14. As regards the questions in T.C.Nos.173 and 173 of 2003 are concerned, learned senior standing counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly, the source of the receipt was not relatable to the industrial activity. In the decision reported in 262 ITR 278 ( PANDIAN CHEMICALS Vs. CIT ), the Apex Court held that the interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for securing supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself, and was not derived by the undertaking for the purpose of the special deduction under Section 80HH of the Act. The principle of that decision applies to the facts of this case as well. Hence the Tribunal is right in ordering exclusion of the recovery of rent made from the salaries of managerial personnel from total turnover for the purpose of calculating relief under Section 80HHC. 18. The next question is as regards the claim for depreciation on the lease transactions entitled to depreciation entered into by the assessee with MSRTC. Learned senior counsel appearing for the Revenue submitted that going by the terms of the lease agreement, it is cleat that what was contemplated by the assessee was only a sale and that the transaction was an irrevoca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles were under lease. Clause 3 of the agreement speaks about the title to the vehicle, which showed that the assessee/lessor had exclusive right over the property, namely, the subject matter of lease. The lessee had also expressed that during the currency of the lease agreement, it would not include the leased assets as fixed assets in its books of accounts, capitalize the leased assets, since the parties agreed that the ownership of the asset during the lease tenure undisputedly rested only with the lessor/assessee. It is also seen that in the event of total damage to the vehicles, the lessee would have to forego the deposit standing to its credit with the lessor. On the termination of lease, by efflux of time at the end of 9 years, the lessee shall deliver the vehicle to the lessor, unless the parties agreed for renewal of the lease. In the background of these facts, and considering the fact that the sales tax assessment was made on the basis of deemed sale in the nature of right to use the vehicles under the provisions of the Maharashtra Sales Tax Act, we do not find any justification in the submission made by the learned senior standing counsel, that the transaction could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80AB, the Apex Court held that for purposes of working out the relief under Section 80HHC, the computation has to be made first as given under Section 80AB, which means, the computation of income has to be in accordance with the provisions of the Act. Hence, before deduction under Section 80 HHC is considered, the Assessing Authority has to compute the income in accordance with the provisions of the Act. In which event, the profits and gains of income from business will have to be computed taking note of Section 72A also. The Commissioner (Appeals) pointed out that the accumulated loss which were carried forward and set off under the provisions of Section 72A were correctly deducted by the Assessing Authority before computing the deduction under Section 80HHC. Hence, the computation done is in accordance with the scheme, as interpreted by the Supreme Court. In the above circumstances, we do not find any justification to accept the plea of the assessee that the unabsorbed loss should not be deducted to arrive at the profits for the purposes of calculating the deduction under Section 80HHC. In the circumstances, the order of the Tribunal in this regard is unsustainable and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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